Vanguard Group bought more than $2.2 billion worth of data-tower stocks and $1.2 billion of construction-timber stocks from January through last month, and plans to buy more shares of the handful of real estate investment trusts (REITs) in each sector, according to a report.
The Malvern-based investment firm, which manages about $5 trillion in assets, is adding those stocks to its real estate index funds for the first time, writes a team of analysts headed by Ric Prentiss in a report to clients of brokerage firm Raymond James & Associates this morning.
The move makes Vanguard a major owner of American Tower Corp. and Crown Castle International Corp., which own towers that connect the nation’s smartphones and data centers; and of Weyerhaeuser Co., Rayonier Inc., and PotlachDeltic Corp., among other companies that make American construction timber and other wood products.
Vanguard owns at least 6 percent of most of the companies listed on the S&P 500, and 14 percent or more of the major REIT stocks, a tax-sheltered, high-dividend (but not always price-appreciating) way to invest in offices, stores, towers, timber, and other real estate.
For example, Vanguard owns 14 percent of Simon Property Group (which owns King of Prussia Mall and big shopping centers), and 16 percent or more of Comcast landlord Liberty Property Trust; Center City, University City, and Radnor office redeveloper Brandywine Realty Trust; and Philadelphia Fashion Center co-owner Pennsylvania REIT, among others.
This move to add timber and tower stocks follows Vanguard’s decision last year to broaden its REIT holdings by including sectors it had previously avoided, after Vanguard’s popular REIT index funds became a dominant owner of commercial real estate REITs.
Prentiss reported that “we would expect additional buying demand” by Vanguard for timber and tower REITs, until Vanguard’s Real Estate Index Fund Investor Shares (VGSIX), Real Estate Fund Admiral Shares (VGSLX), and Real Estate ETF (VNQ), which now total around $50 billion in assets, reach their targets, as allocated by the benchmark MSCI U.S. IMI Real Estate 25/50 Index.
With its recent purchases, Vanguard is more than halfway to those targets. Weyerhaeuser and American Tower, the largest timber and tower stocks, respectively, post investor yields below that of the Vanguard real estate funds that now include them. The company’s buying spree could contribute in the months ahead to “fluctuations” in timber and tower share prices, Prentiss concluded.