American Tower expects to dodge COVID-19 hit in 2020

In contrast to many quarterly results at the start of this year, American Tower executives said the tower company doesn’t expect the global coronavirus pandemic to have a significant impact on its business in 2020.

At a time when many companies have pulled financial guidance for the year citing uncertainty around COVID-19, American Tower on Wednesday left its forecast largely unchanged, emphasizing the predictability of its business model.  

In the first quarter, American Tower, which in the U.S. alone has about 41,000 tower sites, reported property revenue increase of 10.5% to $1.97 billion, a net income gain of 2.7% to $419 million, adjusted EBITDA up 14.1% to $1.27 billion and consolidated AFFO up 5.3% to $907 million.

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“This predictability of the tower model (with 95% of its revenue recurring and under long term contracts) is a comforting (and beautiful) thing in times of macro-economic pressure,” wrote Wells Fargo analysts led by Jennifer Fritzsche in a note to investors Wednesday.

Temporary delays on new builds, colocation

Speaking on the company’s first-quarter earnings call, American Tower CEO Tom Bartlett said that the company’s model has showcased its resiliency, and “now more than ever, our global infrastructure is incredibly critical to ensure our tenants are able to keep their customers connected.”

To that end, the tower REIT has received official priority designations in many of its markets, including the U.S., that’s enabled tower work to continue largely uninterrupted in the face of stay-at-home orders and business closures around the country.

Bartlett, who was named CEO last month, replacing long-time chief executive Jim Taiclet, acknowledged there are some locations where American Tower has seen some limitations to tower work, particularly in terms of new builds.

“While these impacts have so far been modest, we do expect some slight delays on new build pipeline and colocation activity in certain areas,” Bartlett said, adding the delays are expected to be temporary.  

AT&T executives recently warned of potential logistical delays on 5G deployment investments, citing virus-related impacts stemming from challenges with labor and permitting processes needed for site acquisition.

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While MoffettNathanson analysts noted that “tower equities have been among the heroes of the stock market this year,” the firm said other components of the tower model may not be insulated from the upheaval affecting much of the world, with answers to questions such as Dish’s network build and ultimate shifts in traffic patterns still unknown.

“While too soon to say that American Tower will exit this crisis completely unscathed, FX aside, there’s currently no reason to think there will be dramatic long term damage to its results as a result of the pandemic,” wrote MoffettNathanson’s Nick Del Deo in a Wednesday research note.

Optimistic on 5G, T-Mobile activity expected to ramp in 2H 2020

Continued increases in mobile data usage have driven co-location activity and amendments up over the last 10 years, with average spending of $30 billion, growth Bartlett said American Tower anticipates will continue for the foreseeable future.

At the mid-point of American Tower’s 2020 outlook the company expects its U.S. business to account for 57% of its consolidated property revenues.

The three major U.S. carriers are expected to continue spending on network upgrades and expansion, and Bartlett said activity is likely to rise given the recently completed merger between T-Mobile and Sprint.

In the first quarter American Tower reported domestic organic tenant billings growth of 5.6%, and increased churn of 2%, which MoffettNathanson noted represents the highest level since 2015.

AT&T on its first-quarter earnings call last week reiterated its commitment to nationwide 5G coverage this summer and its FirstNet public safety buildout. Verizon too emphasized plans to push forward with mmWave rollouts and earlier this year upped its network capex guidance by $500 million.

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American Tower executives remain optimistic on 5G rollouts and believe “ubiquitous 5G is on our doorstep,” with Bartlett restating expectations that the majority of sub-6 GHz 5G deployments will happen on macro towers and mid-band will play an important role in 5G plans.

“We continue to believe mid-band deployments will accelerate in the second half of the year as the new T-Mobile builds out more of its 2.5 GHz spectrum,” he said. “For the foreseeable future, we’re also expecting 4G spending to continue.”

American Tower is still waiting for the bulk of new activity from T-Mobile later this year, but is having “significant conversations” with the operator regarding structure of a multi-year MLA.

“T-Mobile is very anxious to get going in terms of being able to meet a lot of their network commitments and they will be very aggressive I’m sure,” Bartlett said.

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MoffettNathanson analysts noted that Dish’s planned 5G network is very good news for towers, but there’s still a question if it can follow through on the build.

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“Dish Network still has a lot of time to meet its commitments, but it needs to start moving soon to do so, and the current landscape is not terribly accommodating,” wrote Del Deo. “In a worst case scenario, its spectrum would wind up in the hands of other carriers and ultimately be deployed, but that would not be as remunerative to the Towers as a greenfield build and would push its monetization years down the road.”