Litt Touts Prospects of Cell Towers, Apartments

First quarter earnings reports showed solid fundamentals and opportunities in cellular towers, data centers, apartments and high-end malls, according to Jonathan Litt, managing principal of Land and Buildings Investment Management LLC.

Cellular towers provide the strongest secular growth opportunities in the real estate sector as global mobile data growth remains in the early stages, Litt said in a May report highlighting how commercial real estate fared during the first quarter.

"First quarter trends confirmed the need for additional infrastructure to meet this data demand, as same-tower revenue growth came in at 8 percent to 9 percent," he said. "This high level of growth in cell towers is sustainable for at least the next several years as global mobile data traffic continues to grow."

Litt's report said apartments continue to validate analysts' high expectations for the sector. The apartment sector still shows robust fundamentals, with first quarter earnings stronger than expected. Litt said with little new supply and a low number of tenants moving into homeownership, apartments should see near 20 percent growth in funds from operations in 2012.

Litt also noted that high-end malls are enjoying strong tenant sales. Owners of high-end malls witnessed an increase of 6.1 percent in same-store net operating income (SSNOI) from a year ago in the first quarter.

"Strong pricing power drove rents up 14.2 percent on new leases in the quarter, some of the strongest rent growth of any property sector," Litt said.
However, grocery-anchored shopping centers and big box power centers continue to underperform.

Litt said potential downsizing by some of the larger chain store tenants, such as Best Buy, could continue to weigh on shopping center real estate owners. He projected that FFO growth for the sector will likely remain at a "modest" 3 percent in 2012.

Litt's report also highlighted weaknesses in the office sector. Public companies saw leasing activity down nearly 10 percent in the first quarter from the year-earlier period, said Litt, who added that 2012 SSNOI is expected to be down 2 percent on average. Litt pointed out that leasing activity in the office sector strongholds of New York and Washington has tumbled.