A Clear REIT Signal: -2.62% in January, +10.5% TTM

“Can you hear me now? ” - Verizon (2002) 

• PERFORMANCE: Serenity Alternative Investments Fund I returned -2.62% net of fees in January vs the REIT index at +1.04%.

• A CLEAR SIGNAL: Data supporting the Seniors Housing bull market continues to pour in.

• REIT NOISE: Many 2024 trends reversed in January. Has the Serenity playbook changed?

• CALL WAITING: Prologis (PLD) has called the bottom in Warehouse fundamentals, but will it arrive in 2025?

The stock market is very noisy.

Especially in the modern era, getting a clear signal is extremely rare.

Tariffs, inflation, budget deficits, DOGE…the cacophony of incoming data can be deafening!

But in one corner of the REIT market, the signal is crystal clear.

The Seniors Housing REITs are transmitting an un-ambiguous message: The bull market is in full swing.

In February, Welltower (WELL) guided to +18% same-store NOI growth for 2025 in their Seniors Housing portfolio. In 2024 the company grew FFO (earnings) by +18.7% and completed $7.0 billion in acquisitions. Occupancy in their SHOP segment increased +3.1% YoY while rates simultaneously increased by +5%. Margins were up +320 basis points in the fourth quarter, illustrating increasing cost efficiencies driven by the company’s investments in technology.

Ventas (VTR), Welltower’s largest competitor, espoused a similar message. +15.8% cash NOI growth for Seniors Housing assets in 2024, occupancy growth of +300 basis points, continued margin expansion and a target of $1 billion in acquisitions for 2025.

Can you hear me now?

Over the next five years, these REIT portfolios will continue to ride the undeniable demographic wave known as the “Silver Tsunami”. The signal is unambiguous, and the REITs are perfectly positioned. Serenity remains long Seniors Housing REITs.

The remainder of the REIT market was much noisier in January. Many 2024 REIT trends reversed in the first month of 2025: impacting the Serenity portfolio but also creating some very interesting opportunities.

As the capital markets continue to change and evolve, Serenity remains focused on areas in which we can harness signals and ignore the noise. In 2024 this led to +14.3% returns net of fees for our customers. Who knows what 2025 will bring?

PERFORMANCE: -2.62% in January, +10.5% TTM (trailing 12m)

Serenity Alternative Investments Fund I returned -2.62% in January net of fees and expenses with +72% net exposure versus the MSCI US REIT Index which returned +1.04%. Over the past 5 years Serenity Alternatives Fund I has returned +10.6% annually net of fees and expenses with a 0.82 Sharpe ratio, versus +4.3% for the REIT index.

The most profitable position in the fund in January was Welltower (WELL), a long position that returned +8.3% during the month. Welltower was one of the best performing REITs in January, and this was before they announced the Q4 results discussed above. Welltower is a core long position in Serenity Alts Fund I for a variety of reasons. The company has industry leading same-store growth, an aggressive appetite for acquisitions and development, a world class management team, and significant economies of scale which are creating an economic moat within the Seniors Housing industry. Put simply, Welltower is becoming a Seniors Housing juggernaut, like Prologis (PLD) in the warehouse sector. Welltower can raise capital at close to +4.25% and invest it at +8%. Those kinds of economics are rare within commercial real estate, and Serenity clients continue to reap the benefits.   

The worst performing position in the fund in January was Brixmor (BRX), a long position that returned -5.4% during the month. Brixmor is a Strip Center REIT with a national portfolio that performed poorly in January on little to no news. In February, the company announced Q4 earnings that were better than expected, and the stock has risen +6.6% month to date. Serenity remains long the name as a value play with solid growth within the Strip Center REITs.

A CLEAR SIGNAL: Seniors Housing bull market data continues to pile up.

Regular readers will have to forgive my insistence on hammering this point home seemingly every month, but the Seniors Housing bull market is in my opinion the single best opportunity in commercial real estate in 2025. In fact, very little else comes close. It’s extremely rare for a commercial real estate asset class to have 1) demographic tailwinds 2) industry leading organic growth 3) cratering competitive supply and 4) huge opportunities for margin expansion.

If you manufactured a commercial real estate bull market in a laboratory, these would be the ingredients you would use.

But this bull market is no Frankenstein. It’s more like an F-22.

