REITs are BORING...right? +3.4% in November, +8.2% YTD

“I don’t know where I’m going from here, but I promise it won’t be boring” – David Bowie

• PERFORMANCE:  Serenity Alternative Investments Fund I returned +3.4% net of fees in November vs the REIT index at +2.26%. Year to date (YTD), the fund has returned +8.2% vs +5.42% for the REIT index.

• WELL WELL WELL - Welltower's (WELL) transformation of the Seniors Housing industry is gaining steam.

• HO-HUM 10.9% NOI GROWTH – Warehouses may be boring…but Terreno’s (TRNO) results are not.

• WORLD CUP…<YAWN> – Could 50 super-bowls be good for the Lodging industry?

Walking the halls of a recent REIT conference in Dallas I had a somewhat surreal experience.

Traversing a massive hotel adorned with 12-foot-tall decorative elephants, simultaneously surrounded by Christmas decorations and commercial real estate executives all suited up, felt like something out of a David Bowie music video.

The subdued attendance of the conference and executive frustration with low investor interest in REITs also created a strange and somewhat negative undertone. From an outsider’s perspective this probably made sense. After all, REITs are boring…right?   

And yet, despite palpable REIT frustration…my two full days of meetings were as interesting as I can remember in my 15-year REIT career. I couldn’t help but leave the conference much more bullish than the prevailing sentiment. It reminds me a bit of late 2020…(Serenity Fund I returned +45.1% in 2021).

On Monday I met with some of the team at Welltower (WELL), who are bringing technology to bear on the massive Seniors Housing industry in the US, where there is an incredible opportunity to modernize the industry. The company has conspicuously hired a technology executive from Extra Space Storage (EXR), a Self-Storage REIT that returned +42.6% annually from 2010-2015 as EXR underwent a similar revolution in the Self-Storage industry. Seniors Housing may seem like a boring industry…but the things Welltower is doing are certainly not.

On Tuesday I had the chance to catch up with the management team of Terreno (TRNO), a warehouse REIT that I have covered since it’s IPO. While storing goods in a Warehouse may not seem exciting… growing cash NOI by +10.9%/year for over a decade, from the perspective of a REIT investor…is very exciting. It was a good reminder of how powerful a well-constructed strategy executed by a seasoned team can be.

And lastly on Wednesday I got a chance to discuss the upcoming World Cup and its potential impact on the US Lodging industry with one of the most respected teams in the Hotel world. For the first time in many years, Lodging execs are EXCITED about the prospects for 2026.

For many investors REITs are just a ho-hum asset class, delivering dividends and periodically responding to interest rates. That high-level view, however, tends to miss the sometimes turbulent and always interesting activity going on under the surface. The REIT industry is where commercial real estate is constantly metamorphizing, adapting to the modern economy, and unearthing new opportunities.

At Serenity we are always hunting for the next big thing in REITs and going into 2026 we have some very juicy targets. Ho-hum the REIT industry this year at your own peril!

PERFORMANCE: +3.4% in November, +8.2% YTD

Serenity Alternative Investments Fund I returned +3.4% in November net of fees and expenses with +97% net exposure versus the MSCI US REIT Index which returned +2.26%. Year to date the fund has returned +8.2% versus +5.42% for the REIT index. Over the past 5 years Serenity Alternatives Fund I has returned +11.1% annually, net of fees and expenses versus +7.8% for the REIT index.

The most profitable position in the fund in November was American Healthcare REIT (AHR), a long position which returned +12.05%. AHR remains the largest long position in the Serenity portfolio, and one of the best performing REITs in 2025 (+82% YTD). AHR recently beat analyst estimates for Q3, raised their guidance for the full year, and should take strong fundamental momentum into 2026. While the company’s valuation has increased in 2025, AHR still trades well within historical REIT valuation ranges, despite growth that is setting records for the REIT industry. While we may lighten up our AHR position into years end, it remains one of our highest conviction longs, with the potential for continued outsized growth for years to come.

The worst performing position in the fund in November was Iron Mountain (IRM), a long position which returned -16% during the month. IRM was the subject of a report released by Gotham City Research in November that sent shares down meaningfully when presented at a hedge fund conference in New York. After a thorough review of the report, we have found most of the claims to be immaterial, short-sighted, or simply incorrect based on our knowledge of the company (which I have covered personally for over a decade). Strangely enough, one of the key contentions of the report (that the company has recurring expenses that they categorize as non-recurring) is set to become a moot point in 2026, as anyone who follows the company closely should know. Part of the reason we remain bullish on IRM is that in 2026 they are unlocking a significant amount of free cash-flow, as one-time charges for their “Matterhorn” restructuring plan end in 2025. The company is also poised to double the size of its data center footprint by the end of 2027, with significant incremental NOI from those assets in late 2026 and early 2027. Said another way, IRM is about to double the size of a business growing at +30% per year and fund this expansion with significantly higher free cash flow. We remain long, and we wish all short sellers the best in 2026.

