FULL SPEED AHEAD: +8.6% in April, +11.5% YTD

“Damn the torpedoes, full speed ahead” – Admiral David Farragut

• PERFORMANCE:  Serenity Alternative Investments Fund I returned +8.6% net of fees in April vs the REIT index which returned +9.02%. Year to date (YTD) the fund has returned +11.5% vs +14.3% for the REIT index.

• SENIORS HOUSING: Full speed ahead. Q1 earnings showed that demand for Seniors Housing remains robust, and Seniors Housing REITs continue to capture it.

• DATA CENTERS: Full speed ahead. REIT Data Center pipelines are larger than ever. With more DC companies set to come public, active management in this sector is increasingly important.

• LODGING: <almost> Full speed ahead. Robust fundamentals have powered Lodging REITs higher. Caution is always warranted, however, as these companies can be very volatile.

Admiral Farragut was famous in the American Civil War for his decisive victory at Mobile Bay, the battle during which he uttered his now famous orders of “Damn the torpedoes, full speed ahead!”

At the time, Union ships were wary of sea-mines (torpedoes) in Mobile Bay. Farragut, however, charged ahead with his flagship, the USS Hartford, successfully navigating the danger and leading to a Union victory and the capture of three important forts and the port of Mobile.

With a modern minefield through the strait of Hormuz pressuring REITs in March, the market shrugged off the danger in April, declaring full speed ahead, and recouping all of March’s losses and more.

Earnings reports during the month helped to bolster the positive REIT narrative, as resilience in REIT tenants, improving costs of capital, and declining supply all led to a bevy of earnings beats and guidance raises.

Last month, we warned of the dangers of panicking based on geopolitical headlines and pointed to the positive fundamentals underlying many REIT property types. In April, our patience was vindicated, as REITs marched higher and panic levels receded.

Headed into the summer, we continue to contemplate the potential effect of higher oil prices and treasury yields on REIT portfolios while embracing underlying data that has been almost exclusively positive. Lodging REITs smashed estimates in Q1, indicating stronger economic growth than most expected coming into this year. Even Office REITs announced one of their best absorption quarters since 2019.

With growth accelerating across a broadening set of REIT property types, it’s more important than ever to embrace the data and fade the market narrative. For Serenity this means remaining bullish on Lodging and becoming incrementally more positive on deeply discounted Office and Apartment REITs.

Damn the torpedoes…full speed ahead.

PERFORMANCE: +8.6% in April, +11.5% YTD

Serenity Alternative Investments Fund I returned +8.6% in April net of fees and expenses with +94% net exposure versus the MSCI US REIT Index which returned +9.02%. On a YTD basis, the fund has returned +11.5% versus +14.3% for the REIT index. Over the past 5 years Serenity Alternatives Fund I has returned +8.2% annually, net of fees and expenses versus +6.0% for the REIT index.

The most profitable position in the fund in April was Iron Mountain (IRM), a long position which returned +23.4%. Iron Mountain has been a Serenity favorite for some time now, with a rapidly growing Data Center business and a transforming paper-storage business, IRM is growing close to +10% per year. Near the end of 2025, IRM came under fire from short-sellers, falling as low as $80 last December. Serenity remained long despite the report, as the reports rationale were found to be either flawed or irrelevant. Since hitting $80, IRM has returned +68% in just over 5 months, as Data Center leasing has picked up, and shorts have covered their positions. Fundamentals remain strong in the IRM portfolio, valuation is still modest relative to the REIT universe, and Serenity remains long.

The worst performing position in the fund in April was RLJ Lodging (RLJ), a short position which returned +11.05% during the month. RLJ is a Lodging REIT that we have as a short position in the fund to hedge our Lodging exposure. Against this short position we are long Host Hotels (HST), Pebblebrook (PEB), Xenia (XHR), and DiamondRock (DRH), four Lodging REITs that we believe will outperform RLJ over time. During April, RLJ slightly outperformed many of its peers, but with much higher weights for our long positions, Serenity still had positive attribution from our allocation to Hotel REITs. Said another way, we were right to be long Lodging names during the month, but we could have done a bit better picking our Lodging stocks. Over time we remain confident in our current positioning, overweight Lodging REITs with some hedges in place.