The chart below displays Welltower’s same-store NOI growth and occupancy levels going back to 2021. The trend here is clear. Occupancy continues to recover from its pandemic level lows, and same-store NOI has consistently exceeded +20% for the last 9 quarters.

Welltower is not simply harnessing one of the most profound demographic trends of the past 100 years, they are also bringing scale and technology to bear on an industry that has historically been extremely fragmented. As referenced in the newsletters opening salvo, Welltower’s investments in technology and human capital continue to drive efficiency through the portfolio. In 2024, this manifested itself as +300 basis points of margin expansion in the Seniors Housing portfolio. These margin gains are the reason Welltower has been able to sustain such outsized organic growth over the last two years.

The external growth pipeline also benefits from Welltower’s active approach, with over $2 billion in acquisitions announced already in 2025. That’s $2 billion in capital deployment less than 45 days into the new year. This level of activity is impressive even for an entity with the size and scale of Welltower.

Ventas (VTR), Welltower’s largest competitor in the Seniors Housing space is leaning into the Seniors Housing bull market with similar verve. Justin Hutchens, the company’s CIO summarized the situation succinctly during Ventas’ 4Q earnings call.

“Moving forward, we are highly optimistic about our senior housing business across multiple dimensions. The supply and demand dynamics in our sector are exceptionally favorable. Over the next five years, the U.S. will experience an unprecedented surge in the senior population as the Baby Boomer generation begins turning 80.

This 80-plus age group is projected to grow by 28% during this period, driving significant demand for senior housing. Meanwhile, new construction in our markets remains constrained, with inventory growth at the lowest number on record and new construction starts at an all-time low. These combined factors create an extraordinary net absorption opportunity in the upcoming years, unlike anything we have seen before.

We just finished the first lap of a long race, as supply-demand characteristics are projected to remain compelling over the next several years. Ventas is in a strong position to continue to drive growth in our SHOP portfolio. We have favorable competitive positioning driven by Ventas OI with proprietary data analytics and experiential insights, which underscore portfolio actions and optimizes performance.”

Since early 2023, Welltower and Ventas have returned +141% and +57% respectively. That’s an annualized total return of +37.4% on average, and according to Ventas, this was just the first lap of a much longer race. At Serenity we agree that the bull market in Seniors Housing may only be just beginning.

Additionally, the fund’s best idea and largest long position is in our view a better opportunity that both companies discussed above. Feel free to reach out for additional details on our current best long idea.

The Bottom Line: Seniors Housing is very clearly in a bull market and will remain so for years to come. Multiple companies in the Serenity portfolio continue to benefit, with both Welltower and Ventas reporting extremely strong results for 2024 and impressive outlooks for 2025.

NOISE: January REIT performance scrambled the 2024 playbook.

2024 was an excellent year for Serenity, with our flagship fund returning +14.3% with only +80% net exposure versus the REIT index at +8.8%. The fund’s largest property sector exposures all outperformed, with Healthcare REITs returning +31.2% and Data Centers returning +31.9%. From a factor perspective, 5 of the 19 factors within Serenity’s CORE model had greater than +10% performance spreads, an indication that our CORE quant model was very accurate during the year.

But as the old adage goes, trees do not grow to the sky and even battle tested REIT

strategies sometimes underperform. January of 2025 was unfortunately one of those months.

The culprit was a sharp reversal in 2024 REIT trends early in 2025. As can be seen in the chart to the right, almost everything that worked in REITs in 2024…reversed in January 2025. Data Centers were a leader in 2024 but have lagged significantly in 2025. Industrial (Warehouse) REITs returned -17% in 2024 but rallied sharply in January. Shopping Centers, Timber, Apartments…have all reversed the direction of 2024 performance early in 2025.

Factor performance tells a similar story. Of the top 20 REIT factors Serenity tracks, only 5 (25%) have exhibited the same directional (positive or negative) performance in 2025 as they did in 2024.

A reversal in existing trends like this is painful while it’s occurring, but over the long term it is a healthy and necessary part of the capital formation process. For some of Serenity’s best ideas, January was an excellent buying opportunity.  

Data Centers are a prime example. The DeepSeek news that broke early in the year sent the Data Center REITs down nearly -20% over the course of a few days. Have the fundamentals of these companies changed meaningfully because a Chinese company purportedly built a large language model for $6 million? No. But Data Center REITs returned +32% in 2024 and were due for a pullback. Investors used the news to trim their positions, and in turn offered new investors an opportunity to buy Data Center REITs almost -20% below their Jan 1 prices.

