Some thoughts on American Tower Corporation, which is up 34,664% or 38.41% CAGR from the lows of 2002 till today.

AMT is REIT and a leading independent owner, operator and developer of multitenant communications real estate. Their primary business is the leasing of space on communications sites to wireless service providers (ex: Verizon, Vodafone, AT&T, etc.),

radio and television broadcast companies, wireless data providers and municipalities and tenants in a number of other industries.

They’re a holding company and grow their real estate portfolio through acquisitions, long-term lease arrangements and site development.

The portfolio is made up of towers they own and towers they operate with long-term lease arrangements, and distributed antenna system networks.

In total, they have about 180 000 communications sites, throughout the world, but 50% of revenues are from the US.

Their cash flows from clients are stable and long term because their tenants are long term; contracts are usually 5-10 years with multiple renewal terms with annual

price increases of 3% in the US and tied to inflation internationally.

They have high lease renewal rates, w/ a typical infrastructure moat: other companies aren’t going to start building towers next to another one, so there’s very little geographic overlap between competitors.

Their tenants renew leases because alternative sites don’t exist or repositioning their network is expensive and may affect network quality, so churn has historically been just 1-2%.

Consider this: rent at a tower in the US is usually between 20-30k$/year and switching would mean having to move equipment for clients, which itself can cost 40k$/year, making switching highly uneconomical.

And any disruption to carriers can cause customer dissatisfaction with their service, making switching costs even higher. And building out towers is capex heavy so competitors would have to put a lot of capital into building towers as well as compete on prices.

And there is consistent demand for their sites as a result of growing usage of mobile data and other wireless services. Mobile data use has been growing at 30-40% per year and expected to continue at that rate – many international markets’ data usage has been growing at 100%/year

(ex: India). So as globally we see increasingly advanced wireless devices and the increasing usage of bandwidth applications on those devices, wireless carriers will need to continue investing in their networks. And new tenants result in high incremental revenues

but very low incremental costs, so there is high potential for operating leverage since that incremental revenue just flows through to the operating profits.

Maintenance capex are also quite low to maintain communications sites.

Growth will come from increasing the occupancy of their towers to support global connectivity as well as investing in and growing their communications real estate portfolio.

ROIC w/ 1 tenant in a tower: 3%.
2 tenants; 13%
& for 3 tenants: 24%!

In the US, incremental carrier network is being driven primarily by the construction and deployment of 4 and 5G networks, and in international markets, from 2,3 and 4G networks.

In sum, $AMT benefits greatly from the global explosion in data consumption, will keep on seeing meaningful operating leverage thanks to high incremental revenue but low incremental costs and is protected by sky-high switching costs for clients & pricing power.