REIT Report

Market analysis by our public securities expert, Geoff Shaver

March 16, 2020

Are Any REITs Safe from Coronavirus?

Geoff Shaver, Director of Public Securities

by Geoff Shaver
Director of Public Securities

Coronavirus has the world in a panic, and stock markets are selling off drastically.  Even real estate is not immune. Hotels and restaurants are closing their doors.  Malls have been down on their luck awhile, and the pandemic will only exacerbate store closings.  Office buildings sit virtually empty with workers choosing or being mandated to work from home.  Trade disruptions will affect supply chains and warehouses.  And, we’ve already seen the effect on senior housing and skilled nursing facilities. Are there any areas of real estate that might not feel the full brunt of these events? Two come to mind, and you might not even be aware of them.

Every time you use your phone to check social media or read the Wall Street Journal, you’re almost certainly using two types of real estate: cell towers and data centers. Both types of real estate investments are available as real estate investment trusts (“REITs”). Here’s how it works: your phone connects to a cell tower, which connects to larger network and ultimately to the internet via backhaul.   From here you are routed to your content, such as a Netflix video, which lives in a data center.  We’ve seen increased demand for both cell towers and data centers even before the Coronavirus, brought on by emerging technologies such as driverless cars, artificial intelligence, and 5G.

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Despite recent market volatility, we believe these types of REITs will be resilient and could even thrive in the future.  First, they’re not subject to the same sort of consumer pullback or reservation cancellations that other property types face. We as consumers don’t pay rent to them directly.  The tower REITs’ principal tenants are mobile carriers like Verizon, AT&T, and T-Mobile.  If these mobile carriers don’t pay the tower rent, they don’t really have a business.  Data center tenant lists are bit more varied but frequently contain the same mobile carriers, as well as large technology firms such as Microsoft, Facebook, Salesforce, and even financial firms like J.P. Morgan and Citi Bank.  Lease terms can vary for cell towers and data centers, but they generally can’t be cancelled overnight.  They have held up better than the broad markets and REITs as a whole lately, as you can see in the table below. This isn’t to say that they won’t feel any fallout during an economic contraction, but we believe it will likely be less than other property types, and we will need more of both of them over the long term as our data and communications need continue to grow.

Total Returns
3/15/19 to 3/16/20
S&P 500-13.8%
NASDAQ Composite-9.2%
FTSE Nareit All Equity REITs-20.0%
Tower REITs
AMT9.2%
CCI12.4%
SBAC35.1%
Data Center REITs
EQIX25.1%
DLR15.4%
CONE-3.6%
COR0.7%
QTS19.8%

How to Invest in Data Centers and Cell Towers

Interested in adding data centers and cell towers to your portfolio? If you buy a REIT Index ETF, you get exposure to all property types found in the index.  Our Path REIT Blocks, on the other hand, can help you narrow or concentrate your exposure to certain property types. The Technology REIT Block invests in REITs with exposure to technology such as cell towers and data centers. Download the Path app to learn more about this REIT Block and see if it might be a good fit for your portfolio.

Read more recent articles on REIT investing

Geoff Shaver, Director of Public Securities

Geoff Shaver

Director of Public Securities

Geoff leads the construction and monitoring of the public real estate securities portfolios available in our Path by Origin app. Prior to Origin, Geoff spent the last 12+ years researching and investing in public REIT securities at both Duff & Phelps Investment Management Co. and J.P Morgan Asset Management.

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Disclaimer

Data quoted represents past performance, which is no guarantee of future results. The views and opinions in the preceding commentary are as of the date of publication and  are subject to change without notice. The information presented does not reflect the performance of any account managed by Path by Origin, and there is no guarantee that investors will experience the type of performance reflected. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any market forecast made in this commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice, is not intended to predict or depict performance of any investment and does not constitute a recommendation or an offer for a particular security. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment.