Recovery in the rental housing market is happening, but it is moving at a slow pace.

Tenant demand is simultaneously resilient (due to the unaffordability of homebuying for first-time buyers) but also tepid (due to low job growth and working-age population growth).

The situation has only advanced incrementally from the summary we gave in our Q1 2026 residential update:

• While growth in new supply of all types of housing, multifamily and single-family, has fallen significantly, the sheer amount of housing built over the last five years has created an overhang that would take years to absorb even under normal demand conditions.

• Unfortunately, demand conditions are below-average, as growth in the labor market and working-age population are both anemic.

• Rental housing is benefiting from homebuying unaffordability across the United States, with affordability for first-time buyers still hovering near its lowest level in 40 years. This is keeping many would-be homebuyers in the rental market.

In short, rental housing is slowly recovering, not because of a rebound in tenant demand but rather because of a material decline in residential completions.

As of midyear, the US multifamily industry was on track for full-year net absorption roughly on par with 2025, which was also a good year.

We still say apartment demand is “tepid” because much of this demand is temporary in nature. There is growing pent-up demand to buy homes among these forced renters. If and when homebuying affordability falls, many of them will buy homes and exit the renter pool.

Even so, signed leases are positive, in any case. It is reassuring to see net absorption finally outpace completions again. This hasn’t happened in five years.

That shift toward positive net absorption has finally allowed the national average vacancy rate to peak and begin to fall, which it has done month-over-month for most of this year.

As the level of apartment completions continues to decline going forward, we are hopeful that the pace of recovery should accelerate over the next few years.

Inter-state migration patterns continue to favor Sunbelt states like Texas, Florida, Georgia, Arizona, Tennessee, and North Carolina, but that is also where the most new supply has been delivered in recent years.

As such, the weakest markets in terms of rent growth still tend to be Sunbelt cities, while supply-constrained non-Sunbelt markets like San Francisco, Chicago, and Honolulu continue to rebound from their pandemic doldrums.

While Sunbelt multifamily is currently weaker than California and New England apartments, we remain comfortable with our Sunbelt multifamily REIT holdings and believe that long-term performance will be strong.

Multifamily Executive recently reported that in 2026, once again, one-way U-Haul data shows that the fastest population growth is happening in Sunbelt states.

To quote Cushman & Wakefield’s Q2 2026 Multifamily Market Report:

The occupancy recovery is fastest where oversupply ran deepest... The sharpest compression hit the epicenters of the construction boom: Savannah, Huntsville, Charleston, Salt Lake City and Colorado Springs shed more than 135 bps in vacancy in a single quarter. These markets built some of the most, driving vacancy highest, but recoveries have begun as the pipeline tapers and demand holds. Rent growth should broaden from the coastal markets leading into these metros as remaining supply clears.

In other words, while non-Sunbelt markets currently enjoy better supply-demand dynamics, the scales should tilt back in the Sunbelt’s favor over the next few years.

Here’s how Apartment List’s August National Rent Report summarizes the current multifamily situation:

As the rental market nears the end of its busy summer leasing season, we are continuing to see signs that the tide is turning on the soft conditions that have defined the market for nearly four years. Since April, year-over-year rent growth has been ticking up and the vacancy rate has been ticking down, indicating that this is more than a single month blip in the trend. But despite the modest tightening of recent months, multifamily conditions remain notably cool overall, and an uncertain macroeconomic outlook presents risks to rental demand. The market is definitely turning the corner, but the shift is occurring gradually.

Let’s now turn to the earnings updates for our residential REITs:

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We are buying more VICI Properties (VICI) for the Retirement Portfolio and will continue to grow our currently small position into a larger one.

The trigger for this trade alert is simple: VICI just hiked its dividend again, pushing its dividend yield to a historically high 7.2%.

The hike itself was not substantial at 2.2%, but the message behind it matters far more than the size of the increase.

Over the past months, VICI’s share price has steadily drifted lower due to tenant-related fears.

First, the market became worried about the Caesars regional lease. Then came concerns about Caesars and MGM potentially going private, and what this could mean for VICI’s future rent payments.

Yet, despite all these fears, VICI has kept growing steadily, reaffirmed its full-year guidance, and now hiked its dividend.

To us, this sends a clear signal: management is not seeing the level of stress that the market appears to be pricing in. If they were seriously worried about a near-term hit to cash flow or the sustainability of the dividend, they likely would not be raising it today.

Why The Market Is Worried

There are two main concerns weighing on VICI.

The first is the Caesars regional lease, which represents about 22% of VICI’s rental income. Rent coverage has declined, and the market fears that this could eventually lead to a rent cut.

This is a real risk, but we think it is manageable. The lease still has nearly 10 years of remaining term, plus four additional 5-year extension options. Caesars cannot simply walk away from it unless it goes bankrupt, and VICI made it clear to us that it would not agree to any rent cut unless it received something of equal value in return.

We met with VICI’s CEO and CFO in person this summer in New York City and discussed this exact topic in detail. Our takeaway was that management is aware of the issue, but does not view it as an existential problem. If there is ever a negotiation, we would expect it to be structured as a win-win solution, potentially involving asset sales, tenant diversification, or other concessions that compensate VICI.

Even in a downside case, the impact would likely be manageable. If a lease representing 22% of rent were cut by 20%, that would reduce total rent by roughly 4%. That is not ideal, but it is also not a disaster, especially when VICI’s other leases have built-in rent escalators, and the company retains substantial cash flow for growth.

The second concern is that Caesars and MGM could potentially go private, reducing public market visibility into VICI’s biggest tenants.

Again, we understand why the market dislikes that. REIT investors prefer transparent, publicly listed tenants, especially when tenant concentration is high.

But we actually view these potential transactions as a net positive. If sophisticated casino operators are willing to put billions of dollars into these businesses, it validates the quality of VICI’s real estate and the value of its long-term leases. Private ownership may also allow these operators to think longer term, invest more heavily in their properties, and potentially create more value over time.

It could also accelerate tenant diversification if overlapping assets need to be sold to satisfy regulators.

Why We Are Buying

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This week, I will be attending the EPRA ReThink Conference in Milan, Italy, the biggest annual REIT conference in Europe. It brings together the leaders of Europe’s largest listed real estate companies, as well as a number of major U.S. REITs with investments in Europe.

I already have a one-to-one meeting scheduled with the CEO of Realty Income (O), and I also expect to meet with the leaders of Vonovia (VNA), Shurgard Self-Storage (SHUR), and VGP (VGP).

If you have any questions for any of these REITs, please let me know by posting them in the comment section below, sending me a direct message in the chat, or emailing me at jaskola@leonbergcapital.com.

I will share exclusive research from these one-to-one meetings with members of High Yield Landlord later this week and next week.

The conference will also include panels with leading experts on macroeconomics, geopolitics, and listed real estate valuations, which I also plan to attend.

Please also note that I may be a bit slower than usual to respond to messages this week because of the conference schedule. Thanks in advance for your patience.

Stay tuned for more soon, and please send me your questions as soon as possible so that I can ask them on your behalf.

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Finally, feel free to contact us anytime. You can send me a direct message on the chat or email me at jaskola@leonbergcapital.com

Sincerely,

Jussi Askola, CFA

Analyst’s Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. High Yield Landlord® (’HYL’) is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.

About a year ago, we decided to switch our position from Safehold (SAFE) to Star Holdings (STHO).

