Real estate investment trusts (REITs) have gotten clobbered this year. The average one is down more than 13% on the year, weighed down by rising interest rates. However, while REITs have struggled this year, many have a bright future.
That's especially true for REITs focused on operating and developing data infrastructure. With data usage rising, the economy needs more infrastructure to support this growth. Two REITs poised to benefit from this trend are American Tower (AMT -0.59%) and Crown Castle International (CCI 1.42%). Because of that, they could produce towering total returns in the coming years.
Data demand is soaring
American Tower has delivered towering returns since converting to a REIT in 2012. The global infrastructure REIT has generated a more than 410% total return (16.8% annualized), significantly outpacing the S&P 500's 270% (13.4% annualized) total return during that time frame. Powering those returns has been its ability to deliver above-average growth. The REIT has grown its adjusted funds from operations (AFFO) per share at a 13.8% compound annual rate since 2011. That's helped drive more than 20% annual dividend per share growth since it initiated a dividend payment in 2012.
Several factors have helped drive the company's above-average growth over the past decade. These include growing its portfolio by acquiring and building new cell towers, expanding into data centers, adding more tenants to its existing assets, and steadily increasing rental rates. Those same growth catalysts should help power the company in the coming years.
Demand for data infrastructure will continue to grow, driven by rising data usage. For example, U.S. mobile data traffic should grow at a 25% compound annual rate through at least 2027 as the industry shifts to faster 5G networks. Because of that, mobile carriers will need more cell towers to support more data usage. That should enable American Tower to steadily add more tenants to its existing towers while building new ones. On top of that, the company should benefit from global tower demand growth, rising data center capacity needs, and acquisitions of new towers, data centers, and other infrastructure related to data real estate. That gives American Tower plenty of drivers to power above-average AFFO per share and dividend growth in the coming decade. It sees at least 12.5% dividend growth this year and could continue expanding its 2.3%-yielding payout at a double-digit rate well into the future.
Taking the dividend to new heights
Crown Castle has also performed exceptionally well since becoming a REIT in 2014. The U.S.-focused cell tower owner has delivered a more than 270% total return (16.8% annualized), well above the S&P 500's 140% (11% annualized) total return.
The company has benefited from strong tower demand in the U.S. as users consume more mobile data. That's helped drive strong AFFO per share growth, enabling the REIT to expand its dividend at a 9% compound annual rate since its conversion in 2014. The company has also expanded into new infrastructure types, pouring billions of dollars into building and buying fiber networks and small cell nodes, crucial infrastructure to support faster 5G networks.
Crown Castle sees a decades-long investment cycle for developing more 5G-related infrastructure in the U.S. Add that to rising rates and its ability to add more tenants to its existing infrastructure, and the REIT expects to grow its 3.5%-yielding dividend at a 7% to 8% annual rate for the foreseeable future. That growing income stream should give Crown Castle the power to continue producing soaring total returns over the next decade.
Towering total return potential
American Tower and Crown Castle International have benefited from growing demand for data infrastructure over the years. That trend is showing no signs of stopping. Because of that, both REITs should be able to continue expanding their portfolios, AFFO per share, and dividends in the coming years. That should enable them to continue producing towering returns, making them great REITs to own for the long haul.
