By Philip van Doorn, MarketWatch
The build-out of data centers and 5G technology stands in contrast to the retreating retail and commercial real estate markets
The response to the novel coronavirus is adding a twist to the real estate adage that it's all about location, location, location.
Even before the coronavirus crisis, investors were well aware that most brick-and-mortar retailers -- and their landlords -- were facing a dire threat from the rapid growth of online shopping.
But now that working at home has become a new norm for a sizable number of people, more is on the table. "Location" now has a different meaning because it's no longer about a physical structure in an attractive area.
That's because two areas of growth for real estate investment trusts, or REITs, are data centers that are benefiting from cloud-based collaboration and the work-from-home trend, and the rollout of 5G networks.
Threats to real estate
As office leases expire, corporate management teams will have an incentive and opportunity to save a bundle. Not only can they trim their physical office footprints, they may be able to do so at a significantly reduced cost per square foot, with lower overall demand.
So now instead of having one real-estate sector to automatically avoid (unless you are a professional with intimate knowledge of value plays within the space), you have two: retail and offices.
"You will see every CEO ask, 'Do we really need all this office space?' " said John Traynor, chief investment officer of People's United Advisors in Fairfield, Conn., in an interview.
Pacer Benchmark Data & Infrastructure Real Estate Sector EFT
The Pacer Benchmark Data & Infrastructure Real Estate Sector EFT (SRVR) takes a weighted approach to investing in data center REITs and other companies that store and transmit data, including owners of cell towers.
SRVR is up 3.5% this year through April 24 (including dividends), compared with declines of 11.7% for the S&P 500 and 13.9% for the S&P 500 real-estate sector.
Here are all of its holdings as of the close on April 24:
Company Ticker Share of portfolio Dividend yield Total return - 2020 through April 24 Country
Equinix Inc. US:EQIX 17.3% 1.55% 18% U.S.
Crown Castle International Corp US:CCI 16.3% 2.97% 15% U.S.
American Tower Corp. US:AMT 15.6% 1.62% 7% U.S.
CyrusOne Inc. US:CONE 5.2% 2.75% 12% U.S.
Cogent Communications Holdings Inc US:CCOI 5.2% 2.88% 34% U.S.
CoreSite Realty Corp. US:COR 5.0% 4.04% 9% U.S.
SBA Communications Corp. Class A US:SBAC 5.0% 0.61% 27% U.S.
QTS Realty Trust Inc. Class A US:QTS 4.9% 2.95% 19% U.S.
Digital Realty Trust Inc. US:DLR 4.9% 2.99% 26% U.S.
GDS Holdings Ltd. ADR Class A US:GDS 4.4% 0.00% 15% China
Iron Mountain Inc. US:IRM 3.4% 10.51% -25% U.S.
Lamar Advertising Co. Class A US:LAMR 2.6% 8.08% -44% U.S.
Switch Inc. Class A US:SWCH 2.5% 0.66% 21% U.S.
Uniti Group Inc US:UNIT 2.1% 9.47% -21% U.S.
Ooutfront Media Inc. US:OUT 2.1% 12.03% -52% U.S.
21Vianet Group Inc. ADR Class A US:VNET 1.9% 0.00% 130% China
Clear Channel Outdoor Holdings Inc. US:CCO 0.8% 0.00% -73% U.S.
Landmark Infrastructure Partners LP US:LMRK 0.5% 8.16% -39% U.S.
You can click on the tickers for more about each company.
You will need to scroll the table to see all the data.
The ETF has a trailing 12-month distribution yield of 1.63%, according to FactSet. You can see on the table that some of the companies held by the fund have much higher yields, including some that are alarmingly high -- indicating investors aren't confident the yields will be sustained. These are also relatively small holdings in the portfolio.
The top three holdings make up nearly half the ETF. Equinix (EQIX) is a REIT focused on owning and operating data centers. Crown Castle (CCI) and American Tower (AMT) are REITs that own cell towers and lease space on them to multiple tenants running various communications networks.
One of the holdings with a very high yield is Iron Mountain (IRM), which focuses on corporate information storage and disaster recovery. The stock is down 25% this year. Mitch Rubin, portfolio manager of the RiverPark Long/Short Opportunity Fund recently said he had shorted the stock () because it continues mainly to store paper. "That business will be much smaller two years from now," he said.
Don't miss:Seven stock picks for a volatile market from a manager who 'finds innovation all over the place' ()
-Philip van Doorn; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
April 28, 2020 10:40 ET (14:40 GMT)
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