American Tower Corporation’s AMT extensive and geographically diversified communication real estate portfolio is going to benefit from increased investments by wireless carriers in 4G and 5G networks. Its expansionary efforts augur well for long-term growth, though customer concentration and high interest rates pose key concerns.
What’s Aiding It?
With the advancement in mobile technology, such as 4G and 5G networks and the proliferation of bandwidth-intensive applications, mobile data usage has increased significantly globally. The rampant use of network-intensive applications for video conferencing, cloud services and hybrid-working scenarios is likely to fuel the rise.
This has led to greater capital spending by wireless carriers amid incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions, aiding demand for AMT’s wireless communication infrastructure. This upbeat trend is likely to continue in the upcoming period, boosting demand for the company’s assets and driving healthy leasing activity.
American Tower has a solid track record of delivering healthy performance due to the robust demand for its global macro tower-oriented asset base. The company has witnessed strong growth in key financial metrics while continuing platform expansion.
In the third quarter of 2023, it recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. Also, in the nine months ended Sep 30, 2023, revenues from the property segment and adjusted EBITDA increased 5.2% and 7.9% on a year-over-year basis, respectively.
Amid secular growth trends in the wireless industry, healthy performance is expected to have continued in 2023, with management projecting property revenues and adjusted EBITDA growth to be 4.5% and 6.1%, respectively, at the midpoint.
AMT continues to focus on macro-tower investment opportunities and gaining scale in attractive global markets. It has built more than 45,000 international sites since it began expanding internationally. Around 8,000 of these sites have been built in Africa as carriers continue to invest in their network coverage and densification needs.
Further, for the nine months ended Sep 30, 2023, it purchased 69 communications sites, as well as other communications infrastructure assets in the United States, Canada, France, Poland and Spain for $65.7 million.
American Tower has a robust operating platform and ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins and revenue growth, as well as favorable return on invested capital, indicate the strength in its underlying core business and support its ability to manage its near-term obligations.
On the balance sheet front, American Tower exited the third quarter of 2023 with $9.7 billion in total liquidity and a net leverage ratio of 5.0. Additionally, the company’s investment-grade credit ratings enable it to borrow at a favorable rate.
AMT has a decent capital distribution strategy and remains committed to increasing shareholder value through regular dividend hikes. The company has consistently increased its quarterly dividends since 2012, and its average annual dividend per share has grown more than 20% since then.
Also, in the last five years, American Tower has increased its dividend 19 times, and the annualized dividend growth rate for this period is 14.68%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
What’s Hurting It?
American Tower has a high customer concentration, with T-Mobile TMUS, AT&T T and Verizon Wireless contributing 17%, 13% and 12%, respectively, of its property revenues for the third quarter of 2023. The loss of TMUS, T or Verizon Wireless as customers, consolidation among them or reduction in network spending could adversely impact the company’s top-line growth.
The merger between T-Mobile and Sprint, which closed in April 2020, resulted in tower site overlap for American Tower. For the nine months ended Sep 30, 2023, the churn was roughly 3% of its tenant billings, mainly driven by the churn in its U.S. & Canada property segment. Given the contractual lease cancellations and non-renewals by T-Mobile, including legacy Sprint Corporation leases, management expects the churn rate in its U.S. & Canada property segment to remain elevated for several years through 2025.
Amid a high-interest rate environment, American Tower may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side.
The company has a substantial debt burden and its total consolidated debt as of Sep 30, 2023, was approximately $38.6 billion. Moreover, with high interest rates in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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