American Tower Corp: Blockbuster Acquisition Makes It an Even Better 5G Play

American Tower Corp Poised to Lead the 5G World

American Tower Corp (NYSE:AMT) has always been one of the best 5G stocks. A real estate investment trust (REIT) with one of the largest wireless tower portfolios on the planet, American Tower has a long history of providing investors with healthy share-price gains and reliable, growing dividends.

This is possible because American Tower makes bucketloads of cash. Recently, the company reported third-quarter double-digit growth in its adjusted funds from operations (AFFO) per share.

As a REIT, American Tower Corp is legally obligated to return the vast majority of its profits to its shareholders, which it does in the form of high-yield dividends.

In September, the company announced a third-quarter dividend of $1.31 per share, for a yield of two percent. This represents the 38th consecutive quarter in which American Tower has raised its quarterly dividend.

Moreover, American Tower Corp’s fabulous financial results have helped juice AMT stock considerably.

Over the last 10 years, American Tower stock has climbed by 450%. It has also done well over the short term. As of this writing, the stock is up by 18% year-to-date.

All things being equal, AMT stock has great long-term growth potential.

After all, 5G technology is still in its infancy. The demand for connected devices has been soaring, and the data usage per customer has been surging thanks to data hogs like “Spotify,” “YouTube,” and “Netflix.”

All of that has helped drive up the demand for wireless infrastructure like communication towers.

And there’s another reason to love American Tower stock.

American Tower Corp recently announced plans to acquire a major data center company. The move is expected to create a comprehensive communications real estate platform that will drive the deployment of 5G and edge computing.

Chart courtesy of StockCharts.com

AMT Stock Overview

American Tower has a global portfolio of more than 219,000 communication towers in 24 countries on six continents. (Source: American Tower Corporation: An Overview, Third Quarter 2021,” American Tower Corp, last accessed November 29, 2021.)

American Tower leases out space on its towers (and the land it sits on) to wireless service providers including AT&T Inc. (NYSE:T), T-Mobile US Inc (NASDAQ:TMUS), and Verizon Communications Inc, (NYSE:VZ).

The service providers, in turn, install equipment on the towers to support their wireless networks and build tenant shelters that contain equipment.

One of the biggest benefits of owning wireless communication towers is the economy of scale. The tower is already there, so leasing out unused space doesn’t cost American Tower Corp anything. In fact, adding additional tenants, equipment, and upgrades generates additional revenue.

The return on investment with one tenant per tower is three percent. With two tenants, that jumps to 13%, and with three tenants, it jumps to 24%.

Acquisition of CoreSite Realty Corp

On November 15, American Tower announced plans to acquire CoreSite Realty Corp (NYSE:COR) for $170.00 per share, or approximately $10.1 billion in total. (Source: “American Tower to Acquire CoreSite,” American Tower Corp, November 15, 2021.)

CoreSite owns 25 data centers, 21 cloud on-ramps, and more than 32,000 interconnections in eight major U.S. markets.

During the third quarter of 2021, CoreSite Realty Corp generated annualized revenue of $655.0 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $343.0 million. Over the last five years, CoreSite has averaged double-digit annual revenue growth.

American Tower Corp expects to leverage its strong financial position to accelerate CoreSite’s development pipeline in the U.S. while evaluating the potential for international expansion in the data center space.

The deal adds CoreSite Realty Corp’s data and cloud management capabilities to American Tower Corp’s mobile edge computing business, allowing American Tower to offer a broader variety of 5G and cloud solutions.

The transaction is anticipated to initially be modestly accretive to American Tower Corp’s AFFO per share and increasingly accretive over time. The deal is expected to close by the end of 2021 (or shortly thereafter).

“We expect the combination of our leading global distributed real estate portfolio and CoreSite’s high quality, interconnection-focused data center business to help position American Tower to lead in the 5G world,” said American Tower Corp’s CEO, Tom Bartlett. (Source: Ibid.)

Stellar Q3 Results

For the third quarter ended September 30, American Tower announced that its total revenue increased by 21.9% year-over-year to $2.5 billion. Its property revenue climbed by 19.2% to $2.4 billion. (Source: “American Tower Corporation Reports Third Quarter 2021 Financial Results,” American Tower Corp, October 28, 2021.)

The REIT’s third-quarter net income increased by 56.9% year-over-year to $726.0 million, or $1.58 per share. Its adjusted EBITDA advanced 19.5% to $1.6 billion, while its consolidated AFFO increased by 13.3% to $1.2 billion, or $2.53 per share.

The company’s total free cash flow in the third quarter soared by 150.2% year-over-year to $1.7 billion.

Analyst Take

American Tower stock is an excellent 5G stock that keeps getting better.

American Tower Corp has been experiencing strong demand trends across its global business, supported by carrier investments, new network technologies, and spectrum deployment.

As 5G deployments in the U.S. and Europe progress and 4G buildouts accelerate, American Tower Corp is confident in its “ability to drive sustainable, recurring growth for years to come.” (Source: Ibid.)

Furthermore, the company’s acquisition of CoreSite will generate additional long-term value opportunities.

If history is any indicator, AMT stockholders should continue to benefit from the company’s long history of significant share-price gains and reliable, growing dividends.