Evercore ISI’s telecom analysts Jonathan Schildkraut and Justin Ages hosted a meeting yesterday with American Tower’s EVP, CFO Tom Bartlett, where he discussed several topics including “the current negative undertone regarding carrier-towerco relations, the impact on domestic growth from the expiration of a ’right to use’ facet of an MLA, solid returns from the international portfolio,” the analysts reported afterward. In a note to investors, the duo said, Bartlett also talked about American Tower’s (NYSE: AMT) approach to the small cells/managed DAS business, and he offered general thoughts on the long-term returns and capital allocation strategy.”
The analysts said AMT believes that “growth is healthy in the U.S. (expecting 5.5% core organic growth in 2016),” and American Tower sees an opportunity for mild improvements year-to-year around specific investment cycles such as 5G growth. Its international markets continue to deliver solid growth – about 12% core organic growth – which is “providing a balance inside AMT’s tower portfolio.”
Schildkraut and Ages said Bartlett and his team “acknowledged analyst/investor concerns regarding a negative undertone to carriers relations,” noting that carriers have been voicing issue with the price of incumbent leases vs. current spot rates and the rate of price escalation relative to their own growth rates).” Bartlett told them the company believes the chatter is typical of the landlord-lesee relationship, with these types of arguments more likely to percolate into the public arena during a slower part of the investment cycle (i.e., not during a network upgrade). “That being said, AMT works to maintain close relationships with all of its global carrier partners – and highlighted that it is in active negotiations with two-thirds of them on MLA amendments.”
With regard to domestic growth, Bartlett and company expects 2016 growth to look similar to 2015 – “better on an absolute dollar basis.” The company said the primary reason for the difference in growth was related to timing on recognizing certain revenues.
On the international front, management continues to see a strong opportunity since many international markets are in the earlier stage of wireless network development and Smartphone penetration. There is a lack of wireline infrastructure – likely leading to greater reliance on wireless communications, and ability to export its experience and institutional knowledge of network development into new markets. “AMT believes its portfolio of international assets extends the company’s growth cycle by 10 years (or more).”
Afterward, the analysts said, “Net/net, AMT remains our favorite name in the tower space – with a balanced set of LT drivers, an investment grade credit rating, and a small dividend.”