Matthew McGovern
GRS Group
(646) 760-0851
mmcgovern@grs-global.com

With the news of communications-infrastructure firm Zayo Group looking to form a telecom REIT, we thought it would be a good time to see how this segment of commercial real estate is holding up.

For its part, if the firm gains IRS approval, Zayo would form a publicly traded entity called InfraCo that would handle its fiber solutions business and zColo data-center operations.

This new company would fall under the category of infrastructure REITs, of which there are seven tracked by NAREIT.

In this space of REITs, Zayo would be similar to the current Uniti Group, according to a recent Forbes article. The company, based in Little Rock, Ark., has about 5.4 million fiber strand miles, 850 wireless towers and other communications real estate around the world.

In its most recent quarter, Uniti posted $252.6 million in revenues, up from $247.3 million in the second quarter and $245.2 million during the same year-ago period. Q2 net income was $4.2 million, while EBITA was $199.2 million, compared to $4.8 million and $194.9 million during the same period in 2017.

In its latest period Uniti constructed 47 towers in the United States and 10 in Mexico. The company also did a sale-leaseback transaction with CableSouth Media in which it bought 43,000 fiber miles for $31 million that is used by the cable firm. In September Uniti closed on 32,000 fiber mile strands in California through a sale leaseback deal with U.S. TelePacific Holdings, valued at $31 million.

Uniti is trading in the $19 range, with a 52-week high of $23.42 and a low of $13.94.

Meanwhile, Zayo, based in Boulder, Colo., operates a 130,366-mile fiber network of fiber in North America and Europe. To form a REIT, it is in the process of dividing what is leased out, and only its copper and fiber wiring are reportedly usable to gain real estate investment trust status, along with the zColo data centers.

Zayo Group is trading in the $25-per-share range, with a 52-week high of $39.66 and a low of $21.92.

With growing 5G networks driven by both consumers and businesses the infrastructure will need to expand. We will see if REIT status is obtained by Zayo and if other companies follow suit for these types of assets.