Investing In This Explosive REIT Sector

Investing In This Explosive REIT Sector

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In the November 2016 edition of The Forbes Real Estate Investor I predicted that Donald Trump would win the Presidential election. I called it a “hail Mary” scenario, and I explained that “it must be a tactical Hail Mary pass targeted at the swing states.”

We all know now that the “Hail Mary” pass was perfectly orchestrated and the final score is now in the playbooks. (In full disclosure, I wrote a book on President Elect Trump called The Trump Factor: Unlocking the Secrets Behind the Trump Empire).

For investors, it’s important to also maintain a tactical approach to wealth creation.

Obviously, playing solid offense and defense is elementary, and the best way to beat the market is to select a blueprint and follow it.

In the January edition of my newsletter I forecasted REITs “to generate mid-single digit total returns in 2017 (4% earnings growth, 4% dividend, offset by “modest” multiple contraction).” I explained that “certain (property) sectors (should) perform better than others.”

One sector that I am most bullish is the “communications” category, that includes Data Center REITs and Cell Tower REITs. In the February edition of my newsletter I explained that “these sectors boast stronger organic growth rates compared to other REIT peers, with elevated demand prospects that are decoupled from broader macro-economic factors such as inflation and GDP.”

Simply said, all of us must communicate and the growth potential for data centers and cell towers is extraordinary. Let’s check out these top-performers

Who Are The Best Communication REIT Performers Year-To-Date?

In my newsletter, I cover 6 Data Centers REITs and 2 Cell Tower REITs. As illustrated below, 7 out of 8 REITs have generated double-digit returns so far in 2017, compared with the Vanguard REIT Index (VNQ), that has returned 3.1% YTD.

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Source: FAST Graphs

Clearly the “communication” REITs are out-performing all other sectors, and based consensus estimates, they should continue to generate strong earnings, or Funds from Operations (FFO) growth in 2017 and 2018 (estimated growth of 13% per year in 2017 and 2018 for all communications REITs).

Source: FAST Graphs

Source: FAST Graphs

Valuations are somewhat stretched, but the demand for Data and Cell Tower space is exceptionally strong. Unlike most other property sectors that are sensitive to macro-economic noise, the communication REITs are positioned to provide steady and reliable dividend growth.

So far in 2017, my predictions have been good , but only because I rely on fundamental research to select the winners and losers. For more information, check out The Forbes Real Estate Investor.

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Source: FAST Graphs

Source: FAST Graphs

I own shares in CONE, DLR, QTS, and CCI.

 

I’m editor of Forbes Real Estate Investor, coauthor of The Intelligent REIT Investor (Wiley/Forbes) and author of  The Trump Factor: Unlocking the Secrets Behind the Trump Empire .

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