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Tower Buyouts Boost American Tower (AMT), Churn Woes Linger
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In light of the constructive macro-tower environment, American Tower Corporation (AMT - Free Report) is ramping up its investments in the tower business and strengthening global footprint through acquisitions.However, elevated churn rate in its U.S. and Asia property segments are concerning.
Earlier this month, the company announced an acquisition deal to purchase InSite Wireless Group’s portfolio of more than 1,400 and 200 towers in the United States and Canada, respectively. This is a strategic fit as it will represent its entry into Canada and boost the U.S. business. Given strong long-term demand drivers for tower space, such efforts are strategic fits and will buoy the property segment’s organic tenant billings growth in the upcoming period.
Moreover, many large multinational carriers, which account for the majority of the company’s property revenues, are increasing network capital deployments amid the increasing mobile data usage and growing wireless penetration. Moreover, as carriers ramp up investments in 5G deployments and continue 4G upgrades to densify networks, such incremental investments, are likely to drive the leasing demand.
Moreover, the company has been delivering healthy performance on the back of robust demand for its tower assets.In fact, over the past 10 years, (2009-2019) American Tower’s property segment’s revenues witnessed a CAGR of 16.2%.This trend is expected to continue in 2020, with the property segment’s revenues projected to increase 5.6% year over year at the mid-point.
However, customer concentration is high for American Tower, with AT&T, Verizon Wireless and T-Mobile being its top three customers, accounting for 51% of the company’s total property segment revenues as of third-quarter 2020. The loss of any of these customers, consolidation among them or reduction in network spending lead to material impacts on the company’s top line.
Notably, the merger between T-Mobile and Sprint, which closed this April, drove contractual lease cancellations and non-renewals due to tower site overlap for American Tower. This overlap accounted for 3-4% of total property revenues and now represents elevated levels of churn rate (lost tenant billings).
Moreover, the company is rapidly expanding in the international markets, especially in the emerging Asia and Latin America markets. Although this geographic diversification will boost revenues, it may affect the bottom line. This is because tower operations in the emerging markets are not as profitable as that in the mature U.S. market.
Shares of this Zacks Rank #3 (Hold) company have rallied 8.4% over the past year against the industry’s decline of 4.2%.
Extra Space Storage Inc’s (EXR - Free Report) Zacks Consensus Estimate for 2020 FFO per share has moved upmarginally to $5.02 over the past 30 days. The company currently carries a Zacks Rank of 2.
City Office REIT, Inc.’s (CIO - Free Report) Zacks Consensus Estimate for 2020 FFO per share has improved 2.6% to $1.17 in a month’s time. The company has a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Tower Buyouts Boost American Tower (AMT), Churn Woes Linger
In light of the constructive macro-tower environment, American Tower Corporation (AMT - Free Report) is ramping up its investments in the tower business and strengthening global footprint through acquisitions.However, elevated churn rate in its U.S. and Asia property segments are concerning.
Earlier this month, the company announced an acquisition deal to purchase InSite Wireless Group’s portfolio of more than 1,400 and 200 towers in the United States and Canada, respectively. This is a strategic fit as it will represent its entry into Canada and boost the U.S. business. Given strong long-term demand drivers for tower space, such efforts are strategic fits and will buoy the property segment’s organic tenant billings growth in the upcoming period.
Moreover, many large multinational carriers, which account for the majority of the company’s property revenues, are increasing network capital deployments amid the increasing mobile data usage and growing wireless penetration. Moreover, as carriers ramp up investments in 5G deployments and continue 4G upgrades to densify networks, such incremental investments, are likely to drive the leasing demand.
Moreover, the company has been delivering healthy performance on the back of robust demand for its tower assets.In fact, over the past 10 years, (2009-2019) American Tower’s property segment’s revenues witnessed a CAGR of 16.2%.This trend is expected to continue in 2020, with the property segment’s revenues projected to increase 5.6% year over year at the mid-point.
However, customer concentration is high for American Tower, with AT&T, Verizon Wireless and T-Mobile being its top three customers, accounting for 51% of the company’s total property segment revenues as of third-quarter 2020. The loss of any of these customers, consolidation among them or reduction in network spending lead to material impacts on the company’s top line.
Notably, the merger between T-Mobile and Sprint, which closed this April, drove contractual lease cancellations and non-renewals due to tower site overlap for American Tower. This overlap accounted for 3-4% of total property revenues and now represents elevated levels of churn rate (lost tenant billings).
Moreover, the company is rapidly expanding in the international markets, especially in the emerging Asia and Latin America markets. Although this geographic diversification will boost revenues, it may affect the bottom line. This is because tower operations in the emerging markets are not as profitable as that in the mature U.S. market.
Shares of this Zacks Rank #3 (Hold) company have rallied 8.4% over the past year against the industry’s decline of 4.2%.
Stocks to Consider
Innovative Industrial Properties, Inc.’s (IIPR - Free Report) funds from operations (FFO) per share estimates for 2020 have been revised upward by 5.8% to $5.11 over the past month. The company carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Extra Space Storage Inc’s (EXR - Free Report) Zacks Consensus Estimate for 2020 FFO per share has moved upmarginally to $5.02 over the past 30 days. The company currently carries a Zacks Rank of 2.
City Office REIT, Inc.’s (CIO - Free Report) Zacks Consensus Estimate for 2020 FFO per share has improved 2.6% to $1.17 in a month’s time. The company has a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>