Source: Date Center Knowledge | Repost Serenity Alts 9/5/19
Strong second-quarter result, solid bookings, and strong balance sheets to fund development pipelines have made data center REITs an outperforming sector on the stock market this year, but not without influence of wider-reaching factors.
Yield-starved investors have been bidding up REITs of all sorts, and a rising tide lifts all ships. A rate cut this year by a dovish Federal Reserve and expectations for additional interest rate reductions are also part of the story.
Near-term concerns of a potential global economic slowdown should not impact data center operators in most US markets directly. In fact, the digital economy appears more attractive to investors, given recent global events and GDP trends.
Real Estate Investment Trusts are often viewed as a bond substitute, because they must pay out at least 90 percent of taxable income as dividends, which currently average 4 percent across all asset classes. In a low-yield environment, where the US 10-year Note is only yielding 1.5 percent, REIT yields become highly attractive to income-focused investors.
The demand for data center space is not tied to GDP growth, consumer confidence, population growth, or unemployment like demand for traditional REIT products, such as office, retail, multifamily, net-lease, and industrial. Technology-oriented REITs like data centers and wireless towers provide space, power, and connectivity to customers that colocate their equipment and pay rent for the privilege.