Report No. 5

OVERVIEW OF THE REAL ESTATE STOCK AND REIT MARKET

Real estate stocks and REITs initially showed a relatively stable overall price trend during the five 
months from October through the end of February. Slight price declines at the end of the year were largely recouped at the start of the year. However, the outbreak of the Iran War in late February was accompanied by global market turmoil, which intensified as the year progressed through March as the global consequences for energy prices and the supply of key resources became increasingly apparent. This development is particularly relevant for the real estate sector—and thus also for real estate stocks and REITs—because rising inflation has caused interest rate risks to resurface.

From a longer-term perspective, it should not be forgotten that the performance of real estate stocks and REITs continues to lag behind that of the broader stock market. The broadly diversified U.S. benchmark index, the S&P 500, after initially stable to slightly rising trends, fell noticeably with the outbreak of war in Iran and, by the end of March, stood 2.4% below its early October level amid a volatile environment. Until then, however, new record highs had been reached at times in January. The German benchmark index, the DAX, followed a similar trend, albeit with greater volatility, and was down 5% at the end of the six-month period.

By comparison, however, real estate stocks and REITs were able to regain some ground. The total return of the relevant FTSE EPRA Nareit Index over the six-month period was 3.0% for North America (in U.S. dollars) and -2.5% for Europe (in euros), outperforming the broader stock market—though, as mentioned, starting from a lower level. The difference is particularly evident in a long-term comparison: Over a five-year period, the MSCI World has recorded an annualized net total return (in U.S. dollars) of 10.3%, while the MSCI World REITs has recorded only 2.5%—an underperformance attributable in no small part to the rise in interest rates since then, but one that offers more favorable entry conditions compared to other equity segments.

These other stock segments were once again heavily influenced in the past six months by the performance of already highly valued tech stocks, particularly those from the U.S., driven by the ubiquitous AI boom. However, there is also a model for publicly traded real estate companies behind this, because every “virtual” computing operation—whether an AI prompt or a streaming service—also requires physical infrastructure: essentially, data networks and data centers.

The two largest publicly traded companies in this sector are the U.S. REITs Equinix and Digital Realty. 
However, the stock market has apparently valued Equinix and Digital Realty much more cautiously than the major tech and AI winners, even though demand for data center infrastructure is very robust. From the market launch of ChatGPT on November 30, 2022, through the end of the third quarter of 2025, neither stock initially outperformed the S&P 500: Digital Realty achieved a total return of 70.9% during this period, matching the index’s performance, while Equinix lagged significantly behind at 20.0%. Thus, even the real estate sector with arguably the greatest hype potential in the wake of the AI boom failed to deliver outperformance by the reporting date of the latest Listed Real Estate Report. One possible reason for this is that Equinix and Digital Realty had to make high capital expenditures to implement data center developments with attractive profit margins; while these investments strengthen the long-term earnings base, they limit the REITs’ distribution capacity in the short term. However, stock markets often place greater weight on short-term visible profit growth than on earnings that materialize only after a time lag.

At the same time, the market likely viewed hyperscalers and AI-related platforms as the direct beneficiaries of AI-driven value creation, while data center REITs were perhaps categorized as capital-intensive enablers. Equinix, in particular, is likely to have been perceived only to a limited extent as a direct AI proxy, because colocation and interconnection data centers benefit from the AI boom more indirectly. Furthermore, part of the market valuation of hyperscalers was apparently also driven by the expectation that these companies could benefit disproportionately from the competition for increasingly powerful AI models and, potentially, the development of superintelligence. While data center providers supply the necessary physical infrastructure, they tend to participate in such technological breakthroughs only indirectly. Furthermore, even with very strong demand, monetization in the data center sector can be hampered by power availability, higher connection costs, construction and permitting risks, as well as an overall increase in project sizes.

As of today, this picture has shifted only slightly in favor of data center REITs: Since the “ChatGPT moment,” Digital Realty has posted a total return of 80.8% through March 31, 2026, and Equinix 51.9%, compared to 67.8% for the S&P 500.

OUTPERFORMERS AND UNDERPERFORMERS

The list of outperformers over the past six months (as of March 31) this time includes two North American operators of senior housing facilities: the Canadian company Extendicare Inc. (+79%) and the U.S. company Brookdale Senior Living Inc. (+62%).

