American Tower (AMT) is battling fierce headwinds. Higher interest rates, fluctuating foreign exchange rates, and some tenant-related issues are all slowing it down. That has greatly impacted the stock price, which has tumbled nearly 30% from its 52-week high.
However, better days appear to be ahead for the infrastructure REIT and its stock price. That was clear from the comments of the company’s CEO in its latest earnings release.
Overcoming obstacles
DATA SOURCE: AMERICAN TOWER.
The company’s overall revenue grew by a modest amount. That’s due to some headwinds that masked a much stronger underlying organic growth rate. Lease cancellations resulting from tenant consolidation impacted property revenue across several geographies. That muted the strength in organic tenant billings growth, which was 6.4%.
Meanwhile, those tenant-related issues, higher interest rates, and stock sales caused adjusted FFO to grow even slower (and fall on a per-share basis).
Given all the headwinds it’s facing, CEO Tom Bartlett was happy with what he saw during the quarter. Bartlett said:
We’re off to a strong start in 2023. In Q1, we saw an acceleration in Organic Tenant Billings Growth, another record quarter of signed new business at CoreSite, and our 11th consecutive quarter of delivering over 1,000 built sites, all of which demonstrates resilient demand across our portfolio of distributed real estate assets as carriers continue to invest in their 4G and 5G networks.
As Bartlett pointed out, the company saw strong organic growth in the quarter as rates on long-term leases escalated, and it added additional tenants to its existing infrastructure.
That organic growth should continue. Demand for tower space remains robust as U.S. mobile carriers roll out their 5G networks. Meanwhile, international carriers are still expanding their legacy 4G networks, which is driving the need for more towers. American Tower is also seeing strong demand for space in its CoreSite data center platform, which delivered another record quarter of new business. These catalysts should grow its earnings in the coming years.
A look at what’s ahead for American Tower
One of the many headwinds American Tower has faced is foreign exchange rate fluctuations. That issue is starting to fade, which will slightly boost the company’s financial results for the balance of the year.
However, the REIT recently agreed to sell its Mexico fiber assets for $252.5 million in cash to strengthen its balance sheet. That will offset most of the positive impact of foreign exchange.
With its other headwinds still in full force, the company’s full-year expectations remain muted. It anticipates total property revenue will rise by about 2.7% at the midpoint of its guidance range. Meanwhile, it sees adjusted FFO falling by 0.3% overall and by 1.1% on a per-share basis.
On a more positive note, the company expects its remaining headwinds to fade eventually. It’s also investing capital to expand its global data infrastructure portfolio to drive additional growth. These catalysts position it to grow shareholder value over the long term. Bartlett commented in the earnings release:
We remain focused on disciplined capital allocation, strengthening our investment grade balance sheet, and maximizing returns on our top-line growth through prudent cost controls that will drive meaningful margin expansion. Together with our dividend, which we grew approximately 11% year over year in Q1, we believe this approach positions us to maximize growth and total shareholder returns for years to come.
As Bartlett pointed out, the company has continued to increase the dividend at a healthy rate. It has expanded the payout at an elite rate of more than 20% compound annually since converting to a REIT over a decade ago. It should have plenty of power to continue that upward trend as its margins improve and earnings grow. The expected earnings growth should eventually drive a rally in the stock, helping power attractive total returns over the long run.
Poised for a reacceleration
American Tower is facing several headwinds that are muting its growth. However, it expects them to fade, which should help drive a reacceleration in its earnings growth rate as it captures the full benefit of its organic growth drivers. Because of that, the stock appears poised to rally. In the meantime, investors can collect the company’s growing dividend, which currently yields an attractive 3%.
— Matthew DiLallo
Where to Invest $99 [sponsor]Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.
Source: The Motley Fool