2 Data Center REITs to Watch Now

REITs are getting [music] crushed, but is this exactly when you should be buying? >> Right now, this window is open in the REIT space to make a lot of money. >> And just wait until you hear what he learned from Bill Aman. Welcome back everyone to Navalier Market Buzz. Today [music] we are so excited to have Brad Thomas, the founder of Widemote Research and one of the most trusted voices in real estate and income investing. Brad, it is so good to have you. Welcome to our show. >> It's great to see you. Thanks so much. And I'm really excited to have Brad here at this time because he does a lot of income related investing. So if interest rates start to meander lower, Brad's going to be making you a lot of money in anything that's income related. >> Absolutely. I mean, I've certainly been watching that uh yield curve as well. Cost of capital is absolutely critical to the business model when it comes to real estate or real estate investment trust or really anything income focused. We're definitely keeping a close eye on it and borrowing costs have definitely squeezed cash flow and make making acquisitions harder to justify and also put pressure on property values. >> I'm certainly hoping that rates will meander lower. Can you explain to people how much money they can make if let's say the 10ear goes from 52 to 48? I mean it's it's there's a lot of money to be made as soon as bond yields crack. >> I think right now is a great time. I know look especially REITs which is you know kind of the field that I know really really well. You know, it's been a painful not only year, but also two years, two and a half years, you know, and every time we think rates are coming down, there we are having rates go up. So, it's just been a roller coaster event, especially for reed investors. But, you know, I encourage people to hang on, but but especially and this is important to focus on these blue chip companies that have these balance these strong balance sheets because when you these companies have, you know, well lattered debt maturities. They've extended their debt maturities and they're fixed rate debt instruments. Most a lot of these companies are investment grade rated companies. Uh, and they generate very steady and predictable, you know, cash flow and earnings and of course dividends which are extremely important. But, you know, I think in terms of uh the opportunity set in terms of rates right now, yeah, we'll we're probably going to see another increase or two. But as long as you're investing in these higher quality companies, because they're going to take advantage of this dislocation we're seeing in the market, as a a small town developer, which is what I was back in the day, you know, I would not want to be in this space right now, especially if I had bought an apartment complex or an office building in this low interest rate environment and I had to reset that that debt, that mortgage. In today's environment, I would be handing back the keys of everything I had. And guess who those guess who's going to be the beneficiary of those assets? They're going to be the stronger real estate investment trust because they have I like to talk Moes. They have two of the strongest competitive advantage obviously low cost of capital which is the you know capital advant capital uh the capital advantage and they also have scale advantage. So what we're in right now, it's a hiccup for sure, but it's an opportunity to really make money. And I think there is there is right now this window is open in the REIT space to make a lot of money. >> A lot of investors chase the REIT with the biggest yield. How important is consistent dividend growth compared with simply buying the highest yield curve? >> That's a great question and actually I I address that question in my book here, RES for Dummies. I'm going to send you both a copy of it. There's a term that I use often and I don't think I coined this term but again maybe I did and it's called sucker yield and that sucker yield means it's a yield that's too good to be true you know and so how far do you want to go you know how much temptation do you have you know is it 9% is it 10% is it 12% 14% in terms of this sucker yield I mean there are companies that we've recommended that have doubledigit yields they're not many what we really focus on is not the quantity, how high the yield is, but the quality of that dividend. So to understand the quality of that dividend, we break down that balance sheet to see how strong that engine is and we check under that hood and also look at that payout ratio to make sure that there's enough margin of safety, enough, you know, cushion so that the company can absorb, you know, difficult environments. Let me give you an example. There's a company that we recommend. They're called Reality Income. And if you look at reality income's track record, they're a they're actually a dividend aristocrat over 30 years in a row of dividend increases. Actually, as a private company, they go longer. They're actually a dividend king. 50 years if you count their public and private history. And these companies didn't pay rent, but this is what a diversified REIT does really, really well. They continue to increase their earnings modestly, say 2%. But they had a period where they didn't get their rent from AMC. They didn't get their rent from LA Fitness, but they still increased the earnings. And of course, along the way, they continue that incredible track record of dividend growth. So, dividend growth is essential. You know, now we recommend some companies that don't have dividends. You don't have to have a dividend to be a great company. There are plenty of those, especially in the tech space. But I do believe for a lot of our followers, dividends are really essential. But dividend increases are important. And we talk about track records. You know, Lou, you know this, but a lot a lot of people talk about, hey, you know, my portfolio generated, you know, outperformed. Well, I'll tell you how my portfolio outperformed. I'm 100%. We're 100%. We have no company in our portfolio that ever cut their dividend. And so, we insist on that. We don't want to have these sucker yields in the portfolio because that that is the absolute way to erode principle to invest in those high yielding companies. >> Yeah, that's outstanding. I just want to bring back another point. So, let's just say the tech stocks, correct? because you know it's they're tech stocks. They gyate. Don't REITs often go up the day they're correcting? >> REITs have always been viewed as kind of this this bond proxy, you know, and and they they should because REITs are really more of a hybrid, you know, what they offer. I mean, they do have real assets, but they're also an equity. When you start dissecting the fundamentals, I just pointed out, you know, these dividend increases, but there's a number of REITs that that are continuing to grow their earnings through this cycle. You know, it is disappointing honestly. Here we are again. You know, another reset because actually up until I ran, I mean, REITs were actually top performers, you know, year to date. I mean, I thought this was going to be the year. Um, and then again, now we're in