There were two main reasons for this decision.

First, it allowed us to realize a tax loss on SAFE, which we could use to offset other large gains.

Second, and more importantly, we thought that STHO would likely outperform SAFE going forward because it offered exposure to SAFE at a steep discount.

So far, this has proven correct. STHO has materially outperformed SAFE since then, and we believe that it could continue to do so as the liquidation progresses and the market slowly recognizes the value embedded in STHO.

As a reminder, STHO was created in 2023 as a spin-off from SAFE to manage the liquidation of certain legacy assets that no longer fit SAFE’s pure-play ground lease strategy.

But STHO was not just seeded with legacy assets. It also received 13.5 million shares of SAFE, and this is what makes the opportunity so interesting.

At the time of our investment, the value of STHO’s stake in SAFE was worth far more than STHO’s entire market cap. In other words, by buying STHO, we were getting indirect exposure to SAFE at a much lower valuation, and then getting the legacy assets on top of that for free.

The complication is that STHO also has a lot of debt and management costs. Therefore, the key questions have always been:

Are the legacy assets valuable enough to cover the debt?

How long will it take to monetize these assets?

Will shareholders ultimately be left with meaningful value after the liquidation is completed?

Those questions are difficult to answer because the assets are complex, local, and illiquid. They are not simple stabilized apartment communities or grocery-anchored shopping centers with easy comps.

This is why we were very grateful to find the research of Koneko Research, who has done significant work on these assets, including local property-level research that we could not realistically replicate ourselves.

We want to give full credit to them for this work. We do not have boots on the ground in Asbury Park or Magnolia Green, and we are very grateful that he has done this amount of work and shared it publicly. The following update relies heavily on his observations, but the investment conclusion is our own.

Before going into this update, I recommend first reading our investment thesis in case you are not familiar with STHO by clicking here.

What Has Changed?

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“Healthcare” is a catch-all term that includes four unique property types within commercial real estate:

• Medical outpatient buildings (”MOBs”)

• Life science / lab space

• Hospitals

• Senior housing / care facilities

Let’s briefly summarize the latest data on each sub-sector before turning to the Q2 2026 earnings updates for our four healthcare REITs.

Senior Housing

Senior housing continues to be by far the strongest sub-sector of healthcare real estate. The negative memories associated with the COVID-19 pandemic have faded, and occupancy rates at all types of senior-oriented facilities is surging higher.

This chart illustrates the degree of pain experienced by this sub-sector during the pandemic in 2020 but also the incredible strength it has enjoyed since then.

The national average occupancy rate has soared from less than 80% in 2021 to 90% today. Senior housing hasn’t seen this level of occupancy in over a decade.

There’s no end in sight to these tailwinds, given robust growth in the population of seniors as well as minimal development of new senior housing units.

Elevated interest rates and construction costs continue to suppress growth in the development pipeline, further extending the period of time in which existing supply faces minimal competition.

This translates into strong organic growth for senior housing landlords with SHOP (senior housing operating property) assets as well as stronger rent coverage for landlords of triple-net leased properties.

Medical Outpatient Buildings

Behind senior housing, the next strongest sub-sector of healthcare real estate right now is medical outpatient, formerly called “medical office buildings” (”MOB”). The industry switched to the “outpatient” terminology to differentiate these properties from the various forms of inpatient care facilities.

Medical outpatient tends to be one of the steadiest areas of commercial real estate. Like grocery-anchored shopping centers, MOBs tend to be quite recession-resistant but also limited in bottom-line growth capacity.

Traditionally, deliveries of new MOB supply have been closely correlated to net absorption. Over the last several quarters, however, net absorption has increasingly outpaced new deliveries.

As you can see, in Q2 2026, net absorption came in an astounding 1.3 million square feet higher than additions of new supply.

The natural result of this leasing strength is a precipitous drop in vacancies and available space (including sublease space).

Over the last year, the MOB sub-sector has enjoyed a sharp drop in available space on the market, which in turn leads to greater competition for the remaining available space.

As the vacancy rate continues to decline, we should see a gradual pickup in market rent growth. So far, the decline in vacancy has not noticeably increased rent growth.

Over time, however, we should see landlords capitalize on this lower vacancy rate to push rents higher and negotiate better lease terms.

As for most other areas of commercial real estate, the development pipeline for MOBs has shrunk over the last several years.

At exactly the time when construction should be increasing to match the growth in demand, it is actually shrinking. That is due, of course, to high interest rates and construction costs, which make the economics of ground-up development less attractive.

Again, this lengthens the period of time in which existing MOB properties enjoy depressed levels of new competition, creating a favorable environment for landlords (including REITs) over the next few years.

Hospitals

While most hospitals are leased on a triple-net basis, it is notable that operators continue to struggle with sub-optimal margins due to changes in government policy and reimbursement rates.

In particular, recent changes to the government-sponsored insurance market have resulted in a material reduction in the insured population. Uninsured patients often cannot obtain care outside of hospitals, which means that hospitals are extending care to more uninsured patients (thereby increasing operating expenses) while receiving little to nothing in compensation.

Running hospitals is simply a tough business. It is difficult to consistently turn a profit while performing the function that societies demand of them. That is, this is a difficult task unless the government steps in to subsidize them. When subsidies are reduced, profitability is reduced.

Life Science

Finally, we turn to the life science sub-sector. This is weakest part of healthcare real estate right now, but we see some green shoots that make us optimistic about the future.

First, we note that due to the huge level of development that occurred in the wake of the pandemic, deliveries have massively outpaced tenant demand since 2023.

This year, finally, additions of new space have fallen to a low level, but unfortunately, tenant demand continues to be weak.

As best we can tell, artificial intelligence is not having a significant impact on leasing. New formulations still need to be tested and verified in laboratory settings, even if AI programs assisted in their discovery.

Rather, we think pharmaceutical and biotech companies engaged in over-leasing of space in 2020-2021 amid a huge wave of government and private equity funding. Since then, they have been cutting back on excess space while an abundance of new buildings have come to market.

The vacancy rate has crept above 24%, while asking rent rates have drifted steadily down.

When leases are anywhere from 5 to 20 years in length, it simply takes a while for big shocks to work through the system into these numbers.

Now, all of the above is the bad news. What is the good news for life science real estate?

We see some green shoots signaling that better days are ahead, although we still cannot forecast how long they take to manifest.

First, developers have gotten the message about life science weakness in the market. The development pipeline has shrunk considerably.

There is now less than 5 million square feet of life science space under various stages of development, with about half of that concentrated in the premier research hub of Boston.

At this point, the amount of new speculative supply under development has dropped to an extremely low level.

Most of the current pipeline are build-to-suit buildings that are already preleased to their intended user.

With basically zero speculative supply coming to market at this point, the only thing required for a rebound is a pickup in tenant demand.

That’s where venture capital funding comes in. When it comes to biotech companies, which are the primary tenant base of life science real estate, the biggest determinant of leasing demand is VC funding commitments.

Fortunately, over the last four quarters, VC funding for life sciences companies has picked back up.

As long as this rebound in VC funding continues, we should see leasing volume from biotech tenants follow.

With such a large amount of vacant supply on the market, the life science recovery will inevitably take a long time. But we do think the cyclical trough has passed.

Better days are ahead.

