"Data Junkies" Boosts American Tower

Focus: REITs

Ari Charney Image Ari Charney Analyst and Associate Editor, Canadian Edge and Personal Finance

Fortunately for American Tower Corp. (AMT), everyone is hopelessly addicted to their smartphones. The Boston, Mass.-based REIT will continue to benefit from surging demand for mobile video from rising generations of data junkies, explains Ari Charney, editor of Investing Daily's Utility Forecaster.

Though AMT is at the vanguard of a technological revolution, it’s really just an old-fashioned real estate company at heart. The $45.5 billion REIT owns and operates more than 144,000 cell towers around the world.

AMT leases its towers to telecom companies under long-term contracts. Leases include annual escalation charges, which average around 3% across the company’s U.S. portfolio. Renewals are highly sticky—churn amounts to just 1% to 2% of total property revenue per year.

The best part about AMT’s business is that once a tower has been leased to a tenant, most of the revenue generated from each additional tenant drops to the bottom line. That quickly adds up, with operating margins averaging around 35% over the past five years.

Simply put, the tower business is a cash machine with high earnings visibility — perfect for a REIT, which avoids taxation at the corporate level by distributing at least 90% of taxable income to unitholders.

That’s how you get distribution growth that’s averaged around 22.5% annually over the past five years. And AMT is targeting distribution growth of 20% annually for the foreseeable future.

And the company certainly knows how to deliver on ambitious goals.