UNDER THE RADAR REITS: +0.06% in May, +11.5% YTD

“BUELLER?...BUELLER?...BUELLER?" – Ferris Bueller's Day Off

• PERFORMANCE:  Serenity Alternative Investments Fund I returned +0.06% net of fees in May vs the REIT index which returned -0.2%. Year to date (YTD) the fund has returned +11.5% vs +14.1% for the REIT index.

• BUELLER…BUELLER? Chinese Data Center company GDS Holdings (GDS) has flown under the radar amidst the Data Center craze. Investors might be sleeping on a new DC giant.

• ANYONE…ANYONE? Iron Mountain (IRM) is a company firing on all cylinders, but it still trades at a REIT average multiple.

• SAVE FERRIS: American Healthcare Realty (AHR) and Welltower (WELL) could post +100% earnings growth by 2030…

The stock market loves shiny objects.

AI memory players, quantum computing companies, $1 trillion AI behemoths.

All these types of companies can triple or 10x their valuations if they find the right market moment.

Anyone want to buy boring, cash flow positive, 10-15% earnings compounders?

Bueller…Bueller…Bueller?

With investors mostly focused on speculation in 2026, there are a swath of high-quality, cash-compounding REITs and real estate companies that are almost completely ignored.

Over time, these are the types of companies that can generate +20-30% yearly returns over full cycles, from businesses that are profitable and proven, with cash flows generated from high-quality real estate.

These companies make you rich slowly, but with a high degree of certainty.

I know +20% growth may seem boring in 2026, but some of us are old enough to remember when double-digit compound cash flow growth was exciting!

Maybe I’m a dinosaur in this market.  

Or maybe our portfolio is set to grow and re-invest its cash flow at +12-15% per year over the next decade.

Anyone interested in the Warren Buffet approach? Anyone?

Bueller?...Bueller?

PERFORMANCE: +0.06% in May, +11.5% YTD

Serenity Alternative Investments Fund I returned +0.06% in May net of fees and expenses with +100% net exposure versus the MSCI US REIT Index which returned -0.20%. On a YTD basis, the fund has returned +11.5% versus +14.1% 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 May was Host Hotels (HST), a long position which returned +8.76%. Host is one of the highest quality Lodging portfolios in the US, has a bulletproof balance sheet, and is run by a very respected management team. As we have written in previous newsletters, Lodging is off to its best yearly start since 2015. Host beat earnings guidance in Q1 and raised full year guidance to reflect current strength and continued RevPAR acceleration. Serenity remains long Host and overweight the Lodging REITs going into what could be the strongest summer for Lodging in over a decade.

The worst performing position in the fund in May was GDS Holdings (GDS), a long position which returned -16.15% during the month. GDS is a Chinese Data Center company and in Q1 it failed to account for a period of slower activity which negatively affected 2026 earnings guidance. Investors were disappointed and the stock sold off hard towards the end of May.

While missing guidance is never positive, I was frankly quite surprised at the negative reaction investors had to GDS’ quarterly results. I have been covering Data Center REITs since 2010, and apart from the guidance issue, this was one of the best quarters for a Data Center company I have seen in a long time. GDS has seen leasing accelerate rapidly over the past few quarters, with a backlog of cash flow in the pipeline that will send the company’s NOI and EBITDA rapidly higher over the next two years. In Q1, the company had one of the strongest bookings quarters ever. Suffice it to say, Serenity used the recent draw-down in GDS shares as a buying opportunity. We remain long the name, and it is quickly moving up the ranks as one of our best Long ideas.

GDS: Bueller…?

Over the last month I’ve casually canvassed the investing community for thoughts on GDS, and the lack of interest has surprised me. I would have expected a major Data Center player in this market to attract much more attention, but for various reasons, it seems that GDS still flies under many investors’ radars. Some were burned when the stock fell significantly in 2022, some do not seem interested in Chinese companies, and some simply don’t seem to know it exists. This lack of coverage, for Serenity, could be an incredible opportunity.

