Long Runway for Tower Growth

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By Jody McCoy

Jonathan Schildkraut of Evercore ISI had a chance to meet with American Tower management at NAREIT in New York City this week. Schildkraut noted that American Tower sees a long runway for growth, which is complemented by international investments. “Based on an AMT commissioned study, management believes tower demand in the U.S. is most highly correlated to two factors: (1) absolute growth in consumption – as measured in GBs and (2) carrier capex spending,” Schildkraut wrote. “Against a backdrop of usage expanding 50% per year and ~$30 billion in annual carrier investment – AMT sees several years of consistent 6-8% organic growth (i.e., same store sales).” When it comes to macro sites, American Tower views them as the best use for the capital. “AMT remains more positively disposed to the macro-site business vs. the small cell business (with only 3% of site leasing coming from DAS). In the U.S., AMT believes the roll-out of new spectrum bands, carrier aggregation, VoLTE, and M2M coupled with a broad expansion in per user consumption will require incremental macro-site infrastructure, primarily in markets that lie outside the urban corridor, where 85% of the population lives. Where small cells are most applicable, AMT has limited exposure – and, as such, does not bear risk of disintermediation. Anticipating similar opportunities in its international markets, AMT prefers to deploy capital for macro-sites over small cells. AMT noted macro-site cash-on-cash returns of 5-6% for 1 tenant, 12-13% for 2 tenants, and 18-20% for 3 tenants.”

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