We have repeatedly had success investing in newly listed REITs before they gained broader recognition from the market.
Essential Properties Realty Trust (EPRT) is probably the best example.
We invested relatively early in its history as a public REIT because we thought that it had the potential to replicate the highly successful model of STORE Capital. At the time, EPRT was still small, relatively unknown, and didn’t yet enjoy the premium valuation that it does today.
But we saw where things could eventually go.
As EPRT established a track record and gained greater recognition from REIT investors, its valuation expanded, lowering its cost of equity. This allowed it to raise increasingly large amounts of capital and reinvest it into new properties at attractive spreads over its cost of capital.
The result has been rapid external growth, rising FFO per share, and very strong returns for shareholders.
Today, we think that we may have identified another such opportunity, but this time, the potential external growth runway could be even larger.
A new data center REIT recently completed its IPO, raising roughly $2 billion of equity capital. It is still tiny compared to Digital Realty (DLR) and Equinix (EQIX), most of its capital hasn’t even been deployed yet, and its shares trade at roughly book value.
