In July, the MSCI US REIT Index (RMZ) produced a total return of +4.9%. The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of +5.6% net of fees and +5.7% gross of fees. Year to date, the RMZ has produced a total return of +27.7%, which compares to the Chilton REIT Composite at +27.4% net of fees and +28.1% gross of fees.  

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Monthly Attribution

Positive contributors to relative performance included underweight allocations to the regional mall and lodging sectors, as well as stock selection in the office sector. Overweight allocations to the diversified and cell tower sectors, and stock selection in the triple net sector detracted from relative performance.  

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Year to Date (YTD) Attribution

Year to date, positive contributors to relative performance included stock selection in the data center and healthcare sectors, as well as an underweight allocation to the lodging sector.  An underweight allocation to the regional mall and shopping center sectors, as well as an overweight allocation to the cell tower sector detracted from relative performance.

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YTD Contributors Summary

• Stock selection in the healthcare sector contributed to the Composite’s relative performance.  The senior housing subsector has been the best performer within the healthcare sector year to date.  Senior housing communities were among the first to get access to the vaccine, beginning in December 2020.  As such, while occupancy continued to decline to start 2021, the vaccination rates climbed dramatically, resulting in a rebound in occupancy off of March lows.  We believe this sets the stage for a multi-year run for recovery in rents and occupancy, coupled with higher margins as COVID expenses dissipate.

• Stock selection in the data center sector contributed to the Composite’s relative performance. Specifically, the Composite owned QTS Realty Trust (NYSE: QTS), which announced it had agreed to an all-cash acquisition by Blackstone on June 7 for $78 per share, a 21% premium to the prior trading day’s closing price.

• Our weighting of 0% to the lodging sector has contributed to the relative performance of the Composite.  While lodging was supposed to be one of the largest beneficiaries of the reopening trade, the sector moved too far too fast in our opinion, leaving little margin for error.  We believe that the return of business travel will take longer than anticipated, and leisure occupancy will not be enough to generate pricing power for landlords, in general, for several more years. 

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YTD Detractors Summary

• An underweight allocation to the regional mall sector detracted from the Composite’s relative performance.  The V-shaped recovery brought on by the massive fiscal stimulus and the positive vaccine news in 2020 has only continued to propel regional mall REITs upward.  The ‘reversion to the mean’ trade has made malls the best place to invest recently, in spite of the many fundamental issues that remain a question mark.  We believe the valuations have pushed up prices too far, too soon, and will have to come down as earnings stabilize at a lower level.

• An underweight allocation to the shopping center sector detracted from the Composite’s relative performance.  Similar to regional malls, shopping centers were a significant underperformer in 2020 but have rebounded in 2021, many beyond pre-COVID valuations.  We believe that the open-air grocery-anchored center will be relevant long term, but the valuations are not justified by future earnings growth.

• An overweight allocation to cell towers has detracted from the Composite’s performance.  While the total return of the Composite’s cell towers has been impressive at +24%, it has lagged the RMZ, though the gap is closing.  We believe that it should continue to produce steady growth from new leasing due to 5G and a potentially new tenant, Dish Network. 

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Market Commentary

In the August 2021 REIT Outlook titled, “This Cycle is Just Getting Started”, we present the top six reasons to add REITs to your portfolio today. Despite the strong performance year to date and over the past year, REITs still offer attractive upside, especially relative to other potential investments. For those investors that already have REITs in their portfolio, this is not the time to sell or trim exposure.

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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 Capital Management investment or any other security.