In Serenity Fund I, we took advantage of this dislocation to add significant capital to one Data Center REIT that had been on our watchlist for some time. We also added exposure in select Healthcare REITs that sold off in January and have made some opportunistic Apartment trades that are already paying dividends in February.

The Bottom Line: The dynamic nature of the capital markets can occasionally be painful even for the most robust investment processes. These periods of dislocation, however, also create opportunities, and in January of 2025 Serenity was able to add capital to some of our best ideas at discounted prices.

NOTEWORTHY OR NOISE? Prologis is pounding the table on a Warehouse recovery.

One of the drivers of January’s performance reversal in REITs was the awakening of a slumbering giant. Prologis (PLD), the largest single REIT by market capitalization, and one of the first REITs to report earnings results every quarter, kicked off REIT earnings season with a positive message accompanied by a sharp share price rally (+12.8% in January).  

While the companies’ 4Q results and 2025 guidance were (in my opinion) fairly lack-luster, investors responded very positively to a key set of comments issued by the company.

“In our business, the bottoming process across our markets continues to progress. Leasing in our portfolio accelerated following the US election and the pipeline has started the year at healthy levels.” – Prologis CFO Tim Arndt

This message was repeated on numerous occasions on Prologis’ earnings call, and the stock closed up +7.2% the day following its earnings release. Investors very clearly responded positively to the possibility of Warehouse fundamentals bottoming and inflecting higher in 2025.

In the Serenity portfolio, however, we are less convinced.

Occupancy and same-store NOI growth continue to move lower for the Prologis portfolio and for many other Industrial REITs. Rent spreads are decelerating and will likely be a headwind for same-store growth for quarters to come. California, a key market for many industrial REITs continues to battle over-supply, and the stocks remain relatively expensive relative to much of the REIT market.

The Serenity CORE model is sending a similar message, with 0 industrial REITs in the top quintile of the model, and multiple industrial REITs in the bottom quintile.

These headwinds keep us mostly on the sidelines for now in Industrial REITs, with a few longs and shorts in the sector but little net long exposure.

The Bottom Line: Prologis communicated a positive message to the market regarding Industrial REIT fundamentals early in 2025. The data, however, is yet to corroborate the PLD narrative, and thus Serenity has little net long exposure to Industrial REITs.

SIGNAL VS NOISE

The more experience I accrue as a portfolio manager the more I view my job primarily as a filter for signal versus noise in the REIT market.

How do changing trends impact the future cash flow of these companies? That is often the key day-to-day question I ask, as information pours in at 100 mph.

By focusing on trends we can forecast accurately across multi-year time horizons, however, the Serenity process has become uniquely capable of efficiently filtering the firehose of REIT data that is generated on a daily basis.

We commit capital to high quality portfolios and management teams that are growing their Net Asset Value (NAV) and trade at reasonable valuations. Amidst all the noise, this should be the clear signal; Quality, Momentum, Value. I will say it ad nauseum in these pages until someone takes away my keyboard.

Follow the signal, not the noise,

Martin D Kollmorgen, CFA

CEO and Chief Investment Officer

Serenity Alternative Investments

Office: (630) 730-5745

MdKollmorgen@SerenityAlts.com

*All charts generated using data from Bloomberg LP, S&P Global, and Serenity Alternative Investments

DISCLAIMER: This document is being furnished by Serenity Alternative Investment Management, LLC (“Manager”), the investment manager of the private investment fund, Serenity Alternative Investments Fund I, LP (the “Fund”), solely for use in connection with consideration of an investment in the Fund by prospective investors. The statements herein are based on information available on the date hereof and are intended only as a summary.  The Manager has been in operation since 2016 and the Fund commenced operations on January 14th.  The information provided by the Manager is available only to those investors qualifying to invest in the Fund.  By accepting this document and/or attachments, you agree that you or the entity that you represent meet all investor qualifications in the jurisdiction(s) where you are subject to the statutory regulations related to the investment in the type of fund described in this document. This document may not be reproduced or distributed to anyone other than the identified recipient’s professional advisers without the prior written consent of the Manager.  The recipient, by accepting delivery of this document agrees to return it and all related documents to the Manager if the recipient does not subscribe for an interest in the Fund.  All information contained herein is confidential. This document is subject to revision at any time and the Manager is not obligated to inform you of any changes made. No statement herein supersedes any statement to the contrary in the Fund’s confidential offering documents.

The information contained herein does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product.  Any such offer or solicitation may only be made by means of delivery of an approved confidential offering memorandum and only in those jurisdictions where permitted by law.  Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations in the countries and/or states of their citizenship, residence or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments. The information contained herein does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it.  Before making an investment, prospective investors are advised to thoroughly and carefully review the offering memorandum with their financial, legal and tax advisers to determine whether an investment such as this is suitable for them.

There is no guarantee that the investment objectives of the Fund will be achieved.  There is no secondary market for interests and none is expected to develop. You should not make an investment unless you have a long term holding objective and are prepared to lose all or a substantial portion of your investment.  An investment in the Fund is speculative and involves a high degree of risk.  Opportunities for withdrawal and transferability of interests are restricted. As a result, investors may not have access to capital except according to the terms of withdrawal specified within the confidential offering memorandum and other related documents. The fees and expenses that will be charged by the Fund and/or its Manager may be higher than the fees and expenses of other investment alternatives and may offset profits.

With respect to the present document and/or its attachments, the Manager makes no warranty or representation, whether express or implied, and assumes no legal liability for the accuracy, completeness or usefulness of any information disclosed. Certain information is based on data provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed and should not be relied upon as such. Performance information and/or results, unless otherwise indicated, are un-audited and their appearance in this document reflects the estimated returns net of all expenses and fees.  Investment return and the principal value of an investment will fluctuate and may be quite volatile.  In addition to exposure to adverse market conditions, investments may also be exposed to changes in regulations, change in providers of capital and other service providers. 

The Manager does not accept any responsibility or liability whatsoever caused by any action taken in reliance upon this document and/or its attachments.  The private investment fund described herein has not been registered under the Investment Company Act of 1940, as amended, and the interests therein have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or in any state or foreign securities laws.  These interests will be offered and sold only to “Accredited Investors” as such term is defined under federal securities laws.  The Manager assumes that by acceptance of this document and/or attachments that the recipient understands the risks involved – including the loss of some or all of any investment that the recipient or the entity that he/she represents. An investment in the Fund is not suitable for all investors.

This material is for informational purposes only.  Any opinions expressed herein represent current opinions only and while the information contained herein is from sources believed reliable there is no representation that it is accurate or complete and it should not be relied upon as such. The Manager accepts no liability for loss arising from the use of this material. Federal and state securities laws, however, impose liabilities under certain circumstances on persons who act in good faith and nothing herein shall in any way constitute a waiver or limitation of any rights that a client may have under federal or state securities laws.

The performance representations contained herein are not representations that such performance will continue in the future or that any investment scenario or performance will even be similar to such description.  Any investment described herein is an example only and is not a representation that the same or even similar investment scenarios will arise in the future or that investments made will be profitable.  No representation is being made that any investment will or is likely to achieve profits or losses similar to those shown.  In fact, there are frequently sharp differences between prior performance results and actual Fund results. 

References to the past performance of other private investment funds or the Manager are for informational purposes only.  Other investments may not be selected to represent an appropriate benchmark.  The Fund’s strategy is not designed to mimic these investments and an individual may not be able to invest directly in each of the indices or funds shown.  The Fund’s holdings may vary significantly from these referenced investments. The historical performance data listed is for informational purposes only and should not be construed as an indicator of future performance of the Fund or any other fund managed by the Manager. The performance listed herein is unaudited, net of all fees. YTD returns for all indices are calculated using closing prices as of Jan 14th, the first day of the funds operation. Data is subject to revision.  

Certain information contained in this material constitutes forward-looking statements, which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology.  Such statements are not guarantees of future performance or activities. Due to various risks and uncertainties, actual events or results or the actual performance of the Fund described herein may differ materially from those reflected or contemplated in such forward-looking statements.      

Our investment program involves substantial risk, including the loss of principal, and no assurance can be given that our investment objectives will be achieved.  Among other things, certain investment techniques as described herein can, in certain circumstances, maximize the adverse impact to which the Fund’s investment portfolio may be subject. The Fund may use varying degrees of leverage and the use of leverage can lead to large losses as well as large gains. Investment guidelines and objectives may vary depending on market conditions.