With that, let’s turn to the earnings updates for our four healthcare REITs:

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We have repeatedly had success investing in newly listed REITs before they gained broader recognition from the market.

Essential Properties Realty Trust (EPRT) is probably the best example.

We invested relatively early in its history as a public REIT because we thought that it had the potential to replicate the highly successful model of STORE Capital. At the time, EPRT was still small, relatively unknown, and didn’t yet enjoy the premium valuation that it does today.

But we saw where things could eventually go.

As EPRT established a track record and gained greater recognition from REIT investors, its valuation expanded, lowering its cost of equity. This allowed it to raise increasingly large amounts of capital and reinvest it into new properties at attractive spreads over its cost of capital.

The result has been rapid external growth, rising FFO per share, and very strong returns for shareholders.

Today, we think that we may have identified another such opportunity, but this time, the potential external growth runway could be even larger.

A new data center REIT recently completed its IPO, raising roughly $2 billion of equity capital. It is still tiny compared to Digital Realty (DLR) and Equinix (EQIX), most of its capital hasn’t even been deployed yet, and its shares trade at roughly book value.

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The US retail real estate sector remains solid as a rock.

Nationwide average shopping center occupancy hovers around the mid-90% area (94% according to Cushman & Wakefield), which is effectively full occupancy. This is because there is always some level of frictional vacancy in the handoff between one tenant and another, and some elbow and corner spaces in centers are simply less desirable and harder to lease.

The historical average occupancy level is in the low-90% area, roughly 92.5%.

That needs to be kept in mind when we look at the slightly negative net absorption metric for the first half of 2026:

With occupancy as high as it is, there simply isn’t much more upside to net absorption. Meanwhile, new supply from completed space continues to be extremely low.

In such an environment, we should not expect much more than small moves up or down.

By all measurements, this is a tight rental market, which is favorable to landlords.

It is true that higher gasoline prices have eaten into the spending budgets of some consumers, mostly toward the lower echelons of the income spectrum.

But the US economy is extraordinarily K-shaped. While the paycheck-to-paycheck population is forced to cut back because of prices at the pump, they only accounted for a relatively small share of total consumption to begin with. Meanwhile, the affluent population barely notices the fluctuations in gasoline prices and continue to spend.

The net effect is steady growth in both nominal and real retail sales:

This resilience allows shopping center (and high-end mall) landlords to gradually re-merchandise their centers, replacing struggling tenants with new ones that better serve a resilient, affluent customer base.

As Cushman & Wakefield note in their Q2 2026 retail sector report, retail “spending is increasingly concentrated among the top 20% of earners, who now account for nearly 60% of personal outlays.”

Cushman & Wakefield forecasts that “well-capitalized retailers and those offering compelling value propositions” will continue to perform well for the foreseeable future. These include grocers, discount stores, and low-price gyms. Some types of discretionary retail, however, are susceptible to disruption as a broad swathe of the population cuts back on spending due to energy prices.

Overall, though, retail remains one of the most resilient, steady-growth sectors in the commercial real estate landscape.

The development pipeline has barely budged due to construction costs and interest rates, which means that at least the next few years should see little net growth in competing space. This extends the runway wherein landlords can push rents higher and re-merchandise their centers with stronger tenants.

With that, let’s get to the earnings updates for our four retail REITs:

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We are initiating a new small position in the Series J preferred shares of Digital Realty Trust (DLR.PR.J) for our Retirement Portfolio.

A few weeks ago, we published an article explaining why we thought REIT preferred shares had become increasingly attractive. REIT common shares have recovered substantially from their 2023 lows, with the broader equity REIT sector (VNQ) returning nearly 15% in the first half of 2026 alone, but many preferred shares have largely been left behind.

We think part of this disconnect is at least partially structural. Preferred shares are far less liquid than common equities, which makes it difficult for large institutional investors to deploy meaningful amounts of capital into them. When sentiment toward REITs improves, the common equity therefore tends to reprice first, while preferred shares remain more influenced by interest rates and retail income investors.

We are using this opportunity to increase our preferred equity exposure. At current prices, a number of high-quality REIT preferreds still offer yields in the 6-8% range, substantial discounts to their $25 liquidation preference, and much greater income stability than common shares, especially in the event of a major downturn.

Digital Realty’s Series J preferred is, in our view, one of the better combinations of safety and potential reward available today.

Buying Near The Bottom Of Its Historical Range

DLR-J currently trades at roughly $19.65 per share.

That is very close to its 52-week low and down sharply from trading above $23 a year ago.

At today’s price, investors are buying the preferred at roughly a 21% discount to its $25 liquidation preference while earning a current dividend yield of approximately 6.7%.

The reason for the large discount is not difficult to understand. DLR-J carries a coupon of only 5.25%. In today’s higher-rate environment, investors require a higher yield, which means the share price must trade below $25.

We therefore are not buying this with the expectation that Digital Realty will redeem the preferred anytime soon. It has already been callable since 2022, but redeeming 5.25% perpetual capital and replacing it with more expensive financing would not make sense.

Instead, we view this as a high-quality income investment with some potentially valuable upside optionality. We can collect roughly 6.7% while we wait, and if long-term interest rates eventually decline as we expect, the required yield on high-quality preferred shares should also decline. That could push DLR-J materially higher.

A return to $25 would represent roughly 27% capital appreciation from today’s price, on top of the dividends collected along the way. We are not underwriting a return to par, however. Even a recovery toward the low-$20s would produce respectable double-digit annual total returns when combined with the income.

One Of The Strongest Issuers In The Preferred Market

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International Workplace Group (IWG / IWGFF) remains our largest position, and its latest results only strengthened my conviction in the long-term thesis.

The market’s reaction has been quite different.

IWG’s shares remain depressed despite what I view as increasingly strong evidence that the business transformation is working.

I think investors may be asleep at the wheel here.

The headline first-half numbers were admittedly somewhat mixed. Revenue growth was excellent, but EBITDA barely moved and free cash flow was weak.

However, once you dig deeper into the numbers and, importantly, listen to management’s comments on the earnings call, I think the setup has actually become even more attractive.

The capital-light network is expanding at a record pace.

Revenue growth is accelerating.

They are aggressively buying back shares.

Management expects cash flows to surge in the second half.

And CFO Charlie Steel went considerably further than simply reiterating guidance. He indicated that he sees a good chance of exceeding the company’s $585-$625 million adjusted EBITDA guidance range.

If that happens, I think investors could finally begin to appreciate what this business is becoming.

The Thesis Ultimately Boils Down To Two Charts

Before getting into the quarterly numbers, I think it is worth stepping back because our IWG investment thesis ultimately boils down to the two charts below.

The first shows the rapid growth of IWG’s managed and franchised business.

The number of managed and franchised rooms has risen from roughly 154,000 in the first half of 2024 to 358,000 today, and based on the existing signed pipeline, management expects this to approach 600,000 by the end of 2027.

Recurring management fees are following the same trajectory, rising from just $7 million in the first half of 2024 to $35 million in the first half of 2026, with management forecasting continued rapid growth from here.

This is transforming the economics of IWG.

Historically, the company grew primarily by signing leases, investing significant capital into new centers, and taking the occupancy risk itself.

That made the business capital intensive, cyclical, and relatively risky.

The new model is completely different.

Increasingly, landlords provide the real estate and most of the capital, while IWG contributes its brands, distribution, technology, customer network, and operating platform.