SENIORS HOUSING: Full speed ahead…

The largest sector weight in the Serenity portfolio continues to be the Healthcare REITs, and particularly Seniors Housing names. We remain convinced that Seniors Housing is the single largest and most powerful bull market in commercial real estate and may still be in its early innings. Not only does demand continue to increase as the massive Baby Boomer generation ages, but there is an acute lack of supply, little construction, and considerable tailwinds from industry consolidation.

Let’s look at the highlights from Q1 earnings for the three largest Seniors Housing players.

1. Welltower (WELL) - reported stellar Q1 2026 results with a +23% year-over-year increase in Normalized FFO to +$1.47 per share, driven by a +22.1% Same-Store NOI growth in its Seniors Housing Operating (SHO) portfolio, prompting management to raise its full-year 2026 FFO guidance midpoint to +$6.28.

2. American Healthcare REIT (AHR) - achieved its ninth consecutive quarter of double-digit Same-Store NOI growth (+12.1% YoY) and a +31.6% increase in Normalized FFO per share to +$0.50, leading to an upward revision of its 2026 NFFO guidance to a range of +$2.09 to +$2.30 per share.

3. Ventas (VTR) - announced robust Q1 2026 results with +9% Normalized FFO per share growth to +$0.94, driven by a +15% increase in SHOP Same-Store Cash NOI and successful closing of +$1.7 billion in senior housing investments, resulting in increased full-year 2026 investment guidance to +$3 billion.

As a quick reminder, growing same-store NOI by +15% per year with +35% leverage assuming a +5% cap rate portfolio leads to Net Asset Value (NAV) growth of +23%. Said another way, each of these companies is growing the value of their portfolio organically by nearly +20-25% per year. This is before any acquisitions, development, or other capital markets activity, all of which can also move NAV’s higher.

It should be no wonder, then, that the Seniors Housing REITs have consistently delivered +20-40% annual returns over the past few years. Their portfolios are simply worth that much more each year as their NOI and cash-flows grow at an extraordinary rate.

In Serenity’s view, this is an incredible opportunity to deploy capital. $1 invested today has a high probability of being worth $1.20 at this time next year.

As always, the path with not be linear, and Seniors Housing names may under-perform peers at certain junctures. As other lower valuation REITs show improving growth rates, they may garner outsized fund flows in the near or medium term (Serenity can benefit from this as well).

Seniors Housing, however, remains the fastest growing and best opportunity to compound capital in the commercial real estate market, and Serenity will continue to deploy significant capital into these names. The Seniors Housing trade… remains full speed ahead.

DATA CENTERS: Build, build build.

The Data Center REITs told a similar story to Seniors Housing REITs in 1Q 2026, beating earnings estimates, raising guidance, and demonstrating incredibly strong demand. Serenity benefitted during the month from large positions in Equinix (EQIX +42% YTD) and Iron Mountain (IRM +53% YTD).

Let’s go back to the AI well for a quick summary of Data Center earnings.

1. Digital Realty (DLR) - raised its 2026 Core FFO guidance to $8.00–$8.10 per share (up $0.10) and reported a record $16.5 billion development pipeline (up 60% sequentially), while achieving +7.9% same-capital cash NOI growth year-over-year.

2. Equinix (EQIX) - boosted its full-year 2026 revenue guidance by $21 million and AFFO by $40 million, with capital expenditures projected at the top end of its $4.1 billion range to accelerate 46 major expansion projects, as MRR per cabinet rose 7% to $2,524.

3. Iron Mountain (IRM) - increased its 2026 revenue guidance by $175 million to a midpoint of $7.875 billion and expects data center leasing to be "meaningfully above" its initial 100-megawatt target for the year, following record Q1 performance where total revenue grew 21.6% year-over-year.

Data Centers differ from Seniors Housing primarily in the fact that Data Center companies create most of their value via ground-up development, as opposed to organic growth. This is why increasing the size of development pipelines is a key forward indicator for future Data Center earnings. Digital Realty increasing their development pipeline by +60% indicates that the company is incredibly confident in future demand for Data Center assets.

We believe this backlog could push earnings growth into the low teens in future years.