this in this cycle again. But eventually, your point that I think we've got tremendous uh unlocked value and unlocked potential that we are going to see within the space. And so you know again looking at it from a more of a portfolio management lens looking at these different sectors that we think are to allocate capital the best. We all know the data center demand and we all know that certain markets and certain states have all these moratoriums that scarcity is actually what's creating the opportunity especially for these blue chip companies like digital reality. I mean there's huge demand in and in in this technology. We're always going to need it. Whenever you think about an EV going down the street or any of these, you know, all the AI, everything has to utilize these cell towers, data centers. They're mission critical. So, those are companies that I think investors really should be looking at because uh they're going to really continue to generate a lot of growth for investors going forward here. >> After all the money that has poured into the space, what are some data center rates that are still attractive? >> Yes. So digital real estate again that's tickers DLR they have around 300 data centers um around the globe what I like about digital from a fundamental perspective they have been able to deliver very sustainable growth going forward but in 2026 um digital is anticipating this is actually consensus numbers growth of 17% we've actually seen a sell-off it's digital is still not what I would call cheap they're not a a bargain kind of price today. They do have a really strong balance sheet uh tripleB plus S&P. Uh they paid consecutive dividends for 22 years in a row. Uh now they haven't increased every year. We recommend the company a long time ago. The digital is a good company. I think it's a little bit I would say fairly valued right now. The other the other company is Equinex and that's ticker is EQX. Now Equinex has a portfolio of about 280 data centers across 77 different markets. I would say Equinex is is in my buy zone. You know, we've had a little modest pullback within the space, but also REITs overall. Again, a lot of that interest rate driven, but I would consider Equinex a buy right now. The the interesting thing about Equinex, they've had a they've never had a negative earnings growth year since the company listed in 2015. They've increased the dividend every single year. Their uh their their Kager on growth is about 11%. So the dividend yield is 2% and they have consistently increased that dividend every year. They've got a low payout ratio and they've intentionally kept that payout ratio low so they could reinvest back into the company. You know they've also got a fortress balance sheet as well. Uh triple B+ rating. So when I look at the sum of the parts for Equinex again you've got a modest yield 2%. You stack on about a 10% growth which is the forecast for next year. And we've got about a 10% I guess margin of safety we'll say in the current share price. So when I look at Aquinex, that's what I would call something like a 20 or so total return opportunity. >> So Brad, let's get to Howard Hughes. You were just in the room with Bill Aman. What was your biggest takeaway from the shareholder meeting? Yeah. So, flew up to New York this week to meet with with Bill and the management team. And Howard Hughes is going through a really interesting evolution of its own that consists of primarily a number of uh master plan communities uh in Houston, in Hawaii, as well as Las Vegas. They also have income properties that are associated within those master plan communities. He's uh taking the company from kind of a pure play kind of real estate development company into a mini Birkshshire Haway is what what he calls it. After spending time at this shareholder meeting this week and I'm actually putting together a deep dive report on Howard Hughes this week after this meeting we had in New York. He has announced of course they they announced uh several months ago they had acquired an insurance company to kind of be this bolt-on piece kind of the anchor if you will for the new Howard Hughes Howard Hughes 2.0. very much like Birkshshire Hathway and what Warren Buffett did to utilize the flow activities within his within Birkshshire Hathaway. So now he's he's got an insurance company. He brought the management team with him to the shareholder meeting. And so what he's doing now is he's going to monetize the real estate assets, the master plan communities and the income properties by bringing in joint venture partners. the either family offices or sovereign wealth funds uh to sell 80% you know equity interest in these properties and Howard Hughes will maintain a 25% ownership uh and it's basically for asset management so they'll be generating fees along the way but you could now see Howard Hughes is really more of that hybrid they're going to operate as more of a Birksharway they'll be buying really high quality businesses that compound and you're really betting on again Bill Aman and his track record I think Howard Hughes is going to be a really interesting company to follow and I'm glad to be kind of at the, you know, cutting edge of of this Howard Hughes 2.0. I think investors are going to be making a lot of money if you follow it. You've got to be patient. He's got some execution risk here with this new chapter bringing in these strategic joint venture partners to really accelerate the monetization of this real estate so we can redeploy that back into their core insurance business. >> Great. And for Brad, for our viewers that want to know more about your research, can you tell us about Widemote Daily and what readers can expect from you? >> Sure. Well, I do write an article every day just like Louis. I mean, I honestly Louis is a mentor and I I' I've learned a lot from him over the years. So, I'm a storyteller just like Louie. I really like to I like people to click on to Widemote Daily and stay connected with us and read every day. We try to bring, you know, actionable investment advice every single day. You know, our mantra here is really protect principle at all costs. I mean, that's underlying. That's what we do. You know, having gone through some pretty substantial losses personally in my career, some bad business partnerships, a global financial crisis, then I landed on Seeking Alpha in 2010 and then I became the most followed, you know, writer on Seeking Alpha, writing articles every day. Well, now you can find me at Widemote Daily, white.com. So, anyway, look forward to anybody clicking on there. We also have a YouTube show called the Whiteote Show. Uh, so uh you can find us there as well. >> Well, great Brad. Thank you so much for joining us. Thank you again, Brad. It's been an honor to have you. >> Thank you so much. >> As always, all of Brad's links will be in the description below. Thank you all so much for watching and supporting us. We are finishing up our 30K giveaway. So, if you would like to receive a free signed copy of Louis book, make sure to fill out that Google form in the description. We really want to say thank you to you all for supporting us and watching our video. 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