As I mentioned above, GDS sold off on Q1 earnings, despite reporting extremely strong fundamentals. This is where being a long-term investor can have huge advantages and illustrates the short-term nature of GDS’ current investor base. While other hedge funds focus intensely on quarterly earnings beats and misses, Serenity can take a long-term perspective, and benefit from quarterly dislocations that may occur amidst positive long-term trends.

To contextualize what happened during the quarter, let’s look at GDS’ bookings velocity over the past few years.

The chart above shows QoQ square meters of bookings for GDS going back to 2018. You will notice that Q1 of 2026 is the second highest bar on this chart, at +55,379 sqm of bookings for the quarter. This was nearly 3x the full period average of +18,000 per quarter.

This represented +200MW of signed Data Center leases in Q1, with the company disclosing an additional +140 MW has been signed since the end of the quarter. This is on a base of about 1.6GW, meaning the company has increased the leased power base of the company by +21% so far in the first 5 months of 2026 (+340MW on +1.6GW base).

This is a massive acceleration in growth that will play out over the next 24 months, much of which was generated in the first 5 months of this year. If GDS can maintain this pace, they will easily hit the high end of their targeted 500-800MW in yearly leasing, which they laid out in late 2025. Again, GDS only had a base powered portfolio of 1.6 GW coming into this year. Hitting +800MW in yearly leasing would be +50% annual growth in the size of the GDS portfolio.

From a valuation perspective, the market does not seem to have sniffed this out. Using Bloomberg consensus estimates, GDS trades at +11.2x 2028 EBITDA, which assumes EBITDA growth of +7.7% in 2027, and +16.4% in 2028. I think these growth rates are far too conservative, with my 2028 EBITDA estimate about +15% higher than consensus, meaning on Serenity’s numbers, GDS trades at less than +10x 2028 EBITDA.

This compares to an average 2028 EBITDA multiple of +15.8x for the other Data Center companies, none of which I believe will grow as fast as GDS.

So just to recap, GDS just had one of its best bookings quarters ever, it already has leases on the books for a phenomenal Q2, and the company, by its own estimates, could double the size of its powered portfolio by late 2028, and it trades at a nearly +5 turn discount to peers on 2028 EBITDA. And this stock has fallen -27% from its May highs…

Something does not add up here, and my bet is that investors are not doing the work that they should be on the leasing pipeline of GDS. Earnings miss or no earnings miss, Serenity is happy to own a Data Center portfolio with industry leading growth trading at the lowest multiple in its industry. We believe GDS could re-rate significantly higher over the next 24 months, as investors realize earnings and cash flow are about to increase significantly.

IRON MOUNTAIN: The Hyperscaler’s best friend…

In another part of Data Center land, Iron Mountain (IRM) continues to knock the cover off the ball, while generating mostly shrugs from the broader REIT investor universe. I spent the early part of last week at the REIT industry’s largest yearly conference in New York, pitching Iron Mountain to anyone with a set of ears. To my surprise, many well capitalized investors still don’t get the IRM story.  

The company is complex and takes a good amount of work to understand, but this fact remains; Iron Mountain has grown its AFFO (cash flow) at an +11.27% CAGR over the last 5 years and a +13.9% CAGR over the last 3 years. Despite this fact, the company trades at +19x 2027 estimated cash flow, well below the multiples of most high-growth REITs.

Iron Mountain’s growth story is also multi-pronged. The company’s Data Center business is leading the way, with revenue growth in Data Centers exceeding +20% every quarter since 2021. The chart below shows Data Center revenue growth, as well as total organic growth for the company’s other “storage” offerings, which are the bulk of Iron Mountains revenues.

The takeaway from this chart is that Iron Mountain is not dependent on Data Center growth to generate strong NOI and earnings growth. The company’s core storage business has grown organically at an average rate of +9.5% since 2021, which would by itself be some of the best organic growth in all of REITs.

