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American Tower (AMT) Rides on Wireless Demand, Acquisitions
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American Tower Corporation (AMT - Free Report) is well poised to benefit from increased investment by wireless carriers in 4G and 5G networks. Additionally, its strategic acquisitions and decent capital-allocation strategy augur well despite customer concentration woes and a high interest rate environment.
American Tower’s extensive and geographically diversified communication real estate portfolio is set to benefit from the high capital spending by wireless carriers amid the incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions. With its vast portfolio of nearly 226,000 communication sites, the company is well-positioned to capitalize on this incremental demand.
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. Between 2012 and 2022, its revenues from the property segment and adjusted EBITDA grew at a CAGR of 14.1% and 13.4%, respectively.
Amid secular growth trends in the wireless industry, this performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA of 3% and 4%, respectively, at the midpoint. We expect the same to increase 2.7% and 3.6% year over year for 2023, respectively. While the metric is expected to be moderate for 2024, it is projected to increase 7.2% in 2025.
American Tower continues focusing on macro-tower investment opportunities and gaining scale in attractive global markets. In the first quarter of 2023, the company constructed more than 1,300 sites. Also, in 2022, it constructed nearly 7,000 sites.
Additionally, American Tower’s strategic acquisitions have enabled it to capitalize on the secular trends of the industry. In the first quarter of 2023, it concluded acquisitions worth $61 million.
The company has a decent capital allocation strategy and remains committed to increasing shareholder value through dividend hikes. In May 2023, it announced a marginal increase in the quarterly dividend to $1.57 per share from the $1.56 paid out earlier. AMT has increased its dividend 19 times in the last five years, and the five-year annualized dividend growth rate is 16.63%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
On the balance sheet front, American Tower exited the first quarter of 2023 with $7.7 billion of total liquidity and a net leverage ratio of 5.2. Additionally, the company’s investment-grade credit ratings enable it to borrow at a favorable rate.
However, customer concentration is high for American Tower, with its top three customers in terms of total revenues for 2022 being T-Mobile (18%), AT&T (17%) and Verizon Wireless (11%). The loss of any of these customers, consolidation among them or reduction in network spending is likely to lead to a material impact on the company’s top line.
A high interest rate environment is a concern for American Tower. Essentially, the elevated rates imply a higher borrowing cost for the company, which is likely to affect its ability to purchase or develop real estate. It has a substantial debt burden, and its total consolidated debt as of Mar 31, 2023, was approximately $38.5 billion. We expect interest expenses to increase 21.9% year over year in 2023.
Shares of this Zacks Rank #3 (Hold) company have gained 4.5% in the past three months compared with the industry’s rise of 2.5%.
The Zacks Consensus Estimate for Ventas’ current-year funds from operation (FFO) per share has moved marginally northward over the last 60 days to $2.98.
The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share of $1.90 indicates an increase of 6.15% year over year.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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American Tower (AMT) Rides on Wireless Demand, Acquisitions
American Tower Corporation (AMT - Free Report) is well poised to benefit from increased investment by wireless carriers in 4G and 5G networks. Additionally, its strategic acquisitions and decent capital-allocation strategy augur well despite customer concentration woes and a high interest rate environment.
American Tower’s extensive and geographically diversified communication real estate portfolio is set to benefit from the high capital spending by wireless carriers amid the incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions. With its vast portfolio of nearly 226,000 communication sites, the company is well-positioned to capitalize on this incremental demand.
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. Between 2012 and 2022, its revenues from the property segment and adjusted EBITDA grew at a CAGR of 14.1% and 13.4%, respectively.
Amid secular growth trends in the wireless industry, this performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA of 3% and 4%, respectively, at the midpoint. We expect the same to increase 2.7% and 3.6% year over year for 2023, respectively. While the metric is expected to be moderate for 2024, it is projected to increase 7.2% in 2025.
American Tower continues focusing on macro-tower investment opportunities and gaining scale in attractive global markets. In the first quarter of 2023, the company constructed more than 1,300 sites. Also, in 2022, it constructed nearly 7,000 sites.
Additionally, American Tower’s strategic acquisitions have enabled it to capitalize on the secular trends of the industry. In the first quarter of 2023, it concluded acquisitions worth $61 million.
The company has a decent capital allocation strategy and remains committed to increasing shareholder value through dividend hikes. In May 2023, it announced a marginal increase in the quarterly dividend to $1.57 per share from the $1.56 paid out earlier. AMT has increased its dividend 19 times in the last five years, and the five-year annualized dividend growth rate is 16.63%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
On the balance sheet front, American Tower exited the first quarter of 2023 with $7.7 billion of total liquidity and a net leverage ratio of 5.2. Additionally, the company’s investment-grade credit ratings enable it to borrow at a favorable rate.
However, customer concentration is high for American Tower, with its top three customers in terms of total revenues for 2022 being T-Mobile (18%), AT&T (17%) and Verizon Wireless (11%). The loss of any of these customers, consolidation among them or reduction in network spending is likely to lead to a material impact on the company’s top line.
A high interest rate environment is a concern for American Tower. Essentially, the elevated rates imply a higher borrowing cost for the company, which is likely to affect its ability to purchase or develop real estate. It has a substantial debt burden, and its total consolidated debt as of Mar 31, 2023, was approximately $38.5 billion. We expect interest expenses to increase 21.9% year over year in 2023.
Shares of this Zacks Rank #3 (Hold) company have gained 4.5% in the past three months compared with the industry’s rise of 2.5%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Ventas (VTR - Free Report) and Host Hotels & Resorts (HST - Free Report) . While Host Hotels sports a Zacks Rank #1 (Strong Buy), Ventas carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ventas’ current-year funds from operation (FFO) per share has moved marginally northward over the last 60 days to $2.98.
The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share of $1.90 indicates an increase of 6.15% year over year.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.