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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 US: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 US:SPX 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. |
| 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 US:EQIX is a REIT focused on owning and operating data centers. Crown Castle US:CCI and American Tower US: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 US: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 US:RLSIX US:RLSFX 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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