WELL WELL WELL: Technology meets Seniors Housing

In the early years of the post-GFC real estate economy (2010-2012), a small property type began to catch the attention of commercial real estate investors large and small. Up until this point, Self-Storage was a strange, non-institutional, operationally intense property type that traded at +6.5-7.5% cap rates. But over the 5-year period from 2010-2015, the sector transformed from a sleepy property type into a growth leader in the REIT space, attracting huge amounts of institutional capital, and morphing into a mainstay in many commercial real estate portfolios.

At the center of this transition was Extra Space Storage (EXR), a company which (as mentioned above) returned +42.6% a year from 2010-2015. How did they do it? In short…by introducing technology into a property type that historically used very little. Extra Space was able to discover that by dominating the search rankings on Google, and using real-time demand metrics to change their prices, they could consistently fill their portfolio and opportunistically grow their rents. Using their scale as a multi-billion-dollar company, EXR built tools that made their portfolio run at an efficiency level unattainable to their smaller peers. This led to years of sector leading growth and brought the Self-Storage industry into the mainstream commercial real estate market.

Fast forward over 10 years to today, and the Seniors Housing industry is at the beginning of a similar transition, and Welltower (WELL) is leading the charge. They recently hired Jeff Stott, the former chief technology officer at Extra Space, who I was fortunate enough to catch up with last week in Dallas. I asked Jeff point blank if the opportunity in Seniors Housing was comparable with that of Self-Storage. He didn’t hesitate. His answer was yes…and it might even be better.

This is part of the reason that Welltower has handily beaten the REIT index over the last few years and posted some of the best growth in the history of the REIT market. They are investing heavily, not only in technology, but also in customer service, quality of care, and building a best-in-class corporate culture and company structure. These things matter in REITs, as every few basis points of growth you can add compounds over time and has massively powerful effects over years and decades.  

Welltower has been a staple in the Serenity portfolio for quite some time now, and we expect this to remain the case well into the future (see what I did there?). It is nearly impossible to spend time with the company and not feel comfortable allocating capital to the current portfolio run by the current management team. Again, there is nothing boring about WELL’s 12 straight quarters of +20% SS NOI growth in their Seniors Housing portfolio or their +204% total returns over the past 3 years.

Even after an incredible recent run of success, there is ample room for Welltower to continue compounding capital within Seniors Housing. Construction of Seniors Housing assets remains low, and Welltower is building a massive moat using their size and scale within the industry.

The Bottom Line: Welltower (WELL) is building a Seniors Housing business with a significant moat by investing in technology and operations at a scale that is unmatched within their industry. This has led to sector and industry leading growth that may persist for years to come. As the company continues to bring innovative solutions to Seniors Housing customers and operators, we believe the outcome will be excess growth relative to their industry that compounds over time. Serenity is happy to allocate capital to a firm that is so committed to compounding cash flow.

+10.9% Annual NOI growth: Is that bad? Did I break it?

Speaking of capital compounders, I was also fortunate to catch up with Terreno (TRNO) last week, a Warehouse company that specializes in last-mile locations in some of the best warehouse markets in the country.

I’ve covered TRNO since its IPO, and it is a unique story within REITs. The founders are former AMB executives (AMB is one of the predecessors of modern day Prologis [PLD]), and I remember distinctly the first time I heard their pitch. It was simple. I’m paraphrasing here but the gist was “We want to buy only the types of properties that made us the most money at AMB.” Seems smart.

That meant the best locations in the densest markets, or what many in the industry today refer to as “last mile” industrial. In 2025 the Terreno portfolio consist of 307 buildings across six core markets, comprising 20 million square feet of Industrial (Warehouse) property.

I have always liked the TRNO team because they espouse the exact tenants that Serenity uses to pick REITs. Namely, their goal is to grow NAV per share faster than their peers. This is precisely the type of company the Serenity process is built to invest in.

This focus on NAV growth has been very successful over time for TRNO. The slide below is from their most recent investor presentation and details the power of a high-quality real estate portfolio run by a strong management team.

Despite the recent lull in the Warehouse market, and a much lower valuation than normal, TRNO has delivered  +9.7% annualized returns since its IPO. Those returns look somewhat like those of Serenity Alternative Investments Fund I since inception…which is no coincidence. If we can invest in high-quality commercial real estate companies that consistently growth their cash-flow and NAV’s over time, we are going to do very well over the full cycle.

The Bottom Line: Terreno (TRNO) has delivered incredibly impressive results over the life of their company by assembling a high-quality portfolio of industrial assets and actively managing that portfolio to shareholders benefit. There are few opportunities in commercial real estate to invest in such an irreplaceable set of assets. Terreno is a great example of the power of investing in high-quality REITs over the long term.

