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  • Alex Pettee, CFA

Data Center REITs: Cloud Keeps Growing

  • Data Center REITs were the best-performing REIT sector in 2020, riding the "work-from-home" tailwinds that powered a surge in cloud spending, but the post-vaccine sector rotation has pressured these high-flyers.

  • Recent earnings reports were solid but not spectacular. Leasing activity - the most closely-watched earnings metric - surged to record highs in Q4, but "same-store" pricing remains flat amid stiff competition.

  • Consistent with the other "essential" property sectors - housing, technology, and logistics - FFO growth was firmly positive in 2020, averaging roughly 4%. Forward guidance suggests similar growth in 2021.

  • With muted pricing power amid stiff competition from the hyperscale giants – Amazon, Microsoft, and Google - these REITs will continue to rely heavily on development and M&A to fuel future growth.

  • All five data center REITs boosted their dividends in 2020, and two have raised payouts again in early 2021. While growth rates have moderated, valuations appear attractive with data center REITs trading at historically modest premiums to the REIT sector average.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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