REITs vs Property: The Discount Is Not a Gift

Most people buy property with their eyes.

They look at the view, the postcode, the kitchen. They imagine living there — which is a fine way to choose a home and a terrible way to choose an investment.

Professionals look at two things instead: who is paying the rent, and how the debt is structured.

And right now, the listed property market is offering something that looks like a gift — and mostly is not.

Start with the number everyone quotes

In January 2026, US listed REITs traded at a median 16.2% discount to net asset value, according to S&P Global Market Intelligence.

Net asset value is what the underlying buildings are estimated to be worth, minus the debt. A 16% discount means you can buy the property, on an exchange, for roughly 84 cents on the dollar.

Meanwhile, physical sellers are still asking prices from a market that no longer exists.

The obvious conclusion writes itself: buy the discount.

The obvious conclusion is wrong, and the reason is the most useful thing in this article.

The median is hiding the entire story

Break that same month apart by sector:

Sector	Price vs. net asset value
Office	−33.6% (deep discount)
Hotel	−33.5%
Timber	−29.9%
Data centres	+1.3% (premium)
Healthcare	+24.9% (large premium)

There is no “the REIT discount”. There is a market pricing office as a structural problem and healthcare as a structural certainty — and doing it with some precision.

The discount is not a gift. It is a price tag on a problem.

Office is cheap because a third of the demand may never come back. Healthcare is expensive because an ageing population is not a forecast, it is arithmetic.

Which produces a conclusion most property content refuses to say out loud:

“Buy the discount” and “buy the good sectors” are two different strategies. In January 2026 you could not do both.

If someone tells you to take the 16% discount and to load up on data centres and healthcare, ask them to look at the table. Those sectors had no discount to take.

That does not make either bet wrong. Buying office at −33.6% is a legitimate wager that the market has overshot, or that the buildings get repurposed. Buying healthcare at +24.9% is a legitimate wager that you are paying up for something that keeps compounding.

But you have to know which bet you are making, and “it’s cheap” is not an analysis.

Why REITs beat bricks on the things that are certain

Set the discount aside. Three advantages of listed property are structural, and they do not depend on anybody’s forecast.

1. The cost of entry

Buy a property in Germany and you pay, before you own anything:

• Property transfer tax (Grunderwerbsteuer) — several percent, varying by state
• Notary and land registry — one to two percent
• Agent commission — often another few percent

Commonly around 9–12% of the purchase price, gone on day one.

You have not started at zero. You have started in a hole, and it takes years of rent simply to get back to level.

A REIT costs you a broker spread and an ongoing fee measured in fractions of a percent.

This gap is not an opinion, it is not cyclical, and it never closes.

2. The price is current

When a surveyor values a house, they look at what comparable houses sold for months ago. The appraisal is a rear-view mirror with a delay built in.

A REIT reprices every second the market is open. Interest rate shocks are already in the price — which is precisely why the discount exists. The public market has marked property to reality. The private market has not yet been forced to.

3. You can leave

Selling a physical property takes six to eighteen months, and you cannot choose when you need to.

A REIT position can be sold in seconds.

In finance this is called the liquidity premium, and people dismiss it right up until the moment they need it. The ability to exit at a time of your choosing is not a convenience. It is the difference between a bad year and a forced sale.

Why the P/E ratio is useless here

This is the most common mistake in REIT analysis, and it is not a small one.

Accounting rules force a REIT to depreciate its buildings — to book a cost every year for the building losing value.

But a well-maintained apartment block does not lose value. It frequently gains it.

So depreciation is a genuine accounting entry and a fictional economic one. It pushes reported earnings artificially down, which pushes the P/E artificially up, which makes every REIT on earth look expensive.

Using a P/E on a REIT is not being conservative. It is using the wrong tool. (The P/E has other problems too, but this one is fatal.)

FFO, and then the number that actually matters

FFO — Funds From Operations. Take earnings, add back the depreciation the accountants subtracted. This is the industry standard, defined by Nareit, and it is the honest picture of what the buildings produce.

AFFO — Adjusted Funds From Operations. Take FFO, then subtract the maintenance capital expenditure that keeps the buildings standing: the roof, the lift, the recarpeting.

FFO is the big picture. AFFO is the money that could actually reach you.

And the red flag that takes two minutes

If the dividend is larger than AFFO, the REIT is paying you with money it did not earn.

That is not a yield. It is a partial liquidation dressed as income — and the reason it is dangerous is that it can run for years before it stops.

Find AFFO per share. Find the dividend per share. Divide.

Above 100%, you need a very good explanation, and “the sector is recovering” is not one.

The clock nobody is looking at

Here is the risk that determines which REITs survive the next two years, and it has nothing to do with buildings.

A large volume of commercial property debt was written when borrowing cost 3–4%. Five- and ten-year terms. Those loans are now maturing into a market where refinancing costs 6–7%.

According to Mortgage Bankers Association figures, roughly $875 billion of commercial and multifamily mortgage debt matures in 2026 — about 17% of the roughly $5 trillion outstanding — with a further $652 billion in 2027.

For the borrowers affected, interest cost does not creep up.

It roughly doubles.

The metric: weighted average maturity

WAM tells you how many years of cheap money a REIT still has locked in. It is a countdown clock, it is disclosed in the reports, and almost nobody reads it.

• Long WAM — the REIT can wait out the refinancing window entirely. The wall arrives and misses it.
• Short WAM — the REIT must refinance into today’s rates before it has any chance to raise rents to compensate. The interest bill doubles while the income stands still.

Two REITs can own identical buildings, in identical locations, with identical tenants — and one of them is fine and the other is in trouble, purely because of when the debt comes due.

That is the part that never appears in a property listing.

Who is paying the rent

One last reframe, because it changes what you are even looking at.

Consider two properties.

A logistics box in a place nobody would take a photograph of. One tenant, investment-grade. A ten-year triple net lease — meaning the tenant, not you, pays the property taxes, the insurance, and the maintenance. You collect rent. Almost nothing else happens.

A beautiful tower in a world-class city. A hundred individual tenants. High turnover. Rent regulation that changes with the political weather.

A professional generally prefers the first, and the reason is not aesthetic.

The first one is not really a building. It is a corporate bond with concrete wrapped around it — a contractually fixed income stream from a creditworthy counterparty.

The second is an operating business that happens to have a nice façade.

“Location, location, location” is not wrong. It is insufficient — it answers a question about the building and ignores the two that decide your return: who pays the rent, and when does the debt come due.

The checklist

Before you buy any REIT:

1. AFFO coverage. Dividend ÷ AFFO. Above 100% is a liquidation in disguise.
2. WAM. How many years until the cheap debt has to be refinanced?
3. Tenant credit. Who is actually paying, and would you lend them money unsecured?
4. Price vs. NAV — and why. A discount is information, not a bargain. Find out what the market knows before you decide it is wrong.

That fourth one is the whole article. The market is rarely handing out free money, and when it appears to be, the correct first assumption is that you have not yet understood the risk you are being paid to take.

Sometimes you look, and you conclude the market has overshot. That is a real opportunity, and it is how money is made.

But you have to look first.

Educational content only — not investment advice, and not a personal recommendation. Specific companies are not named here on purpose: a valuation that is true this quarter can be false the next, and a checklist ages better than a tip. Speak to a qualified, licensed professional before acting.