In March, the MSCI US REIT Index (RMZ) produced a total return of -2.5%.  The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of -0.3%, both gross and net of fees.  In the first quarter, the Chilton REIT Composite outperformed the RMZ by producing a total return of +4.1% net of fees and +4.2% gross of fees, which compared to the RMZ total return of +2.7%. 

–

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 residential sector. Conversely, stock selection within the data center, healthcare, and industrial sectors detracted from relative performance.

–

Year to Date (YTD) Attribution

Year to date, positive contributors to relative performance included an underweight to the office sector, stock selection within the self-storage sector, and an underweight allocation to the triple net sector.  An overweight to the cell tower sector, and stock selection within the data center and shopping center sectors detracted from relative performance.

–

YTD Contributors Summary

• An underweight allocation to the office sector has contributed to the Composite’s performance.  Office stocks have come under pressure as recession fears have impacted the outlook for leasing demand.  Further, debt market volatility has increased financing concerns, particularly in office.

• Stock selection within the self-storage sector has also contributed to the Composite’s performance.  Specifically, earlier in the year, Public Storage (PSA) announced a bid for Life Storage (LSI).  More recently, Extra Space (EXR) announced a higher bid which has been accepted by LSI.  Our overweight position in LSI and underweight to EXR have greatly contributed to outperformance.

• An underweight allocation to the triple net sector has contributed to the relative performance of the Composite.  After outperforming the industry in 2022, higher interest rates and elevated inflation have weighed on the group’s longer lease structure and acquisition-focused growth models.

–

YTD Detractors Summary

• An overweight allocation to the cell tower sector has detracted from the Composite’s 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.  Looking past near term headwinds, we believe the non-cyclical nature of the group should drive higher earnings growth over the long term.

• Stock selection within the shopping center sector has also detracted from the Composite’s performance.  Given elevated fears around problem tenants (most notably Bed Bath and Beyond), we saw shopping center names with elevated exposure underperform.  Specifically, our exposure to Site Centers (SITC) weighed on Composite performance.

• Finally stock selection within the data center sector also detracted from the Composite’s performance. Specifically, our overweight to Digital Realty (DLR) and underweight to Equinix (EQIX) detracted from relative performance.  We believe the valuation gap between the two of them will close in the near term, as it stands much wider than the historical average.

–

Market Commentary

In the April 2022 REIT Outlook titled, “Arbitrage Opportunity Available in Public REITs,” we discuss the discrepancy in valuations between public and private real estate, provide a brief history of non-traded REITs, and apply the Chilton public REIT valuation process to Blackstone’s BREIT. Although the news coming out of the private real estate world is likely to get more negative for the next 12 months, it is our firm belief that public REITs will outperform and potentially benefit from the malaise that is bound to happen. As it stands today, investors can purchase real estate in the public market for approx. 10-12% less than the private market, take on less leverage, earn a growing dividend (funded from cash flow), pay less fees, and maintain liquidity.

–

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.

–

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.