Dear Fellow Shareholders,

We are pleased to provide you with the Third Avenue Real Estate Value Fund’s (the “Fund”) report for the quarter ended March 31, 2026. For the most recent period, the Fund generated a return of -10.02% (after fees). In comparison, the Fund’s most-relevant benchmark, the MSCI ACWI IMI Core Real Estate Index¹, generated a return of +0.59% (before fees) over the same time-period.

The primary contributors to performance during the period included the Fund’s industrial real estate and logistics holdings (Prologis, WESCO International, and First Industrial) and certain Asian-based investments (CK Asset Holdings and Jardine Matheson Holdings). Notwithstanding, these gains were more than offset by detractors during the quarter, including the Fund’s investments in real estate services companies (CBRE Group, JLL, and Savills), residential-related businesses (Lennar Corp. and the preferred equity of Fannie Mae and Freddie Mac), and U.K.-based property companies (Big Yellow plc and Berkeley Group). Further insights into these enterprises, as well as Fund’s most recent additions (Brookdale Senior Living and Hang Lung Group) are included herein.

Recognizing that returns will vary over shorter periods of time, Fund Management continues to believe the Fund’s long-term results are the most relevant scorecard. To that end, the Third Avenue Real Estate Value Fund has generated an annualized return of +8.46% since its inception in 1998 (after fees). This performance indicates that an initial investment of $100,000 in the Fund would have a market value exceeding $900,000 at year-end (with distributions reinvested)—or more than the same $100,000 would be worth had it been placed into a passive mutual fund tracking the benchmark over the same time-period.

ACTIVITY

The Urban Land Institute and PwC collaborate each year to produce Emerging Trends in Real Estate, a widely followed report that synthesizes key insights across the property sector. The most recent edition included viewpoints from a wide range of senior professionals and proved to be rich in perspective, with the following themes standing out to Fund Management in particular:

1. Durable interest in real estate from institutional investors, with target allocations remaining above 10.5%. Despite a slight decline, real estate remains a core pillar with some noting the asset class as “looking relatively attractive against other investments as a new cycle gathers momentum.”
2. A further acceptance of property types that were once considered “niche”, including operational sectors such as self-storage, logistics, and senior living that are “now widely seen as capable of delivering higher, more stable yields amid compressing traditional returns”.
3. A greater focus on investing in platforms versus individual assets, due to a more elevated cost of capital in the sector “shifting real estate returns towards operational performance and income growth rather than valuation gains”.

In combination, these concepts seem to support Third Avenue's long-held focus on well-established real estate enterprises. They also seem to offer a compelling backdrop for the Fund's recent investment in the common stock of Brookdale Senior Living ("Brookdale").

Founded in 1978, Brookdale is a leading owner and operator of senior housing properties with nearly 600 communities across the U.S. serving more than 50,000 residents. While the portfolio is vast, the company has a particular focus on assisted-living and memory-care properties, which sector specialists would point out as a more resilient segment with “needs based” demand and private-pay residents. Those same professionals would also likely perceive Brookdale as one of the premier operators in the assisted-living segment.

That said, the company has endured a difficult ten-year stretch. In fact, the Fund was previously invested in Brookdale but elected to move on after the previous management team made a somewhat hasty acquisition (i.e., Emeritus) at the same time the sector was facing elevated levels of supply. In combination with the headwinds the senior housing sector encountered amid the pandemic, Brookdale has generally been on the “defensive” in recent years shedding Emeritus locations, restructuring debt and associated leases, and attempting to stabilize its core portfolio.

While undoubtedly a challenging period, Fund Management believes the next five years will be transformative. To wit, Brookdale has solidified its financial position by returning to profitability and reducing its loan-to-value ratio below 40%, with the remaining debt largely comprised of non-recourse mortgage debt. The company has also improved its operational structure by adding a well-regarded CEO (with previous experience at industry peer Sunrise Living) and adopting a more decentralized framework. In addition, Brookdale has tremendous growth prospects with the opportunity to significantly increase its 82.1% occupancy rate alongside hugely supportive demand trends (i.e., the 80+ year-old demographic is expected to increase by 55% in the U.S. over the next decade).

As a result, Brookdale is positioned to close the performance gap with industry peers, in our view, as well as approach a 95.0% occupancy rate over time. Should such a path materialize, the company has the potential to generate more than $3.5 billion of annual revenues. By our estimates, a disproportionate share of that incremental cash flow would fall to the bottom line given the inherent operating leverage in senior housing (i.e., high fixed costs) and $2.0 billion of tax loss carry forwards.

Therefore, it would not be inconceivable for Brookdale to utilize retained earnings to further reduce its debt levels and reinstate an annual dividend. The company could also engage in additional “bolt on” acquisitions to expand its platform within core markets for the rapidly growing senior population. That said, such a scenario does not seem to be “priced in” with Brookdale trading at a discount to its owned real estate in our estimation—without factoring in any value for its operating platform, third party management business, or deferred tax assets.  