THE WORLD CUP: Could Lodging turn the corner in 2026?

One of my final meetings in Dallas was with Pebblebrook Hotel Trust (PEB). Pebblebrook has one of the most respected management teams in the Lodging industry. One of the reasons investors like them so much is that they are notoriously straight shooters. When things are bad, they don’t sugar coat it, and when things are good, they will let you know (This kind of honesty is frustratingly rare in C-suite executives).  

Pebblebrook has been very realistic/honest about how frustrating performance in the broader Lodging industry has been recently, with 2025 as an excellent example. Just remember, this year we have been through disastrous fires in Los Angeles, a tariff induced stock market panic, and the longest government shutdown in history. All three of these events had tangible effects on the US Lodging landscape, and impacted Pebblebrook’s portfolio meaningfully.

This Lodging malaise has shaken many investors from the sector entirely. Lodging is a small weight in the REIT indices, and many dedicated REIT investors can afford to ignore it, without risking a significant performance drag. From many of my conversations with dedicated REIT peers, I get the sense that very few have Lodging exposure, let alone significant exposure to Lodging REITs.

This point on investor positioning is important because it illustrates how low expectations are for these companies going forward. Valuations are low, sentiment is low, investors are apathetic and…the Lodging industry may be poised for its best year since 2021.

Wait what?

This is one of the key reasons I find myself so at odds with the bearish sentiment that surrounded the NAREIT conference I attended in Dallas last week. 2026 has an incredibly positive setup for the Lodging (and many other) companies, yet nobody seems to care.

Let’s tick the Lodging boxes quick. First, 2025 contained all the negative events discussed above. These all become easier comps in 2026. Pebblebrook, for instance, discussed the fact that their Los Angeles portfolio should post strong results in 2026, simply because 2025 was so bad after the fire. The same can be said for San Francisco, one of PEB’s key markets, which is still recovering from a massive 2022-2025 slump, but is currently improving rapidly.

Add to this the fact that the holiday calendar in 2026 is much more favorable across the board for the Lodging industry. While a calendar shift may not seem overly important, each basis point of incremental growth counts for companies that trade at -20%, -30%, and -40% discounts to Net Asset Value (NAV). Most important information in the stock market comes on the margin, and when things get a bit better in badly beaten down companies, it tends to have an outsized positive impact.

Lastly, in 2026 the US is hosting the World Cup. One look at ticket prices to some of the games currently available reveals that there is plenty of demand for the 104 matches that will be played on US soil in 2026. By some estimates, the impact could be equivalent to that of 50 super-bowls, which seems a bit excessive, but the direction is more important than the magnitude in my eyes. IE there will be significantly more inbound travel to the US in 2026 than in 2025, in addition to the catalysts listed above.

For all these reasons, the Pebblebrook team was optimistic about 2026, and I left our meeting with the intention of increasing the portfolio’s exposure to Lodging. The more I discuss my optimism for this sector, and even as I write this section of the newsletter, the more conviction I have in our Lodging long positions. The combination of very attractive valuations, low investor sentiment, and identifiable positive catalysts in the stock market is extremely rare.

The Bottom Line: Lodging REITs are set to have a much better year in 2026 than they did in 2025, due to easy comps, a more favorable holiday calendar, and the US hosting the World Cup. Despite these identifiable catalysts, Lodging REITs still trade at an equal weighted -30% discount to NAV, with little investor interest, let alone optimism. Serenity is now overweight Lodging, and will add to our positions if industry data begins to show tangible positive momentum.

REITS ARE BORING!

Cycles of investor sentiment can be frustrating to deal with as a portfolio manager. When your asset class is in favor (see the AI companies), almost every piece of news is good news. When your asset class is out of favor, it seems impossible to even get people’s attention, let alone hold their interest.

The publicly traded REIT market is currently in a sentiment slump, as a weak economy and the recent memory of inflation and interest rate hikes linger in the collective psyche. For most investors right now…REITs are boring.

But sentiment is not reality and is often a contrarian indicator.

In late 2020, REITs were left for dead, trading at large valuation discounts, but headed towards 2021 with identifiable catalysts. Serenity was buying Lodging and Office companies at the time, which seemed insane to most investors. Then in November of that year, our fund returned +15.1%. Over the next 14 months, the fund returned +73%.

2026 will not be like 2021, but the setup in REITs is not dissimilar. Investor apathy, low valuations, but identifiable catalysts going forward. And Serenity in the minority as a REIT bull, with significant exposure to the Lodging industry.

This is the part of the game that I love.

Odds appear stacked against us, market expectations are low…but we have a big bag of good ideas.

Bring on 2026,

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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