In July, the MSCI US REIT Index (RMZ) produced a total return of +9.0%.  The Chilton REIT Composite underperformed the benchmark for the month by producing a total return of +7.9% gross of fees and +7.7% net of fees.  Year to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of -10.8% gross of fees and -11.2% net of fees, which compares to the RMZ total return of -13.1%.

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Monthly Attribution

Positive contributors to relative performance included stock selection within the data center sector, an underweight to the office sector, and an underweight to the specialty sector. Conversely, underweight allocations to the cell tower, triple net, and regional mall sectors 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 underweight to the regional malls sector, and stock selection within the residential sector.  Underweight allocations 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 underweight allocation to the regional mall sector has contributed to the Composite’s performance.  After being the top performing property type in 2021, the group has been under pressure amidst the challenging macro backdrop.  We continue to favor shopping centers over traditional malls within our retail exposure.

• Finally, stock selection within the residential sector also contributed to the Composite’s relative performance.  Specifically, the Composite owned an overweight position in American Campus Communities (NYSE: ACC) for much of the year, which has announced a take-private transaction by Blackstone at a healthy premium.

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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, 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 August 2022 REIT Outlook titled, “Today’s Equity REITs: Dividend Raises in Economic Uncertainty“, we highlight how REITs have spent the past several years laser-focused on their balance sheets, lowering absolute leverage levels, opportunistically taking advantage of low rates, reducing floating rate debt, and lengthening out the weighted average maturity of their debt.   These actions have mitigated the negative impact on financial statements caused by the current market turbulence, and, as a result, REITs are in a position to benefit from these hard decisions.  From a high level, REITs provide predictability amid an ambiguous economic backdrop. August’s publication will run through our thoughts at a deeper level, but in our view, it all boils down to balance sheet flexibility.

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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.