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Infrastructure Trusts: What They Are, How They Work, and Real-World Examples

Last updated 03/19/2024 by

Alessandra Nicole

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Infrastructure trusts serve as investment vehicles financing, constructing, owning, operating, and maintaining various infrastructure projects. They function similarly to mutual funds and real estate investment trusts (REITs), offering investors the opportunity to purchase unit shares with distribution payments to unitholders. These trusts invest in companies involved in utilities, waste management, transportation, and more. With the recent focus on infrastructure funding, understanding these trusts is crucial for investors seeking diversification and steady income.

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What is an infrastructure trust?

An infrastructure trust is a specialized type of income trust focused on financing, constructing, owning, operating, and maintaining infrastructure projects within a specified region or operating area. These trusts, resembling mutual funds and REITs, allow investors to acquire unit shares, entitling them to distribution payments at regular intervals.

Understanding infrastructure trusts

Infrastructure, comprising sectors like utilities, transportation, communication, and waste management, plays a critical role in societal functioning. Infrastructure trusts serve as investment vehicles concentrating on companies operating within these sectors. Notably, the signing of the Infrastructure Investment and Jobs Act underscores the significance of infrastructure projects globally, making infrastructure trusts attractive for portfolio diversification and consistent income streams.

Infrastructure REITs

Infrastructure REITs specialize in owning and managing infrastructure-related properties such as fiber cables, telecommunications towers, energy pipelines, and wireless infrastructure. These REITs generate revenue by leasing properties to tenants, with some operating domestically while others invest globally for higher growth potential, albeit with increased risk.

How to invest in an infrastructure trust

Investing in infrastructure trusts can be done through direct purchases of shares on open exchanges or via mutual funds specializing in public real estate. Exchange-traded funds (ETFs) also offer exposure to infrastructure REITs. However, infrastructure trusts traded on major exchanges are relatively scarce, primarily due to operational complexities and high capital requirements. Evaluating infrastructure trusts involves assessing factors such as funds from operations (FFO) and adjusted funds from operations (AFFO) to gauge dividend-paying capacity and growth prospects.

Real-world examples

Two prominent examples of infrastructure trusts are American Tower Corporation (AMT) and Crown Castle (CCI). AMT operates over 187,000 communications sites globally, providing services to expedite network deployment. CCI, the largest provider of shared communications infrastructure in the U.S., owns approximately 40,000 cell towers, 80,000 small cell nodes, and 80,000 route miles of fiber. These examples highlight the diverse nature and importance of infrastructure trusts in supporting essential services and technological advancements.
Here is a list of the benefits and the drawbacks to consider.
  • Diversification: Infrastructure trusts offer exposure to diverse sectors such as utilities, transportation, and communication.
  • Steady Income: Infrastructure projects typically generate consistent revenue streams, providing stability to investors.
  • Global Growth Potential: Some infrastructure REITs invest globally, offering opportunities for higher growth.
  • Operational Complexity: Infrastructure trusts may face operational challenges due to the complexity of managing diverse infrastructure projects.
  • Capital Intensive: Infrastructure projects often require significant capital investments, impacting the trust’s financial stability.
  • Regulatory Risks: Changes in regulations or government policies can affect the profitability of infrastructure trusts.

Frequently asked questions

Are infrastructure trusts regulated like other investment vehicles?

Yes, infrastructure trusts are subject to regulatory oversight similar to mutual funds and REITs, ensuring compliance with securities laws and investor protection measures.

Can infrastructure trusts invest in projects outside of their operating area?

Infrastructure trusts typically focus on projects within their specified region or operating area to minimize risk and maximize operational efficiency. However, some trusts may invest in projects outside their primary area if deemed financially viable.

How do infrastructure trusts manage risk associated with infrastructure projects?

Infrastructure trusts employ risk management strategies such as diversification, rigorous due diligence, and contractual agreements with project stakeholders to mitigate risks associated with infrastructure projects.

What role does government funding play in infrastructure trusts?

Government funding, through initiatives like public-private partnerships and infrastructure development programs, can significantly impact infrastructure trusts by providing funding for projects and creating a conducive regulatory environment.

Are infrastructure trusts suitable for conservative investors?

While infrastructure trusts can offer stable income streams, they may not be suitable for conservative investors due to factors such as operational complexities and regulatory risks associated with infrastructure projects.

Key takeaways

  • Infrastructure trusts provide investors with exposure to diverse infrastructure projects.
  • Factors such as regulatory oversight, operational complexities, and government funding influence the performance of infrastructure trusts.
  • Investors should assess both the potential benefits and risks associated with investing in infrastructure trusts.
  • Government initiatives and regulatory environments play a crucial role in shaping the infrastructure investment landscape.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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