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  • Alex Pettee, CFA

Data Center REITs: Tech Turbulence

  • Data Center REITs - a perennial performance leader in the REIT sector - are in "bear market" territory for the third time this decade as technology stocks have lost their luster this year.

  • Data center demand and fundamentals remain resilient and were remarkably unaffected by the pandemic and subsequent reopenings, but that's precisely the issue as investors have rotated into more pro-cyclical sectors.

  • The complexion of the sector changed dramatically after two REITs were taken private, while COR was acquired by AMT, but DigitalBridge and Iron Mountain have matured into serious players.

  • Digital Realty and Equinix continue to lean heavily on ground-up development to drive mid-to-high single-digit earnings and dividend growth, offsetting soft pricing power on hyperscale leases.

  • Data Center REIT valuations now appear quite attractive for growth-oriented investors as similar setbacks in 2014 and 2018 amid rising rate concerns ultimately proved to be rewarding buying opportunities.

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