PORTFOLIO FREEDOM: +3.67% in June, +15.6% YTD

“For you were called to freedom, brothers." – Galatians 5:13

• PERFORMANCE:  Serenity Alternative Investments Fund I returned +3.67% net of fees in June vs the REIT index which returned +3.09%. Year to date (YTD) the fund has returned +15.6% vs +17.6% for the REIT index.

• 2026 MID-YEAR REVIEW: Seniors Housing, Data Centers, and Lodging REITs continue to drive the Serenity portfolio.

• FREEDOM TO SHORT: The Data Center REITs have struggled recently along with the broader AI complex. Serenity has a unique playbook for these names going forward.

• THE HOST WITH THE MOST: As the US hosts the World Cup, the aptly named Host Hotels (HST) is quietly re-claiming its title as a blue-chip REIT.

USA, USA, USA!

With the celebration of America’s 250^th birthday, Independence Day, and the early success of the US world cup team (RIP), it has been a (mostly) fun week to be an American.

At this time each year, our country exercises our freedom to light off mass quantities of fireworks, keep our kids up way too late, chow down an unholy number of hot dogs, and blast our air conditioners.

American’s love freedom, and while the grill was ripping this weekend, I couldn’t help but be grateful for a subtle bit of freedom that I enjoy every day.

That is…portfolio freedom.

The freedom to short stocks when fundamentals start to turn south.

The freedom to build portfolio weights based on opportunity, not on market cap.

The freedom to evaluate ideas based on underlying fundamentals, not hype or hope.

These are portfolio freedoms that not all investors enjoy, and for them I am truly grateful.

For the remainder of 2026, portfolio freedom may be more important than ever. With economic growth broadening out, REIT sectors that have been dead for years (Lodging) may continue to dominate industry returns. Former darlings (Data Centers) may see new challenges, requiring flexible thinking and creative positioning (adding shorts?).

Serenity is locked and loaded for this new reality, with arguably the most flexible framework in the REIT industry. As the economic landscape changes, we can adapt and respond creatively to a new REIT world, waving the banner of portfolio freedom on behalf of our investors.

Now all we need is a bald eagle in the office and we can get this party really started.

USA, USA, USA!

PERFORMANCE: +3.67% in June, +15.6% YTD

Serenity Alternative Investments Fund I returned +3.67% in June net of fees and expenses with +100% net exposure versus the MSCI US REIT Index which returned +3.09%. On a YTD basis, the fund has returned +15.6% versus +17.6% for the REIT index. Over the past 5 years Serenity Alternatives Fund I has returned +8.5% annually, net of fees and expenses versus +5.8% for the REIT index.

The most profitable position in the fund in June was Tanger Factory Outlet Centers (SKT), a long position which returned +9.43%. Tanger owns a large portfolio of outlet centers across the US and has posted consistently steady earnings and NAV growth over the past few years. With occupancy now leveling out, there had been some questions as to whether Tanger would be able to push rents and renew tenants on favorable terms in 2026. So far, the answer has been yes, as the company has done an incredible amount of leasing year to date at very attractive rates. Tanger is proof that retail real estate in the US is not dead, and Serenity remains long, as SKT continues to grow at an attractive clip and trade at a very modest valuation within the broader REIT universe.

The worst performing position in the fund in June was GDS Holdings (GDS), a long position which returned -15.29%. GDS shares remained under pressure in June, as the broader AI trade and many Data Center companies have come under increased scrutiny by investors. We still believe GDS is one of the best positioned companies in the entire Data Center industry, with a huge backlog of signed leases, a well-diversified customer list, and fewer political headwinds than the US Data Center names. It may take some time, but over the next 3-6 quarters, GDS should post some of the best results in the industry, likely allaying investor fears. In the meantime, Serenity is happy to be patient, accumulating a larger position at a more attractive basis as the shares remain temporarily under pressure.

2026 Mid-year Review: Lodging Momo, Towers no-go

Year to date in 2026, the best performing REIT sectors have been Lodging (+43.7%), Specialty (mostly Iron Mountain… +43.3%), and Data Centers (+28.5%). Conversely, Real Estate Services companies (-10.5%), Infrastructure (Cell Towers…-5.6%), Timber (+2.2%), and Manufactured Housing (+2.7%) have lagged.

