Infrastructure Bill – Signed!
President Biden has signed the $1.2 trillion infrastructure spending bill, the largest infrastructure package ever signed by Congress. The infrastructure bill reauthorizes spending on existing federal transportation programs and adds an additional $550 billion toward making the electrical grid resilient, expanding broadband access, and other modernization objectives.
Key additional spending programs include:
Implications for Global Listed Infrastructure Market – Reinforces Secular Growth Themes
The conditions for successful infrastructure investment have never been more attractive. The plan will allocate $1.2 trillion to rebuild the nation’s fraying infrastructure, addressing areas that have lacked significant investment in recent decades: roads, bridges, rail, power, and water infrastructure. Listed infrastructure companies do not rely on government spending for investment in their infrastructure assets – however, government policy and support for initiatives like decarbonization, asset modernization, and digital transformation, highlight the megatrend growth themes of the asset class. We believe that the passing of the legislation is a tailwind for listed infrastructure companies.
Highlighting Digital Infrastructure
The plan pledges to direct funds into one of the country’s most pressing and overlooked problems: a $65 billion budget to bridge the divide in America’s digital infrastructure. This presents an enormous win-win opportunity for investment in the digital infrastructure space, a sector that is not only backed by strong political tailwinds and robust secular growth, but also doubles as a social good that could disproportionately benefit underprivileged groups and help bridge the digital divide between communities.
Digital infrastructure is essential to society, with its importance only growing throughout the COVID-19 pandemic. While talk of “wireless” and “the cloud” may imply otherwise, global communications networks are entirely reliant on physical infrastructure assets, such as data centers, towers, and fiber optic networks. These assets connect us to entertainment, friends, and family; they provide access to health services and vital information; and they make it possible to continue to work and to learn in remote environment. Before the global pandemic, learning institutions were reimagining and embracing digital education; analysts expected the e learning market to grow from US$200 billion in 2019 to US$375 billion in 2026. Overnight, COVID-19 forced the world to embrace virtual learning nearly instantaneously and at scale. This change exacerbated existing inequities related to high-speed internet access and collaboration tools—technology that is essential for virtual learning and a lifeline to remote work for many employees. While access to the internet has greatly improved in recent years, the "digital divide," (disparate internet access between poorer rural communities and those in cities and suburbs) is only growing. Investment in digital infrastructure addresses two fundamental obstructions to universal connectivity: access and affordability.
In the listed market, companies like Crown Castle International (“Crown Castle”) are connecting communities. Pittsburgh’s Mayor William Peduto recently announced an agreement for the nation’s largest digital infrastructure company to provide the first unified fiber connectivity network for the city of Pittsburgh. In constructing a single, high-speed network, Crown Castle will connect 131 different city facilities, including EMS stations, fire stations, recreation and active living centers, as well as critical public safety infrastructure. The Pittsburgh fiber network, NetPGH, will provide unified connectivity in a city where over half currently work with a patchwork of different institutional networks. This should improve the delivery of core services to residents and allow for the future deployment of public Wi-Fi in city neighborhoods. The plan will also enable the expansion of the Rec2Tech initiative, which transforms the City’s recreation centers into learning labs, where children can learn digital skills like coding and video game design.
Investment in digital infrastructure is a private solution for a public good. It is a win-win opportunity that should provide investors with the chance to earn compelling, growing returns while making an impact in the lives of underprivileged communities—those who urgently require infrastructure to participate in an increasingly digitalized world.
More Legislation on the Docket – Directly Benefitting U.S. Utilities
Policy support continues as next on the agenda in Washington is the Build Back Better Act, a $1.7 trillion reconciliation bill sought by the Democrats, which if passed would have more direct impact on our companies. The BBB legislation incudes substantial clean energy incentives (tax credits) that would accelerate already robust investment domestically, as well as providing support to existing nuclear energy generation assets. The likelihood of passing is about 50% in our view, although it has risen recently, supported by the passing of the infrastructure bill which clears the agenda so that Congress can focus on this plan. Discussions will start up next week and the earliest that this would be voted on is late November.
Listed Infrastructure Outlook - Attractive
Policy support is in place as listed infrastructure looks forward to a potential $100 trillion investment supercycle over the next two decades. Dividend growth for our companies is accelerating to 8-9% even while valuations remain at depressed levels versus the equity, bond and private infrastructure markets. We believe that the total return outlook is very appealing given the robust dividend growth, valuation support and fundamental drivers.
CBRE Investment Management
CBRE Investment Management is a leading global real assets investment management firm operating in more than 30 offices and 20 countries around the world. Through its investor-operator culture, the firm seeks to deliver sustainable investment solutions across real assets categories, geographies, risk profiles and execution formats so that its clients, people and communities thrive.
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1. Source: Statista Research Department, as of November 4, 2020.
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