In November, the MSCI US REIT Index (RMZ) produced a total return of +10.8%. The Chilton REIT Composite underperformed the benchmark for the month by producing a total return of +6.4%, both net and gross of fees. Year to date, the RMZ has produced a total return of -10.6%, which compares to the Chilton REIT Composite at -5.3% net of fees and -4.5% gross of fees.

In 2020, positive contributors to relative performance included an overweight to the cell tower and data center sectors, and stock selection in the residential sector. An underweight to the self storage sector, and stock selection in the office and diversified sectors detracted from relative performance.

YTD Contributors Summary

• Our overweight allocation to the cell tower sector contributed to the Composite’s relative performance. Cell tower REITs should be unaffected by COVID-19, and may even experience an increase in demand due to the higher need for data to work from home.

• Stock selection in the residential sector contributed to the Composite’s relative performance. Specifically, allocations to the single family rental REITs (Invitation Homes (NYSE: INVH) and American Homes 4 Rent (NYSE: AMH)) and Camden Property Trust (NYSE: CPT) have made the Composite’s residential total returns much higher than the benchmark. Each of these names has a much higher geographic allocation to Sunbelt markets than their coastal peers. In addition, single family rental REITs are benefiting from record low turnover and solid leasing fundamentals.

• Our overweight allocation to data center sector contributed to the Composite’s relative performance. Though leasing has been slower than 2019, the data center business has been extremely resilient during the pandemic and ensuing recession. We believe that 2021 and beyond will have higher than average data center leasing due to pent up demand from 2020 as deals have been postponed.

YTD Detractors Summary

• An underweight allocation to the self storage sector detracted from the Composite’s relative performance. The closing of universities pulled forward demand for self storage that would have otherwise had to wait until the summer. For now, this has helped to alleviate a new supply problem, though this likely means that the summer will not have as much demand as originally expected.

• Stock selection in the office sector detracted from the Composite’s relative performance. Specifically, the Composite did not own Alexandria (NYSE: ARE), which was the best performing office REIT in the year to date period. ARE focuses on lab space leased to pharmaceutical and medical research tenants, who may be instrumental in finding and distributing a cure and/or vaccine for COVID-19.

• Stock selection within the diversified sector detracted from the Composite’s relative performance. Specifically, the Composite’s position in Armada Hoffler (NYSE: AHH) has significantly underperformed the benchmark year to date. AHH’s underperformance can be explained by its small market capitalization and high risk due to an outsized development pipeline, a mezzanine debt portfolio, elevated retail exposure, and above average exposure to WeWork. We exited the position in AHH in April.

Monthly Attribution

Positive contributors to relative performance included underweight allocations to the self storage and data center sectors, as well as stock selection in the office sector. Underweight allocations to the shopping center and lodging sectors, as well as an overweight to the cell tower sector, detracted from relative performance.  

Market Commentary

In the December 2020 REIT Outlook titled, “Takeaways from REITWorld,” we present the findings of our 22 virtual meetings from the November REITWorld Conference. The broader themes of interest rates, valuations, and what a ‘post-COVID’ world would look like pervaded most meetings. However, given the diversity of exposure by REIT to certain geographies, property types, and tenants, there were plenty stock-specific takeaways from our meetings as well. In summary, the conference gave us confidence that the new real estate cycle is beginning, and that a vaccine will cure many of the sicknesses in the economy. We look forward to presenting our 2021 Chilton REIT Outlook next month, and wish all of our readers a happy and healthy holiday season.

Previous editions of the Chilton Capital REIT Outlook are available at www.chiltoncapital.com/category/library/reit-outlook/.

An investment cannot be made directly in an index. The funds consist of securities which vary significantly from those in the benchmark indexes listed above and performance calculation methods may not be entirely comparable. Accordingly, comparing results shown to those of such indexes may be of limited use.

The information contained herein should be considered to be current only as of the date indicated, and we do not undertake any obligation to update the information contained herein in light of later circumstances or events. This publication may contain forward looking statements and projections that are based on the current beliefs and assumptions of Chilton Capital Management and on information currently available that we believe to be reasonable, however, such statements necessarily involve risks, uncertainties and assumptions, and prospective investors may not put undue reliance on any of these statements. This communication is provided for informational purposes only and does not constitute an offer or a solicitation to buy, hold, or sell an interest in any Chilton investment or any other security.