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.

In March, the MSCI US REIT Index (RMS) produced a total return of +3.3% while the S&P 500 had a total return of +1.9%. The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of +4.2%, both net and gross of fees. In the first quarter, the Composite generated total returns of +16.7% net of fees and +17.0% gross of fees, which compare to +16.3% for the RMS. 

Year to date, the largest contributors to relative performance were an overweight to data center/tech and large underweights to self storage and healthcare. Detractors from relative performance included an overweight to malls, as well as stock selection in the diversified and industrial sectors.

YTD Contributors Summary

• Network-dense data center REIT Equinix (NASDAQ: EQIX) was the largest single contributor to our relative performance over the quarter. The company’s campuses anchor most of the world’s largest data center markets, which continue to benefit from increased migration to the cloud and demand for high-quality, low-latency direct connect services.
• Our allocation to cell tower REITs also contributed to the Composite’s relative performance. Cell tower REITs are the primary beneficiaries of carriers deploying recently acquired spectrum, the rapid increase in mobile data usage, and the expansion of small cell sites which are helping carriers meet insatiable demand for data in urban areas.
• An underweight allocation to the self storage sector (0% allocation) contributed to the Composite’s relative performance. Excess supply continues to depress same store NOI growth at all of the self storage REITs, and our meetings at the Citi conference in March did not suggest the trend would reverse any time soon.
• The Composite’s underweight to the healthcare sector (0% allocation) contributed to the first quarter outperformance. Despite lower yields on the 10 year Treasury yields, the sector experienced some mean reversion during the quarter after outperforming in 2018, which caused the sector to underperform the benchmark. We continue to believe higher organic growth stocks will outperform in the current environment.

YTD Detractors Summary

• An overweight allocation to the mall sector detracted from the Composite’s relative performance. While the Sears post-bankruptcy plan was a positive for the sector, the sector remains in a ‘penalty box’ with investors until the underlying companies can show real cash flow per share growth, from both the same store portfolio and the redevelopment pipeline.
• An underweight allocation to Prologis (NYSE: PLD) detracted from the Composite’s relative performance, as the company guidance beat estimates and trade tensions seemed to abate during the quarter.
• Stock selection in the diversified sector detracted from our relative performance. Many of the companies we do not own in the sector underperformed in 2018, and bounced back more than our holdings in the sector, which had outperformed in 2018.

Monthly Attribution

Positive contributors to relative performance included an overweight to the data centers/tech sector, an underweight to the specialty sector, and stock selection within the industrial sector. Stock selection within the shopping center, and underweights to the self storage and triple net sectors detracted from relative performance.

Market Commentary

In March, Chilton participated in property tours in Miami and attended the Citi Global Real Estate Conference in Fort Lauderdale. We were able to sit down in one-on-one meetings with CEOs of 37 companies, and actively participate in group meetings of another 30 companies over a three day period. The tone at the conference was understandably bullish given the strong year to date performance of REITs. However, sectors such as office and retail are still trading at significant discounts to net asset value, and each company attempted to explain why it should be able to close the valuation gap. We came back with increased confidence in our portfolio overweights, which include data centers/tech, apartments (including single family rentals), office, and regional malls. Less than enthusiastic forecasts from management teams in self storage and healthcare (particularly senior housing) strengthened our conviction that supply will remain a headwind for even the best companies in those sectors.