5 Key Takeaways: American Tower CEO Jim Taiclet - Citi Conference

On March 2, longtime CEO Jim Taiclet of American Tower Corp.

presented at the Citi Global CEO Conference. American Tower is organized as a REIT and sports a market cap of $39.4 billion. The company owns over 75,000 communications towers worldwide, which it leases to the top mobile telecom operators in each market.

American Tower recently announced a secondary offering of common shares and convertible preferred shares to fund the $5 billion acquisition of leasing rights for 11,500 communications towers from Verizon, Inc.

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American Tower also has an option to purchase these tower assets from Verizon, (predominately from 2034 to 2047), for aggregate option payments of $5 billion.

American Tower's strategy behind these recently announced cell tower transactions was a major theme during the Q&A following Mr. Taiclet's prepared remarks. 5 Key Takeaways - Citi Conference 1. Growth Drivers: On a country by country basis, the demand for wireless towers is not directly related to overall economic growth or the real estate cycle. Rather, tower growth is driven by the "technical roll-out for mobile telephony," (2G to 3G to 4G) for each country. By way of example, Taiclet shared, the U.S. 4G rollout is in the "4th inning of an 8 to 10 year all-in rollout." 2. Asset Valuation: American Tower looks at all acquisitions on a 10 year discounted cash flow (DCF) on the assets, plus a terminal value. The IRR is derived from the model. Then geopolitical risks and counter-party risks are evaluated. By way of example, AMT is looking for "hurdle rates" of:  United States - 8 to 10 percent  Latin America/India - 12 to 14 percent  Africa - 18 to 22 percent. This allows AMT to evaluate and compare Verizon - U.S. with TIM - Brazil and AirTel - Nigeria, and make the decisions to deploy capital on a risk adjusted basis. 3. Verizon Towers Supply/Demand: The thought process behind AMT doing the U.S. Verizon tower transaction made sense from both a supply and demand perspective. Supply Side Drivers:  Tower Height - 190 feet and above allows for ample room to add more tenants.  Structural Capacity - net of the Verizon reserved rights, the majority of the towers were "tenant ready" with relatively little additional investment to add the next tenant.  Ground Space - notable room to add the equipment required for multiple tenants Demand Drivers:  Franchise Locations - the 11,500 Verizon towers are well located where AMT can predict there will be demand from other carriers.  Pent-Up Demand - there are "0.5" tenants fewer than U.S. average on the Verizon towers.  Towers Under-marketed - Verizon never put in place a tower leasing group to actively market these towers to third-parties. 4. Foreign Currency: Operating costs and revenues are almost always in local currency which creates "a natural" foreign currency hedge. Typically, American Tower is investing ~90 percent of earnings back into the local markets. AMT has ~$600 million of FX on a $14 billion balance sheet. 5. Dividend Policy:  Investors should continue to expect ~20 percent dividend growth year-over-year.  AMT will still have net operating losses (NOLs) for a few more years.  There will start to be some early towers which will become fully depreciated.  AMT has done regression analysis looking back to see if the best use of capital was to continue to do acquisitions vs. stock buy-backs.  The "highest value creation" activity for shareholders at this time is to continue to grow the AMT wireless tower business.