Insights from the Emerging Trends in Real Estate report were not exclusive to the U.S., however. In fact, some of the more notable shifts internationally included (i) Asia Pacific’s “retail scene” offering “strong opportunities” and (ii) additional progress on the regulatory front further solidifying China’s real estate investment trust (“REIT”) market. Both of which seem constructive for the Fund’s recent investment in Hang Lung Group.

Founded in 1960, Hang Lung Group is a well-capitalized Hong Kong-based real estate enterprise that owns approximately 2.9 million square feet of highly leased retail and office properties in Hong Kong and Shanghai with a near net-cash position. Importantly, the company also owns a 65.1% interest in Hang Lung Properties, a separately listed real estate operating company with an additional 29 million square feet of retail centric properties in Hong Kong and Mainland China, as well as 10 million square feet of developments and residential projects available-for-sale.

In combination, Hang Lung Group is viewed to control one of the most productive (and valuable) retail-centric portfolios in the Asia Pacific region, with some of its iconic properties including Plaza 66 in Shanghai and the Fashion Walk in Causeway Bay. The path to establishing this platform has been far from easy though. As a matter of fact, Hang Lung Properties has spent the better part of three decades building out the core portfolio of its 11 market-dominant mixed-use locations, with more than $15 billion of “capex” in Hong Kong Dollars this decade alone. At one point, Hang Lung Properties even had to reduce its dividend, with Hang Lung Group electing to take shares instead of cash for further support.

Due to such strong sponsorship, Hang Lung Properties can now embark on a more operational focused strategy under Chair Adriel Chan at an opportune time. For instance, Hang Lung Properties is delivering its final ground-up mixed-use development this year (i.e., Westlake 66 in Hangzhou) at the same time prime retail locations seem to be benefitting from a rebound in retail sales, as well as a structural focus on further boosting consumption in the region. The supply-and-demand dynamics for the residential markets have also improved in Hong Kong and tier-1 Chinese cities more recently.

Therefore, it is not difficult to envision a path whereby Hang Lung Properties further improves its financial position beside residential sales, while reinstating a higher dividend alongside improved cash flows. Given the changes on the regulatory front, the company could also explore placing a portion of its highly recognized “66”-branded properties into a REIT vehicle to surface additional value over time.

Such actions would likely result in a material improvement to Hang Lung Properties’ cost of capital, with the stock currently trading at less than 40% of book value. That said, these developments would have a more significant impact for Hang Lung Group, in our view, when considering its stock trades at roughly 20% of book value, as well as more than 50% below the market value of its stake in Hang Lung Properties (without even factoring in the directly owned assets). Such a setup is referred to as a “double discount” at Third Avenue, and one that can be quite rewarding, in our experience.  

Outside of these additions, Fund Management was active in further enhancing the portfolio positioning during the period. Of note, the Fund added to several holdings where the price-to-value gap broadened to historically wide levels amid recent volatility, including certain commercial-centric issuers (U-Haul Holdings and FirstService Corp.) and select international companies (Accor SA and Ingenia Communities).  The Fund also trimmed back CK Asset Holdings, exited several positions following corporate activity (National Storage REIT, F&G Annuities, Rayonier, and Unite Group), and extended the Fund’s Hong Kong Dollar hedge.

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POSITIONING

Following these changes, the Fund had 40.7% of its capital invested in U.S.-based companies focused on Residential Real Estate, including those involved with: Homebuilding (Lennar Corp., PulteGroup, D.R. Horton, and Champion Homes); Niche Rental Platforms (Sun Communities, AMH, and Brookdale Senior Living); Land and Timber (Five Point and Weyerhaeuser); and Mortgage and Title Insurance (Fannie Mae, Freddie Mac, and Fidelity National). In Fund Management’s view, each issuer has a well-established position in the residential value chain and is supported by a convergence of fundamental drivers, including: (i) historic demographic shifts, (ii) favorable supply-and-demand conditions for affordable product, and (iii) industry dynamics favoring scaled players.

An additional 30.2% of the Fund’s capital is invested in North American-based companies involved with Commercial Real Estate, including: Real Estate Services (CBRE Group, JLL, and FirstService); Asset Management (Brookfield Corp.); Industrial and Logistics (Prologis, First Industrial, and Wesco); and Self-Storage (U-Haul Holdings). In Fund Management’s opinion, these holdings represent platforms that would be very difficult to reassemble. They also comprise select pockets of commercial real estate that seemingly favor long-term investors with (i) structural demand drivers, (ii) limited maintenance “capex”, and (iii) prospects to “self-finance” value-enhancing initiatives.

