In May, the MSCI US REIT Index (RMZ) produced a total return of -6.2%.  The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of -4.7% net of fees and -4.7% gross of fees.  Year to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of -11.9% net of fees and -11.6% gross of fees, which compares to the RMZ total return of -14.0%.

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Monthly Attribution

Positive contributors to relative performance included an overweight to the cell tower sector, an underweight to the diversified sector, and an underweight to the industrial sector.  An underweight to the triple net sector, along with an underweight to regional malls and stock selection within self storage detracted from relative performance.   

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Year to Date (YTD) Attribution

Year to date, positive contributors to relative performance included stock selection within the healthcare sector, an overweight allocation to cell towers, and an overweight to the diversified sector.  An underweight to the triple net, specialty and hotel sectors detracted from relative performance.

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YTD Contributors Summary

• Stock selection within the healthcare sector has contributed to the relative performance of the Composite.  While the Omicron variant exasperated labor issues at the start of the year, senior housing fundamentals have continued to show improvement.  We continue to focus on healthcare names with exposure to senior housing.

• An overweight allocation to the cell tower sector has contributed to the Composite’s performance.  Notwithstanding pressure from higher rates, cash flow growth for cell tower REITs should be among the highest versus other sectors over the next several years.

• Finally, an overweight allocation to the diversified sector also contributed to the Composite’s relative performance.  Specifically, the Composite owned CTO Realty Growth (NYSE: CTO), which has a majority of its investments in shopping centers, and has seen strong relative performance thus far.

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YTD Detractors Summary

• An underweight allocation to the triple net sector has detracted from the Composite’s performance.  The long lease sector of triple net has held up better than we would’ve thought in this rising interest rate environment.  We believe these stocks will mostly need to re-rate at a lower multiple given their inability to raise dividends at the same pace as other sectors such as residential, self storage, diversified, and industrial.

• An underweight allocation to the lodging sector has detracted from the Composite’s relative performance.  Lodging has been a lone bright spot in 2022 as leisure travel continues to surprise to the upside.  We believe the potential of a recession in 2023 or 2024 could hold back valuation until the economic situation becomes clear.

• An underweight allocation to the specialty sector has also detracted from the Composite’s relative performance.  This was primarily driven by the year to date rebound in Iron Mountain Inc (NYSE: IRM), which we do not own in the Composite.

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Market Commentary

In the June 2022 REIT Outlook titled, “Equity REITs: Vulnerable to the Private Equity Put,” we review the recent flood of privatization deals among REITs. While the rise in the 10 year Treasury yield has certainly hurt the current prices of public equity REITs, private equity giants such as Blackstone have a mandate to invest in commercial real estate as holding cash is dilutive to their cost of capital. As such, we believe the potential for mergers and acquisitions (or M&A) activity will help REIT prices to find a floor, giving some hope to near term REIT prospects.

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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.

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Past performance is not indicative of future results.  Investment returns and principal value will fluctuate so that an investors account, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted.