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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 investments 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.
In the six months ended Jun 30, 2023, revenues from the property segment and adjusted EBITDA increased 4.4% and 6.6% on a year-over-year basis, respectively. Between 2012 and 2022, American Tower’s revenues from the property segment and adjusted EBITDA grew at CAGRs of 14.1% and 13.4%, respectively.
Amid secular growth trends in the wireless industry, the healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA growth of 3.9% and 5.2%, respectively, at the midpoint. We expect property revenues and adjusted EBITDA to increase 3.3% and 4.6% year over year in 2023, respectively. Further, property revenues are expected to improve 3.2% in 2024 and 4.1% in 2025.
AMT continues focusing 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, in the six months ended Jun 30, 2023, it purchased 68 communications sites, as well as other communications infrastructure assets, in the United States, Canada, France, Poland and Spain.
On the balance sheet front, American Tower exited the second quarter of 2023 with $8.2 billion in total liquidity and a net leverage ratio of 5.3. Additionally, the company’s investment-grade credit ratings enable it to borrow at a favorable rate.
AMT has a decent capital allocation strategy and remains committed to increasing shareholder value through 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 increased its dividend 19 times, and the annualized dividend growth rate for this period is 16.02%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
However, customer concentration is high for American Tower, with the company’s top three customers in terms of property revenues for the second quarter of 2023 being T-Mobile (16%), AT&T (14%) and Verizon Wireless (12%). The loss of any of these customers, consolidation among them or a reduction in network spending are likely to lead to a material impact on the company’s top line.
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.
A high-interest-rate environment is a concern for American Tower. 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 Jun 30, 2023 was approximately $38.8 billion. We expect interest expenses to increase 24.5% year over year in 2023.
Shares of this Zacks Rank #3 (Hold) company have declined 2.8% in the past three months against the industry’s rise of 0.7%.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally upward over the past month to $3.53.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved 1.4% northward over the past month to $12.86.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.83.
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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American Tower (AMT) Rides on Wireless Demand, Acquisitions
American Tower Corporation (AMT - Free Report) is well-poised to benefit from increased investments 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.
In the six months ended Jun 30, 2023, revenues from the property segment and adjusted EBITDA increased 4.4% and 6.6% on a year-over-year basis, respectively. Between 2012 and 2022, American Tower’s revenues from the property segment and adjusted EBITDA grew at CAGRs of 14.1% and 13.4%, respectively.
Amid secular growth trends in the wireless industry, the healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA growth of 3.9% and 5.2%, respectively, at the midpoint. We expect property revenues and adjusted EBITDA to increase 3.3% and 4.6% year over year in 2023, respectively. Further, property revenues are expected to improve 3.2% in 2024 and 4.1% in 2025.
AMT continues focusing 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, in the six months ended Jun 30, 2023, it purchased 68 communications sites, as well as other communications infrastructure assets, in the United States, Canada, France, Poland and Spain.
On the balance sheet front, American Tower exited the second quarter of 2023 with $8.2 billion in total liquidity and a net leverage ratio of 5.3. Additionally, the company’s investment-grade credit ratings enable it to borrow at a favorable rate.
AMT has a decent capital allocation strategy and remains committed to increasing shareholder value through 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 increased its dividend 19 times, and the annualized dividend growth rate for this period is 16.02%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
However, customer concentration is high for American Tower, with the company’s top three customers in terms of property revenues for the second quarter of 2023 being T-Mobile (16%), AT&T (14%) and Verizon Wireless (12%). The loss of any of these customers, consolidation among them or a reduction in network spending are likely to lead to a material impact on the company’s top line.
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.
A high-interest-rate environment is a concern for American Tower. 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 Jun 30, 2023 was approximately $38.8 billion. We expect interest expenses to increase 24.5% year over year in 2023.
Shares of this Zacks Rank #3 (Hold) company have declined 2.8% in the past three months against the industry’s rise of 0.7%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Omega Healthcare Investors (OHI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally upward over the past month to $3.53.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved 1.4% northward over the past month to $12.86.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.83.
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.