In May 2023, the MSCI US REIT Index (RMZ) produced a total return of -3.1%. The Chilton REIT Composite underperformed the benchmark for the month by producing a total return of -3.3% both gross and net of fees. Quarter to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of -1.5% gross of fees and -1.6% net of fees, which compares to the RMZ total return of -2.3%. Year to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of +2.7% gross of fees and +2.4% net of fees, which compares to the RMZ total return of +0.4%.

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Monthly Attribution

Positive contributors to relative performance for the month of May included an underweight to the triple net sector, and stock selection within the residential and industrial sectors. Conversely, an overweight to the cell tower sector, stock selection within the healthcare sector, and an underweight to the hotel sector detracted from relative performance.

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Year to Date (YTD) Attribution

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

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YTD Contributors Summary

• An underweight allocation to the office sector 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.

• An underweight to the triple net sector also contributed to relative performance.  During periods of rising interest rates, the sector’s long lease structure presents a headwind to increasing rents at the same pace as other property types.

• 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.

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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 cell towers, 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.

• An overweight to 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.

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Market Commentary

In our June 2023 REIT Outlook titled, “The Bull Case for Active REIT Management”, we discuss why we are more bullish about investing in public REITs today than we have been since 2009-2010 through breaking down the importance of balance sheets and the recent shift in project financing, the ability for public REITs to serve as the ‘new investors’, making accretive acquisitions from undercapitalized properties and companies, public REITs trading at one of the biggest discounts versus the private markets in history, and favorable fundamentals that we feel investors have not been paying attention to at what could be this cycle’s low point.

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 Additional Disclosures

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 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. MSCI US REIT Index performance is presented as a benchmark for reference only and does not imply any portfolio will achieve similar returns, volatility or any characteristics similar to any actual portfolio.  The composition of a benchmark index may not reflect the manner in which any is constructed in relation to expected or achieved returns, investment holdings, sectors, correlations, concentrations or tracking error targets, all of which are subject to change over time.