IWG then earns recurring fees from operating these locations.

As this part of the business becomes a larger share of the group, IWG should become:

• less capital intensive

• higher margin

• faster growing

• more cash generative

• less exposed to lease liabilities

• less risky

• more recurring and fee driven

And yet, this improvement in business quality is occurring at the same time that overall growth is accelerating.

That combination is what makes the opportunity so compelling.

Usually, investors have to choose between a mature, high-quality business and a faster-growing but riskier one.

IWG is potentially moving in the opposite direction: its growth is accelerating while its business model simultaneously becomes higher quality.

The second chart captures why this matters so much for the valuation.

Management compares IWG’s evolving model with the hotel industry, and I think the analogy is useful.

Large hotel brands such as Hilton, Marriott, and IHG have spent decades moving away from owning or leasing hotels themselves and toward capital-light management and franchise models.

The result is highly recurring fee income, strong free cash flow conversion, high returns on capital, and much higher valuation multiples.

IWG is increasingly following a similar playbook in flexible office space.

Of course, IWG is not Hilton or Marriott today, and I would not argue that it deserves the same valuation multiple overnight.

But the gap is enormous.

The chart shows IWG trading at roughly 5x estimated 2027 EBITDA compared with high-teens or approximately 20x multiples for the major hotel platforms.

The exact multiples are less important than the direction of travel.

If IWG continues to become more capital light, more fee driven, more cash generative, and less risky, then I don’t think today’s valuation will make sense indefinitely.

This is why we see multibagger potential.

We don’t need IWG to suddenly trade at 20x EBITDA.

If earnings continue growing, the share count keeps shrinking, free cash flow improves, and the market gradually awards IWG even a moderately higher multiple as the business quality improves, the upside from today’s valuation could be enormous.

And the latest results suggest that this transformation is accelerating.

Growth Is Accelerating

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Iron sharpens iron.

As we have explained in the past, we do not unquestioningly take buy or sell cues from any other investors. But at the same time, we consider it part of our job to know what other active REIT portfolio managers are doing and why. We are always open to hearing other active managers’ ideas and perspectives, and we are always interested in their recent portfolio moves.

That is the spirit behind this article, which will cover the Q2 2026 buys and sells of several active managers of REITs.

Starwood Capital Group Management

We start, as usual, with Barry Sternlicht’s commercial real estate investment company, Starwood Capital Group.

As you can see below, Starwood did not make any buys or sells during the second quarter.

Why then do we highlight it?

Quite simply, we show Starwood’s small REIT portfolio as an example of what long-term investing looks like. Notice the column on the far right. Starwood’s multifamily REIT holdings have all suffered unrealized losses, some significantly so. And yet, Sternlicht continues to hold them.

Why?

Because he has conviction in the long-term investment thesis.

Sternlicht continues to believe that these multifamily REITs will thrive in the coming years. Otherwise, he would not continue to hold them. While First Industrial (FR) and Janus Living (JAN) have already proven to be strong performers, the bull case for apartment REITs has yet to play out.

That is a normal and expected part of investing. Sometimes macroeconomic or microeconomic events occur that set back the timing of an investment thesis without completely destroying it.

It is some comfort to know that even highly successful commercial real estate investors like Sternlicht cannot time the bottom.

To quote Sternlicht from the Q2 2026 Starwood Capital (STWD) earnings conference call:

Almost all the real estate asset classes here and in Europe are in repair. I mean everything is getting better. If you look at all the equity REITs in the multifamily sector and logistics sector, self-storage, senior housing, everything is getting better. That’s basically driven by steady demand and rapidly deteriorating or nonexistent supply.

... And you’re beginning to see improvements in rent in the multi-sector, which we’ve been waiting for, God knows, how many quarters. But the markets are absorbing. There’s still new supply completing and things are getting better market by market. Basically, the weakness is in the Sunbelt cities, and it’s pretty strong on the 2 coasts, given nobody was building in California or New York City.

... I mean, [the multifamily REITs are] all different geographies, but they’re all talking about a pretty good year in back half of ‘26 and really good in ‘27 and stupendous in ‘28 is the kind of comments from those management teams.

In an age of speed and speculation, patience takes extraordinary strength of will. But we think that patient investors will win in the end.

Land and Buildings Management

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We are buying more shares of Shurgard (SHUR / SSSAF) following its roughly 10% drop after second-quarter results.

The results were disappointing.

The recovery in European self-storage is taking longer than we expected, and management materially reduced its 2026 guidance.

But after reviewing the numbers closely, we do not think the long-term thesis has changed.

If anything, the sharp decline in the share price has made the valuation even more compelling, and it also makes a potential eventual acquisition by Public Storage (PSA) increasingly interesting.

A Quick Recap Of The Investment Thesis

Shurgard is the leading self-storage platform in Europe.

We have been bullish because European self-storage remains far less mature than the U.S. market.

The same basic demand drivers exist on both sides of the Atlantic: relocation, divorce, death, downsizing, renovations, home-office needs, and other life events that create a need for extra space.

But Europeans generally live in smaller homes and more urban environments, while the amount of self-storage space per capita remains only a fraction of U.S. levels.

In other words, the demand drivers are already there, but the supply of professional self-storage remains much less developed.

We think this gives leading operators such as Shurgard a very long runway for new development, occupancy growth, and market consolidation, as the concept grows in popularity over time.

The problem over the past few years has been temporary oversupply.

The pandemic initially caused a boom in self-storage demand, encouraging developers to build aggressively. Much of that new capacity arrived from 2023 through 2025 just as pandemic-related demand normalized.

The result has been weaker pricing power and slower growth.

Our thesis has always been that this is a temporary normalization period rather than a structural problem with European self-storage.

We expected the recovery to become increasingly visible in 2026 and accelerate more meaningfully thereafter.

The latest results suggest that the recovery is happening, but unfortunately, it is taking longer than we expected.

What Went Wrong?

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This year, the 10-year Treasury rate has surged 50 basis points from around 4.2% at the start of the year to ~4.7% as of mid-August.

It would be tempting to think that the current dip in the REIT index has something to do with that.

We do not think it does.

Instead, we think REITs basically trade like “anti-AI” stocks this year. In April and May, REITs (VNQ) flatlined as technology stocks (XLK) surged to a new all-time high. At the beginning of June, tech peaked at the same time as REITs troughed.

Then from June through late July, REITs rallied while tech slid. In late July, REITs peaked at the same time as tech troughed.

So far in August, the trend appears to have reversed yet again, sending REITs lower and tech higher.

While frustrating for the REITs themselves, we see a silver lining here. While broad-based stock market indices grow increasingly tied to the AI trend, REITs are acting as a true diversifier.

For the many investors whose portfolios are directly or indirectly concentrated in AI-related stocks, REITs have never been more important to hold as a hedge.

If (when?) the AI bull run breaks down, REITs should hugely benefit as one of the primary beneficiaries of a market rotation.

But what about inflation? As we have explained in the past, REITs are among the most inflation-sensitive categories of stocks, largely because they are among the most interest rate-sensitive.

The strange thing is that long-term interest rates have diverged from inflation as measured by the CPI.

Many investors fear that elevated oil prices will trigger a much broader uptrend in inflation. That fear could be partially fueling the rise in long-term interest rates.

