TIME TO PANIC? -4.64% in March, +2.7% YTD

“If you go to Minnesota in January, you should know that it’s gonna be cold. You don’t panic when the thermometer falls below zero.” – Peter Lynch

• PERFORMANCE:  Serenity Alternative Investments Fund I returned -4.64% net of fees in March vs the REIT index which returned -5.74%. Year to date (YTD) the fund has returned +2.7% vs +4.85% for the REIT index.

• SECTOR BREAKDOWN: Data Centers continued to outperform in March, along with Lodging REITs, while Self-Storage and Cell Tower REITs were hit by rising interest rates.

• PORTFOLIO: Serenity remains long Healthcare and Lodging REITs, with Industrial exposure shrinking in March, and Strip Center exposure increasing.

• OUTLOOK:  Higher Oil prices may be here to stay in 2026, nudging the Serenity portfolio in a slightly more defensive direction.

Peter Lynch is the legendary portfolio manager behind the Fidelity Magellan fund, which from 1977 to 1990 averaged a +29.2% annual return.

One of the keys to Lynch’s success…not panicking.

He was famously unfazed by market moves, choosing instead to focus on the fundamentals of the companies in his portfolio with a laser-like intensity.

In the modern 24-hour news cycle, this philosophy can be difficult to emulate. War in Iran, spiking Oil prices, rising interest rate volatility…all these recent developments can cause investor jitters.

But do they directly impact REIT cash flows?

Interest rates have moved up slightly, and so have gas prices, so yes, there will likely be a small impact on the future revenues of certain REITs.

But has the war in Iran changed the trajectory of US demographics that is driving the Seniors Housing boom? Will higher Oil prices impact the leasing progress in the Data Center development pipeline?

No and No. In fact, despite such a significant shock to fuel prices, RevPAR for the Hotel industry in the US has remained remarkably strong.

Serenity is sticking with our process as we do through all geopolitical shocks, tilting our portfolio more defensively where appropriate, but focused much more on long-term cash flows than short-term market moves. With 4Q 2025 earnings in the books, the fundamental outlook for many of Serenity’s favorite long names looks better than ever, despite higher Oil prices and slightly elevated bond yields.

No panic over here, just calm execution of the process, deploying capital into REITs that can compound it powerfully over time.

PERFORMANCE: -4.64% in March, +2.7% YTD

Serenity Alternative Investments Fund I returned -4.64% in March net of fees and expenses with +100% net exposure versus the MSCI US REIT Index which returned -5.74%. On a YTD basis, the fund has returned +2.7% versus +4.85% for the REIT index. Over the past 5 years Serenity Alternatives Fund I has returned +8.0% annually, net of fees and expenses versus +5.8% for the REIT index.

The most profitable position in the fund in March was Brandywine Realty (BDN), a short position which fell -15.1%. Brandywine is an Office REIT with a portfolio focused in the Philadelphia area. As Office values have fallen over the past 5 years, Brandywine has struggled to preserve the value of its portfolio and cash flows, cutting its dividend multiple times, and trading to a deeply discounted valuation. Since 2021, Brandywine’s consensus NAV has fallen from $17 to $8, a decline of over 50%. With negative momentum scores across the board, and an AFFO multiple that is average for the REIT industry (because of cash flow challenges), the Serenity CORE model consistently ranks BDN near the bottom of the REIT universe. As of this writing we have closed this short position, monetizing our gain in this beleaguered Office REIT.

The worst performing position in the fund in March was American Healthcare REIT (AHR), a long position which returned -9.25% during the month. AHR remains one of the fund’s largest long positions, but with the IPO of Janus Living (JAN) in March, many investors sold AHR shares to buy JAN. AHR remains one of the key beneficiaries from the wave of aging baby boomers in the US, and Serenity remains long, despite the slight pullback last month.

SECTOR BREAKDOWN: Data Centers (+), Industrial (-)

The best performing property sectors in March were Data Centers (-0.5%) and Lodging REITs (-3.1%) The fund’s P&L, however, benefited primarily from names in our short book, with Apartment REITs MAA and CPT falling -8.9% and -8.8%. Additional shorts in Cell Tower, Farmland, and Office REITs (mentioned above) positively contributed to Serenity’s returns during the month.

