American Tower Corp: 5G Infrastructure REIT Stock Surges on Acquisition

American Tower Corp: 5G Infrastructure REIT Stock Surges on AcquisitionAmerican Tower Corp Breaks into Canadian 5G Market

Shares of American Tower Corp (NYSE:AMT) surged after the company announced an agreement to purchase InSite Wireless Group, LLC. American Tower stock is up 17% year-over-year and up 40% since bottoming in March.

American Tower also recently announced solid third-quarter results as the company’s tenants deployed new technology, densified their networks, and enhanced critical broadband technology amid rising demand during the coronavirus pandemic.

That demand is not going to fade away once the pandemic is contained. With download speeds up to 100 times faster than 4G, 5G is in its infancy. And the demand for cell towers will soar right along with it.

AMT Stock Overview

American Tower provides the vertical and horizontal real estate for 5G wireless communications networks. The company is a leading independent owner and operator of telecommunications real estate.

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Some 99% of its revenue comes from leasing its properties, as well as fiber and other urban telecommunications assets, to its international tenants. (Source: “American Tower Corporation: An Overview, Third Quarter 2020,” American Tower Corp, last accessed November 17, 2020.)

American Tower builds, owns, and operates the infrastructure and real estate that wireless communications networks need: that is, the towers and the land they sit on. One of the largest global real estate investment trusts (REITs), its portfolio consists of more than 181,000 communication sites in countries like the U.S., Canada, Mexico, France, Germany, Brazil, South Africa, and India.

The company’s biggest clients are AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ), and T-Mobile US Inc (NASDAQ:TMUS). (Source: “Introduction to the Tower Industry and American Tower As of June 30, 2020,” American Tower Corporation, June 30, 2020.)

As a REIT, American Tower is legally obligated to distribute at least 90% of its taxable income to investors in the form of dividends. Since 2012, the company has raised its dividend payout every quarter.

In the first quarter of 2012, American Tower stock paid out $0.21 per share. In the third quarter of 2020, it paid out a quarterly cash distribution of $1.14 per share. (Source: “Dividend History,” American Tower Corp, last accessed November 17, 2020.)

That means, over the last eight years, AMT stock’s quarterly dividend payout increased by 442%.

Agreement to Acquire InSite Wireless Group

In early November, American Tower announced plans to acquire InSite Wireless Group, which owns, operates, and manages approximately 3,000 communications sites, primarily in the U.S. and Canada, for about $3.5 billion. (Source: “American Tower Announces Agreement to Acquire InSite Wireless Group,” American Tower Corp, November 5, 2020.)

With the acquisition, American Tower gains approximately 3,000 sites, including more than 1,400 towers in the U.S., more than 200 owned towers in Canada, and roughly 70 distributed antenna system networks in the U.S.

InSite also controls more than 600 land parcels under communications sites and about 400 rooftop sites.

In addition to marking American Tower’s foray into the Canadian 5G market, the acquisition is expected to enhance the company’s organic growth and cash flow trajectory as 5G deployments accelerate and densification initiatives move forward.

American Tower expects the acquisition to generate roughly $150.0 million in property revenue and roughly $115.0 million in gross margin in the first full year.

The transaction is anticipated to be immediately accretive to American Tower’s consolidated adjusted funds from operations (AFFO) and is expected to close by the end of 2020. AFFO is a financial performance measure used by REITs that’s similar to cash flow per share.

Solid Third-Quarter Results

In late October, American Tower announced that its revenue for the third quarter, ended September 30, increased by three percent year-over-year to $2.0 billion. Its property revenue increased by 3.4% to $2.0 billion. (Source: “American Tower Corporation Reports Third Quarter 2020 Financial Results,” American Tower Corp, October 29, 2020.)

Third-quarter net income slipped 8.4% to $463.0 million, or $1.04 per share. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 5.6% to $1.3 billion while consolidated AFFO increased by 14.7% to $1.0 billion.

During the third quarter, American Tower spent approximately $101.0 million to acquire 305 communications sites, primarily in international markets, including 195 communications sites in France. Also during the quarter, the REIT inked a new master lease agreement with T-Mobile US Inc.

American Tower ended the third quarter with $6.7 billion in total liquidity, which includes $1.6 billion in cash and cash equivalents, plus the ability to borrow an aggregate of about $5.1 billion under revolving credit facilities.

Full-Year 2020 Outlook

American Tower Corp doesn’t expect its underlying operating results to be negatively impacted by the pandemic.

In fact, management has raised its full-year 2020 outlook for:

  • Property revenue to a range of $7.85–$7.91 billion, for year-over-year growth of 5.6% at the midpoint
  • Net income to a range of $1.86–$1.91 billion, for a year-over-year decline of 1.9% at the midpoint
  • Adjusted EBITDA to a range of $5.08–$5.13 billion, for year-over-year growth of 7.5% at the midpoint
  • Consolidated AFFO to a range of $3.72–$3.77 billion, for year-over-year growth of 6.4% at the midpoint

Analyst Take

American Tower Corp is one of the world’s largest 5G infrastructure REITs. The company has a huge international footprint, and it continues to announce new agreements and acquisitions. That has helped drive strong recurring revenue growth.

Looking ahead, as 5G deployments in the U.S. accelerate and wireless technology evolves globally, the REIT believes that its macro tower-oriented footprint is well positioned to generate consistent, recurring growth and attractive returns. That bodes well for American Tower stock.