But for several months now, we have argued that the current spike in the CPI is overwhelmingly driven by oil and will prove temporary. The underlying disinflationary trend remains in place. The economic ingredients for a broad-based inflationary uptrend simply are not present.

Let’s dive into the latest July 2026 CPI data to explain this macro outlook.

July 2026 CPI Still Shows Disinflation

The primary drivers of above-2% inflation continue to be:

1. Shelter / Housing

2. Oil

But the more volatile of those two is oil. That’s why the huge spike in the CPI this year basically follows the price movements of WTI crude oil.

Notice from the above chart that both headline CPI and core CPI (excluding food and energy) appear to be returning to their pre-war downward trend.

Looking under the hood, we find that most components of the CPI are under control and showing no signs of rebounding.

Notably, shelter and non-food/energy goods appear to be returning to disinflationary trends, as we’ll explore more below.

The biggest swing factor is oil. Note that gasoline surged 21% in March as the Iran war began, then rose another 5.4% in April and 7% in May. At that point, negotiations pushed the conflict toward de-escalation, allowing the Strait of Hormuz to gradually reopen. Gasoline prices then declined in June and July. WTI crude oil may have rebounded somewhat in July, but so far gasoline prices (at the pump) have only inflected slightly higher.

We still think inflation has peaked and will be lower by the end of the year.

Cost-Side Pressures Are Limited

Inflationary pressure can basically come from two angles: The input cost side or the consumer/customer demand side.

Cost-push inflation is when input costs have sustainably risen, forcing businesses to raise prices in order to defend their margins.

Demand-pull inflation is when too much consumer/customer money chases a limited number of goods and services, giving suppliers pricing power to raise their rates.

Higher petroleum prices are on the cost side. But oil prices are notoriously volatile, and businesses are reluctant to raise their own prices solely because of higher oil prices.

After peaking in May, the global oil market has been taking steps to shift supply chains and re-route volumes in order to minimize reliance on the Strait of Hormuz.

As such, even with the Iran conflict ongoing, both the Energy Information Administration and the futures market forecast US oil prices to continue sliding over the remainder of 2026 and into 2027.

The futures market forecasts WTI crude to hover around $70 for most of 2027, while the EIA sees it falling to $60 by year-end.

The point here is that oil prices are not high enough to cause meaningful cost-push pressure, and the situation is likely to get better, not worse, over the next year or so.

What about the producer price index (”PPI”), which has bumped higher over the last 6 months

On the surface, this looks like a concerning sign of cost-push pressure.

But again, when you look under the hood, you’ll find that these input cost pressures are not broad-based at all. Instead, they are highly concentrated in AI-related technology goods.

Will this cause the prices of consumer electronic products to rise? Yes. It is already doing that.

But consumer electronics make up only a tiny fraction of overall CPI.

To get a better sense of trends for the bulk of the CPI, let’s look at the biggest components: Shelter, Food, and Goods Ex. Food & Energy.

As we’ve explained in recent months’ CPI reports, the government shutdown in September-October 2025 led to a quirky bounce in shelter CPI metrics six months later in April-May 2026.

CPI Rent of Primary Residence (Blue) & Owners’ Equivalent Rent (Green) YoY:

That quirk has now passed, and shelter metrics now appear to be resuming their disinflationary path.

While frustratingly slow, the government’s shelter metrics are gradually converging back to real-time rent indices compiled by private sector organizations (Apartment List and Zillow).

While the real-time shelter index shows an extremely low rent inflation rate of 0.53%, the CPI’s shelter metric still shows over 3% YoY growth.

Before COVID-19, these two ways of measuring shelter inflation were much closer to each other and more tightly correlated. Eventually, they should re-converge.

As that happens over time, headline and core CPI should gradually compress toward real-time inflation.

It is sobering to think about how much impact the severely lagging shelter metrics have on the CPI and, by extension, Federal Reserve monetary policy.

But the disinflationary trends are not confined to housing.

Both food at home (groceries) and food away from home (restaurants) inflation remain under control, as of July’s data.

CPI Food At Home (Blue) & Food Away From Home (Green) YoY:

This flies in the face of the narrative that oil prices will cause prices of other goods, like food, to rise. Prices do continue to creep up, but not at a faster rate than before the war began (if you combine both groceries and restaurants).

Next let’s look at “commodities less food and energy commodities,” which is basically tantamount to all other goods besides food and energy. The biggest sub-components here are new and used cars, appliances, furniture, apparel, and healthcare products.

CPI Goods Excluding Food & Energy YoY:

After a bump in prices in this broad category of goods in the second half of 2025, driven largely by tariff pass-through, inflation here now appears to be cooling back down.

It takes time for tariff costs to be fully passed through the final customers, and the US presidential administration has recently imposed new tariffs.

But while tariff pass-through inflation is not completely over, peak pressures have likely passed.

Demand-Side Pressures Mostly Absent

So much for cost-push inflation. Let’s now look at the other side of the ledger: the demand side.

The biggest and most obvious source of demand-side inflationary pressure is growth in the money supply, especially when the money supply grows significantly faster than nominal GDP.

From multiple angles, current money supply growth does not seem to be contributing to demand-side inflationary pressure.

First, current money supply growth of ~5.5% YoY remains below the 30-year average growth rate of 6.3%.

Second, that money supply growth rate is also below nominal GDP growth of over 6%.

The biggest contributor to broad-based inflation is simply not a factor today.

Another major source of broad-based inflation is strong wage growth, which can cause a wage-price spiral.

After the major spike in wage growth coming out of the pandemic, US wage growth has now collapsed back to a fairly modest rate of 3.2% YoY.

Combine this data with the (related) data on weak jobs growth over the last several months and you get very muted upward pressure on inflation from consumers.

American consumers are definitely still spending. But given limited job and wage growth, capacity to increase aggregate consumption is likewise limited.

On top of that, a very low saving rate of 2.7% is about half of the long-term average. Rarely has it gone lower than it is today.

This indicates that consumers on the whole are tapped out. There is no room to increase spending, and there is little capacity to absorb price hikes.

In short, then, demand-pull inflationary pressures look extremely limited, and mostly getting weaker.

Bottom Line

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We are buying more shares of National Health Investors (NHI) following its roughly 5% drop after second-quarter results. We bought another 50 shares, expanding our position size by 10%:

We recently initiated our position because NHI has become a much more attractive senior housing REIT following its recent transformation.

The company sold its NHC portfolio for $560 million, substantially reducing skilled nursing exposure, removing a major governance overhang of having a related-party tenant, deleveraging its balance sheet, and freeing up hundreds of millions of dollars to reinvest into private-pay senior housing to become a quasi-pure-play senior housing REIT.

That is exactly where we want the company allocating capital.

Senior housing fundamentals remain exceptionally strong. Demand is accelerating as the population ages, while new construction remains historically low because of high interest rates and elevated construction costs.

This has driven huge gains for senior housing REITs such as Welltower (WELL), but their valuations have also expanded dramatically.

But NHI remains much cheaper.

It trades at 14.6x FFO and offers a dividend yield of around 5%, despite having very low leverage, improved governance, and rapidly increasing exposure to senior housing operating properties.

Following the latest results and conference call, our thesis remains intact.

We think the market is focusing too much on short-term weakness in a small legacy portion of the portfolio while overlooking the much bigger transformation underway.

Why Did The Stock Drop?

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We are buying more shares of Sun Communities (SUI).

