Good Looking REITs: -0.96% in December, +7.2% in 2025

“I look good, I mean really good. Hey everyone, come and see how good I look!” – Ron Burgundy, Anchorman

• PERFORMANCE:  Serenity Alternative Investments Fund I returned -0.96% net of fees in December vs the REIT index at -2.34%. In 2025, the fund returned +7.2% vs +2.95% for the REIT index.

• HOTEL VALUATIONS – With fundamentals set to improve, Hotel valuations look very good… 

• APARTMENT FUNDAMENTALS – Multi-family REITs need a spark, but any positive momentum could make the entire REIT market much more attractive.

• SENIORS HOUSING – Fundamentals should remain strong, but will stock prices lead if other REIT sectors look better in 2026?

Ladies and Gentlemen, can I please have your attention.

I have just been handed an urgent and horrifying REIT story, and I need all of you to stop what you are doing and listen.

CANNONBALL!!!

Happy new year everyone, and welcome to 2026.

As we move past a tumultuous 2025, there are three key themes we are watching in the REIT market headed into the new year.

1. Hotel REITs trade at an equal-weighted -31% discount to consensus NAV. With RevPAR growth set to accelerate in 2026, Hotel REITs could deliver attractive returns as they potentially close the NAV gap.

2. Apartment REITs similarly have very low expectations and attractive valuations headed into 2026. With private market cap rates in the low +5% range and the Apartment REITs trading at +6.3% implied cap rates, any good news in this core REIT sector could catalyze a rally in the broader REIT industry.

3. Seniors Housing REITs should continue to deliver sector leading growth in 2026, but will it be enough to lead the REIT market again? Fundamentals remain strong, but other opportunities may be more rewarded this year (see above as two examples).

REITs look good here in 2026. Expectations are low, valuations are attractive, and if fundamentals improve, good things are likely to happen in the REIT market. It’s just that simple.

So sit back while we recap a bit of 2025 and detail some potential blockbuster REIT trades for the year to come.

PERFORMANCE: -0.96% in December, +7.2% YTD

Serenity Alternative Investments Fund I returned -0.96% in December net of fees and expenses with +98% net exposure versus the MSCI US REIT Index which returned -2.34%. In 2025 the fund returned +7.2% versus +2.95% for the REIT index, and over the past 5 years Serenity Alternatives Fund I has returned +10.0% annually, net of fees and expenses versus +6.6% for the REIT index.

10 YEARS! As of this writing our funds since inception returns now consist of a full decade of operation for Serenity Alternative Investments Fund I. Over that time the fund has returned +8.8% net of 1.5% and 15% fees, versus +5.7% for the MSCI US REIT index, with an average net exposure of +66.1%, and a standard deviation of +12.3% (versus +17.7% for the REIT index). Said another way, we have delivered better net of fee returns than the benchmark, with less net exposure and lower volatility.

This includes the first three years of the fund’s life while the strategy was still being developed and taking shape. Since 2019, our performance versus peers is even more pronounced, with Serenity Fund I returning +14.1% annually, versus +8% for our BEST performing competitor.

Serenity’s top 3 most profitable positions in 2025 were American Healthcare Realty (AHR, +69.9%), Caretrust REIT (CTRE +39.3%), and GDS Holdings (GDS +46.9%). AHR and CTRE are both Healthcare REITs which continue to benefit from the aging of the baby boomer generation in the US. GDS is an international Data Center company with a portfolio focused in China and southeast Asia. All three of these companies are riding significant demand waves for their particular asset class, are delivering double-digit earnings growth, and trade at reasonable valuations relative to peers. Serenity remains long all three and expects continued growth from these companies in 2026.

Serenity’s top 3 least profitable positions in 2025 were Physicians Realty Trust (DOC, -13.97%), Iron Mountain (IRM -22.3%), and Paramount Group (PGRE +33.6%). DOC and IRM both suffered from disappointing earnings results in 2025, as Lab-space fundamentals remained challenged for DOC, and Data Center leasing was slower than expected at IRM. PGRE was a small, short position which returned close to +80% in a short period as the company put itself up for sale. Of these three positions, Serenity remains long Iron Mountain, as growth remains well above the REIT average, and the company’s valuation has become more compelling after a recent well publicized but low on substance short report.

