American Tower had a strong quarter in Q2 2019, highlighted by 7.5 percent organic tenant billings growth in the United States as consumer demand for mobile data continued to expand more than 30 percent per year.
“Initial 5G deployments are now picking up in the U.S. and we are seeing increasing signs that low and mid-band spectrum on macro towers will serve as a substantial component of next generation networks,” said Jim Taiclet, American Tower’s CEO. “Our strong second quarter results indicate that our Stand and Deliver strategy of leading wireless connectivity around the globe predominantly with macro towers, innovating for a mobile future, driving efficiency both internally and for the industry and selectively growing our portfolio to serve our tenants is the right course for American Tower and our stockholders.”
MoffettNathanson called American Tower’s domestic operating results “stellar,” saying it is impossible to come up with a bear case for a domestic towerco with well-written leases.
“American Tower’s acceleration has been faster and its absolute level of performance greater than that of peers Crown Castle and SBA. And management has called for a multi-year period of heightened leasing activity,” the firm wrote.
Alternatively, New Street Research managed to sound bearish. It pointed out that the second quarter represents the first time American Tower’s quarterly U.S. organic tenant billings growth dropped sequentially in the last five quarters, dropping .7 percent from the first quarter 2019:
“Guidance implies that it should continue to decline for the rest of the year. While growth is still at a high level relative to history, we remain Neutral on American Tower because we think elevated multiples will be difficult to sustain as growth decelerates,” wrote Spencer Kurn, analyst, New Street Research.
The towerco had a ratio of 80 percent amendments/20 percent colocations in Q2, which is normal for American Tower, according to Taiclet. “There is no theme for where colocations are occurring. They include suburban fill-in, rural coverage and continued lease up by other carriers of the Verizon towers,” he said. “In the 5G environment, it will be fill-in for denser networks because of there will be higher band spectrum (2.5 GHz, 3.5 GHz, C-Band) with shorter transmission radii that is coming in.”
Well into the 4G era, data use continues to increase 30 percent annually, according to Taiclet, who said he was confident it would continue in the future.
“For the next five to 10 years, most of that data will be carried by the 4G technology in place today, while we transition to 5G,” he said. “Annual capital spend has been $30 billion for many years in the United States. We can’t see the industry spending less than that for 5G, managing growth on the existing network and laying the groundwork for the 5G network. There will be plenty of opportunity and need for the industry to continue to spend $30B run rate capex.”
Additionally during Q2, American Tower acquired 400 towers and other related property interests in the United States for $500,000 in late July. The transaction is expected to close in the third quarter of 2019.