- Allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns.
- We were hoping to see outsized returns by now, but the disruption has sparked our interest as the top turnaround pick for 2018.
- Call it market timing or call it value investing, we believe that Uniti Group is the “high octane pick” and that this stock has the potential for high alpha returns.
Advocacy groups are keeping a close watch on the Republicans' agenda to see how they move forward on infrastructure spending. Though infrastructure investment is a major theme of President Trump’s campaign, the issue has largely taken a back seat to repeal to pass Tax Reform.
Today I will be writing an article on the impact of Tax Reform and commercial real estate, specifically REITs (stay tuned).
Regarding Infrastructure, the Trump Administration has shown a strong preference for funding investments from the private sector to pay for infrastructure priorities. The idea is to offer financial incentives to private companies that want to back transportation projects.
Under that model, known as a “public-private partnership,” firms bid on a project, build and maintain it for a set amount of time, and recover costs through tolls or set state payments. President Trump has argued that it’s cheaper and quicker when private investors are in charge, as opposed to the federal government (who wouldn’t agree with that?).
One proposal that Trump has floated would provide $137 billion in federal tax credits to companies that finance transportation projects, which he claims would unlock $1 trillion in investment over 10 years.
Allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns.
As cash-strapped governments increasingly turn to private markets to fill a capital void, new security structures have been introduced globally, including those focused on income delivery... and that growing list of alternatives includes REITs.
Specifically, REITs have certain advantages, notably, several favorable IRS private letter rulings sanctioning the use of REITs to own electric and gas distribution systems have increased interest in their role in infrastructure investments. Here’s a snapshot of the Infrastructure REITs within our coverage universe:
Note: LMRK is an REOC (not a REIT) and HIFR and HASI are P/E metrics (not P/FFO).
As you can see, all of the above-referenced companies have out-performed year-to-date except Uniti Group (UNIT). We have written articles on many of the names including American Tower (AMT) – article HERE, Crown Castle (CCI) – article HERE, Hannon Armstrong (HASI) – article HERE, Landmark Infrastructure (NASDAQ:LMRK) – article HERE, CorEnergy (CORR) – article HERE, and Uniti Group – article HERE.
We just published the Forbes Real Estate Investor (newsletter) a few days ago, and many of these REITs are included within the Durable Income Portfolio (+12% YTD). These Infrastructure holdings include Crown Castle, Hannon Armstrong, and CorEnergy (these 3 REITs returned an average of 23% YTD).
However, one Infrastructure outlier (that we have previously recommended) has been crushed by Mr. Market. We were hoping to see outsized returns by now, but the disruption has sparked our interest as the top turnaround pick for 2018.
This simply means that we view Uniti Group as our top REIT conviction for 2018 – the potential for returns is disproportionately skewed to the upside. Simply put, higher risk = higher returns. Call it market timing or call it value investing, we believe that Uniti Group is the “high octane pick” and that this stock has the potential for high alpha returns.