By Philip van Doorn, MarketWatch
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 +1.67% 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 +0.56% 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.|
|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||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.|
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 +2.30% is a REIT focused on owning and operating data centers. Crown Castle /zigman2/quotes/202885080/composite CCI +4.61% and American Tower /zigman2/quotes/200890312/composite AMT +4.17% 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 +1.84% , 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 +0.10% /zigman2/quotes/204607042/realtime RLSFX +0.11% 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.
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