From a sector perspective, Healthcare and Industrial REITs were the big winners of 2025, and

non-coincidentally Serenity’s highest property sector weights for much of the year.

Healthcare continues to be driven by extremely strong demand for Seniors Housing assets. Industrial REITs were revitalized in the second half of 2025 as Prologis (PLD) called for a bottom in Warehouse market fundamentals on their Q3 earnings call.

Self-Storage, Apartments, and Office REITs lagged in 2025, as elevated supply was met with a tepid demand environment, keeping growth muted in all three of these property types. Valuations, however, have become extremely attractive for many Apartment REITs, demand has stabilized for Self-Storage, and even the Office REITs are beginning to make progress on the occupancy and earnings front. Said another way, these 2025 laggards could be set for a rebound in performance over the next few years.

The most profitable position in the fund in December was Macerich (MAC), a long position which returned +7.31%. Macerich is a Mall REIT which has undergone a long and sometimes painful recovery from an over-levered balance sheet and struggles related to the “retail apocalypse”. In recent years, Macerich has sold assets to de-lever, aggressively negotiated with lenders, and recovered occupancy and NOI to an impressive degree. As these changes have taken hold, fundamentals have improved and the company has recently ranked highly within the Serenity model as it still trades at a below average valuation within REITs despite above-average growth. Serenity trimmed much of our Macerich position into strength in December but would not hesitate to invest in the company again in the future, as it owns one of the highest quality Mall portfolios in the US.

The worst performing position in the fund in December was American Healthcare REIT (AHR), a long position which returned -6.83% during the month. AHR remains one of Serenity’s largest holdings and best ideas on the long side. Nothing changed during the month for AHR, and the company still closed 2025 up +69.9%. Investors likely took some profits during December as AHR was one of the best performing REITs in the industry in 2025. We still have a favorable outlook for the company and will likely be buyers on continued weakness in the name.

HOTELS: Setup looks good in 2026.

Lodging is a very difficult industry. Hotels have extremely high turnover rates and short lengths of stay. Demand can change rapidly, required service levels are high, and operating costs can be extremely variable. For all these reasons, Lodging REITs tend to trade at the lowest multiples of all the publicly traded real estate companies.

This cocktail of uncertainty tends to make investing in the Lodging REITs a risky proposition. Add in the outsized effect of the COVID pandemic, and over the last few years a significant gap has emerged between Lodging REIT stock prices and Net Asset Value (NAV), which currently stands at -30%. Said another way, most Lodging REITs trade at a -30% discount to the private market value of their portfolios (see the chart below).

But 2026, interestingly, has one of the most attractive setups for Lodging REITs that I can EVER remember (I started my REIT career in 2010).

There are three key developments that should contribute to accelerating RevPAR growth for Lodging companies in 2026. First, the holiday calendar is much more favorable next year for these companies. Business travel (the key driver for Hotel REITs) tends to be very sensitive to the holiday calendar, and 2026 simply has a better travel profile than 2025. Secondly, the world cup should drive incrementally higher inbound travel to the US in 2026 than 2025. People coming to the US for the world cup need a place to stay, and this should be unilaterally positive for the Hotel industry in the coming year.

Lastly, 2025 saw multiple demand shocks that should not (fingers crossed) repeat in 2026. The tariff uncertainty shock, the LA wildfires, and the government shutdown all dampened Lodging demand in 2025, which sets up 2026 with VERY easy comps.

Now, this may not be as exciting as the AI trade in Data Centers, or the massive wave of seniors driving the Healthcare REIT demand wave, but small changes in demand can be uniquely powerful in Lodging REITs due to their low margins and bargain-bin valuations. Said another way…the bar is EXTREMELY low for Lodging REITs, and positive news could have an outsized impact. If RevPAR can accelerate from roughly +0% (the current growth rate) to 3-5% in 2025, Lodging REITs could deliver very strong returns.

The Bottom Line: Lodging REITs are very cheap, have low expectations, and could experience a trifecta of positive catalysts in 2026. Serenity has increased our exposure to Lodging REITs going into this year, and investors should not be surprised if these names lead the REIT industry in performance at some point in 2026.

APARTMENT VALUES: Cheap, cheap, cheap!

A similar story has developed recently in Apartment REITs. While the Apartment industry tends to be much more stable than the Lodging industry, recent growth has been mired near +1% (versus a +3.5% average over the last 20 years). As investor expectations have faded for a re-acceleration in revenue growth, Apartment REIT multiples have compressed, to a point rarely seen in the publicly traded REITs.

