Digital Realty Trust, Inc. (DLR), DuPont Fabros Technology, Inc. (DFT): Hedge Fund Sours on Data Center REITs

Digital’s dividend has been increased on a regular basis and the sell off has left the shares yielding around 5%. That’s compelling, but there are still the accounting issues being brought up. More aggressive investors might want to step in, but others should wait to see what happens on the accounting front.

Growth and Risk

DuPont Fabros Technology, Inc. (NYSE:DFT) has just 10 facilities in four U.S. markets, with a couple of new facilities on the drawing board. With only a fraction of the properties of Digital Realty, DuPont Fabros Technology, Inc. (NYSE:DFT) has more growth potential. Adding just the two planned facilities will increase its portfolio by 20%.

That said, at the end of 2012, the company only had 33 tenants and 10 customers accounted for over 80% of the rent roll. Although DuPont Fabros Technology, Inc. (NYSE:DFT)’s average lease length is around seven years, it is far more exposed to big customers bringing their data centers back in house.

The shares yield around 3%, but have been largely range bound since the start of the decade. Despite the recent pullback, investors would be best served waiting for the stock to dip into the $20 range before starting to consider a purchase.

Small, but Diversified

CoreSite Realty Corp (NYSE:COR), meanwhile, has around 14 data centers in nine U.S. markets, with a few more under development. It has over 750 customers, however, so it has the growth potential of DuPont without as much customer concentration risk. The shares recently yielded around 3.2% or so after doubling in price since their late 2010 IPO. The recent sell off may be a long-term buying opportunity, but a yield in the 4% to 5% range would probably be a better buying point.

Time to Wait

Right now isn’t the time to jump aboard any of these data center REITs, or newcomer CyrusOne. The current REIT sector pullback and the specific issues around data centers, however, does make now a good time to examine the options in this growing niche. Keep in mind, however, that any marks against Digital Realty Trust, Inc. (NYSE:DLR) are likely to be felt across the entire industry. So volatility might be the norm for a little while. That said, at the right price, it might be worth the ride.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Hedge Fund Sours on Data Center REITs originally appeared on Fool.com.

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