American Tower (AMT) Announces $9.4B Deal to Buy Telxius Towers
American Tower Corporation AMT has announced an acquisition deal and has made a commitment for the construction of additional towers. The expansion efforts will help the company to scale its presence in Europe and become one of the largest independent communications infrastructure providers in the continent.
Markedly, the tower REIT has entered definitive agreements with Spain’s Telefónica, S.A. to acquire the latter’s telecom tower unit Telxius Towers, consisting of around 31,000 communications sites, spanning across Germany (roughly 12,500 existing sites), Spain (around 11,300 existing sites), Brazil, Chile, Peru and Argentina. American Tower will shell out approximately €7.7 billion or $9.4 billion (at current foreign exchange rates), conditional to customary closing adjustments.
Moreover, the company anticipates spending $500 million to construct additional 3,300 new build-to-suits sites in Germany and Brazil through 2025. Notably, the developments are strategic ways to grow its asset portfolio as the company has been building high-yielding towers internationally through its internal build program.
Deal Rationale
The deal provides a compelling opportunity for American Tower to seize significant scale in Europe and enhance its Latin America presence. Moreover, the portfolio consists of high-quality assets that are well located in strategic markets and will enable the company to offer broadband connectivity for billions of people.
Further, with Telefonica as the anchor tenant in the Telxius portfolio, the acquisition will strengthen the company’s relationship with tenants. Additionally, the acquisition will result in higher revenue diversification, with Europe expected to comprise 20% of pro forma international property revenues.
Per management, the acquisition is “complementary for our Latin American portfolio and positions us to drive strong long-term organic growth across both regions while augmenting our new build programs and enhancing our relationships with key tenants.”
Financial Benefit
The buyout is expected to generate additional property revenues and organic tenant billings growth, thereby, driving gross margins and adjusted EBITDA.
Specifically, the company expects the assets, pro forma for contributions from the committed future build-to-suits constructions, to generate $775 million in property revenues, $410 million in gross margin, in the first full year (at current foreign exchange rates). Additionally, organic tenant billings growth is estimated to witness a CAGR of nearly 6% through 2025.
Also, with $390 million in adjusted EBITDA, enterprise value / adjusted EBITDA multiple is implied to be less than 26X.
Ultimately, the transaction is likely to be immediately accretive to consolidated AFFO per share
Conclusion
The deal is expected to close in multiple tranches, starting in second-quarter 2021, subject to government and regulatory approvals, and customary closing norms. Further, American Tower plans to finance the transaction that will enable it to maintain its investment-grade credit ratings.
Importantly, as of the third-quarter end, it enjoyed investment-grade credit rating of BBB-, BBB+ and Baa3 from Standard & Poor’s, Fitch, and Moody’s, respectively, and this renders the company favorable access to debt.
Notably, the acquisition enables the tower landlord to capitalize on strong, long-term secular tailwinds in the tower industry and focus on macro-tower investment opportunities. In fact, in December 2020, the company announced an acquisition deal to purchase InSite Wireless Group’s portfolio of more than 1,400 and 200 towers in the United States and Canada, respectively.
However, carrier consolidation remains a hindrance for the company. In fact, the merger between T-Mobile and Sprint, which closed in April, resulted in tower site overlap for American Tower. This overlap accounts for 3-4% of total property revenues (between 2021 and 2024) and now represents elevated levels of churn rate (lost tenant billings).
Shares of this Zacks Rank #3 (Hold) company have declined 9.6% over the past three months, wider than the industry's fall of 1.2%.
Stocks to Consider
National Health Investors, Inc.’s NHI Zacks Consensus Estimate for 2021 funds from operations (FFO) per share has moved up marginally to $5.65 in the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rexford Industrial Realty, Inc.’s REXR FFO per share estimate for the current year has been revised marginally upward to $1.43 in the past week. The company carries a Zacks Rank of 2, currently.
CoreSite Realty Corporation’s COR Zacks Consensus Estimate for 2021 FFO per share has been unchanged at $5.62 in a month’s time. The company has a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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