As of 12/30/2025 Apartment REITs traded at an equal weighted -16% discount to consensus NAV’s, or a blended +6.2% implied cap rate. This is about the 20^th percentile for Apartment valuations going back to 2013, meaning the sector has only been cheaper 20% of the time over the past 13 years.

With supply headwinds continuing to fade and occupancies bottoming, there is a real chance that Apartment revenue growth can accelerate from current levels at some point in 2026. Similarly to Lodging REITs, this would be a catalyst for Apartment REITs to narrow the NAV gap and could potentially even bring NAV momentum back to the sector. This would be a powerful combination for Apartment REITs if it occurs in 2026.

The Bottom Line: Apartment REIT growth was muted in 2025, and valuations have become increasingly more attractive as investors have adjusted their growth outlooks lower. With much lower expectations and supply tailwinds in 2026, any positive news in the Apartment REITs is likely to send share prices much higher. Serenity has not loaded up on Apartment exposure yet, but we are watching closely for an acceleration in rent growth.

SENIORS HOUSING: Could the top dog take a break in 2026?

Seniors Housing (SHOP) REITs have been the best performing companies in the REIT universe by a wide margin over the last 2 years. Since American Healthcare Realty (AHR) priced it’s IPO on Feb. 6^th 2023, the SHOP REITs have returned +123% (WELL), +324% (AHR), and +82% (VTR). Over the same period, the MSCI US REIT index (RMZ) has returned +16.8%.

Outsized growth has been the driver of this performance, as all three of these companies have delivered double-digit same-store NOI growth consistently since 2023. This has driven NAV’s higher by over +18% per year over the last 2 years, with the company’s stock prices increasing at an even faster clip.

Serenity has been relentlessly bullish on SHOP, as the demand wave in Seniors Housing, coupled with an acute structural lack of competitive supply, is a combination I have never seen in my nearly 20-year REIT career. From a fundamental perspective, we remain bullish in 2026.

BUT…

Investors should not be surprised if Healthcare REITs potentially LAG their peers in 2026, despite likely LEADING the pack in growth. Wait…what?

The fact of the matter is simply this. The SHOP story is now well known in REIT circles, and expectations are now high for these companies. I think they will meet these high expectations, but meeting high expectations does not tend to produce as explosive of returns in the stock market as beating low expectations.

If the Lodging and Apartment REITs see fundamental accelerations in 2026, they are much more likely to lead the pack in REITs than if Seniors Housing REITs continue to deliver strong results. Investors tend to allocate capital on the margins, and a marginally better year for cyclical REITs could attract a LOT of capital that is currently invested in the Data Center and SHOP REITs.

This remains a big IF, and Serenity will continue to have significant exposure to SHOP due to how strong the fundamentals are for these companies. I am, however, more excited about the prospect for a rebound in cyclical REITs due to low expectations and low valuations.

Just to be clear, we are not BEARISH on SHOP REITs, and they continue to make up a large portion of our portfolio. We simply believe the potential for explosive returns is HIGHER in some of these beaten down cyclical REIT sectors, and if catalysts play out the way we expect, they could deliver extremely strong returns in 2026.

The Bottom Line: Serenity remains heavily invested in Seniors Housing REITs in 2026, but our expectations for these companies have been tempered slightly. If growth accelerates for beaten down cyclical REITs in 2026, we expect these companies to produce extremely strong returns, potentially in excess of the returns in SHOP REITs. Serenity is long both exposures (SHOP and cyclical REITs) and will adjust our exposures here as more data comes to light throughout the year.

REITS LOOK GOOD

The opportunity set in REITs right now is very attractive. Our biggest problem currently at Serenity is choosing which ideas we like the most from our expanding list of long ideas. This is a good problem to have.

The Seniors Housing REITs should continue to post good results, along with the Data Center REITs which we have capital allocated to.

Additionally, there are a wide variety of cheap, high-quality cyclical REITs (Lodging, Apartment, Self-Storage, Office…) that could see positive catalysts in 2026. These are opportunities for extremely attractive returns due to low valuations and low expectations.

I like this setup headed into 2026...it looks good.

Hey everyone…come and see how good REITs look.

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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