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April 28, 2020, 10:41 a.m. EDT

This one niche of the sagging real estate market is growing rapidly

The build-out of data centers and 5G technology stands in contrast to the retreating retail and commercial real estate markets

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By Philip van Doorn, MarketWatch


Getty Images
A contract crew for Verizon works on a cell tower to update it to handle the new 5G network in Orem, Utah.

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 /zigman2/quotes/207788765/composite SRVR +0.77%  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 /zigman2/quotes/210599714/realtime SPX +1.74%  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. /zigman2/quotes/208927761/composite EQIX 17.3% 1.55% 18% U.S.
Crown Castle International Corp /zigman2/quotes/202885080/composite CCI 16.3% 2.97% 15% U.S.
American Tower Corp. /zigman2/quotes/200890312/composite AMT 15.6% 1.62% 7% U.S.
CyrusOne Inc. 5.2% 2.75% 12% U.S.
Cogent Communications Holdings Inc /zigman2/quotes/200125343/composite CCOI 5.2% 2.88% 34% U.S.
CoreSite Realty Corp. 5.0% 4.04% 9% U.S.
SBA Communications Corp. Class A /zigman2/quotes/208397406/composite SBAC 5.0% 0.61% 27% U.S.
QTS Realty Trust Inc. Class A 4.9% 2.95% 19% U.S.
Digital Realty Trust Inc. /zigman2/quotes/206785129/composite DLR 4.9% 2.99% 26% U.S.
GDS Holdings Ltd. ADR Class A /zigman2/quotes/206082443/composite GDS 4.4% 0.00% 15% China
Iron Mountain Inc. /zigman2/quotes/208929343/composite IRM 3.4% 10.51% -25% U.S.
Lamar Advertising Co. Class A /zigman2/quotes/200816636/composite LAMR 2.6% 8.08% -44% U.S.
Switch Inc. Class A /zigman2/quotes/202880027/composite SWCH 2.5% 0.66% 21% U.S.
Uniti Group Inc /zigman2/quotes/203478257/composite UNIT 2.1% 9.47% -21% U.S.
Ooutfront Media Inc. /zigman2/quotes/205949037/composite OUT 2.1% 12.03% -52% U.S.
21Vianet Group Inc. ADR Class A /zigman2/quotes/209393944/composite VNET 1.9% 0.00% 130% China
Clear Channel Outdoor Holdings Inc. /zigman2/quotes/202242861/composite CCO 0.8% 0.00% -73% U.S.
Landmark Infrastructure Partners LP 0.5% 8.16% -39% U.S.
Source: FactSet

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 /zigman2/quotes/208927761/composite EQIX +0.66% is a REIT focused on owning and operating data centers. Crown Castle /zigman2/quotes/202885080/composite CCI +0.27%  and American Tower /zigman2/quotes/200890312/composite AMT +0.35%  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 /zigman2/quotes/208929343/composite IRM +1.41% , 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 /zigman2/quotes/203026914/realtime RLSIX -1.80%   /zigman2/quotes/204607042/realtime RLSFX -1.72%  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’

