American Tower (NYSE: AMT) has a long track record of growth. The infrastructure REIT (real estate investment trust) has completed a steady string of acquisitions, growing into the largest REIT by a wide margin. Its current market cap is approaching $130 billion, making it more than $35 billion bigger than the next largest REIT, industrial behemoth Prologis.
That growth will likely continue in the future. Here's a look at where the REIT seems headed over the next three years.
Where American Tower is today
American Tower's name is a bit deceiving. The REIT currently owns roughly 214,000 communications sites worldwide. Only 43,000 of those towers are in the U.S. Though most of the company's property revenue in 2020 came from its U.S. and Canadian assets.
However, that percentage should change in the future. Here's a look at what's ahead for this global infrastructure REIT.
Where American Tower is heading
American Tower recently closed its largest transaction to date, buying Telxius Towers for $9.4 billion. That deal added 31,000 existing towers in Europe and Latin America. This needle-moving acquisition will drive the company's strategy over the next several years.
For starters, it came with built-in growth. Existing tenants, including the seller, Telefonica (NYSE: TEF), committed to lease 3,300 new sites in Germany and Brazil through 2025 that American Tower will build. In addition, the existing towers only have an average of 1.3 tenants per tower, with Telefonica as the anchor tenant. Because of that, American Tower has plenty of room to add additional tenants to each tower, which would grow its income and improve its investment returns.
The Telxius Towers deal will also impact the company's financial strategy over the next few years. The REIT paid for the transaction in cash, using a combination of cash on hand and borrowings under its revolving credit facility and term loans. That pushed the company's leverage ratio above 5.0 times debt-to-EBITDA. It aims to reduce that ratio back towards its 3.0 to 5.0 times target range over time. American Tower will likely utilize various methods to reduce leverage, including new joint ventures and using retained cash to pay down debt. For example, the REIT has already sold a 40% stake in its European assets in two transactions to help fund the Telxius deal. America Tower has also recently sold stock to raise cash and repay debt. Once the REIT returns to its targeted leverage ratio, it will have the flexibility to make additional acquisitions.
Aside from continuing to benefit from the Telxius deal, a few other factors will drive American Tower's growth over the next few years. First, the REIT will continue growing organically by building additional towers in the U.S. and overseas and adding new tenants to its existing locations. It has a huge opportunity to increase its tenancy overseas since most of its tower acquisitions have been from wireless carriers selling the infrastructure they built to suit their needs. Thus, they typically don't have more than one tenant per tower, representing a significant opportunity to add additional tenants to this infrastructure.
Finally, the company will likely continue pursuing acquisitions, primarily overseas. Mobile carriers increasingly realize that they don't need to own infrastructure. As such, they can free up that capital by selling their towers to third-party owners like American Tower, giving them the funds to repay debt and invest in improving their networks. American Tower, which already owns sites in more than 20 countries, will likely aim to grow its scale in its existing nations while adding new ones to the portfolio.
Expect an even more globally focused company in the next three years
American Tower is a global company, which will likely become even more pronounced over the next few years. Its recent deal to acquire Telxiux will increase its revenue from outside the U.S. over the next few years as it builds out the tower pipeline and adds additional tenants to the existing towers. In addition, American Tower will likely organically grow its other international assets by completing more build-to-suit tower projects and adding more tenants to legacy towers. Finally, the company will probably make more international acquisitions. Because of that, the leading REIT appears poised to become an even more dominant global player in the coming years.