REITs have performed very well so far this year, rising by roughly 10% on average as improving fundamentals, accelerating rent growth, the AI immunity trade, and increased M&A activity have all helped boost market sentiment.

But while this rally has lifted the share prices of most REITs, some specific names have missed out.

Sun Communities is one of them.

Instead of rising by roughly 10%, its share price is down by about 4% year-to-date.

We think that this significant underperformance is an opportunity.

SUI owns one of the highest-quality portfolios in the REIT sector, with a strong focus on manufactured housing and RV communities in the United States. These are highly attractive assets with durable long-term growth prospects, limited new supply, and strong demand.

Yet today, the stock is underperforming.

Why?

We suspect that the main reason is its recent transformative transaction. SUI announced that it would sell its UK portfolio of manufactured housing communities, deleverage its balance sheet, and refocus on its core American operations.

The REIT market often reacts negatively to this type of news in the short run.

When a REIT sells assets, near-term cash flow can decline before the proceeds are fully reinvested. There can be timing issues. FFO per share may temporarily dip. Quarterly results can become a bit messy.

And since most investors are overly focused on short-term numbers, sentiment can turn negative even when the transaction creates long-term value.

We think that is what is happening here.

The market is focusing on the near-term bumpiness, while missing the bigger picture.

Why We Like The Transaction

We think this is the right move.

SUI’s expansion into the UK was never well appreciated by the market. Many investors questioned whether the company truly had a competitive advantage so far away from its core US markets. The UK assets also did not perform as well as SUI’s US assets, and the expansion increased leverage at a time when investors became much more concerned about interest rates and balance sheet risk.

The new management team is now effectively undoing that mistake.

They are selling the UK assets, refocusing the company on its stronger US platform, paying down debt, and buying back stock at a discounted valuation.

That is exactly what we want to see.

The US manufactured housing business remains highly attractive.

These assets benefit from one of the strongest secular tailwinds in real estate today: the housing unaffordability crisis.

Single-family homes have become increasingly unaffordable, especially after the high inflation of recent years and the sharp increase in mortgage rates. For many households, traditional homeownership is simply out of reach.

Manufactured housing offers one of the few viable alternatives.

Residents can still own their homes, but at a much lower cost than buying a traditional single-family house. This makes manufactured housing relatively more attractive when housing affordability is poor.

That is exactly the environment we are in today.

Demand for affordable housing is very strong, but new supply of manufactured housing communities is extremely limited. Local opposition is high, permitting is difficult, and few municipalities want new communities built nearby. There is virtually no new supply in this property sector for these reasons:

This combination of rising demand and limited supply creates strong pricing power for existing communities. It explains why rents have continued to rise and why same-property NOI growth has been so strong.

This is why manufactured housing REITs have historically been some of the best-performing REITs over long periods of time.

SUI owns one of the best portfolios in the sector, and its US operations are still doing very well.

The issue is not the quality of the business.

The issue is near-term uncertainty from the portfolio repositioning.

We think that the market is overreacting to that uncertainty.

Aggressive Buybacks Create Value

One of the biggest reasons we like this situation is that SUI is using the weakness in its share price to buy back stock aggressively.

This is exactly what a REIT should do when it trades at a large discount to NAV.

Instead of issuing equity to grow at any cost, management is shrinking the share count and increasing each remaining shareholder’s ownership in the underlying real estate.

During and after the second quarter, SUI repurchased approximately $200 million of common stock. Year-to-date, it had repurchased approximately $260 million of stock, and since launching its repurchase program last year, it has bought back about $800 million of stock.

That represents roughly 5.1% of the common shares outstanding at the time the program began last year.

The company still has approximately $800 million remaining under its current share repurchase authorization.

These are not token buybacks. These are some of the most aggressive buybacks in the entire REIT sector.

That speaks very highly for the opportunity. Management clearly believes that the stock is undervalued, and we agree.

SUI is currently trading near one of its cheapest valuations in about a decade. Its price-to-FFO multiple is around 16x, compared to a historical average closer to 22x, despite having one of the strongest portfolios and balance sheets in its history with low 3.7x Debt-to-ETBITDA.

It also trades at roughly 0.8x of its already depressed NAV, meaning that the public market is valuing its real estate at a meaningful discount to private market value. Its cycle peak NAV was estimated to be $207 per share and it has already been marked down to $145 as cap rates expanded. In comparison, its share price is currently at $118:

This makes buybacks highly accretive.

When a REIT buys back shares at a large discount to NAV, it is essentially buying its own real estate for a steep dsicount. That creates value for remaining shareholders, especially when the assets are high quality and the balance sheet is also improving.

This is the right type of capital allocation.

Not all REIT buybacks are smart. Some REITs buy back stock just to signal confidence, even when leverage is too high or the discount is not meaningful.

But in SUI’s case, the buybacks make a lot of sense.

The stock is cheap.

The assets are high quality.

The company is simplifying its business.

The balance sheet is improving.

And the long-term growth prospects remain attractive.

That is exactly the type of setup we like.

The Market Is Missing The Long-Term Picture

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Net lease REITs account for 23% of our Retirement Portfolio, acting as the sturdy anchor of moderate yield and consistent, reliable, inflation-matching or -beating dividend growth.

They have been performing their job well this year, even amid war, oil price spikes, and rising interest rates.

That said, in recent days, net lease REITs (NETL) have dropped in price as the relentless upward march of long-term interest rates finally begins to take a toll.

YCHARTS

The market yield of BBB corporate bonds stands as a good proxy for net lease REITs’ average cost of debt.

As you can see, up until the last month or two, net lease REIT prices remained highly negatively correlated to corporate BBB yields. When yields fell, net lease REIT stock prices rose. When yields rose, net lease REIT stock prices dropped.

We believe that from the beginning of the Iran conflict through sometime midyear, the market was looking through the current inflationary spike, seeing it as a temporary and oil-driven phenomenon.

That, we think, is why net lease REITs climbed right alongside corporate bond yields for much of the last few months.

The month of July was especially good for net lease REITs, despite sharply rising interest rates. We think this is likely the result of a rotation from growth to value within the stock market. Funds flowed out of AI-related stocks and into value-oriented stocks, including net lease REITs.

As Q2 earnings results have come out, the market’s concerns about the AI trend have eased. Earnings growth continues to soar among the AI-related names, and capex plans are only rising. Funds now seem to be flowing back into growth stocks.

YCHARTS

So, is the growth-to-value rotation trade definitively over? Or is this just a brief pause?

Your guess is as good as ours.

Price discovery is hardest during periods of great uncertainty and unknowns, when rapid technological changes are creating legitimate macroeconomic debates about future GDP growth, productivity growth, labor market changes, and impacts on inflation. Add to the AI-related uncertainties the ongoing conflict in the Middle East, which may be escalating one day and deescalating the next.

The point is that high confidence about the trajectory of the macroeconomy or fund flows within the stock market is unmerited right now.

Fortunately, while we pay attention to macroeconomics, we are not macro investors.

At High Yield Landlord, we are fundamental value investors.

We believe that buying fundamentally solid assets at a discount to their fair value results in strong long-term performance.

That allows us to sleep well at night even as macroeconomic fluctuations and day-to-day developments in the AI mega-trend thrash REIT stock prices up and down.

Here’s the bottom line: Our four net lease REITs continue to grow both AFFO per share and dividends.

