CFRA has a positive fundamental outlook on the S&P Specialized REIT Index, states equity analyst Chistopher Kuiper in CFRA Research's flagship newsletter, The Outlook.
Our outlook is driven by our positive view of self-storage REITs as well as data center and tower REITs, with a neutral view on advertising and document storage REITs.
For advertisers, we see revenue expanding modestly in 2021 after the contraction in 2020. Revenue growth is expected to be in the mid-single-digits as advertising dollars will be pared back by corporations due to the pandemic.
We see growth in the continuing build-out of digital billboards, which command higher prices and provide advertising agencies more flexibility than static billboards.
For document storage, we do not see catalysts for future growth other than continued acquisitions, which may increase balance sheet risk with additional debt.
For the tower and broadcast REITs, we see steady growth prospects in the intermediate term reflecting tenant renewals by leading wireless providers, including customers integrating past acquisitions. Tower REITs will continue to benefit from higher demand due to robust mobile data traffic and the need for carriers to continually improve their network quality and coverage.
5G rollouts have been strong throughout 2021 and are expected to continue accelerating with the deployment of small cells and new macro antennas to support the network. In addition, 5G networks will deploy edge computing, which could present a new revenue stream for these companies, which will be able to lease space next to the towers.
In addition, service providers will begin deploying spectrum purchased in the CBRS and C-band auctions beginning in the second half of 2021 and continuing through the end of 2023.
With the Sprint/T-Mobile merger complete, we expect tower operators to see a boost in revenues from new hardware installations as T-Mobile installs 600 MHz equipment on Sprint’s towers and 2.5GHz equipment on T-Mobile towers.
DISH Networks will begin spending heavily on its new 5G network over the next few years to meet FCC requirements. The Covid-19 outbreak was a strong tailwind for data center operators and we expect to continue to see elevated levels of investment, even as the world returns to normal, to cope with the exponential growth in data traffic.
We are positive on data centers, which will benefit from continuing growth in global internet traffic, e-commerce, connected devices, high definition video, and cloud-based storage and services. Additionally, we see industry consolidation driving economies of scale and pricing leverage.
We now have a positive fundamental outlook for self storage REITs, an upgrade from our previously neutral view. We see increased demand for self-storage as people are reevaluating living and working situations post-pandemic. We also note self storage operators have seen record activity in the early part of the year (usually the season’s slowest time), which we think will continue through the summer.
We think timber REITs’ revenue growth will remain robust due to high demand and supply shortages pushing up pricing. Strong housing markets continue to keep demand high while supply chain issues have kept prices high as well.
The Specialized REIT subindustry was up 22.3% year-to-date through July 23, compared to the broader Real Estate sector up 25.1% and the S&P Composite 1500 index up 17.4%.
Here are the U.S. based Specialized REITs sub-industry companies with at least a 4-STARS (buy) ranking: CubeSmart (CUBE), Equinix (EQIX), Extra Space Storage (EXR), Iron Mountain (IRM) and Life Storage (LSI).