The Fund also had 25.8% of its capital invested in International Real Estate companies. These businesses are largely focused on the same types of activities as outlined above, simply with leading platforms in their respective regions. At quarter-end, these included companies involved with: Commercial Real Estate (Big Yellow, CK Asset, Jardine Matheson, Segro, Wharf, and Hang Lung); Residential Real Estate (Berkeley Group and Ingenia Communities); and Real Estate Services (Savills and Accor). The holdings are also listed in developed markets where Fund Management believes there are (i) adequate disclosures and securities laws and (ii) ample opportunities for resource conversion and change of control transactions (i.e., the U.K., Australia, France, Hong Kong, and Singapore).  

The remaining 3.3% of the Fund’s capital is in Cash, Debt & Options. These holdings include U.S.-Dollar based cash and equivalents, short-term U.S. Treasuries, and hedges relating to certain foreign currency exposures (Hong Kong Dollar and British Pound).

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ENDED HERE

FUND COMMENTARY

In the 2025 edition of The Land Trap: A New History of the World’s Oldest Asset Class, up-and-coming financial author Mike Bird dives into the history of real estate, as well as the role land has played in various regions over time. Within the work, he also details that real estate remains the “world’s largest single asset class by some magnitude” with McKinsey & Co. estimating that land, residential, and commercial property account for approximately two-thirds of “real wealth” globally. Additionally, Bird spells out the “three critical factors” that explain why land is “still such a store of enormous wealth” including its “fixed-amount, immobility, and lack of material decay”.

Fund Management shared similar observations within this recent feature on real estate securities: A Strategic Roadmap for Listed Real Estate. The Third Avenue team noted other potential benefits of investing in real estate, including the prospects to generate current yield and capital appreciation, as well as gain inflation attributes and portfolio diversification.

That said, Bird largely skipped over the transformation of listed real estate in recent decades—thus democratizing the asset class that he seems to suggest is often unattainable. In fact, if Bird were to have investigated further, he would have found that there are now more than $6 trillion of publicly traded real estate companies that investors can access globally. Not only that, Bird would have likely found that investing in real estate through the public markets has certain advantages, including having provided superior outcomes relative to private real estate vehicles over various periods of time, as outlined in this study: REITs Outperform Private Real Estate by More Than 2.0% in DB Plans.

Bird is certainly not at fault for overlooking this angle though, as a disproportionate share of “fund flows” into real estate in recent years have also skewed towards private real estate. As a matter of fact, Citigroup estimates that $97 billion of capital was invested into private U.S. REIT vehicles from January 2020 through December 2024. Whereas real estate focused funds in the listed space in the U.S. experienced more than $35 billion of net redemptions over the same period.  

Insofar as Fund Management can gather, the primary driver of this shift has been the desire to mitigate “volatility” through private funds, as listed real estate strategies are essentially “marked-to-market” daily. Nonetheless, it is a trend that is on the verge of reversing in the second half of this decade, in Fund Management’s opinion, for two primary reasons:

1. A lack of volatility doesn’t always lead to superior investment outcomes. The most recent example of which includes a large private real estate fund electing in December 2025 to convert from a privately traded fund to a publicly traded “closed end” fund to meet redemption requests, only to have the shares begin trading at more than a 35% discount to the previous “appraised value”. While the initial years may have provided a “smooth” experience for the investors in this fund, recent events seem more testing as covered by Jason Zweig in this Wall Street Journal article: When Your Private Fund Turns $1 Into 60 Cents.
2. Valuations for listed real estate are compelling on both a relative and absolute basis. As Fund Management also alluded to in the Strategic Roadmap, broader equity markets (as measured by the S&P 500 Index) imply record high multiples on most fundamental metrics (e.g., price to earnings multiples, price to sales, etc.). On the other hand, listed real estate in the U.S. was trading at a historically wide discount to broader equities on traditional cash flow metrics at the end of the year (e.g., price to earnings, funds from operations, etc.) as well as a 10% discount to liquidation value, per Green Street Advisors, when viewed on an equal-weight basis.

Given these dynamics, Fund Management believes the next five years could end up being analogous to the early 2000s—a period when compelling valuations for listed real estate in the U.S. led to a multi-year period of net inflows, as well as vastly differentiated returns relative to broader equities. Such a path is even more likely, in our view, for global real estate strategies that have the flexibility to include international allocations, where the price-to-value disconnect is more pronounced.

In fact, should these outcomes materialize, the period ahead may prove similar to the early 2000s in another respect: it was amongst the most rewarding times to be invested in listed real estate, as well as the Third Avenue Real Estate Value Fund. It might also compel Bird to highlight the evolution of real estate securities in the next edition of The Land Trap, as well as the various opportunities in listed real estate available for all types of investors.

We thank you for your continued support and look forward to writing to you again next quarter. In the meantime, please don’t hesitate to contact us with any questions or comments at realestate@thirdave.com.

Sincerely,

The Third Avenue Real Estate Value Team