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    American Tower Corp (AMT)

    Q4 2023 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$163.63October 1, 2023
    Final Price$215.88December 31, 2023
    Price Change$52.25
    % Change+31.93%

    What went well

    • American Tower anticipates increased leasing activity in the U.S. in the second half of the year, supported by an uptick in carrier applications and conversations, indicating solid organic growth ahead. ,
    • The company is experiencing strong growth in Europe, with continued colocation demand, and the Spain market is performing very well, hitting its metrics and milestones.
    • Investment in data centers is increasing due to record sales, with American Tower expecting mid-teens stabilized returns and maintaining flexibility in capital allocation towards high-return opportunities in developed markets. ,

    What went wrong

    • Expected Churn and Slow Growth in Latin America Due to Oi Bankruptcy
    • Impairment and Operational Challenges in European Markets
    • Exposure to FX Volatility and Macro Challenges in Emerging Markets

    Q&A Summary

    1. Leasing Activity Outlook
      Q: Will leasing activity improve in the second half?
      A: We anticipate an uptick in leasing activity in the second half of the year, based on increased conversations and applications from carriers. Although one of our major MLAs has shifted to an a la carte model, our property revenue growth remains largely locked in due to our comprehensive MLAs. Our services business is also expecting increased activity, particularly in construction services, despite lower margins due to a higher construction mix.

    2. Impact of India Exit on AFFO
      Q: How will India's exit affect AFFO per share?
      A: The India transaction is expected to close in the second half of 2024, potentially reducing AFFO per share by $0.30 to $0.40 for the year, or about $0.09 per quarter. The dilution reflects the difference between unlevered AFFO from India and interest savings from using the proceeds (roughly $2 to $2.5 billion) to pay down revolving debt.

    3. Dividend Policy and Potential Cut
      Q: Will the dividend decrease in 2024?
      A: We plan to hold the dividend flat in 2024, which may result in a decrease from $1.70 paid in Q4 2023 to approximately $1.62 per quarter in 2024. This step-down is due to our commitment to a certain dividend level in 2023 and our decision to maintain a flat dividend moving forward.

    4. M&A Environment and Capital Allocation
      Q: Any plans for M&A or European expansion?
      A: Currently, we are monitoring the M&A landscape but see a dislocation between public and private multiples. No portfolios are available that meet our strategic and investment criteria. We are focusing on deleveraging and investing in developed markets, preparing to capitalize on future opportunities that align with our objectives.

    5. Latin America Growth and Churn
      Q: When will LatAm organic growth normalize?
      A: Our 2024 guide for Latin America shows 2% organic tenant billings growth, affected by a 5% churn, nearly half from the Oi churn in Brazil. We expect to return to normalized mid to upper mid-single-digit growth after working through churn events over the next few years.

    6. European Leasing and Spain Impairment
      Q: What's the outlook for Europe and Spain's write-down?
      A: In Europe, we see solid growth in colocations as carriers continue 5G deployments, though with some permitting delays in markets like Germany. The $80 million impairment in Spain was due to rising cost of capital impacting discounted cash flow models, not operational performance, as the market is performing well against our business case.

    7. Data Center Investment and AI Opportunities
      Q: How is AI affecting data center strategy?
      A: Demand in our CoreSite data centers remains driven by enterprises moving to hybrid cloud, with AI inferencing picking up. We see opportunities in niche edge deployments but believe that micro data centers at tower sites for AI are still further out. Capital spending on data centers in 2024 does not commit us to higher levels beyond that, and we retain flexibility in capital allocation.

    8. Nigeria Exposure and Portfolio Quality
      Q: How are you managing risks in Nigeria?
      A: We continuously assess our portfolios, including Nigeria, raising the bar for required returns due to macroeconomic challenges like FX devaluation. Our contract structures protect us, with only about 30% of Nigeria's $400 million in property revenue directly exposed to FX fluctuations. We are rebalancing our portfolio towards developed markets while maintaining some exposure to emerging markets for growth.

    9. Extension of Tower Asset Useful Lives
      Q: Why extend tower asset useful lives?
      A: We have increased the book useful life of our tower assets from 20 to 30 years to better reflect their actual realized longevity. This change aligns the depreciation expense with the assets' enduring value.

    10. India Transaction Regulatory Approval
      Q: Any concerns with India deal approval?
      A: We are confident the India transaction will be approved and close in the second half of 2024, though some divestitures may be required by the Competition Commission. We have conducted thorough due diligence and anticipate a successful outcome.

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