When most investors think of Real Estate Investment Trusts (REITs) they think of office buildings and shopping centers.
But in the new economy, where technology is a dominant theme, REITs also have a role to play. One area of expansion is in data storage facilities, the bricks and mortar complexes where companies keep the servers that store customer information on the cloud. Another is facilities that serve the healthcare sector storing temperature-sensitive medicines or enabling biotechnology research. A third is related to the growth in online shopping. REITs also own the warehouses that store the goods to be shipped to a global marketplace.
Digital Realty Trust Inc., (NYSE: DLR) based in San Francisco, is an example of the trend. It provides temperature-controlled facilities, with internet connections and high levels of data security. Businesses rent the space for their servers and computing hardware.
Digital Realty’s portfolio includes 210 properties in 14 countries, including Canada. About 70% are in the U.S. Clients range from financial services, cloud and information technology services, to manufacturing, energy, gaming and consumer products. Digital Realty had a market capitalization of US $26 billion as of June 30, 2019.
Alexandria Real Estate Equities Inc., also based in California, is another example. Its focus is on life sciences industries. It operates properties in the U.S. for lease primarily to pharmaceutical, biotechnology, medical device and life science agencies. It had a market capitalization of $16.3 billion as of June 30, 2019.
REITs are popular with income seeking investors because of the dividends generated by their underlying assets. Historically, as interest rates have eased, REITs have become more attractive relative to stocks because they are often seen as a proxy for bonds. With signals from global central bankers that interest rates may ease in the face of economic weakness, REITs are once again in the spotlight.
Harvest Portfolios Chief Investment Officer Paul MacDonald says it pays to take a broad look when it comes to REITs. Canadian REITs are about 3% of the global total, so by seeking out large players outside the country, you “get scale, quality and diversification.”
Both Digital Realty and Alexandria Real Estate are components of the Harvest Global REIT Leaders Income ETF (TSX: HGR). As of June 30, 2019, the ETF was invested in an actively managed portfolio of 29 real estate issuers. The top three regions are the U.S. (52%), France (11%) and Germany (10%). The holdings are also broadly diversified with 25% of the companies involved in industrial or residential REITs and 17% in the healthcare sector.
As of June 30, 2019, the average market cap of the Global REIT Leaders Income ETF was CAD $25 billion and the average dividend yield was 2.99%. The ETF is RRSP, RRIF, TSFA and RESP eligible and pays a monthly distribution.
The views and/or opinions expressed in the blog are of a general nature and are for informational purposes only. Blog contents should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies. Investors should consult their investment advisor before making any investment decision.