And Iron Mountain continues to diversify. The company has recently built a business called “Asset Lifecycle Management (ALM)” from sub $100 million in revenue a few years ago to almost $1 billion in 2025. ALM consists of Iron Mountain helping both enterprise customers and hyperscale Data Center tenants dispose of old computing hardware. Sound boring? It sure is, but the company believes it will be a multibillion-dollar business within a few years and will require almost no capital to scale to that level.

Meeting with Iron Mountain, it’s difficult to find pieces of their business that do not have an incredibly bullish outlook over the next 3-5 years. Data Centers growing at a +30% clip, +10% organic growth in their core storage business, and an ALM vertical that could add billions in revenue in the near future. At +19x cash flow, Iron Mountain represents a bargain in our eyes within the cohort of +12-15% multi-year earnings growth REITs (of which there are few).

AHR: +100% earnings growth?

Speaking of multi-year earnings growth stories…

I was also able to spend some time with American Healthcare REIT (AHR) last week at the NAREIT conference, one of our favorite longs, and best performing portfolio allocations over the past year plus. AHR sits right in the crosshairs of the largest demographic shift in our country’s history: the aging of the baby boomers.

Let’s pause for a second.

I cannot stress enough how important it is to have Seniors Housing REITs in your portfolio.

This is not A REIT bull market…this might be THE REIT bull market.

Welltower (WELL), another Serenity long position and the industry leader in Seniors Housing…just quietly raised their long-term earnings growth target to +15%. That’s a long-term (5-10 years or longer) outlook that is…incredible, unprecedented, astronomical, gargantuan…pick your adjective. That does not mean +15% for a few years, then settling back to +2-5% long term, which is what most REIT bull markets look like. This means multiple years of +20% earnings growth (2026 will likely be year 3 of this level of growth), which then reverts to +10-15% around 2030.

At earnings growth rates like this, it would not be surprising to see Welltower, and potentially AHR grow their earnings by +100% by 2030.

Doubling earnings in 4-5 years does not happen in the REIT industry, but in this instance, I believe it is not only possible…but highly likely.

Back to AHR.

While Welltower has the best cost of capital in Seniors Housing and the most sophisticated operating platform, it is also the largest company in the REIT universe at +$146 billion in market cap. At that size, it becomes more difficult to move the needle using acquisitions and development, relative to a company like AHR, at +$10 billion.

Year to date in 2026, AHR has made over $1 billion in acquisitions, expanding their portfolio by just under +10%. Additionally, the company has guided to full-portfolio NOI growth of +9-12%, which is likely conservative. Consensus expects AFFO (cash flow) growth of +17.8% in 2026, and +13.6% in 2027. Those numbers are both too low, and I would expect AHR to achieve closer to +22% growth in 2026 and +18-20% growth in 2027.

With both AHR and WELL falling from recent highs in the past month, Serenity has taken this opportunity to increase our Seniors Housing exposure after meeting with both companies, confident in the long-term earnings and NAV growth potential that they offer.

AHR could double their earnings by 2030 and the stock trades at +21x forward cash-flow estimates. Anyone else think this is a bargain? Bueller?...Bueller?…Bueller?

LIFE MOVES PRETTY FAST

My career in REITs has been built on finding high growth REITs that the market does not appreciate.

When I listen to GDS’ conference calls…there is a conspicuous lack of REIT sell-side coverage, meaning not many REIT investors are paying attention. GDS could double the size of their portfolio in the next few years…and it trades at a -50% discount to the large US Data Center REITs.

When I pitch Seniors Housing REITs to non-REIT investors…they mostly yawn. In the meantime, these companies could double their earnings by 2030…which is when the demographic bull market accelerates.

Iron Mountain is more likely to generate interest as a SHORT with un-informed investors…but is likely to compound its cash flows at +10-15% for at least the next 5 years.

Maybe I’m crazy and the market is efficient.

But maybe…just maybe, these companies are badly under-appreciated by investors and could generate spectacular returns over the next 3-5 years.

Anyone find that interesting? Anyone?

Bueller…Bueller…Bueller?

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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