What happened
Shares of American Tower (NYSE: AMT) slumped 8.5% during the first half of 2023, according to data provided by S&P Global Market Intelligence. That was a meaningful decline considering the S&P 500 rallied 15.9% during that period.
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Several factors weighed on the infrastructure REIT’s share price, including the impact of higher interest rates, foreign exchange fluctuations, and customer consolidation on its earnings.
So what
American Tower is currently facing a barrage of headwinds. Interest rates are rising, increasing the interest expense on its floating-rate debt. Meanwhile, foreign exchange rates are fluctuating, affecting the earnings from its international tower operations. On top of all that, T-Mobile’s acquisition of Sprint led it to consolidate its infrastructure by exiting some leases with American Tower.
As a result of these issues, American Tower initially expected that its adjusted funds from operations (FFO) would range between $9.49 and $9.73 per share this year. That would put it below last year’s level of $9.76. It was also less than analysts expected, given their consensus estimate of $10.58.
However, despite the weaker cash flow, American Tower expected to produce enough money to increase its dividend by 10%. It can also fully fund its expansion capital program to build more international towers and expand its U.S. data center platform.
Meanwhile, demand for its tower and data center infrastructure remains strong. The company saw an acceleration of organic tenant billings in the first quarter and another record quarter of new business in its CoreSite data center platform.
These positives and some improvement in foreign exchange rates enabled the company to slightly increase its adjusted FFO guidance range to $9.53 to $9.76 per share. The company also sold its Mexico Fiber business in the quarter, giving it some cash to strengthen its balance sheet.
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The REIT expects its organic growth drivers to remain strong. Telecom companies need to continue investing to grow their network capacity, which should boost demand for towers. Meanwhile, digital transformation and artificial intelligence are driving strong demand for data center capacity. These long-term tailwinds will help reaccelerate growth once its current issues fade.
Now what
Those issues will likely persist through the next year. But the REIT expects growth to accelerate over the long term, driven by robust demand for data infrastructure.
In the meantime, the sell-off in American Tower’s shares looks like a buying opportunity. The REIT currently yields more than 3%, which is near its historic high. Because of that, investors are getting paid well while they wait for growth to reaccelerate.
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