With its acquisition of the home health care provider CBI Home Health in November 2025, Extendicare 
accelerated its service-focused growth strategy and, through the financially sound execution of the transaction, appears to have won the approval of the capital markets. Combined with strong operating results, Extendicare’s strategy then resulted in the highest total return among the companies in the sample over the past six months.

The U.S. healthcare provider Brookdale also benefited during the period under review from a positive market environment for nursing care real estate and the resulting improvement in operating metrics. Added to this was the refinancing of short-term mortgages worth approximately $600 million, announced in January 2026, the potential failure of which the market had likely already priced into the stock’s share price by that point.

With a gain of 60% over the past six months, Peakstone Realty Trust achieved the third-highest return. 
Peakstone has undergone a strategic realignment in recent years, gradually divesting large portions of its previously held office portfolio and acquiring, in particular, so-called Industrial Outdoor Storage (IOS) assets. This sub-asset class has been on the rise for some time due to increased interest from institutional investors, not least because of the very lean capex profile and the potential of IOS assets to achieve a significant increase in rent through the subsequent conversion of the space to traditional logistics use.

Peakstone’s modest market capitalization and the associated disadvantage in terms of the cost of capital likely contributed to the capital market’s lack of confidence in the company’s ability to execute its planned growth strategy in a way that would increase shareholder value. The return catalyst in Peakstone’s case was external in nature; Brookfield’s privatization offer in February 2026 represented a premium of approximately 34 percent over the previous day’s share price, which, combined with prior price increases, resulted in the third-best performance in the sample.

The worst performers over the past six months were primarily North American office REITs, with Hudson Pacific Properties (-69%) and Allied Properties REIT (-54%) ranking second and third, respectively. The top 15 lowest returns, or largest losses, for the current period include a total of seven North American office REITs. In the office sector, in addition to investors’ existing concerns—such as the rise of work-from-home and high ESG and capex expenses—and historically extremely low cap rates as a starting point, the fear has emerged that the jobs of “white-collar” workers, who predominantly work in office buildings, could be particularly at risk from an impending AI revolution.

For the two REITs mentioned, Hudson Pacific and Allied, these adverse macro factors are compounded 
by significantly excessive leverage, which, combined with the existing interest rate uncertainty, has created a toxic mix for the companies’ share price performance in recent years. At Allied, management was forced in February to refinance by issuing new equity on extremely unfavorable terms, causing Allied’s stock to plummet by nearly 28% on the day of the announcement alone.

However, investors in Fermi Inc. suffered the largest loss on a total-return basis during this six-month 
period, at 82%. The company, which has been publicly traded since October 2025, set out with the vision of developing a massive data center project on a site spanning approximately 21 square kilometers on the Texas Plateau. With a planned capacity of up to 11 gigawatts, the project’s scale exceeds the total capacity of Northern Virginia, the world’s largest data center market. The problems of data center REITs described above, particularly the difficult starting point for very long-term, capital-intensive project developments with limited predictability regarding future tenant demand, are coming into play in an even more acute form at Fermi. Added to this were the withdrawal of financing commitments by an (unknown) future tenant at the end of 2025 and the end of the 180-day IPO lock-up period on March 30, which led to a massive sell-off of the stock.

M&A ACTIVITIES

In terms of M&A activity, the planned acquisition of National Storage Affiliates (NSA), the fourth-largest U.S. self-storage operator, by its competitor Public Storage (PSA) stands out. The offer is currently pending, with a closing expected in the third quarter; the transaction is valued at approximately $10.5 billion. The planned merger is part of a series of consolidation transactions in the U.S. self-storage market, which, with the merger of Extra Space and Life Storage in 2023, temporarily displaced Public Storage from the top spot as the largest provider (based on the number of assets held).

The potential for efficiency gains through M&A transactions is particularly pronounced in the self-storage industry. The ease of integration—due to the high homogeneity of the assets—and the relatively straightforward rollout of major providers’ extensive marketing and data platforms to new storage facilities have led to significant deal activity in recent years. In the ranking of the largest transactions of the past six months, another deal in the self-storage sector takes second place: the planned sale of the Australian provider National Storage REIT (NSR) to Brookfield and GIC for approximately 4 billion Australian dollars.

