Adding Data Center REITs to the Watchlist

Contrary to almost everything else on the market, REITs (as a group) are down from last year. But bucking that trend within the group are the Data Center REITs.

Recall, a REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. REITs typically pay out all of their taxable income as dividends to shareholders, so they are income producing assets.

REITs have likely sold off as investors are anticipating higher interest rates. Higher interest rates raise debt-financing costs. REITs carry debt because they are acquiring properties. But if the business is thriving, then it’s still a good trade-off. And I only see upside for data centers.

It’s all about data and data traffic is increasing every day; maybe even accelerating, I’m not certain. But I’m long data.

The best of breed of the Data Center REITs is COR. Although the stock looks elevated here (again, as does everything). I won’t be buying here as this makes the yield low (~3.25%). I prefer a REIT yield between 6-10%. Let’s see if COR can pull back a little bit and present a buying opportunity.

As an aside, another interesting company on the long data theory is Dycom (DY). This one is also probably towards the top of an uptrending channel, but it’s certainly appears to be a company poised for growth on the backbone of internet growth.

 

Leave a Reply

Your email address will not be published. Required fields are marked *