In November, the MSCI US REIT Index (RMZ) produced a total return of +5.8%. The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of +7.0% gross of fees and +7.0% net of fees. Year to date, the Chilton REIT Composite has performed in line with the RMZ by producing a total return of -20.4% gross of fees and -20.9% net of fees, which compares to the RMZ total return of -20.4%.

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Monthly Attribution

Positive contributors to relative performance included stock selection within the healthcare sector, stock selection in the industrial sector, and an overweight to the cell tower sector.  Detractors from relative performance included stock selection within the diversified sector, and overweight to the data centers sector, and stock selection within the shopping centers sector.

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Year to Date (YTD) Attribution

Year to date, positive contributors to relative performance included stock selection in the health care sector, an underweight to the office sector, and an underweight to the data centers sector.  Conversely, an underweight allocation to the triple net sector, an overweight to the cell tower sector, and an underweight to the lodging sector 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.

• 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 data centers has contributed to the relative performance of the Composite.  The sector has underperformed amidst the backdrop of rising rates and inflation.  However, we have begun adding to our exposure through Digital Realty Trust (NYSE: DLR) as we see upside potential moving forward.

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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 overweight allocation to the cell tower sector has also detracted from relative performance.  Given the long lease terms typical in the cell tower business, the group has been impacted from the specter of rising rates this year.  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, which we believe will provide a floor for valuations.

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Market Commentary

In the December 2022 REIT Outlook titled, “Property Type Round-Up from REIT World,” we discuss our key takeaways from the annual REITWorld conference, a jam-packed three day event in mid-November, taking place in San Francisco this year, that allowed us to catch up in person with the CEOs and CFOs of our portfolio companies, ramp up on potential new ideas, connect with peers, and explore the properties in the city that are owned by REITs. We came away from the conference with several actionable ideas that are highlighted throughout along with sector specific summaries discussing data centers, cell towers, shopping centers, healthcare, multifamily, self-storage, industrial, diversified, office, and lodging.

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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.