American Tower (NYSE: AMT) reported stable 1Q20 results in the face of the global COVID-19 pandemic and corresponding economic impacts in all 19 countries in which AMT operates around the world. The company says it is holding up well during the pandemic because it and its carrier tenants are deemed ‘essential services’ to keeping people and businesses connected. In that light, the company portrayed a positive performance outlook and maintained its full-year 2020 guidance.
The company ended the quarter with over 178,000 towers worldwide. Nearly 41,000 or 23 percent of the total is in the U.S., AMT built close to 1,000 new towers in 1Q20, most of which were constructed in the Africa and India markets. Property revenues for 1Q20 were $1.97 billion, up 10.5 percent from $1.79 billion in 1Q19. Even with the minor share of worldwide towers, the U.S. market remains most productive with $1.1 billion or 56 percent of 1Q20 property revenues and 63 percent of profits, mainly on the strength of master leasing agreements (MLA) with Tier 1 carriers like AT&T and T-Mobile.
AMT maintained its full-year 2020 mid-point guidance of property revenues at $7.7 billion, up 4 percent and adjusted EBITDA of $5.0 billion, up 5 percent compared to 1Q19. The company suggested that its 2020 mid-point capital expenditures (capex) would be $1.1 billion, up 7 percent from $1.03 billion in 2019. AMT’s capex has grown at a 12 percent CAGR since 2017. The company plans to build 5,000-6,000 towers in 2020. As opportunities arise, it will acquire towers to add to its portfolio.
It is important to understand how a tower company such as AMT deploys its capex. Towercos build or buy towers and own or rent the ground underneath the towers. AMT derives its revenues through long term leasing of space up on the tower and on the ground to carriers or other wireless service provider tenants. It is the tenants who are responsible for installing and maintaining their radio access network (RAN) equipment – antennas, radios, cables, DC power and batteries, and backhaul systems – at each tower site.
Towerco capex generally is grouped into two main categories – discretionary (the cash-flow generating part) and non-discretionary capital projects. For AMT, discretionary capex makes up around 85 percent of the total budget. Of that, nearly 55 percent goes towards new builds and ground lease purchases. About 10 percent is set aside for tower acquisitions; that proportion could be higher in any given period if the company buys a large block of towers at one time. The balance of discretionary capex is for redevelopment which involves increasing tower load-carrying capacity including height extension, foundation strengthening and ground space expansion, all of which drives new incremental tenant revenue. Non-discretionary capex balance is used for capital improvements and maintenance of tower lighting, fence repairs and grounds upkeep, along with investments in corporate IT systems.
AMT sees multiple growth drivers that bolster its positive outlook. Under the current environment, AMT is helping its carrier tenants maintain service as traffic loads shifted from urban centers to suburbs under stay-at-home orders. Carriers such as Verizon Wireless are augmenting network capacity by adding equipment in key areas using loaned spectrum (see, Verizon Wireless 2020 Capex On Track). Beyond that, AMT sees a lot of 5G-related installations over the next two to three years by all the carriers deploying in various low-, mid- and high-band frequencies across their networks. As well, T-Mobile is engaged in extensive site rationalization and integration in the aftermath of its merger with Sprint. DISH Networks is in the wings readying its own network build plans.
Interestingly, the company is exploring new infrastructure-sharing innovations designed to help its tenants operate efficiently at its sites. AMT already furnishes shared diesel generator and solar backup power at many sites. Moreover, it is investigating ways to offer edge computing at each tower site as carriers move to virtualized and cloud-based networking. AMT will elaborate on its plans in the coming months. All of this means a lot of tower activity for which AMT is ready to “stand and deliver.”
By John Celentano, Inside Towers Business Editor