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Should You Retain American Tower (AMT) in Your Portfolio Now?
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American Tower Corporation’s (AMT - Free Report) extensive and geographically diversified communication real estate portfolio positions it well to ride the growth curve amid rising capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts.
Its expansionary efforts and disciplined capital-allocation strategy augur well for long-term growth. However, customer concentration and high interest rates pose key concerns for the company.
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 excessive 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 on the back of incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions, driving 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. It has witnessed strong growth in key financial metrics while continuing platform expansion.
In the third quarter of 2023, the company recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. In the nine months ended Sep 30, 2023, revenues from the property segment and adjusted EBITDA increased by 5.2% and 7.9%, respectively, on a year-over-year basis.
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, healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA growth of 4.5% and 6.1%, respectively, at the midpoint.
To capitalize on the secular trends of the industry, AMT is consistently focusing on macro-tower investment opportunities and expansionary efforts across 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. In 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.
Apart from having a robust operating platform, American Tower has ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins and revenue growth, as well as its favorable return on invested capital, indicate strength in its underlying core business and support its ability to manage its near-term obligations.
The company's net leverage ratio for the third quarter of 2023 was 5.0. As of Sep 30, 2023, the company had $9.7 billion in total liquidity. In addition, with a weighted average remaining debt term of 6.1 years, it has decent financial flexibility.
American Tower has a disciplined capital allocation strategy and remains committed to increasing shareholder value through regular dividend hikes. In September 2023, it announced a 3.2% hike in its quarterly dividend on the company’s common stock to $1.62 per share from $1.57 paid out earlier. The company has consistently increased its quarterly dividends since 2012 and its average annual dividend per share has grown more than 20% since then.
In the last five years, American Tower has increased its dividend 19 times and the annualized dividend growth rate for this period is 15.10%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
What’s Hurting It?
Customer concentration is high for American Tower, with the company’s top three customers in terms of property revenues for third-quarter 2023 being T-Mobile (17%), AT&T (13%) and Verizon Wireless (12%). The loss of any of these customers, consolidation among them or reduction in network spending leads to a material impact on the company’s top line.
The elevated churn is a concern in emerging markets where the company operates. The merger between T-Mobile and Sprint, which closed in April 2020, resulted in tower site overlap for American Tower.
During 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.
A high interest rate environment is a concern for American Tower. Essentially, the elevated rates imply a higher borrowing cost for the company, which will affect its ability to purchase or develop real estate. 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 might seem less attractive than the yields on fixed-income and money market accounts.
Shares of this Zacks Rank #3 (Hold) company have gained 9.8% in the past month against the industry’s decline of 0.9%.
The Zacks Consensus Estimate for Welltower’s current-year funds from operations (FFO) per share has moved marginally northward over the past month to $3.57.
The Zacks Consensus Estimate for Iron Mountain’s 2023 FFO per share has moved marginally upward in the past three months to $3.97.
The Zacks Consensus Estimate for Boston Properties’ ongoing year’s FFO per share has been raised marginally over the past two months to $7.30.
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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Should You Retain American Tower (AMT) in Your Portfolio Now?
American Tower Corporation’s (AMT - Free Report) extensive and geographically diversified communication real estate portfolio positions it well to ride the growth curve amid rising capital spending by wireless carriers on the incremental demand from global 4G and 5G deployment efforts.
Its expansionary efforts and disciplined capital-allocation strategy augur well for long-term growth. However, customer concentration and high interest rates pose key concerns for the company.
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 excessive 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 on the back of incremental demand from global 4G and 5G deployment efforts, growing wireless penetration and spectrum auctions, driving 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. It has witnessed strong growth in key financial metrics while continuing platform expansion.
In the third quarter of 2023, the company recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. In the nine months ended Sep 30, 2023, revenues from the property segment and adjusted EBITDA increased by 5.2% and 7.9%, respectively, on a year-over-year basis.
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, healthy performance is expected to continue in 2023, with management projecting property revenues and adjusted EBITDA growth of 4.5% and 6.1%, respectively, at the midpoint.
To capitalize on the secular trends of the industry, AMT is consistently focusing on macro-tower investment opportunities and expansionary efforts across 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. In 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.
Apart from having a robust operating platform, American Tower has ample liquidity to support its debt servicing. Its consistent adjusted EBITDA margins and revenue growth, as well as its favorable return on invested capital, indicate strength in its underlying core business and support its ability to manage its near-term obligations.
The company's net leverage ratio for the third quarter of 2023 was 5.0. As of Sep 30, 2023, the company had $9.7 billion in total liquidity. In addition, with a weighted average remaining debt term of 6.1 years, it has decent financial flexibility.
American Tower has a disciplined capital allocation strategy and remains committed to increasing shareholder value through regular dividend hikes. In September 2023, it announced a 3.2% hike in its quarterly dividend on the company’s common stock to $1.62 per share from $1.57 paid out earlier. The company has consistently increased its quarterly dividends since 2012 and its average annual dividend per share has grown more than 20% since then.
In the last five years, American Tower has increased its dividend 19 times and the annualized dividend growth rate for this period is 15.10%. This is attractive to income investors and represents a steady income stream. Check American Tower’s dividend history here.
What’s Hurting It?
Customer concentration is high for American Tower, with the company’s top three customers in terms of property revenues for third-quarter 2023 being T-Mobile (17%), AT&T (13%) and Verizon Wireless (12%). The loss of any of these customers, consolidation among them or reduction in network spending leads to a material impact on the company’s top line.
The elevated churn is a concern in emerging markets where the company operates. The merger between T-Mobile and Sprint, which closed in April 2020, resulted in tower site overlap for American Tower.
During 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.
A high interest rate environment is a concern for American Tower. Essentially, the elevated rates imply a higher borrowing cost for the company, which will affect its ability to purchase or develop real estate. 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 might seem less attractive than the yields on fixed-income and money market accounts.
Shares of this Zacks Rank #3 (Hold) company have gained 9.8% in the past month against the industry’s decline of 0.9%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , Iron Mountain Incorporated (IRM - Free Report) and Boston Properties (BXP - 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 current-year funds from operations (FFO) per share has moved marginally northward over the past month to $3.57.
The Zacks Consensus Estimate for Iron Mountain’s 2023 FFO per share has moved marginally upward in the past three months to $3.97.
The Zacks Consensus Estimate for Boston Properties’ ongoing year’s FFO per share has been raised marginally over the past two months to $7.30.
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.