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Rotation Creates Long-Term REIT Buying Opportunity

Mar. 02, 2021 2:36 PM ETSBAC, AMT, CCI, SPG, AAT, HR, DEI, CONE, DLR, VNQ, ICF7 Comments
Chilton REIT Team profile picture
Chilton REIT Team


  • We highlight recent performance between the 'COVID' and 'Vaccine' REITs, looking for REITs that may have swung too far in one direction.
  • The current junk rally is approaching historic proportions, overvaluing short-term 'reversion to the mean' REITs, while undervaluing long-term potential compounders of cash flow.
  • Our investment philosophy focusing on Growth at a Reasonable Price (or GARP) can create short-term periods of underperformance during such junk rallies.
  • We remain steadfast in our fundamental analysis, and continue to manage the portfolio looking for companies that fit our criteria.

As we mentioned in the 2021 Chilton REIT Forecast, the rotation from the ‘COVID’ REITs (i.e. Cell Towers, Data Centers, Industrial) to the ‘Vaccine’ REITs (i.e. Regional Malls, Shopping Centers, Coastal Apartments, Lodging, Coastal Office) after the November 9 Pfizer announcement has been nothing short of extraordinary. While the increase in price over the past five months for some Vaccine REITs pricing in a ‘return to normal’ made sense, others have soared past pre-COVID valuations, while still others have been left behind. Improbably, some ‘COVID’ REITs with attractive long term growth are now below pre-COVID values despite a positive change to long term fundamentals. We will discuss below some of the specific sectors that have outperformed beyond what the vaccine news actually changed in terms of fundamentals (if anything) and isolate a few examples of ‘COVID’ REITs that are more attractive than they were a year ago.

What has Changed from a Year Ago?

As we are just hitting the one year anniversary of the beginning of the lockdowns in the US, it is instructive to compare valuation metrics in a pre-COVID world to today’s ‘vision’ of a post COVID world with the background of the external factors that influence such metrics. As of February 28, 2021, the 10 year Treasury yield was 1.5%, which compared to 1.1% at the same time last year. The unemployment rate was 6.3% as measured by U-3 (the most commonly cited figure) as of the February 5 employment report, which compares to 2.5% last year. Finally, GDP is projected to be $21,660 billion for 1Q2021, versus actual GDP of $21,561 billion for 1Q2020. Government stimulus has helped to bring the savings rate up to an all-time high of 20.5%, giving hope for consumer spending growth in 2021 and beyond, which has historically been a large contributor to GDP growth.

This article was written by

Chilton REIT Team profile picture
The REIT Team of Chilton Capital Management, a Houston-based investment adviser, is headed by co-portfolio managers Bruce Garrison, CFA, and Matt Werner, CFA. Mr. Garrison has over 40 years of experience analyzing public REITs both on the buy-side and the sell-side. Mr. Werner joined Mr. Garrison on the Chilton REIT Team in 2009. The REIT Team’s strategy primarily pursues investments in publicly traded real estate investment trusts (REITs) and real estate related entities based primarily in North America. The REIT Team believes public REITs are superior vehicles for investing in real estate due to their liquidity, transparency, and total return characteristics. Investing in public securities enhances the REIT Team’s ability to diversify by geography, sector, strategy, property, and tenant while maintaining portfolio liquidity. REIT property types include apartments, regional malls, shopping centers, lodging, office, industrial, self-storage, data centers/cell towers, and a variety of health care related facilities. The REIT Team focuses on traditional methods of security analysis; primarily research, critical thought and analytical depth, which are integral to their investment process. The REIT Team’s investment approach seeks to combine its real estate industry experience with traditional methods of security selection to make sound investment decisions in real estate companies. The Chilton REIT Team manages Separately Managed Accounts (SMAs) for high net worth individuals and institutions. Additionally, the REIT Team is the sub-advisor for an open-end investment company, the West Loop Realty Fund (tickers: REIIX, REIAX, and REICX). Before investing one should carefully consider the West Loop Realty Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus and summary prospectus, a copy of which may be obtained by calling 800-207-7108. Please read the Fund’s prospectus or summary prospectus carefully before investing. The Fund may not be suitable for all investors. We encourage you to consult with appropriate financial professionals before considering an investment in the Fund. Liberty Street Advisors, Inc. is the advisor to the Fund. The Fund is part of the Liberty Street family of funds within the series of Investment Managers Series Trust. The Fund is Distributed by Foreside Fund Services, LLC. Chilton Capital Management, LLC is an independently owned and operated firm formed in 1996. Chilton provides investment advisory services for registered investment companies, private clients, family offices, endowments, foundations, retirement plans and trusts. For more information about Chilton Capital Management’s REIT Team, please visit www.chiltoncapital.com/reit/ or email info@chiltoncapital.com. Additional information about Chilton Capital Management LLC is also available on the United States Securities and Exchange Commission’s website at www.adviserinfo.sec.gov. The searchable IARD/CRD number for Chilton Capital Management LLC is 104592.

Analyst’s Disclosure: I am/we are long SBAC, CCI, AMT, DLR, HR, AAT, AVB, BXP, ESS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

When I read the title, I was expecting another rah-rah piece on the benefits of investing in office/hotel/retail.

I agree with this thesis. There's definitely opportunity in those sectors of the real estate market.
Mega fomo profile picture
Funny... who's gonna buy real estate when 50% people can't afford to pay rents right now. And QE creats deflation.
View on the valuations if rates go up?
Very reasonable analysis. As a new investor in the reit space I appreciate the nuts and bolts approach, as well as the practical exercise of comparing the two reits.
I think that your thesis is correct except that you overestimate the impact on coastal apartments (most of these areas are short of housing even if rents will drop some) and overestimate the potential for data centers (AFFO/sh is not increasing much due to competition).
mbarnard4 profile picture
Thanks for the insight. I’ve been adding to amt for the last few months. I think right now is an unbelievable time to be able to add amt at this valuation.
Raleigh Reid profile picture
nice article, i have recently lightened the load on hospitality and strip retail and added to industrial and cell tower. i have buy orders on sunbelt apt and on industrial.
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