In April, the MSCI US REIT Index (RMZ) produced a total return of -4.5%. The Chilton REIT Composite outperformed the benchmark for the month by producing a total return of -3.7% net of fees and -3.6% gross of fees. Year to date, the Chilton REIT Composite has outperformed the RMZ by producing a total return of -7.5% net of fees and -7.2% gross of fees, which compares to the RMZ total return of -8.3%.

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Monthly Attribution

Positive contributors to relative performance included an overweight to the cell tower sector, an underweight to the office sector, and stock selection in the residential sector. An overweight to the triple net sector, along with stock selection in the data center and healthcare sectors 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 and residential sectors, and an underweight allocation to the regional mall sector.  An overweight to the cell tower sector, and an underweight triple net and lodging sectors 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.

• Stock selection within the residential has contributed to the relative performance of the Composite.  Notably, American Campus Communities (NYSE: ACC) agreed to an all-cash offer of $65.47 per share from Blackstone during the month, making it one of the best performing REITs in the index. 

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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 triple net sector has detracted from the Composite’s performance.  The long lease sector of triple net has held up better than we would’ve thought in this rising interest rate environment.  We believe these stocks will mostly need to re-rate at a lower multiple given their inability to raise dividends at the same pace as other sectors such as residential, self storage, diversified, and industrial.

• An underweight allocation to the lodging sector has detracted from the Composite’s relative performance.  Lodging has been a lone bright spot in 2022 as leisure travel continues to surprise to the upside.  We believe the potential of a recession in 2023 or 2024 could hold back valuation until the economic situation becomes clear.

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Market Commentary

In the May 2022 REIT Outlook titled, “Sunbelt Spotlight: Using REITs to Capitalize on Migration,” we review the long term migration trends that are benefiting the Sunbelt states. Following an acceleration of this trend in 2020-2022 due to the pandemic, we believe the trend will stabilize and continue for the foreseeable future. Historically, the public market has underappreciated the opportunities available for growth in these areas, and we believe it has further to go. As of April 29, 2022, the Chilton REIT Composite is almost 700 basis points overweight to Sunbelt states when compared to the MSCI US REIT Index, making it an excellent way to play these migration trends.

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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.