High growth tech stocks aren’t the only beneficiaries of the digital transformation. While real estate equities (more specifically, REITs) have been known as income investments with attractive dividends driven by cash flows from long-term leases, a subset of REITs can serve as a thematic investment in disruptive technology in areas like e-commerce, cloud computing, or wireless communication. The Alerian Disruptive Technology Real Estate Index (LANDX) focuses on real estate equities engaged in disruptive technology industries where the geographic location of a business site is essential to its value in the broader network—for example, providing warehouse space for e-commerce goods or providing a secure location for data centers and cell towers. Today’s note explores several thematic trends underlying disruptive real estate.
Trend 1: Industrial REITs can provide physical capacity for e-commerce/last mile delivery
One of the key shifts within supply chains has been the growth in e-commerce sales, which have consistently increased on a year-over-year basis since 2009. Retail store locations may become less essential relative to distribution centers closer to densely populated areas that can support faster shipping directly from the business to the customer. Industrial REITS provide physical locations for e-commerce warehousing by serving large retailers like Amazon (AMZN), Home Depot (HD), and Walmart (WMT). Currently over half of LANDX’s constituents by weighting (51.9%) are industrial REITs as of April 14, 2022.
Trend 2: Infrastructure REITs can support data consumption as mobile device habits change
Data consumption through mobile devices is expected to keep increasing over the next few years. While this is partly driven by expanded reach of internet services in less developed countries and rural areas, data consumption per device is also expected to grow given the rising popularity of more data intensive video streaming for remote work, social media, and TV/gaming. Infrastructure REITs can play a central role in rapid data transfer through cell towers and fiber-optic cable networks. These companies support major tenants such as T-Mobile US (TMUS), AT&T (T), and Verizon Communications (VZ). LANDX currently has a 21.6% weighting to infrastructure REITs as of mid-April.
Trend 3: Data Center REITs support enterprise data growth and cloud adoption
Data center REITs help manage data for large enterprises. Remote internet trends, including local cloud computing and a larger remote workforce, have increased both the volume and activity of data usage for enterprises. Regulatory shifts have increased the need for local data storage, while new emerging technologies also drive accelerated IT infrastructure needs. Data center customers may include companies like International Business Machines (IBM), Oracle (ORCL), and Meta Platforms (FB). LANDX currently has a 14.2% weighting to data center REITs as of mid-April.
Bottom Line:
LANDX can benefit from some of the same underlying themes as traditional disruptive tech stocks (i.e., those mentioned above like AMZN, FB, TMUS), while experiencing less volatility than broader tech indexes and offering yields more closely in line with broader REIT indexes.
The Alerian Disruptive Technology Real Estate Index (LANDX) is the underlying index for the First Trust Alerian Disruptive Technology Real Estate UCITS ETF (DTRE).
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Quarterly E-Commerce Trends: Industrial REITs Creating Capacity for Shift in Retail Sales