The worst performing property sectors in March were Homebuilders (-15.3%) and Self-Storage REITs (-9.7%). Serenity has 0 exposure to homebuilders and only a small, long position in Self-Storage, but we were hurt this month by negative returns in some of our favorite Healthcare REITs, exposure to Industrial REITs, and some give-back in our Billboard REIT (Specialty) exposure.

Over the entirety of Q1, the fund benefitted from outsized exposure to Data Center and Lodging REITs, with EQIX (+28.6%), IRM (+24.1%), DRH (+5.6%), and PEB (+11.6%) delivering some of the top returns in the REIT market.

Our small exposure to Office and Apartment REITs hurt the fund in Q1, as well as our allocations to CRE services firms, which we discussed last month. Longs in KRC (-23%), NMRK (-13.4%), and NXRT(-15.2%) in Q1 were some of the fund’s biggest losers.

PORTFOLIO: Lodging resilience, Strip Center safety…

Healthcare (Seniors Housing) remains the fund’s largest net long exposure (+24.4%), followed by Specialty (+16.6%), Industrial (+16.1%), and Data Center REITs (+10.2%). Our exposure to Specialty REITs includes a significant allocation to Iron Mountain (IRM), a paper storage company with a large and growing Data Center business. For this reason, our ‘Data Center’ exposure is in reality higher than +10.2%.

A key question we asked in last month’s newsletter was whether we should trim our Lodging exposure due to the growth headwinds higher energy prices might have in the US going forward. Since that writing, RevPAR data for the industry has been remarkably resilient, showing significant improvement relative to 2025, and few signs of being impacted by the ongoing energy crisis. While we will continue to monitor this data closely, for now we are maintaining our Lodging REIT allocations, as we still expect these companies to beat and raise guidance throughout the year.

The most significant change in our sector weighting in March came from moving some of our capital out of Mall and Industrial REITs, and into Shopping Center REITs. Mall and Industrial REITs tend to be highly sensitive to the economic cycle, and any impacts of higher gas/oil prices are likely to show up in these portfolios first. For this reason, we have tilted the portfolio more towards Shopping Center REITs, which traditionally have a more stable tenant base, but a bit less growth. This shift indicates a slight defensive shift in our portfolio positioning over the last month.

OUTLOOK: Playing defense on the margin, but ready to pivot offensively

As oil prices have remained elevated and interest rates have increased, Serenity's portfolio has shifted in a defensive direction, trimming some of our most consumer sensitive longs, and re-deploying the capital into more defensive names. We have not, however, meaningfully trimmed our net exposure, or increased our short book to aggressively hedge risk.

Frankly, we are not finding many good short opportunities in the current market. REITs that have low growth prospects (Office, Apartments, Self-Storage) trade at bargain-bin valuations, with elevated dividend yields and significant potential for private to public M&A (takeouts). Cheap, high quality REIT portfolios that may be bought out at any moment are not good short selling targets.

Concurrently, REITs with strong growth and higher valuations (Data Centers and Seniors Housing), show few signs of growth slowing, and are not particularly expensive when viewed relative to history or the broader stock market. Again, companies with modest multiples and explosive growth are also not good short selling targets.

For these reasons Serenity’s net exposure remains elevated. We have plenty of good ideas on the long side, REITs with excellent growth trading at modest valuations, turnaround plays, relative value ideas, and an M&A candidate or two. Even the deep discounts in Apartments and Office REITs look enticing from a long-term investing perspective.

Elevated oil prices and slightly higher interest rates certainly act as a headwind for those REITs with high duration and high beta cyclical exposure, but there is a huge swath of the REIT market that can absorb these geopolitical shocks with very little impact to their bottom line. Serenity’s portfolio is replete with these types of companies, which is why our outlook has not changed meaningfully despite the chaotic geopolitical landscape.

ONE-UP ON REIT STREET

Having a long-term time horizon can be a significant edge in today’s 24-hour stock market. Serenity has the luxury of waiting, watching, and pouncing once opportunities present themselves.

In the publicly traded REIT market, that means using geopolitical turmoil to continually deploy capital into some of the highest quality commercial real estate portfolios in the world.

And that is what we continue to do.

Don’t panic, trust the process.

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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