In the short run, stock prices swing up and down based on the news headlines. In the long run, stock prices remain tethered to AFFO per share.

Let’s turn now to the Q2 2026 earnings results for our net lease REITs.

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We are initiating a small position in the Series H preferred shares of Pebblebrook Hotel Trust (PEB.PR.H) for our Retirement Portfolio.

Pebblebrook is one of the largest owners of upper-upscale and luxury lifestyle hotels in the United States. Its portfolio includes 43 hotels across major urban and resort markets, including Boston, San Diego, San Francisco, Los Angeles, Washington, D.C., Key West, and Naples.

Hotel REIT common shares have rallied sharply as operating conditions have improved. Pebblebrook’s common equity, for instance, has nearly doubled from its recent lows as investors have increasingly recognized that its cash flow recovery is gaining momentum.

But Pebblebrook’s preferred shares have largely missed this rally.

The Series H preferred shares continue to trade near $18, offering a yield of approximately 8% and a nearly 30% discount to their $25 liquidation preference.

We believe this disconnect has created an attractive opportunity.

The preferred shares are materially safer today than they were a year ago, but their valuation has barely adjusted to reflect the improvement.

The Hotel Recovery Is Gaining Momentum

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We are issuing a trade alert today to let you know that we are selling our position in SEGRO plc.

Before getting into the details of the trade, I want to take a small victory lap.

This is already our fifth buyout of 2026.

First, National Storage REIT received a buyout offer.

Then came Whitestone REIT.

Then Sila Realty Trust.

Then Caesars Entertainment.

And now SEGRO.

This is not a coincidence.

We have said for a while that M&A activity would likely accelerate across listed real estate companies because valuations had become far too low relative to private market values. Strategic buyers, private equity firms, and other well-capitalized investors are now taking advantage of the public market’s excessive pessimism.

And we are benefiting from that.

Time and time again, we have managed to identify potential buyout targets before the deals were announced. This has now become an important source of value creation for our portfolios.

SEGRO is yet another example.

We bought SEGRO because we believed that the market had become far too pessimistic about European industrial real estate. Investors were worried about interest rates, economic weakness, and a temporary slowdown in leasing activity. But we thought that the market was missing the bigger picture.

SEGRO owns a high-quality logistics portfolio in some of the best European markets. These assets are difficult to replicate, benefit from long-term demand growth, and remain very valuable in the private market.

Prologis clearly agreed.

And this was not Prologis casually testing the waters. This was reportedly Prologis’ fourth proposal. SEGRO had already rejected three previous approaches before Prologis finally came back with a “best and final” offer that the board was willing to recommend.

That matters. Prologis is not some small financial buyer. It is the largest and most sophisticated industrial landlord in the world. It knows this asset class better than anyone, and yet it was willing to repeatedly increase its offer to acquire SEGRO.

In my view, this says a lot about the value of SEGRO’s portfolio and, more broadly, about the discount that still exists in European industrial REITs.

The public market had been pricing SEGRO as if European logistics real estate had permanently lost its appeal. Prologis clearly disagreed. It saw value where the public market saw risk, and it was willing to pay a large premium to gain control of the platform.

That is a strong validation of our thesis.

Why We Are Selling Now

We are selling because most of the upside has now been realized.

Prologis is offering 0.0920 Prologis shares for each SEGRO share, with a capped partial cash alternative. This means that from here, SEGRO is no longer really trading based on its own fundamentals. It is now mostly tied to the value of Prologis shares and the closing of the merger.

If Prologis shares go up, SEGRO should generally benefit.

If Prologis shares go down, SEGRO should generally fall as well.

In other words, holding SEGRO from here increasingly becomes an indirect bet on Prologis.

That is not what we originally signed up for.

We bought SEGRO because we believed it was an undervalued European industrial REIT with a high-quality portfolio, attractive long-term growth prospects, and upside as the market eventually recognized its value.

That thesis has now played out much faster than expected through a buyout.

But we do not view Prologis as nearly as compelling today. Prologis is a world-class REIT, but it is also much larger, more widely followed, and in our view, much closer to fair value.

We would not necessarily be buying Prologis today at current levels, so we do not want to indirectly own it through SEGRO just to capture the remaining merger spread.

At this point, SEGRO has become more of a merger arbitrage position.

That is not our game. We are not merger arbitrage investors. We are REIT investors. Our goal is to identify undervalued real estate companies before they are discovered by the broader market or acquired by larger players.

Once a deal is announced and most of the upside has been captured, we typically prefer to take the money off the table and look for the next opportunity.

What Are We Doing With The Proceeds?

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The REIT recovery is gaining momentum.

The Vanguard Real Estate ETF (VNQ) has generated a total return of approximately 55% from its late 2023 lows, while the broader equity REIT sector delivered a total return of nearly 15% during the first half of 2026 alone.

This is not surprising. REIT fundamentals have remained resilient, property values are stabilizing, interest rate fears have eased, and institutional investors are returning to the sector. As sentiment has improved, common shares have repriced rapidly.

But one corner of the REIT market has largely missed the recovery:

Preferred shares.

Many REIT preferreds continue to trade between $17 and $21 per share, despite generally having a $25 liquidation preference. Investors can still earn dividend yields of 6%–10%, while potentially enjoying meaningful appreciation if these securities eventually recover toward par.

The disconnect is particularly interesting because many underlying REITs are becoming safer. Cash flow is growing, leverage is declining, and rising common equity values are increasing the cushion beneath the preferred shares.

Yet many preferreds remain priced as if the REIT bear market had never ended.

Why Preferred Shares Are Often Slow to Recover

Our view is that the explanation is primarily structural.

REIT common shares generally trade millions of dollars daily, allowing institutions to establish meaningful positions quickly.

Preferred shares are different. Many issues trade only a few thousand shares per day. Pebblebrook’s Series H preferred, for example, often trades fewer than 10,000 shares daily. At approximately $18 per share, even 10,000 shares represent less than $200,000 of trading volume.

A large institution cannot build a meaningful position without moving the price substantially. When sentiment improves, institutional capital therefore enters through the liquid common equity first. Preferred shares remain dominated by smaller income-oriented investors, whose decisions tend to be driven more by current yields and interest rates than by changes in property values, forward EBITDA, or private market NAV.

This can cause preferred shares to reprice much more slowly than common equity, creating an opportunity for smaller and more agile investors.

Why Preferred Shares Fit Our Retirement Portfolio

Preferred shares sit between common equity and debt in the capital structure. They rank ahead of common shareholders for dividends and liquidation proceeds, but they generally do not participate directly in the long-term growth of the business. Their dividends are fixed, and the issues are typically perpetual unless the company chooses to redeem them.

This makes them suitable for the income-oriented portion of our Retirement Portfolio. They can provide predictable income, priority over the common dividend, less dependence on earnings growth, and upside when purchased below the $25 liquidation preference.

Preferreds can still decline when credit spreads widen, or interest rates rise. But their fixed dividends and seniority can stabilize portfolio income and reduce dependence on common-share appreciation.

The key is to avoid reaching blindly for the highest yield.

What We Look for in a REIT Preferred

A preferred share trading at a discount is not automatically cheap.

The $25 liquidation preference is not a guaranteed future price. Most REIT preferreds are perpetual, and redemption is entirely at the issuer’s discretion. A company is unlikely to redeem a low-coupon preferred if replacing it would require more expensive capital.

