REIT players have been rattled by fears of missed rent payments and decline in leasing activity in the current coronavirus-led uncertain times. However, tower REITs have emerged as one of the three REIT industry stay-at-home winners. In fact, per Nareit daily returns market data, infrastructure REITs, which include tower REITs, have been witnessing solid momentum year to date, gaining 19.7% against the S&P Index’s decline of 2.2%.
Notably, the ‘stay-at-home’ economy amid the coronavirus pandemic has only highlighted the urgent need for 5G networks. This has acted as a catalyst for cell tower REITs to benefit from outsized 5G opportunity.
Further, 5G is expected to witness high demand over the coming years. In fact, by providing high speed data, 5G is likely to increase the adoption of data-driven mobile devices and applications such as machine-to-machine (M2M) connections, social networking and streaming of video.
Remote Working to Accelerate 5G Deployments
Navigating the challenge of coronavirus, many companies have embraced remote-working environment. Further there has been a sharp increase in online purchases. Tower REITs have played a vital role in providing the critical infrastructures needed for seamless connection.
There is a spike in cellular network usage and network-intensive applications for video conferencing and cloud services. Also, 5G network’s low latency and high speed is the need of the hour, driving the need for faster buildout of 5G wireless networks. In fact, in late June, both Verizon Communications Inc. VZ and AT&T Inc. T accelerated their respective 5G network deployments.
Per a Research and Markets report, post the pandemic, the 5G infrastructure market is projected to rise from $12.6 billion in 2020 to $44.9 billion by 2025, at a CAGR of 28.97%.
Moreover, as an increasing number of people work remotely using high-speed Internet, there have been issues related to network capacity, reinforcing the need for additional network investments.
Hence, cell-tower REITs are likely to enjoy strong demand and leasing activity in 2020.
Cell Tower REITs Set to Thrive in the Long Term
Going by a presentation by American Tower Corporation AMT, total mobile connected devices in the United States are estimated to rise from 542 million in 2019 to 1,292 million in 2025 at a CAGR of 16%. This along with significant increase in the amount of data consumed per device is anticipated to drive total mobile data traffic growth at a CAGR of 59% during the same time period.
In fact, as demand for mobile data continues to increase ad infinitum, a number of wireless companies are expanding and enhancing their networks resulting in higher investments in communications infrastructure assets and greater utilization of critical tower real estate.
Moreover, to achieve 5G standards, wireless companies are ramping up 5G deployments. This implies material incremental demand for cell towers, thereby driving higher tenancy and rents for tower owners.
The merger between T-Mobile and Sprint is likely to accelerate investments in upgrades across its combined portfolio to meet required 5G coverage goal. Further, Dish Network DISH is also set to enter the wireless market and intends to build a 5G network in the coming years. These are likely to boost demand and leasing for tower space.
Lastly, in today’s digital economy, wireless networks serve as essential services. This coupled with strong credit-quality customers like Verizon, AT&T and T-Mobile TMUS is a positive for tower operators.
Stocks in Focus
Given the current industry tailwinds, cell tower REITs appear to hold immense growth potential. In addition, investors looking for safe, consistent income-generating can keep these stocks in their watchlist. Here we have handpicked three tower REITs using the Zacks Screener.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crown Castle International Corp. CCI: This Houston-based REIT is engaged in ownership, management and leasing of around 80,000 route miles of fiber supporting small cells, and fiber solutions. Moreover, the company has been making efforts to extend its communication infrastructure footprint and is investing significantly in its fiber segment on the back of acquisitions, and construction of small cells and fiber. It currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2020 funds from operations (FFO) per share is pegged at $6.10. The company’s FFO per share and revenues are estimated to rise 7.2% and 2.1%, year over year, respectively.
American Tower: This Boston, MA-based REIT owns a communications real estate portfolio, consisting of approximately 41,000 towers primarily in suburban and rural locations in the United States. It generates most of its revenues from long-term (typically 5-10 year) tower leases with major wireless carriers. It carries a Zacks Rank of 3 (Hold), at present. Moreover, the Zacks Consensus Estimate for 2020 FFO per share stands at $8.27 and indicates year-over-year growth of around 7%. Revenues for the ongoing year are projected to improve nearly 4.4% on a year-over-year basis.
SBA Communications Corporation SBAC: The REIT owns or operates 16,463 communication sites in the United States. Through its site leasing business, which generates the majority of its revenues, SBA Communications leases antenna space on their multi-tenant towers to a variety of wireless service providers under long-term lease contracts. The company currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for 2020 FFO per share is pegged at $9.18 and indicates 8.1% year-over-year growth. Further, for the same time period, revenues are projected to improve 2.8%
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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American Tower Corporation REIT (AMT) : Free Stock Analysis Report
ATT Inc. (T) : Free Stock Analysis Report
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
Crown Castle International Corporation (CCI) : Free Stock Analysis Report
DISH Network Corporation (DISH) : Free Stock Analysis Report
SBA Communications Corporation (SBAC) : Free Stock Analysis Report
TMobile US, Inc. (TMUS) : Free Stock Analysis Report
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