15 May 2020

What is an Infrastructure Trust?

An infrastructure trust is a type of income trust that exists to finance, construct, own, operate and maintain different infrastructure projects in a given region or operating area. The infrastructure trust will also provide distribution payments to units holders on a periodic basis.

KEY TAKEAWAYS

  • An infrastructure trust is a type of income trust that exists to finance, construct, own, operate and maintain different infrastructure projects in a given region or operating area. The infrastructure trust will also provide distribution payments to units holders on a periodic basis.
  • Infrastructure REITS own and manage infrastructure real estate while collecting rent from tenants that occupy or use that property. Infrastructure REIT property types include fiber cables, wireless infrastructure, telecommunications towers and energy pipelines.

Understanding an Infrastructure Trust

When evaluating an infrastructure trust, it is important to consider the trust’s underlying holdings before making a purchasing decision. As with any trust, it is useful to determine the trust’s intrinsic value by using any number of valuation techniques, including a discounted cash flow, or price/EBIT and price/EBITDA multiple.

Infrastructure REITs

A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trade on major exchanges like other securities and provide investors with a liquid stake in real estate. REITs are also known for their steady income from dividends.

Infrastructure REITS own and manage infrastructure real estate while collecting rent from tenants that occupy or use that property. Infrastructure REIT property types include fiber cables, wireless infrastructure, telecommunications towers and energy pipelines.

Example of an Infrastructure Trust

For example, American Tower Corporation (AMT), one of the largest global REITs, owns, develops and operates over 160,000 communications sites. It leases space on communications towers, operates outdoor distributed antenna systems and managed rooftops and services that speed network deployment. The REIT shares are listed on the NYSE.

Another example of an infrastructure trust is Crown Castle International Corp. (CCI) which is the nation’s (U.S.) largest provider of shared communications infrastructure. Their infrastructure portfolio consists of approx. 40,000 cell towers, 65,000 on-air or under-contract small cell nodes, and 75,000 route miles of fiber.

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. There are popular REIT ETFs like: IYR (iShares U.S. Real Estate ETF), VNQ (Vanguard Real Estate ETF), and XLRE (The Real Estate Select Sector ETF). Some REITs are SEC-registered and public, but not listed on an exchange; others are private.

Infrastructure trusts that are traded on major exchanges are relatively rare – only a handful are available in the U.S. One reason may be the complexity of their operations. AMT, for example, has over 160,000 properties that it manages across an array of different types of communication sites. Capital needs for such companies are high and operations may be subject to weather-related events such as hurricanes and other natural disasters.

In general, when evaluating REITs, earnings per share and P/E ratios aren’t helpful. One must look at funds from operations (FFO) rather than net income. Prospective investors should also calculate adjusted funds from operations (AFFO), which deducts the likely expenditures necessary to maintain the real estate portfolio. AFFO provides an excellent tool to measure the REIT’s dividend-paying capacity and growth prospects.

Covid-19 – Johns Hopkins University

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