CoreSite is becoming a more significant part of American Tower’s (NYSE: AMT) business, the company said during its 2024 fourth quarter earnings call. 2024 was a record year for new leases at CoreSite, which contributed 9.3 percent of AMT’s revenue from properties and 6.5 percent of operating profit from properties. Data center revenue was $924.8 million for the year, up 11 percent from 2023. The annual growth rate surpassed that of the company’s tower businesses around the world. CoreSite operating profit was $455.2 million, up 10 percent year-on-year, growing profits more than ATC’s North American, Latin American, or APAC & Africa tower businesses last year.
“We’ve seen accelerating revenue growth in the data center business. We’re up to double-digit growth here. Along with that certainly comes some pretty good pricing power on our side,” American Tower CFO Rod Smith said during the earnings call, according to a transcript from The Motley Fool.
Smith’s remarks were in response to a question from analyst Ric Prentiss of Raymond James, who asked about data center yields. “All of our development in CoreSite is being underwritten at mid-teens stabilized yields,” American Tower CEO Steve Vondran replied.
Of the seven Wall Street analysts who asked questions during the earnings call, three had queries about CoreSite. Analyst Nick Del Deo of MoffettNathanson asked about the geographic make-up of data center revenue, and learned from Vondran that the properties in Chicago and New York “are becoming just as desirable as what we’re seeing in Silicon Valley, L.A., and Northern Virginia.” Vondran said ATC is now looking to grow its data center business. “What we’ve asked the team to do is look at new campuses,” he said.
Analyst Simon Flannery of Morgan Stanley asked the executives if management believes Wall Street is rewarding ATC for its data center investment. “I guess one of the concerns is we’ve got this massive multiple gap between data centers and towers,” Flannery said. “And are you getting full recognition for the assets that you hold given the predominance of the tower business?”
Vondran noted that in the future AI and edge computing will deliver synergies between the tower and data center businesses. “We believe that we are the right owner for that asset as we continue to maximize its value and evolve that future offering out there,” he said. “If at any point, we think that somebody else can create more value than we can, we’ll make that assessment at that time.”
Just a few days before ATC’s earnings report, a note from the data center analysts at TD Cowen caught Wall Street’s attention with channel checks indicating a slowdown in data center demand by Microsoft. Analyst Michael Elias wrote that his channel checks indicate the hyperscaler has “terminated select leases with at least two private data center operators,” and added that “the company may have excess data center capacity relative to its new [OpenAI] forecast.”
Elias followed that February 21 note with another on February 24 in which he wrote that “We view the MSFT pullback as part of the mix shift in incremental OpenAI workloads from MSFT to ORCL, which is seeing a material ramp in Y/Y demand, as are GOOG and META, while AMZN demand remains consistent Y/Y.”
For CoreSite, the massive data center investment coming from hyperscalers is a trend to watch, but is not currently central to the company’s retail colocation and interconnect business. “While we continue to evaluate hyperscale, we remain convinced of our core business model and the tangible demand catalysts we see today, including AI-related demand,” said Vondran on the earnings call.
This article represents the opinions of veteran telecom industry editor and journalist Martha DeGrasse, an Inside Towers Contributing Analyst with features appearing monthly. DeGrasse owns Network Builder Reports and contributes regularly to several publications. She was formerly a writer and editor with RCR Wireless and a TV business news producer.
By Martha DeGrasse, Inside Towers Contributing Analyst
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