(This morning, we looked at the trend toward specialty REITs. In this Update, we see what investors can get out of them . . . and what’s ahead.)
NEW YORK CITY-So what are investors seeking that they can’t find elsewhere? Portfolio diversification, mostly. They roll the dice and take their chances, clearly, with a structure like private homes, given its track record of late (though the housing rebound is promising). But if its diversity and stability you seek, American Tower is perfect example.
“A company like American Tower won’t be strongly affected by things such as housing price increases or decreases or changes in employment rates,” says Jason Lail, SNL Financial‘s manager of real estate research. “The company provides investors with the ability to invest in an infrastructure REIT that enjoys high lease renewal rates, as alternative sites are limited.”
According to a NAREIT spokesperson, in this low-yield environment, “the global search for yield is on, from individual investors to sovereign wealth funds. Stocks that deliver significant yields are very attractive in this environment. REITs deliver at least 90% of their income to their investors.”
And you can count on the trend continuing. “CyrusOne kicked off its IPO process in early January,” says Lail. The focus here is data center co-location, much like Digital Realty and CoreSite Realty.
Also, Power REIT, he says, recently closed on a deal to purchase the land under a Massachusetts solar farm. “That makes them the first REIT to complete a transaction of that type,” he reports. “While they currently invest only in the land under that renewable energy asset, some investors are hoping the IRS will allow REITs to invest directly in renewable assets. The company was already unique in that they owned land under railroad tracks for many years, so they’re expanding their focus of acquiring real estate infrastructure assets.
“So we could see further expansion for infrastructure REITs, and in general, more companies joining some of the newer REIT sectors . . . such as data centers, cell towers and single-family.”
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