Rounding out the top three M&A transactions is the privatization of Veris Residential, announced in 
February 2026, by a consortium including GIC for approximately $3.4 billion. Luxury apartment landlord Veris Residential underwent a strategic shift in 2021, moving away from an office-heavy, diversified strategy toward apartment properties. Following a series of failed takeover attempts by private investors, the offer in February of this year ultimately led to the privatization pushed by the REIT’s management.

IMPLIED CAP RATES

Implied cap rates describe the ratio of net operating income (typically net rental income) to market 
capitalization, including net debt.

• In Europe, in the retail segment, they have fallen to 7.2% currently. Office yields, at 6.4%, are now 
slightly above residential yields, which stand at 6.3%. At 5.4% currently, industrial cap rates are on the 
rise but remain well below the levels of the other segments.

• In North America, they have continued to rise significantly in the office segment, now standing 
at 9.5%. Slight increases in implied yields are evident in the industrial (6.7%) and residential (6.4%) 
segments, whereas retail REITs, at 7.0%, exhibit higher but historically stable cap rates.

Source: ACM; Fiscal Years 2021–2025, 2026 as of March 31, 2026

Additional observations:

• By far the highest yields continue to be found in the North American office segment. Here, 
valuations based on net operating income (NOI) have actually declined significantly once again 
compared to the end of 2025. The reasons for the slump in the office sector were already touched 
upon in the section on the winning and losing stocks in the current report. In particular, investor 
concerns about higher vacancy rates due to the loss of office jobs resulting from the advancement 
of AI technologies are likely to have caused the sector’s recent setback.

• In Europe, the office sector is showing a weaker but similar picture to that in North America. Here, 
too, yields continue to rise, indicating persistent skepticism on the part of the capital markets toward 
this asset class. Also notable is the slightly positive trend in retail cap rates. The sector, which had 
already fallen out of favor with investors before the office segment, appears to be consolidating, 
albeit at a high yield level.

NAV-SPREAD

Regarding NAV spreads, the picture from the latest issue of the AVENTOS Real Estate Report has largely remained unchanged: In North America, the total NAV premium stands at 3.8%, while the discount in Europe has increased to 36.6%. The significant differences in spreads between the continents are largely due to the differing weightings of real estate segments and only partly to valuation differences within the segments between North America and Europe.

Particularly striking is the very high valuation of the North American medical sector (comprising of 
the healthcare and life sciences sub-asset classes), which has risen marginally since the last report. 
The dominant factor behind this trend remains the nearly $140 billion healthcare giant Welltower Inc., 
which, with a roughly 7% weighting in the EPRA Developed Index, is currently the index’s largest constituent. However, large parts of the remaining U.S. healthcare sample are also benefiting from structural tailwinds. Weak new construction activity, the “silver tsunami” phenomenon now fully taking effect in the United States, and simultaneously waning skepticism toward the sector as memories of the COVID crisis fade have strongly driven stock market valuations in recent months. Furthermore, data centers and netlease properties are currently valued on the stock market slightly above the intrinsic value of the respective real estate portfolios.

The office segment shows the largest discount, but residential properties and cell towers are also relatively undervalued on the stock markets. The residential segment is currently suffering from an oversupply resulting from the massive construction activity in 2021 and 2022; accordingly, the rental growth figures reported by the relevant REITs for 2025 were disappointing. In addition, the apartments in the portfolios of listed REITs are predominantly in the high-end price segment and located in metropolitan areas. This sub-segment of the apartment rental market has been particularly affected by the slowing momentum in the U.S. labor market in recent months.

Investors’ frustration with interest rates likely continues to play a role in the low NAV-based valuation of 
mobile communication towers (“Tower REITs”). REITs in this segment are particularly sensitive to interest rates due to generally low cap rates in the tower sector and the resulting narrow spread relative to risk-free rates. Another blow to the sector was the termination of tower lease agreements by the U.S. mobile network provider DISH in 2025, which is likely to result in significant rental losses and is now reflected in the REITs’ revenue guidance for 2026.

In Europe, however, the NAV discount is relatively evenly distributed. The retail sector is faring somewhat better than the other segments. The sector has since shed its image as a problem child, which resulted from the e-commerce hype of the Covid years; retail rents have largely remained at a sustainable level, and retailers’ fundamentals are looking more favorable than in the past. The high discount in the residential segment — which is structurally very solid — remains striking. Inflation expectations, which rose sharply with the start of the Iran War, and the higher interest rate expectations that typically result from them are hitting Vonovia, the relatively highly indebted German apartment portfolio owner that dominates the segment due to its size, particularly hard.

