Real estate, alternative real assets and other diversions

Peering REIT into the Future A look at five technology REIT favourites and where they could be heading

The Fund Manager

Last week, in these pages, I talked about what I’ve discovered over several decades in Real Estate. Not only these days as a U.S.-based writer, covering Real Estate Investment Trusts (REITs), but also in my time as a developer, investor, and now, experienced analyst.

Today, I thought we’d look ahead, and discuss some of the technology-based REITs, to get a sense of where we’re all headed (at least in a slice of the REIT space).

For example, with the potential for driverless cars, I imagine how autonomous vehicles might transform the economy. The connection between automated-driving technology and commercial real estate became clearer from Stephen Bersey, Senior Technology Analyst at MUFG Securities Americas, who said, “The average person generates around 650MB of data a day, through the use of PCs, mobile phones and wearables, but by 2020 projections show that the average person will generate 1.5GB of data a day.”

Bersey explained, “In an autonomous car, we have to factor in cameras, radar, sonar, GPS and LIDAR (light detection and ranging) components as essential to this new way of driving pistons, rings and engine blocks.”

This means that each autonomous car will be generating around 4,000GB (4 terabytes) of data a day. That’s more than 2,500 times the amount of data that the average person generates today.

With that in mind, I compiled a list of five technology REIT favourites. Certainly, these aren’t without risk, but based on the demand for data – from cell towers, fibre, and data centres – the benefits for owning shares in these REITs is obvious.

Crown Castle (CCI) is the only Cell Tower REIT that focuses exclusively on U.S. assets. The company owns, operates and leases shared wireless infrastructure, including: (1) towers and other structures, such as rooftop towers, and (2) small cell networks supported by fibres. The cell towers have a significant presence in each of the top 100 U.S. markets, as CCI owns approximately 40,000 towers and 60,000 small cells, and 60,000 route miles of fibre. CCI’s core business is providing access, including space or capacity, to wireless infrastructure via long-term contracts in various forms, including license, sublease and lease agreements. By managing CCI’s tower assets, the company should be able to extrapolate value, allowing multiple carriers to locate on each structure without competition. CCI’s collection of cell tower assets offers unique solutions for the carriers to fill in the gaps and add coverage in high-traffic areas.

The downside? Possible delays in deployment of next generation technologies and higher borrowing costs.

Still, the overall cell tower business model is sound, and the secular tailwinds of an increasing demand for wireless connectivity have positioned both CCI and American Tower (AMT) to capitalise on positive industry trends. 

As for AMT, the global consolidator is the fastest-growing player in the world of telecommunications infrastructure. Based in Boston, the company started out as a subsidiary of American Radio and expanded operations in Mexico, Brazil, India, Chile, Colombia, Peru, Ghana, and South Africa. Tower sites continue to be the preferred solution, as they provide the most technologically efficient and cost-effective option for coverage and capacity requirements. And as devices become more advanced, the increasing demand for high-bandwidth applications and higher quality of service result in a narrower range at which signals can be transmitted. As a result, carriers are investing in denser networks.

The downside? Slower demand in the tower lease business, if carriers begin to cut back on spending

In the third quarter, their U.S. property segment delivered strong organic tenant billings growth of 7.4%, reflecting ongoing investments in 4G technology by tenants to meet ever-increasing data and video demand. Their international property segment also experienced strong demand for tower space, especially in Latin America. 

AMT has healthy and strong fundamentals – great growth potential & earnings potential. While I prefer CCI’s higher dividend yield, AMT’s scale and global footprint is attractive.

The Fund Manager

About Brad Thomas

Brad Thomas

Brad Thomas has been a nationally-acclaimed Forbes author, speaker, thought leader and advisor in the commercial real estate industry for over three decades. He is the author of The Trump Factor: Unlocking the Secrets Behind the Trump Empire and the co-author of The Intelligent REIT Investor. Thomas is the founder and editor of the Forbes Real Estate Investor (monthly subscription-based newsletter) and senior analyst at Rhino Real Estate Advisors. Brad tweets at @rbradthomas

Articles by Brad Thomas

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