Wireless communication tower operator American Tower Corporation (AMT - Free Report) recently purchased telecom assets from Brazilian state-run utility company, Cia Energetica de Minas Gerais SA, or Cemig, Reuters reported.
Specifically, at an auction held at Cemig's headquarters in Minas Gerais, American Tower won the broadband network with a bid of R$571 million, translating to $152 million. The real minimum price for the lot was R$367 million.
For the purpose of divestment, the telecom assets were divided into two lots. Lot 1 acquired by American Tower includes assets in Minas Gerais, Rio de Janeiro and Sao Paulo, reports O Estado de Sao Paulo, while assets in the smaller lot 2 are located in Northeast and Goias, as stated in an article by telecompaper.
Per the article, the second lot was sold to Algar Telecom for R$77.8 million. Also, American Tower paid a premium of more than 70%, while Algar’s bid reflects a premium of 139% over the minimum price of R$32.47 million.
Notably, there is a rising trend of telecom companies to offload assets to wireless infrastructure companies like American Tower, Crown Castle International Corp. (CCI - Free Report) and SBA Communications Corp. (SBAC - Free Report) . This is because it helps telecom companies avoid huge outlay of money in maintaining the expensive infrastructure and rather channelize resources on service delivery.
And this growing trend is offering ample scope to these infrastructure real estate investment trusts (REITs) to prosper. In fact, wireless services are advancing rapidly in terms of additional features and capabilities. Much of the infrastructure and upgrades require effective site management of towers and equipment. Moreover, with the advent of new technologies, especially 5G and Internet of Things (IoT), companies like American Tower and Crown Castle International have higher chances of growth.
In fact, American Tower’s buyouts in emerging markets and long-term tower leases with major wireless carriers lend it a competitive edge over rivals. Further, in the recently-reported quarter, it spent nearly $663 million to acquire more than 10,000 sites.
Shares of this Zacks Rank #3 (Hold) company have outperformed its industry over the past three months. While shares of the company have rallied 8.5%, the industry gained 4.8% during the same time frame.
Although this acquisition will enable the company to strengthen its footprint in the Brazilian market, it may jeopardize the bottom line. This is because tower operations in the emerging markets are not as profitable as that in the mature U.S. market.
In addition, the Zacks Consensus Estimate for its 2018 funds from operations (FFO) per share witnessed downward revision of 2.1% to $7.36.
Investors interested in the REIT space may also consider Host Hotels & Resorts, Inc (HST - Free Report) . It carries a Zacks Rank of 2 (Buy) and witnessed marginal upward revision in 2018 FFO per share over the past month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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