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What we think about American Tower (AMT)

American Tower in Three Words: Efficient Global Allocator

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Background

Can you hear me now? American Tower is one of the world’s largest owners and operators of cellular towers. It competes in a capital-intensive oligopoly; where efficiency and allocation are paramount and massive upgrade cycles like 5G can drive long-term customer contracts.

Organized as a Real Estate Investment Trust (REIT), AMT distributes 90% of its pre-tax profits to shareholders as a dividend. As the world’s thirst for wireless connectivity grows, investors directly benefit from its steadily growing earnings and cash payouts. After the dividend checks are written, management then methodically dedicates the remaining adjusted funds from operations (AFFO) to making acquisitions, to building new towers, and to repurchasing shares.

American Tower previously had set its sights on India, which accounted for around three-quarters of the new sites it constructed during 2022. However, the tumultuous relationship between the Indian government and its largest telecom carrier (Vodafone Idea) led AMT to reconsider its ambitions. In April 2024, it announced it is officially exiting the Indian market and that it would be selling all 78,000 of its towers in the country to Brookfield's Data Infrastructure Trust for $2.5 billion.

This is probably a good move. AMT's relationship with the carrier Vodafone Idea and the Indian government has been tenuous at best and this de-risks an investment in the stock. American Tower will now likely look to Africa as its regional growth driver going forward.

American Tower now has more than $63 billion in non-cancellable lease agreements that are on the books. Even in a challenging macro, it has maintained a BBB+ credit rating and only 15% of its total debt is variable and exposed to higher rates.

Even though the company has gone through a difficult patch – due to the churn from the TMobile/Sprint merger, the Vodafone Idea fiasco in India, and higher interest rates delaying its customers’ new 5G deployments – it has still managed to double its annual dividend during the past five years, has 90%+ tenant retention, and billings that are growing in the mid-single-digits. Long-time CEO Tom Bartlett announced his retirement in February 2024 and handed the reins to Steve Vondran. Steve was previously the president of its US Tower Division, which he’s run since 2018. He seems like the right person to take the helm going forward.

Conviction Rating Changes:

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7investing reaffirmed its _____ Conviction Rating for AMT on February 25, 2025.

Thoughts on Current Valuation and Capital Allocation

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Recent Company Updates:

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February 25, 2025: American Tower Corporation just reported its fourth quarter and full year 2024 results.

Steven Vondran, American Tower’s Chief Executive Officer, stated, “We posted another year of solid results at American Tower, delivering AFFO per Share growth supportive of our long-term target, while demonstrating effective execution of the strategic priorities I laid out a year ago. Our initial expectations for accelerating activity over the course of the year were validated, highlighted by mid-band deployments in the U.S. and Europe, 4G densification and early 5G upgrades in emerging markets, and another exceptional year of leasing at CoreSite.

The contribution to the margin from these solid demand trends was further complemented by prudent cost controls and the successful execution of our globalization initiatives, driving added efficiency to the already attractive operating leverage inherent to our business. While the macroeconomic environment remains challenging, demand for connectivity across our global platform continues unabated. The strategic steps we’ve taken to enhance the quality of our earnings through portfolio management, disciplined capital allocation and balance sheet strength, has us well positioned to navigate volatility and uncertainty, while meeting the critical needs of our customers. Taken altogether, our business today is better positioned to deliver durable, sustained growth and returns for our shareholders over the long-term.”