Three transformational technologies and how to capitalize on them with real estate
Three of the hottest trends in technology these days are 5G, streaming, and cloud-based software. Stocks of companies operating in these areas have been on fire because they’re growing their revenue at a brisk pace.
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However, what investors might not know about these three mega-tech trends is that they all have real estate needs. That offers investors focused on the real estate sector a unique way to participate in this growth. Here’s a look at some of the real estate plays behind these tech trends.
5G real estate
5G, which stands for fifth generation, is the newest mobile communications platform the telecommunications industry is rolling out. Unlike 4G, which primarily relies on large cell towers, 5G requires smaller cells spaced much closer together, supported by fiber optic cable.
While many telecom companies are building this infrastructure for themselves, they’re using third parties to speed up the process. One of the leaders is infrastructure REIT Crown Castle International (NYSE: CCI). The company currently owns and operates more than 40,000 macro cell towers across the U.S. to support the current 4G network. It has also invested capital in supporting the rollout of 5G by constructing 70,000 small cells backed by 80,000 miles of fiber optic cable. The REIT is just getting started as it sees “what will likely be another decade-long investment cycle for our customers with the deployment of 5G,” according to CEO Jay Brown. That 5G-powered growth leads the REIT to believe it can increase its 2.9%-yielding dividend by 7% to 8% per year for the foreseeable future.
Streaming real estate
Streaming companies like Netflix (NASDAQ: NFLX) have pivoted their business model from licensing content from others to creating their own in recent years. Because of that, they need studio and office space to make these shows and movies for their subscribers.
One of the companies playing a key behind the scenes role in supporting Netflix’s production capabilities is office REIT Hudson Pacific Properties (NYSE: HPP). The company owns three studio lots in Hollywood, consisting of 35 sound stages and 1.2 million square feet of facilities spread across 41 acres, making it the largest independent owner-operator of studios in the country. It also owns several office buildings (with 966,000 square feet of rentable space) adjacent to these studios. Netflix is the largest tenant of this portfolio. As that company and Hudson Pacific’s other tenants need more space to support their production efforts, the REIT can continue expanding its studio portfolio (it has 1.1 million square feet of development potential) and cash flow. That could enable the REIT to grow its 4.2%-yielding dividend.
Cloud-based real estate
Software companies have also shifted their business models in recent years from storing their products locally to keeping them “in the cloud” so that their customers can access them from anywhere. That’s one of several factors driving the rapid buildout of data centers around the world.
While many software companies build and operate their own data centers, they rely on third party operators like data center REITs to support their operations. The sector leader is Equinix (NASDAQ: EQIX). It has become a trusted partner for cloud computing leaders like Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), and Oracle (NASDAQ: ORCL), as it has more than 40% market share of their third-party data center business. Meanwhile, 29% of its total revenue comes from cloud-focused companies. This focus on supporting the growth of the cloud has enabled Equinix to rapidly expand its cash flow and 1.4%-yielding dividend. Those trends appear poised to continue as cloud-computing keeps growing, driving the need for more data centers.