With earnings set to potentially accelerate in 2027 and 2028, Serenity remains long Data Center REITs, particularly those with strong balance sheets that can create real value for shareholders.

Now for a word of caution.

There is a massive boom in Data Center spending occurring, that I am sure everyone reading this newsletter is aware of. While demand outstrips supply for the time being, there will come a day when this is not the case, and absorption slows for these companies, potentially sending their stock prices meaningfully lower.

When that happens, it will be more important than ever to understand the portfolios of Data Center companies to determine who will be the winners and losers long-term. Serenity is uniquely qualified to meet this challenge, having covered these companies since 2010. Understanding leverage, portfolio quality, tenant diversification, and having a short book will be key to risk-managing the Data Center trade in the coming years.

As an active manager, Serenity is licking our chops for future trades in the Data Center industry.

LODGING: <not quite> Full speed ahead!

Lodging REITs have been an excellent portfolio allocation so far in 2026, with 1Q of this year coming in as the strongest non-pandemic recovery Lodging quarter, in maybe 10+ years. Lodging REITs beat earnings and raised guidance across the board, sending some of the cheapest REITs in the entire industry meaningfully higher.

Highlights from Serenity’s largest Lodging REIT allocations include…

1. Host Hotels (HST): Beat estimates with an Adjusted FFO of $0.67, raised full-year RevPAR guidance to 3.0%–4.5%, and rewarded shareholders with a $0.72 special dividend.

2. Pebblebrook (PEB): Doubled its FFO per share to $0.32 on the back of an 11.8% RevPAR surge, driven by a massive recovery in its San Francisco and Los Angeles portfolios.

3. DiamondRock (DRH): Grew Adjusted FFO by 15.8% and raised 2026 guidance, benefiting from a 3.6% increase in resort revenue and strict operating expense controls.

RevPAR, the most important KPI for the Lodging industry, has accelerated meaningfully in 2026 across the Lodging REIT universe, with the World Cup set to continue this trend in Q2.

As fundamentals improve for the Lodging names, sell-side analysts have had to consistently increase their price targets and NAV’s for these companies, pushing their scores higher in Serenity’s proprietary “CORE” REIT model.

Despite their strong run (+16.7% YTD), Lodging REITs remain some of the cheapest companies in the entire REIT universe, trading at an average EBITDA multiple of +11.7x as of this writing (versus ~+17x for the REIT universe). This is one of the reasons the Serenity process likes these companies so much. As growth accelerates, they offer a unique blend of deep value and positive second derivatives that investors tend to love.

Now, another word of caution is warranted when investing in the Lodging industry.

Lodging REITs trade at low multiples partly because they are one of the riskiest property types in the REIT universe. With low margins, and hyper-short leases, Lodging REITs tend to react rapidly to changes in the economy. While RevPAR has held up well so far this year, elevated oil prices certainly have the potential to spoil the Lodging REIT party in 2026. For this reason, Serenity has our allocations in the Lodging space on an extremely tight leash and monitors them very closely.

For the time being, Lodging REITs are having one of their best years in the better part of a decade, and Serenity remains long. We will never quite be comfortable going full speed with these volatile names, but with proper risk management, we can compound capital in the near term benefitting from current Lodging tailwinds.

SPEED REGULATION

As we move through 2026, the opportunity set in the REIT market is rapidly changing, and mostly for the better. Supply headwinds that REITs faced from 2022-2025 are abating rapidly, and growth is accelerating across a broad swath of the REIT universe. Lodging REITs have posted their best results in years, Health Care REITs continue to grow at an astounding clip, and Data Center REITs have not yet been able to satisfy customer demand.

As REIT cash flows increase, Serenity client capital compounds, with a risk-management layer built to protect this hard-earned capital. We have a fine-tuned process and a ten-year track record of creating value. In 2026 we continue to lean on the process, running our battle tested strategy at…you guessed it…full speed.  

Damn the torpedoes…full REIT ahead!

Martin D Kollmorgen, CFA

CEO and Chief Investment Officer

Serenity Alternative Investments

MdKollmorgen@SerenityAlts.com

*All charts generated using data from Bloomberg LP, S&P Global, and Serenity Alternative Investments

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