The past year has been challenging for American Tower (AMT +1.32%). The real estate investment trust (REIT) focused on data infrastructure has lost a quarter of its value from its 52-week high. That has pushed its dividend yield up to 3.7%.
Several factors have weighed on the REIT, including macroeconomic challenges, tenant issues, and higher interest rates. They have masked the underlying strength of its global tower and U.S. data center portfolio. However, the tailwinds driving demand for the infrastructure REIT's assets broke through during the third quarter, driving accelerated revenue and earnings growth.
NYSE: AMT
Key Data Points
Robust demand for data infrastructure
American Tower CEO Tom Bartlett noted that the company had a "strong quarter, as our global portfolio of communications assets continued to demonstrate resiliency in an increasingly challenging macroeconomic environment." The REIT's property revenue increased by 7% to nearly $2.8 billion, while its adjusted funds from operations (FFO) surged 9.5% to $1.2 billion. Growth accelerated significantly from Q2 when property revenue increased by 4.4%, while adjusted FFO declined by 0.4%.
Bartlett highlighted that "our consolidated tower business again drove organic tenant billings growth of over 6%, while revenue growth in our U.S. data center business, where we're positioned to deliver a second consecutive year of record new leasing, was over 9%." The company's strong performance and focus on keeping a firm lid on costs drove the nearly double-digit, year-over-year increase in adjusted FFO.
America Tower generated strong cash flows during the quarter. Cash provided by operating activities soared nearly 40% to $1.3 billion. It reinvested about $400 million into capital projects, leaving it with almost $900 million in free cash flow. That covered the company-dividend outlay ($755 million) with room to spare. The REIT's strong free cash flow has enabled it to increase its dividend payment by 10.2% per share over the past year.
Meanwhile, earnings growth and excess free cash helped improve its leverage ratio to 5.0 times at the end of the quarter. That's down from 5.3 times at the end of Q2 and within the REIT's 3.0 to 5.0 times target range.
The strength should continue
The company's strong Q3 results and high visibility into its Q4 performance led it to increase its full-year guidance again. The company now expects total property revenue in the range of $10.9 billion to $11 billion, a 4.5% increase from last year at the midpoint of its range. Meanwhile, it sees its adjusted FFO between $9.72 to $9.85 per share. That's up 0.3% at the midpoint, a notable improvement from its prior forecast of a 0.6% decline in adjusted FFO per share this year.
Looking further ahead, Bartlett said the company remains "encouraged by our positioning as we look forward to 2024." He noted that the 5G investment cycle continues, and data consumption keeps growing. That's fueling American Tower's focus on driving strong organic growth rates across its existing portfolio of towers and data centers while managing costs to boost its profit margins.
American Tower is also working on strengthening its already solid investment-grade balance sheet. That will give the company even more financial flexibility to pursue organic expansions and value-enhancing acquisitions.
The company believes that its continued organic growth and healthy financial profile will allow it to generate attractive returns for its investors over the long term. That includes continuing to grow its dividend. While the company ended a long streak of consecutive quarterly-dividend increases this year, it quickly started a new one by boosting its payout in each of the last two quarters. Its target is to increase its dividend by 10% this year.
A compelling buying opportunity
American Tower's Q3 results showed that it's capitalizing on strong demand for its data infrastructure. That's driving accelerated revenue and FFO growth, supporting its ability to grow the dividend while deleveraging its balance sheet. With growth accelerating and its balance sheet strengthening, American Tower's sell-off makes it look like a screaming buy right now.