Serenity’s PNL reflects this reality, with Host Hotels (HST +40.1%), Diamondrock (DRH +38.3%), Pebblebrook (PEB +71.7%), Equinix (EQIX +37.5%), and Iron Mountain (IRM +54.5%) leading the way in terms of positive contribution to the Serenity portfolio YTD.

Serenity’s mistakes this year have mostly been in long positions in the Real Estate Services sector, with Newmark (NMRK) and Marcus and Millichap (MMI) being some of our most impactful detractors from returns YTD. Our recent exposure to GDS has also negatively impacted our results, which we believe is only temporary, as fundamentals for GDS continue to improve.

Going forward, Serenity’s largest sector exposure remains the Healthcare REITs (+26%), which have been very average so far in 2026. While fundamentals continue to be incredibly strong in Seniors Housing, the sector saw multiple IPO’s and equity raises in the first half of 2026, keeping a lid on returns as investors consolidated positions. We believe these companies will continue to beat and raise earnings guidance through 2026, and our long-term return targets of +20%/year remain intact.

Data Centers also remain a large exposure for Serenity at +19.2% of the portfolio (this includes IRM). The landscape for these companies, however, is changing rapidly, and our net exposure to the space is likely to come down in the near future. Stay tuned for a more in-depth discussion later in the newsletter.

Lodging, our most out of consensus bet for 2026, remains a significant part of the Serenity portfolio, as RevPAR continues to show strength, comps remain easy for most of 2026, and consensus estimates for growth are still modest. I believe analysts are still underestimating the growth potential for the Lodging REITs in 2026 and expect these companies to beat and raise their earnings guidance by wide margins in Q2. While the stocks have performed well, I am hesitant to broadly trim our positions into what are likely to be very favorable Q2 earnings results.

The most significant change to Serenity’s sector allocations recently has been a lower weight for Warehouse REITs, despite continued strong fundamentals for the sector. As growth has improved for a larger swath of the REIT universe (Office & Self-storage are now showing signs of life), our CORE REIT model has naturally drifted away from Warehouse in favor of cheaper REITs with accelerating growth.

DATA CENTERS: Where there is smoke….

As growth potentially continues to broaden across the REIT universe, certain high-growth property sectors may struggle to support valuations that are in some cases very high. Serenity’s evolving allocation to Data Center REITs is a good representation of this shift.

The demand story in Data Center’s is so well known it is not worth spending significant time on. Simply put, the AI industry needs a lot of compute, and that compute occurs in Data Centers. Within the Data Center REITs, this has manifested itself as record backlogs, record development pipelines, and accelerating earnings growth, albeit on a bit of a lag (2027 and 2028 should be record earnings growth years for DLR and EQIX).

Simultaneously, however, this demand has kicked off a mind-boggling race to build Data Centers as fast as possible, seemingly wherever it is conceivable.

The massive supply response within the Data Center industry is beginning to make the Apartment boom and subsequent glut of 2021/2022 look tame by comparison. To seasoned real estate investors this throws up all sorts of red flags.

Crypto miners converting to Data Center REITs (RIOT, APLD, WULF, others)? Red Flag.

Random landowners buying power equipment to build Data Center campuses (FRMI)? Red Flag.

Blind pools of capital being raised to buy stabilized Data Centers (BXDC)? Red Flag.

Defunct business models being resurrected because “its different this time” (CRWV, NBIS, RXT). Red Flag.

And this is all activity in the PUBLIC market. The private market is doing similar things, likely at 10x the magnitude.

All this is to say, I am becoming increasingly skeptical that the Data Center ecosystem can escape the next 2-3 years without some sort of spectacular crash.

NOW. This is the part of the newsletter where I ask my readers to hold two opposing thoughts in their head at the same time. Am I selling all of our Data Center exposure and getting massively short? NO.

DLR, EQIX, and IRM all have locked in earnings growth that is top decile in the REIT universe over the next few years, bulletproof balance sheets, and very well diversified cash flow streams. Effectively they are very low-risk ways to gain exposure to the rising demand for Data Centers.