/zigman2/quotes/207788765/composite
US : U.S.: NYSE Arca
$ 36.72
+0.28 +0.77%
Volume: 4,775
Aug. 10, 2022 9:43a
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/zigman2/quotes/210599714/realtime
US : S&P US
4,194.02
+71.55 +1.74%
Volume: 2.22B
Aug. 10, 2022 9:45a
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/zigman2/quotes/208927761/composite
US : U.S.: Nasdaq
$ 702.36
+4.61 +0.66%
Volume: 12,260
Aug. 10, 2022 9:45a
P/E Ratio
100.63
Dividend Yield
1.75%
Market Cap
$63.55 billion
Rev. per Employee
$606,562
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/zigman2/quotes/202885080/composite
US : U.S.: NYSE
$ 180.34
+0.48 +0.27%
Volume: 25,361
Aug. 10, 2022 9:45a
P/E Ratio
50.96
Dividend Yield
3.24%
Market Cap
$77.88 billion
Rev. per Employee
$1.35M
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/zigman2/quotes/200890312/composite
US : U.S.: NYSE
$ 277.15
+0.97 +0.35%
Volume: 21,481
Aug. 10, 2022 9:44a
P/E Ratio
46.00
Dividend Yield
1.98%
Market Cap
$128.59 billion
Rev. per Employee
$1.60M
loading...
/zigman2/quotes/200125343/composite
US : U.S.: Nasdaq
$ 59.09
+0.48 +0.82%
Volume: 7,250
Aug. 10, 2022 9:43a
P/E Ratio
62.72
Dividend Yield
5.89%
Market Cap
$2.81 billion
Rev. per Employee
$589,208
loading...
/zigman2/quotes/208397406/composite
US : U.S.: Nasdaq
$ 347.96
+2.38 +0.69%
Volume: 6,760
Aug. 10, 2022 9:45a
P/E Ratio
107.31
Dividend Yield
0.82%
Market Cap
$37.20 billion
Rev. per Employee
$1.54M
loading...
/zigman2/quotes/206785129/composite
US : U.S.: NYSE
$ 131.75
+1.57 +1.21%
Volume: 70,474
Aug. 10, 2022 9:45a
P/E Ratio
28.91
Dividend Yield
3.70%
Market Cap
$37.06 billion
Rev. per Employee
$1.60M
loading...
/zigman2/quotes/206082443/composite
US : U.S.: Nasdaq
$ 27.46
-0.64 -2.28%
Volume: 38,160
Aug. 10, 2022 9:43a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.46 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/208929343/composite
US : U.S.: NYSE
$ 54.06
+0.75 +1.41%
Volume: 35,941
Aug. 10, 2022 9:45a
P/E Ratio
42.44
Dividend Yield
4.58%
Market Cap
$15.49 billion
Rev. per Employee
$193,093
loading...
/zigman2/quotes/200816636/composite
US : U.S.: Nasdaq
$ 103.56
+1.27 +1.24%
Volume: 9,790
Aug. 10, 2022 9:44a
P/E Ratio
22.92
Dividend Yield
4.66%
Market Cap
$10.38 billion
Rev. per Employee
$579,316
loading...
/zigman2/quotes/202880027/composite
US : U.S.: NYSE
$ 33.94
+0.0050 +0.01%
Volume: 13,152
Aug. 10, 2022 9:45a
P/E Ratio
22.36
Dividend Yield
0.62%
Market Cap
$8.31 billion
Rev. per Employee
$714,168
loading...
/zigman2/quotes/203478257/composite
US : U.S.: Nasdaq
$ 10.14
+0.17 +1.71%
Volume: 24,285
Aug. 10, 2022 9:45a
P/E Ratio
13.46
Dividend Yield
5.99%
Market Cap
$2.36 billion
Rev. per Employee
$1.49M
loading...
/zigman2/quotes/205949037/composite
US : U.S.: NYSE
$ 19.15
+0.27 +1.43%
Volume: 22,064
Aug. 10, 2022 9:45a
P/E Ratio
24.53
Dividend Yield
6.19%
Market Cap
$3.09 billion
Rev. per Employee
$768,747
loading...
/zigman2/quotes/209393944/composite
US : U.S.: Nasdaq
$ 5.15
+0.12 +2.39%
Volume: 17,888
Aug. 10, 2022 9:45a
P/E Ratio
7.38
Dividend Yield
N/A
Market Cap
$761.56 million
Rev. per Employee
$312,089
loading...
/zigman2/quotes/202242861/composite
US : U.S.: NYSE
$ 1.60
+0.10 +6.33%
Volume: 176,250
Aug. 10, 2022 9:45a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$712.94 million
Rev. per Employee
$487,200
loading...
/zigman2/quotes/208927761/composite
US : U.S.: Nasdaq
$ 702.36
+4.61 +0.66%
Volume: 12,260
Aug. 10, 2022 9:45a
P/E Ratio
100.63
Dividend Yield
1.75%
Market Cap
$63.55 billion
Rev. per Employee
$606,562
loading...
/zigman2/quotes/202885080/composite
US : U.S.: NYSE
$ 180.34
+0.48 +0.27%
Volume: 25,361
Aug. 10, 2022 9:45a
P/E Ratio
50.96
Dividend Yield
3.24%
Market Cap
$77.88 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/200890312/composite
US : U.S.: NYSE
$ 277.15
+0.97 +0.35%
Volume: 21,481
Aug. 10, 2022 9:44a
P/E Ratio
46.00
Dividend Yield
1.98%
Market Cap
$128.59 billion
Rev. per Employee
$1.60M
loading...
/zigman2/quotes/208929343/composite
US : U.S.: NYSE
$ 54.06
+0.75 +1.41%
Volume: 35,941
Aug. 10, 2022 9:45a
P/E Ratio
42.44
Dividend Yield
4.58%
Market Cap
$15.49 billion
Rev. per Employee
$193,093
loading...
/zigman2/quotes/203026914/realtime
US : U.S.: Nasdaq
$ 9.84
-0.18 -1.80%
Volume: 0.00
Aug. 9, 2022
loading...
/zigman2/quotes/204607042/realtime
US : U.S.: Nasdaq
$ 9.69
-0.17 -1.72%
Volume: 0.00
Aug. 9, 2022
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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