Quarter to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of +1.8% gross of fees and +1.6% net of fees, which compares to the RMZ’s total return of +0.1%.  Year to date, the Chilton REIT Composite has underperformed the RMZ by producing a total return of -0.3% gross of fees and -0.7% net of fees, which compares to the RMZ’s total return of -0.2%.  See the table on page 2 for historical numbers.

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Quarterly Attribution

Positive contributors to relative performance for the second quarter of 2024 included an overweight allocation to the healthcare sector, stock selection within the industrial sector, and an underweight allocation to the hotel sector.  Conversely, an overweight to the cell tower sector, an underweight to the specialty sector, and stock selection within the shopping center 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 triple net sector, stock selection within the office sector, and an overweight to the healthcare sector. Conversely, an overweight to the cell tower sector, and an underweight to the specialty and regional mall sectors detracted from relative performance.

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YTD Contributors Summary

• An underweight to the triple net sector contributed to relative performance.  The sector underperformed due to interest rate increases in the first quarter following a sharp decline mid-December.  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.  Additionally, external growth appears more challenging due to lower spreads to the cost of capital.

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• Stock selection within the office sector also contributed to relative performance.  Most notably, the Composite has held a meaningful overweight in Highwoods Properties (NYSE: HIW), which has outperformed the broader office sector by more than 2,300 bps YTD.

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• An overweight allocation to the healthcare sector contributed to relative performance.  Primarily, the Composite has held a meaningful overweight to senior housing focused REITs, which have outperformed the broader healthcare space alongside improving fundamentals. 

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YTD Detractors Summary

• An overweight allocation to the cell tower sector detracted from the Composite’s relative performance.  Given the long lease terms typical in cell towers, the group has again been impacted from the specter of rising rates this quarter and continued slowdown in leasing from the major carriers.  Looking past near-term headwinds, we believe the non-cyclical nature of the group should drive higher earnings growth over the long term.

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• An underweight allocation in the specialty sector also detracted from relative performance.  In particular, Iron Mountain (NYSE: IRM) has outperformed in 2024 due to its data center division, weighing on Composite relative performance.

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• An underweight to the regional mall sector also detracted from the Composite’s performance.  While our Composite has exposure to the shopping center REITs, we currently have no exposure to regional malls.  The group has performed better than anticipated this year led by Simon Property Group (NYSE: SPG) due to positive tenant headlines and fundamentals remaining relatively strong.

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Market Commentary

In the July 2024 REIT Outlook titled, “Equity REITs: Takeaways from REITWeek 2024,” we discuss our key takeaways from the annual REITWeek conference, a jam-packed three day event in New York City that allows 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 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, triple net, multifamily, single family rentals, manufactured housing, self-storage, shopping centers, regional malls, healthcare, industrial, and office.

Retail REITs: Near Term Capex Caution Despite Strong Fundamentals | June 2024

An Interesting Time to Invest in REITs | May 2024

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Additional Disclosures

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 and Vanguard Real Estate ETF 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.

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.