Source: S&P Capital IQ Pro, as of March 31, 2026

REAL ESTATE FINANCIAL RATIOS

The occupancy rates and debt ratios of publicly traded real estate companies are sometimes indicators that can explain their performance in terms of NAV spreads and implied cap rates.

OCCUPANCY RATES

With one exception, the average occupancy rates of the individual segments in North America and Europe do not differ significantly and have remained largely stable over the past two years. They are almost universally at 95% or higher. With one exception, the persistently high vacancy rates in the office segment are noteworthy. This applies on both sides of the Atlantic, but especially in North America.

Source: ACM; Fiscal years 2021–2025, 2026 as of March 31, 2026

LEVERAGE

In terms of leverage — that is, debt relative to enterprise value (market capitalization plus debt, minus 
cash and cash equivalents) — mostly slight increases are observed, which tends to be attributable more to weak price performance than to significant debt issuance. The North American office segment stands out in particular in this regard. The leverage ratio remains relatively low in the logistics sector.

It will be interesting to see how the situation develops in the coming weeks and months, should major 
central banks feel compelled to raise interest rates due to rising inflation caused by the war in Iran, thereby driving up financing costs. European residential real estate companies, as well as office propcos in North America and Europe, are likely to be particularly hard hit by such a development, as their high leverage leads to significant interest rate sensitivity.

Source: ACM; Fiscal years 2021–2025, 2026 as of March 31, 2026

ACM SECTOR MOMENTUM

Office properties in both Europe and North America are currently showing low momentum. This is 
surprising given that the sector has already been in a severe crisis in recent years. Given the implied 
cap rates currently being observed, the sector now appears, at first glance, to be undervalued—even 
when accounting for its historical weakness. The situation is different in the logistics sector. This sector 
is also currently showing negative momentum in both North America and Europe. The boom years of 
the Covid era have given way to a more sustainable outlook for the segment. In this respect, the logistics cap rates currently being observed are not unusually high in a long-term historical comparison.

The data center, retail, and medical sectors occupy the top spots in the momentum rankings. The current state of these segments has already been discussed. The data center sector’s high momentum score is surprising given investors’ generally lukewarm view of the segment to date. In particular, the recent increase in development projects mentioned above—which is reflected in the overall valuation of REITs but not in rental income over the past twelve months (the numerator of the implied cap rate formula)— is likely to distort the picture at this point and make data centers appear “more expensive” on the stock market than they actually are at present.

The ACM Sector Momentum at the end of the first quarter of 2026 is as follows for the various sectors:

CONCLUSION

After the first signs of the long-awaited recovery in the listed real estate market began to emerge at the start of the year, the outbreak of the Iran War in late February 2026 brought this recovery to an abrupt halt, at least temporarily. On both sides of the Atlantic, real estate stocks in most sub-segments are trading at a significant discount to net asset value. Exceptions include the U.S. healthcare, net-lease, and data center segments.

The increasingly negative impact of AI technology on investors’ assessments of future demand for office space is also evident. Consequently, many stocks in this segment are among the biggest losers of the first half of the year. The top performers for the first half are primarily found in the healthcare segment, which is experiencing structural growth.

For the listed real estate market as a whole, the combination of low valuations relative to the broader stock market and the lower susceptibility of real estate investments to disruption by AI (with the exception of the office segment) could prove advantageous in the medium term, provided interest rate trends in the coming months do not once again run counter to such a development.

DISCLAIMER

The information in this report is provided for informational purposes only and does not constitute investment advice, a recommendation, an offer, or a solicitation to buy or sell securities or other financial instruments. Past performance data cited in this report is not indicative of future results.

Economic and market information contained in this document is derived from publicly available sources prepared by third parties. AVENTOS Capital Markets GmbH & Co. KG assumes no responsibility for the accuracy or completeness of this information.

AVENTOS Capital Markets GmbH & Co. KG makes no warranty regarding the suitability, correctness, accuracy, or completeness of the information contained herein (including, but not limited to, information derived from third parties). Furthermore, AVENTOS Capital Markets GmbH & Co. KG expressly disclaims any responsibility or liability in this regard and assumes no responsibility for updating or correcting the information contained in this report.

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