In March, the MSCI US REIT Index (RMZ) produced a total return of +6.5%.  The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of +8.3%, both gross and net of fees.  In the first quarter, the Chilton REIT Composite outperformed the RMZ by producing a total return of -4.0% net of fees and -3.8% gross of fees, which compared to the RMZ total return of -4.1%. 

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Monthly Attribution

Positive contributors to relative performance included an overweight allocation to the cell tower sector, an underweight allocation to the regional mall sector, and stock selection in the shopping center sector.  Stock selection in the diversified and industrial sectors, along with an overweight to the residential sector detracted from relative performance.  

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Year to Date (YTD) Attribution

Year to date, positive contributors to relative performance included stock selection within the healthcare sector, and underweight allocations to the regional mall and data center sectors.  An overweight to the cell tower sector, an underweight to the office sector, and stock selection within the residential 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.  We continue to focus on healthcare names with exposure to senior housing.

• An underweight allocation to regional malls has contributed to the relative performance of the Composite.  The V-shaped recovery witnessed coming out of 2020 led regional malls to the best performing property type in 2021.  However, alongside the broader pullback, mall REITs have reverted to the mean more recently.  We continue to view shopping centers as the more attractive option to play retail.

• An underweight allocation to the data centers has contributed to the relative performance of the Composite.  The sector has continued to lag as the market has digested the impact of the Omicron variant.  Amidst the backdrop of rising rates and elevated inflation, we believe stocks with higher organic growth profiles will outperform.

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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 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.

• An underweight allocation to the office sector has also detracted from the Composite’s performance.  Office stocks have performed well to start the year as back to work plans were outlined by several large firms.  However, we continue to see structural headwinds to full scale return to office and thus remain underweight the group.

• Stock selection within the residential sector has detracted from the Composite’s performance.  In particular, the allocation to Sun Communities (NYSE: SUI) has detracted from relative returns due to its exposure to transient RV business during a period of elevated gasoline prices.  We believe this presents an attractive opportunity to add to a solid long term growth story with little to no new supply.

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Market Commentary

In the April 2022 REIT Outlook titled, “Chilton REIT Roadmap, Revisited,” we review the fundamental analytical process that we have honed over the past 17 years.  This process has been proven in multiple economic environments and over full cycles, leading to average five year gross outperformance of 328 basis points (or bps) per year and net outperformance of 239 bps per year, well beyond our goal of 200 bps of gross outperformance over a given five year period.  The process is designed to optimize risk-adjusted returns by applying a proprietary premium or discount to our estimate of intrinsic value looking out two years.  Thus, while it has outperformed over 90% of the 172 three year rolling periods since inception, we are especially proud of the perfect record of outperformance over all 148 five year periods, both gross and net of fees.

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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 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.