But with the announcement this week that Meta plans to start selling excess compute capacity, Serenity has made the decision to begin hedging our positions actively. This means selectively shorting companies that we believe to be the highest risk within the Data Center ecosystem. These are companies with large tenant concentrations, high operating and financial leverage, low margins, and basically, very little room for error as the Data Center boom unfolds over the next few years.

For this reason, our “Net” exposure to Data Center REITs is likely to move lower in the next few months/quarters, as we hedge “AI trade crash risk” out of our book.

I still love the demand pipeline for Data Center space and the positioning of the companies in our portfolio, but even the blue-chip, low risk, options can get caught up if a sell-off gains steam. For this reason, we are treading cautiously, viewing the Data Center trade as potentially topping out over the next few quarters.

Host Hotels (HST): A highly discounted blue chip?

On the opposite end of the popularity spectrum are the Lodging (Hotel) REITs. While Data Center REITs have garnered most of the headlines over the past 10 years, Lodging has been the real hero of 2026 from a sector perspective. At +43.7% returns for the first half of this year, nobody saw this trade coming…right?

Well, there was this from a newsletter we published on Jan 8^th of this year…

“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.”

<Pats self on back>

<Kicks self for not buying more>

Lodging REITs have been big winners for Serenity this year, and I see few reasons for abandoning the trade at the current moment. RevPAR continues to trend in the right direction, and Q2 should be incredibly strong thanks to the World Cup and easy comps from 2025.

Which brings us to Serenity’s largest allocation in the Lodging space, Host Hotels (HST). Host is the largest of the Lodging REITs, has a bullet proof balance sheet, and sports an arguably best in industry management team. While Lodging has struggled as an industry for the better part of the last 10 years, Host has diligently bought and sold assets and managed its balance sheet in a way that has preserved NAV (Net Asset Value) better than almost all its peers.

In fact, Host is one of the few Lodging REITs with an NAV that is higher in 2026 than it was pre-pandemic (2019). And despite the company’s strong performance so far in 2026 (+40.1%), it still trades at a -12% discount to NAV.

Host’s consensus NAV is also only +5% higher as of this writing than it was early this year, even though the company reported Q1 EBITDA that was +7% higher than consensus estimates. If revenue and EBITDA continue to surprise to the upside (which we expect), these NAV estimates should move meaningfully higher for the remainder of 2026. This type of NAV momentum is rarely un-accompanied by stock price momentum.

Host (along with most other Lodging REITs) also remains very inexpensive relative to the broader REIT industry. From a multiple perspective, HST trades at +11.1x 2026 EBITDA, versus the REIT average of +17.3x. On FFO, Host trades at +11.0x, versus +15.1x for REITs, and on AFFO, the company trades at +10.9x, versus +16.3x for REITs.

To recap: a blue-chip REIT with a bulletproof balance sheet and excellent management team, which trades at a large discount to most REITs on a multiple basis could beat and raise earnings significantly in Q2 of this year, precipitating higher NAV and earnings estimates from buy-side and sell-side analysts in 2H 2026.

Now for the usual disclaimer. Lodging is a VERY volatile industry. All it takes is a government shutdown, or some other macro-event to derail the entire sector. For this reason, our allocation to Lodging will likely never approach +25-35% of the portfolio like it will in other less-volatile property types.

But for now, we are happy to run well above index weights in the Lodging REITs, with high expectations for Q2 earnings season which fires up in a few weeks.

FREEDOM FROM PORTFOLIO TYRANNY

Serenity was designed from day one to provide differentiated exposure to some of the highest quality commercial real estate portfolios in the world. Our portfolio can be highly concentrated, taking on significant exposure to REIT bull markets in Seniors Housing and Data Centers, yet still well diversified, with allocations to Warehouse, Billboards, Malls, Office, and Strip Retail names to complement our core exposures.

We can short high-risk REITs to hedge specific risks and utilize margin to deploy more capital into our best ideas. Our portfolio is not beholden to index weights, and our framework borrows discipline and repeatability from the world of systematic investing.

Since inception our clients have beat the REIT benchmark by +2.8%/year over more than a decade net of all fees and expenses, multiplying our first investors’ capital by a factor of +2.69x.

That is the power of portfolio freedom,

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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