Need More Fiber In Your Portfolio? BMO Initiates Coverage On 3 Data REITs

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It's always newsworthy when a brokerage announces coverage on a stock for the first time. It signifies increased attention and, depending on the rating given, often generates more trading volume and positive price action on a stock.

On July 13, BMO Capital Markets analyst Ari Klein initiated coverage on three real estate investment trusts (REITs) that specialize in owning and operating the communications infrastructure that allows for the transmission of data across networks in the U.S. and other countries.

Klein initiated coverage on American Tower Corp. AMT with an Outperform rating and a price target of $230. He also initiated coverage on SBA Communications Corp. SBAC with a Market Perform rating and a price target of $260. Finally, he initiated coverage on Crown Castle Inc. CCI with an Underperform rating and a price target of $113.

The data REITs have not performed as well as some other subsectors in 2023, but perhaps Klein senses that's about to change. All three specialty REITs will announce earnings soon and that could provide investors with an opportunity to add some "fiber" to their portfolios and boost their total performance.

The market has a long history of overselling REITs when facing a potential recession, providing an incredible opportunity for investors to “lock in” massive yields. Gain access to insights from Benzinga’s real estate research team with the free Weekly REIT Report.

American Tower Corp. is a Boston-based specialty REIT that calls itself "a global leader in wireless infrastructure." Founded in 1995, American Tower owns, operates and develops wireless and broadcast communications real estate. Most of its business is leasing space on wireless and broadcast towers, and it also leases portions of the land below the tower for equipment storage. Typical tower components are coaxial cabling and fiber optic cables.

American Tower has a presence in 226,000 global communication sites in 25 countries on six continents. About 43,000 of those properties are in the U.S. and Canada, and approximately 180,000 are international properties. Contracts usually have a term of five to 10 years with renewal options and annual lease escalators of approximately 3%.

Year to date, American Tower's total return is negative 7.5%.

On May 25, American Tower raised its quarterly dividend from $1.56 to $1.57 per share, the 18th time it has increased its dividend over the past five years. The annual dividend of $6.28 now yields 3.23%. American Tower will announce second-quarter earnings on July 27.

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On July 13, American Tower announced it will deploy a state-of-the-art distributed antenna system solution to bring 5G technology to the Xcel Energy Center, a sports arena in Minnesota that hosts the Minnesota Wild franchise of the National Hockey League.

Crown Castle Inc. is a Houston-based specialized REIT that focuses on owning, operating and long-term leasing of cell towers. Crown Castle works with businesses and governments to design and build solutions that meet connectivity needs like wireless coverage and custom fiber optic networks. It has a market cap of $50.84 billion, making it one of the largest REITs in the U.S.

Crown Castle was founded in 1994 with a portfolio of 133 cell towers. Less than 30 years later, Crown Castle has over 40,000 towers and 85,000 route miles of fiber and 120,000 "small cells" (base stations like 5G that are used to enhance cellular network coverage and capacity) in its portfolio. Seventy-five percent of its towers are in the 100 largest areas of the U.S.

On June 6, Chief Financial Officer (CFO) Daniel Schlanger told investors at the NAREIT conference that Crown Castle has two goals — first, to grow its dividends per share around 7% to 8% per year by offering its wireless carrier customers the lowest-cost solution to building out a network.

Crown Castle's second goal is to grow its revenue on the 40,000 cell tower assets it owns. Cell tower leasing makes up about 70% of Crown Castle's revenue.

Schlanger added that Crown Castle has a tremendous opportunity in its small-cell building part of the business, which he sees growing in large quantities over the next decade. Year to date, Crown Castle has a total return of negative 13.55%.

On July 11, Goldman Sachs analyst Brett Feldman maintained a Neutral rating on Crown Castle but lowered his price target from $142 to $125.

Crown Castle pays a quarterly dividend of $1.565 per share, and the annual dividend of $6.26 per share presently yields 5.37%. Crown Castle will announce its second-quarter earnings on July 19 after the market closes.

SBA Communications Corp. is a Boca Raton, Florida-based independent owner and operator of infrastructure for wireless communications, including cell towers, buildings, rooftops, distributed antenna systems and small cells. SBA Communications was founded in 1989 and is a member of the S&P 500. SBA has over 39,000 owned towers and 48,000 managed sites. Its operations and offices are in 16 markets across the U.S., South America, Africa and the Philippines.

On May 1, SBA Communications announced its first-quarter operating results. Funds from operations (FFO) of $0.92 per share missed the estimates by $1.21 but revenue of $675 million beat the estimates by $3.03 million. Full-year FFO guidance was also increased to a range of $12.55 to $12.91.

Year to date, SBA Communications has a total return of negative 13.05%.

SBA Communications pays a quarterly dividend of $0.85 per share, and the annual dividend of $3.40 per share presently yields 1.3976%. SBA Communications will announce second-quarter earnings on July 31.

The five-year total returns of these three specialty REITs are: SBA Communications, 53.54%; American Tower, 53.3%; and Crown Castle, 28.48%.

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for Benzinga's Weekly REIT Report.

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