We therefore focus on six criteria:

• Reasonable leverage: A modest decline in property values should not threaten the preferred equity.

• A substantial common equity cushion: Common shareholders absorb losses before preferred shareholders suffer an impairment.

• A manageable preferred layer: Preferred equity should represent a relatively small portion of the capital structure.

• Strong dividend coverage: Recurring cash flow should cover the preferred dividend several times over.

• Manageable debt maturities: The company should have adequate liquidity and no refinancing cliff that could force distressed asset sales.

• Attractive valuation: We ideally want a price below $21, a yield above 6%, and either an improving credit profile or a credible path toward price appreciation.

After reviewing a large portion of the REIT preferred market, the following eight issues stood out. Prices and yields are approximate as of early August 2026 and will fluctuate. Limit orders are essential because many of these securities are thinly traded.

1. Digital Realty Series J (DLR.PR.J)

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Recent data solidifies the thesis that US industrial real estate has passed its cyclical trough and begun a gradual rebound.

You might not have noticed any cyclical trough, especially not if your primary exposure to industrial real estate is through geographically diversified industrial REITs. That is because the fundamentals for industrial have been so strong and steady that the wave of new supply over the last few years has been steadily absorbed.

Solid economic growth has sustained demand from the usual suspects like third-party logistics, e-commerce, physical retail, manufacturing, and construction supplies, but the nationwide data center buildout has introduced another source of demand, especially for big box warehouses.

To be clear, the analyst consensus forecasts a modest, gradual rebound. It would require some unforeseen catalyst to bring about another leasing boom.

Some pundits believe that a new US manufacturing boom is coming, and that will fuel another strong wave of industrial leasing demand. We are vigilantly watching out for signs of such a manufacturing boom, but so far we don’t see any.

Let’s look at some charts that illustrate the current situation for industrial real estate.

First, after three consecutive years of supply growth outpacing leasing demand growth, the first half of 2026 has finally balanced supply and demand.

Demand appears to have bottomed in 2024 and rebounded slightly in 2025. This year, it is expected to rebound a little more.

Asking rent rates rose 2.9% YoY in Q2, up from 2.1% in Q1.

Meanwhile, on the supply side, the development pipeline remains muted, having ticked up only slightly in Q2 2026.

With construction costs and interest rates still high and market rent growth only just beginning to grow again, it looks unlikely that another surge in new construction will manifest anytime soon.

A little over 1/3rd of the development pipeline is preleased, meaning that about 2/3rds is being built on spec (or speculation that it will be leased). Generally speaking, the lower the spec pipeline, the better for existing properties. But this percentage of spec, combined with the relatively small overall pipeline, guarantees a low level of downward pressure on rent rates over the next few years.

Unless you have been on an expedition to Antarctica over the last three years, you know that the primary driver of economic growth today is artificial intelligence and its related infrastructure buildout. That trend has reached into the industrial real estate space as well.

Over the last decade, the majority of all growth in US manufacturing output has come from technology-related products, and that growth has accelerated over the last few years as a result of the AI trend.

US Tech Manufacturing (Blue) vs. US Non-Tech Manufacturing (Green):

Notice in the above chart that non-tech manufacturing has been in a slow, steady downtrend over the last decade. It has seen a slight rebound over the last year or so, but much of that is due to second- or third-order beneficiaries of the AI infrastructure buildout.

We’ve been watching for signs of a manufacturing resurgence in the United States, because we’ve heard plenty of pundits predict one coming. But so far, we are not seeing signs that one is on the way.

Economic research has found very little net effect on US manufacturing of the tariffs in 2018-2019, and tariffs appear to be having a similarly muted impact on manufacturing in 2025-2026 as well.

Whether you liked or disliked it, the massive government infrastructure spending bills passed in 2021 and 2022 did prove effective at boosting construction of new manufacturing capacity.

If you want private companies make huge investments they otherwise wouldn’t make, you have to pay them to do so.

On the other hand, supply chain workarounds and price increases can mitigate the potency of tariffs.

For example, the “Liberation Day” tariffs of 2025 caused a sharp drop in goods imports from China, but within a few quarters, American importing companies shifted their supply chains to other Asian countries. Now, overall goods imports from Asia is higher than before “Liberation Day” and back to growth.

As long as import workarounds are possible, a significant wave of reshoring is unlikely to occur.

That is good news for our Southern California industrial REIT Rexford Industrial (REXR), whose industrial properties across SoCal directly or indirectly benefit from higher throughput volume at the ports of LA and Long Beach.

Meanwhile, the AI infrastructure buildout has benefited all three of our industrial REITs by creating a new source of leasing demand. It appears that big-box warehouses have been the primary property type to benefit.

This is good news for First Industrial (FR), our only industrial REIT that focuses on owning and developing big-box logistical facilities.

So far this year, Sunbelt industrial blue-chip EastGroup Properties (EGP) has performed best, boasting ~20% total returns, followed closely by First Industrial.

Rexford Industrial has turned in more modest YTD performance as the REIT sells assets in order to repurchase shares, but it has enjoyed a robust rally over the last month.

Let’s now take a look at the recent earnings updates for our three industrial REITs:

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We have been looking for a way to increase our exposure to retail real estate.

The reason is simple.

Retail real estate is performing very well today. For years, investors assumed that e-commerce would kill brick-and-mortar retail. But the opposite has happened. Retailers have increasingly realized that the best strategy is not online only, but omnichannel. They need both an online presence and physical stores to maximize sales, improve distribution, lower customer acquisition costs, and strengthen their brands.

Even e-commerce native retailers are increasingly opening physical stores.

At the same time, very little new retail supply has been built over the past decade. Developers focused on apartments, self-storage, industrial, and other sectors, while shopping centers and malls were largely ignored.

As a result, the retail real estate sector is now undersupplied.

Occupancy rates are high. Rent growth is accelerating. Landlords have regained pricing power. And the best malls are becoming increasingly valuable because they are difficult, if not impossible, to replicate.

This has already benefited us.

For example, our biggest mall REIT investment, Macerich (MAC), has recovered strongly from our cost basis of about $8 per share to around $26 today.

But the problem today is that U.S. mall REITs are no longer nearly as cheap as they used to be.

Macerich has rerated materially. Simon is again recognized as a blue-chip mall REIT. And while we still like both businesses, the easy money has already been made.

Therefore, we have been looking abroad for similar opportunities.

That brings us back to IRSA (IRS).

IRSA is Argentina’s largest listed real estate company and, in our view, one of the most attractive ways to gain exposure to high-quality mall real estate today.

We previously owned IRSA shortly after Javier Milei’s presidential victory and more than doubled our money in less than a year. We later sold our position to redeploy capital elsewhere.

Then, in October of last year, we reopened a position after the stock sold off ahead of Argentina’s midterm elections. At the time, the market was worried that Milei would lose political momentum, his reform agenda would stall, and Argentina would slide back into policy gridlock.

Instead, the opposite happened.

Milei’s party performed far better than feared, political risk declined, and the broader reform agenda gained more support.

Since then, the thesis has continued to progress well.

But IRSA’s share price has still lagged the recovery that we have seen in U.S. mall REITs, despite the company continuing to execute well. This creates an opportunity.

Today, we are adding to our existing IRSA position by buying 200 additional shares, increasing our position size by 20%:

Why IRSA?

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