American Tower (NYSE:AMT) is a REIT I’ve watched for many years because mutual fund manager Ron Baron had it in his portfolio quite some time ago. He thought of the company as being in a “sunrise industry” back when cellular-phone usage was just on the cusp of exploding.
The company had its challenges, so much so that back in 2002, the stock was down to $0.76 per share. If you had faith in the company during those tough times, you’ve been rewarded by making 80 times your money.
So where is American Tower today, and what does its future look like?
The company develops, owns, and operates communications sites and leases antenna space on multi-tenant communications sites to wireless service providers and radio and television broadcast companies. The leased space includes usage for wireless communications, including cellular, specialized mobile radio, WiMAX, paging, and fixed microwave.
It also leases distributed-antenna-system (DAS) networks in malls, casinos, and other in-building applications, as well as providing rooftop-management services to property owners who own rooftops that are capable of hosting wireless-communications equipment.
It also has a division devoted to site acquisition, zoning and permitting services and structural-analysis services. The company’s communications-site portfolio includes approximately 38,048 sites across the U.S., Brazil, Chile, Mexico, India, and Peru.
AMT’s rental and management business makes up 98% of total revenues, and the company is smart enough to lease to primarily investment-grade corporate tenants. This revenue jumped almost 20% in 2011, and 23% for the full year (9% organic and the rest from acquisitions).
The company’s primary drivers include new commitments from AT&T (NYSE:T) and Verizon’s (NYSE:VZ) LTE network deployments and similar demand trends in international markets. As the rest of the world rolls out 2G and 3G services, AMT continues to see leasing growth.
Site additions are on a tear, with 11,000 sites in the past five quarters and 5,400 just this past quarter alone. Even better, the company has managed to create a cost-sharing arrangement with its customers.
As if all this weren’t enough, AMT is quietly snatching up the real estate under its existing tower sites. It now owns 28% of that real estate on its U.S. sites, so it’s also a budding real estate play.
The company manages its capital extremely well, by properly spending money on maintaining and building out its sites, buying up real estate, and paying a very nice dividend to shareholders (1.5%).
Since it’s a REIT, we look at its AFFO number, which is expected to be a very impressive $1.16 billion in 2012. That means AMT has plenty of cash flow along with growth. The company has $330 million in cash and $1.25 billion of available credit under a revolver, while holding about $1.3 billion in debt.
All in all, this is a great company. The only thing I’m not crazy about is the stock price. Because it’s a REIT, I tend to look at the Enterprise Value-to-EBITDA ratio, which is very high at 21.3 — maybe 30% too high.
I’d wait for the stock to retreat, as it has a tendency to do from time to time, before buying in. If you already own it, I’d strongly consider selling and booking those profits.