Last week I had a chance to catch up with Evan Serton, REIT Portfolio Specialist with Cohen & Steers, notes Brad Thomas, editor of Forbes Real Estate Investor.
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Serton explained the reasons that technology, specifically e-commerce, has been a driving force for the performance for virtually all the REITs that benefit from the technology wave.
He explained it as somewhat of a three-legged stool in which the Cell Tower REITs, Data Center REITs and Industrial REITs are all participating in a new type of commerce and are all driven by a new kind of demand.
He said that it all starts with the explosive growth in demand for mobile data that has had a “positive impact on Cell Tower REITs.
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Companies in this sector are seeing “strong secular growth”—mobile traffic is expected to increase by 35% per year over the next five years and the demand for data is limitless. Year-to-date American Tower (AMT) has returned 39% and Crown Castle International (CCI) has returned 24.7%.
Serton told me that as the cell towers transmit data, companies rely on the Data Centers to process it and store it in the cloud. This is why there has also been a boom in Data Center demand. Recently, Digital Realty Trust (DLR) announced it had acquired Dupont Fabros Technology (DFT) in a deal valued at $7.8 billion.
Other Data Center REITs include CorSite (COR), QTS Realty Trust (QTS), CyrusOne (CONE), and Equinix (EQIX). The average year-to-date Total Return for all of the Data Center REITs is 29.1%.
The last leg to the stool is logistics , or the Industrial REITs, as Serton explained, “The sector has been the beneficiary of e-commerce”.
Think of it like this, the smartphone transmits the purchase and the Data Center receives it and then the order is relayed to a logistics warehouse, where it is fulfilled and shipped to your home.
There are a number of Industrial REITs and my favorites include Prologis (PLD), Monmouth Real Estate (MNR), STAG Industrial (STAG), Duke Realty (DRE), and EastGroup Properties (EGP). The average return year-to-date for these 5 REITs is 19.5%.
By owing shares in Cell Tower REITs, Data Center REITs, and Industrial REITs — the “trifecta advantage” — investors can benefit from the insatiable ecommerce.
As Serton explains, "The path that begins with an order placed on your smartphone and ends with a package at your door is creating a powerful secular growth story for various REIT sectors. Amid all the headlines lamenting the demise of the traditional shopping mall, there is an equal and important series of developments that may be a new source of growth for real estate investors.”
Disclaimer: The mention of specific securities is not a recommendation or solicitation by Cohen & Steers to buy, sell or hold any particular security and should not be relied upon as investment advice.
