In August, the MSCI US REIT Index (RMZ) produced a total return of -6.0%. The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of -5.7%, both gross and net of fees. Year to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of -15.9% gross of fees and -16.3% net of fees, which compares to the RMZ total return of -18.3%.

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Monthly Attribution

Positive contributors to relative performance included an underweight to the office sector, an overweight to the cell tower sector, and stock selection within the industrial sector. Conversely, stock selection within the healthcare and shopping center sectors, and an underweight to the specialty 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 within the healthcare sector, an underweight to the office sector, and an underweight to the regional malls sector.  Underweight allocations to the triple net, hotel, and specialty 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.  More recently, changes to the outlook for Medicare reimbursement adjustments have contributed outperformance in our overweight Sabra (NASDAQ: SBRA) position (which we’ve since exited).

• An underweight allocation to the office sector has contributed to the Composite’s performance.  Due to the macro backdrop surrounding and pressures from continued work from home (WFH) we have maintained an underweight to the office sector.

• 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.

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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 September 2022 REIT Outlook titled, “All Yield is Not Created Equal,” we showcase the dangers of high yield investments, especially those that seem too good to be true.  While investors tend to be attracted to high yield, low yield has actually consistently outperformed.  Unfortunately, investment managers continue to use high yield to attract capital to this day, and we encourage investors to be especially diligent when considering such an investment. The Chilton process of focusing on risk-adjusted total returns has produced 285 basis points of annualized outperformance for 17 years gross of fees (200 bps net of fees) with less risk and lower volatility than the RMZ.

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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 investor’s 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.