In December, the MSCI US REIT Index (RMZ) produced a total return of +3.4%. The Chilton REIT Composite underperformed the benchmark for the month by producing a total return of +1.7%, both net and gross of fees. In the fourth quarter, the RMZ produced a total return of +11.5%, which compares to the Chilton REIT Composite at +4.9% net of fees and +5.1% gross of fees. Finally, for the full year 2021 the RMZ produced a total return of -7.6%, which compares to the Chilton REIT Composite at -3.7% net of fees and -2.9% gross of fees.

In 2020, positive contributors to relative performance included overweight allocations to the cell tower and data center sectors, along with stock selection in the residential sector. Stock selection in the office sector, along with an underweight allocation to the self storage sector and an overweight allocation to the diversified sector 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.

• An overweight allocation to the diversified sector detracted from the Composite’s relative performance. Specifically, the Composite’s position in Armada Hoffler (NYSE: AHH) 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 stock selection in the industrial, shopping center, and self storage sectors. Stock selection in the triple net sector, as well as an overweight to the cell tower sector and an underweight to the healthcare sector detracted from relative performance.  

Market Commentary

In the January 2021 REIT Outlook titled, “The 2021 Chilton REIT Forecast,” we present our total return forecast of +14% to +19%, review what happened with REIT performance in 2021, and describe how we managed the portfolio during the pandemic. Despite the disappointing total return in 2020 relative to our initial forecast, we are proud that our portfolio positioning and subsequent management was able to produce almost 500 bps of outperformance versus the benchmark. We attribute the outperformance to the massive divergence in performance between REIT securities, which gives active managers such as ourselves a wider set of opportunities to outperform a passive index. We believe this bifurcation will continue into 2021, backed by the tailwinds of broader industry recovery in cash flow, which will only further justify the need for an active REIT allocation in all investor portfolios.

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.