Overview
American Tower (AMT) is the biggest American REIT. This infrastructure REIT specializes in the ownership and operation of telecommunications towers and other structures that it rents out to telecom companies and broadcasters. It has worldwide visibility in the red-hot data consumption market with its ever-expanding demand for towers, rooftop spires and similar structures.
The worldwide growth of cell phones and smartphones continues unabated, driving demand for the structures that American Tower leases. Many telecom companies don’t want to allocate capital to build their own towers or buy the land underneath. American Tower can lease space to multiple clients on the same tower, a lucrative arrangement that has resulted in an annual 16% growth in funds from operations (FFO) over the last 10 years.
Two factors are driving ongoing demand for cell towers:
- Global growth: Fewer than 25% of AMT’s towers reside in the United States. AMT has invested heavily in hot global markets such as Nigeria and India, which have had triple-digit growth rates for wireless data usage since 2010.
- Shift to 5G wireless networks: American telecoms are committed to rolling out the next generation of wireless network, 5G. Since they will also have to support the older network for the unforeseeable future, there will be an organic demand for additional tower space. India is having a similar rollout to 4G.
- Growth of unlimited data plans: Competition has forced telecoms to increase their unlimited data offerings, creating incremental demand for tower space.
AMT capitalizes on this trend as a leading operator, owner and developer of multi-tenant communications properties. AMT also offers tower-related services in the United States, including site acquisition and preparation, structural analysis, permitting and zoning. It’s real-estate portfolio includes towers and Distributed Antenna System (DAS) networks, as well as other interests in telecom infrastructure, fiber and property.
Recent Company Trends
AMT has identified a strategy consisting four broad initiatives:
- Increased operational efficiency
- Selective investment in new assets
- Higher participation in cross-industry consortiums, national and local governments, smart-city initiatives and non-governmental organizations
- Focus on innovation
Over the last two years, AMT has kept its foot on the pedal with respect to operational excellence, corporate responsibility and disciplined use of capital. 2017 was a banner year for growth, and 2018 is shaping up nicely. The most noticeable recent trends have been entering new markets through acquisition and new build programs. In Q2 2018, AMT spent about 15% of its deployed capital (about $200M) on discretionary capital projects, of which 60% financed site construction and augmentation, including 450+ new builds. It spent $660M to acquire more than 10,000 sites in the quarter, principally in India.
AMT is well-placed to benefit from the 30% to 40% annual growth in U.S. mobile data usage. Furthermore, all the national wireless companies are making substantial investments simultaneously. The FirstNet wireless broadband network dedicated to public safety is undergoing a sizeable multi-year buildout. Other trends in motion at this time include high-bandwidth apps and the aforementioned migration to 5G. All of these trends make it clear that the United States will be the principal driver of AMT margin expansion and cash flow growth for many years to come.
The common stock dividend grew by 20% in Q2 2018, and the REIT repurchased more than 700,000 shares during the period.
Holdings
American Tower owns more that 150,000 sites worldwide, 40,000 of which are located in the United States, 58,000 in Asia, 16,000 in Africa, Europe and the Middle East, and 36,000 in Latin America. A substantial portion of AMT’s portfolio is located in free-market economies, including France, Brazil, Germany, India, Mexico and Nigeria. India is making a push to 4G, and AMT has Indian holdings of 77,000 new and acquired sites.
Financials
AMT is expected to benefit from a 10% compound annual growth rate over the next three years. The REIT has increased its dividend in 7 of the last 10 years, and the current dividend yield is above 2%.
Q2 2018 saw year-over-year (YOY) gains in revenue (up 7.12%), but estimated earnings per share dipped 14.81%, in large part due to unrealized foreign currency losses and an impairment write-down in India. Its price-to-book ratio is almost 10x, near the top of the Specialized REITs group.
The quarter saw organic tenant billings growth of 7.4%, generating a 2018 estimate of 7% growth, nearly 1 percentage point higher than previously forecast. Property revenue grew 6.8%, adjusted EBITDA grew 6.2%, and consolidated AFFO per share rose by more than 13%.
The following financials reflect activity through Q2 2018. on a trailing twelve-month basis where appropriate:
| Current Ratio | 0.47 |
| Financial Leverage | 5.98% |
| Debt/Equity | 3.30 |
| Gross Margin | 69.2% |
| Return on Assets | 3.37% |
| Return on Equity | 18.29 |
| Revenue Growth Latest Quarter | 7.13% |
| EPS Growth | -13.75% |
| Earnings per Share | $2.52 |
| Dividend per Share | $2.88 |
| Payout Ratio | 114.29% |
| Free Cash Flow $2,328M | $2,328M |
| Free Cash Flow/Net Income | 2.03 |
As of October 26, 2018:
| Price/Share | $149.61 |
| Price/Book | 11.88 |
| Price/Earnings | 59.37 |
| Dividend Yield | 2.35% |
| Market Cap | $65.95B |
Outlook
The continued growth in demand for digital data, and migration to new networks portends well for American Tower. Globally-diversified holdings help ensure exposure to the fastest-growing markets, and concentration in politically stable markets helps to reduce event risk. The company needs to better manage its currency risk, but otherwise appears to be exceedingly well managed.
Summary
The analyst consensus for AMT is long-term bullishness, and this REIT should be considered a core holding within the portion of a portfolio allocated to alternative assets.