Tower REITs Poised for Growth in Domestic, Foreign Markets

Cell tower REITs expect continued demand for wireless capability to fuel growth prospects in the United States and select foreign markets for many years to come, according to executives presenting at REITWEEK 2015: NAREIT’s Investor Forum.

Crown Castle International Corp. (NYSE: CCI) President and CEO Benjamin Moreland pointed to a 60 percent growth rate in data demand in 2014. At the same time, he noted that information technology firm Cisco anticipates a seven-fold increase in data demand by 2019.

According to Moreland, Crown Castle’s main focus when looking ahead is on boosting organic growth. He noted that occupancy levels on its cell towers is about 50 percent, or just over two tenants per tower from the potential pool of four major wireless carriers.

Crown Castle has divested assets in the United Kingdom and Australia and is now focusing exclusively on the U.S, which Moreland describes as “the fastest and largest investable wireless market in the world.”

James Taiclet, chairman, president and CEO of American Tower Corp. (NYSE: AMT), observed that the U.S. mobile market “is outstanding for companies in our space for the foreseeable future.”

At the same time, American Tower is setting its sights on select foreign markets since it is “imperative” to address the 95 percent of the world’s population living outside the U.S., according to Taiclet. He added that American Tower is looking abroad to guarantee growth in a 20- to 30-year time horizon.

When selecting foreign markets, American Tower has three qualifying criteria. First, the country must operate under the rule of law. Second, the market should have a competitive mobile operator industry with at least three mobile providers. Finally, American Tower needs a counterparty to partner with for at least 10 years.

Taiclet noted that China is not a market targeted by American Tower since it fails to meet the first two criteria.

Meanwhile, despite the introduction of new technology, REIT executives see the original tower structure remaining paramount going forward.

American Tower generates about 97 percent of revenues from its traditional tower structures. Roughly 3 percent comes from complementary technologies.

For Crown Castle, about 93 percent of its revenues comes from its cell tower assets and 7 percent from so-called small cell solutions, which add capacity to a tower’s existing geographic area. Located on sites such as traffic signals and telephone poles, Moreland calls small cell solutions “a natural extension of the tower model.”

George Doyle, CFO of Landmark Infrastructure Partners LP (NASDAQ: LMRK), a REIT that purchases the land rights for infrastructure assets including cell towers, said he expects the traditional tower model to have staying power.

“We see that as being critical infrastructure for a long time. We don’t see any technology that will be disruptive,” Doyle said.