RXT - Data Center REITs: Tech Wreck Opportunities

• Unable to avoid the broader 'Tech Wreck' weakness, Data Center REITs are among the worst-performing real estate sectors this year with declines of nearly 30% - their steepest drawdown on record.
• Cloud computing demand remains insatiable and has historically been unaffected by uncertain economic conditions, but this "steadiness" has been a burden amid a sharp 'growth-to-value' rotation within the REIT sector.
• Valuations now appear quite attractive for these perennial performance leaders, however, particularly given the red-hot M&A environment and earnings results showing record levels of leasing demand and renewed pricing power.
• The data center REIT sector remains a hotbed of M&A activity. After three REITs were acquired last year, this week DigitalBridge acquired Switch, leveraging its own private equity platform to fuel a buying spree that has rapidly established the REIT into a legitimate player.
• Similar selloffs in 2014 and 2018 amid rising rate concerns ultimately proved to be rewarding buying opportunities for data center REITs. We see the Preferred securities as a particularly compelling high-yield opportunity.

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