In addition to high levels of income, investors often target the real estate sector for predictability and steadiness. Those are sensible approaches when considering real estate investment trusts (REITs) often ink long-term contracts with tenants featuring inflation escalators.
Those deals foster predictability and earnings and revenue clarity. Still, there are instances in which the real estate sector can invite speculation and hype. Take the case of Fermi Inc. (FRMI), a data center REIT that recently went public. It’s an AI infrastructure play, which sounds enticing. But there’s more to the story. And that “more” implies it’s a good thing the stock isn’t part of the ALPS Active REIT ETF (REIT ).
That’s an actively managed ETF, so it’s possible that one day Fermi will be part of the portfolio. For now, it’s a good thing REIT is keeping with its tradition of focusing on reliable companies. As Morningstar notes, Fermi doesn’t pay a dividend. That’s unusual in the real estate sector, but the surprises don’t end there.
“Our surprise that the company pays no dividend quickly gave way to shock that it also has no tenants, revenue, or physical property assets,” observed analyst George Metrou. “What it does have are the rights to build an 11-gigawatt data center in Texas. There will be enormous upfront capital requirements to build the facility and co-located power generation. With no tenant commitments, this build is being done on spec. What are investors willing to pay for this shell of a company?”
Steady Eddies Reside in REIT
Likely making Fermi riskier for investors is the point that market participants are aware of the aforementioned concerns. The stock is down more than 27% over the past five days. And there’s talk short-sellers are eagerly awaiting opportunities to target the AI-related real estate name.
Obviously, those are situations to avoid. REIT makes accomplishing the objective avoidance easier because it focuses on reliability and steadiness. That’s exemplified with Gaming and Leisure Properties (GLPI). That’s a REIT constituent and one of two publicly traded U.S.-based casino landlords.
GLPI doesn’t own much real estate in Las Vegas. But it’s a top-tier regional casino REIT with a knack for notching accretive acquisitions and financing deals that fortify its balance sheet and shareholder rewards. Those are positives indeed for shareholders and REIT investors.
“We attribute recent deal activity to GLPI’s strong tenant relationships, track record in the gaming space, and willingness to craft creative transactions to support its customers growth. Further, an emphasis on maintaining a low-levered balance sheet with ample liquidity has facilitated this investment activity,” said Citizens analyst Mitch Germain in a recent report.
For more news, information, and analysis, visit the ETF Building Blocks Content Hub.
