AMERICAN TOWER CORP AMT S
June 13, 2012 - 1:49am EST by
surf1680
2012 2013
Price: 66.00 EPS $1.73 $2.05
Shares Out. (in M): 393 P/E 38.0x 32.0x
Market Cap (in $M): 25,000 P/FCF 43.0x 0.0x
Net Debt (in $M): 7,000 EBIT 0 0
TEV ($): 33,000 TEV/EBIT 0.0x 0.0x
Borrow Cost: NA

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  • telephony
  • Telecommunications
  • REIT
  • Low Barriers to Entry
 

Description

I recommend a short position in American Tower, (AMT).   They’re an SP500 component that owns and operates cellular phone towers.  It is the lowest yielding reit I’ve ever seen and an expensive stock which ever way you look at it.

 

Disclosure: I just went into the cell tower business so I am a competitor of AMT.  I had lousy cell coverage in my neighborhood so I put up my own mini cell tower.  It cost me $79 and I installed it in five minutes. Now I enjoy phone conversations that are almost as good as landline offers.   My cell station even has a GPS satellite antenna to make it 911 compliant.  My neighbor is probably talking on my tower right now (if you’re within 30 feet of me and use Verizon then you are on it, too).  Similar to my little cell tower, there’s a whole bunch of interesting gizmos of all sizes coming to market that route cell phone coverage over any broadband connection.  There’s a USB dongle that you pop into any networked computer for instant cell phone coverage.  There is nano particle spray-on antenna material that increases an iPhone’s range by 40%, or you can paint the side of a building to turn it into a massive antenna.  Lucent makes a Rubic’s cube-sized device that is capable of replacing much larger antennas in obscure places.  Qualcomm is testing a similar product.  They attach to existing street lamps, bus shelters, or traffic signal.  These advances in cellular transmission will show that existing cellular phone towers are not immune to technology’s creative destruction.   At the very least, they’re going to make tower locations less special.  Cell towers weren’t here 20 years ago and it is dangerous to bet that they’ll be here in the same form 20 years from now – or that they’ll command the same pricing power they do now. 

 

Value:  AMT doesn’t have any trademarks, brands, patents, competitive advantages or special expertise.  Their core revenue generating assets are simply 47,047cell phone towers spread all over the world.  The new construction cost of a tower is $150k.  Being very generous and assuming the land (or the long term lease) under the tower is worth on average $150k then that gives you a replacement cost for their assets of $14.1 billion.   Their enterprise value of AMT is over twice that, at $33 billion.  Another way to look at it is via their own balance sheet.  They carry the towers on their balance sheet at $5 billion.  This is not an old business and they depreciate slowly over 20 years so that $5 billion number is probably not too far off true value.   That being said, the best way to estimate replacement cost is just to look at their recent acquisitions.  Over the last year and half they’ve acquired 8,369 towers at an average price of $216k/tower.   To get a $33 billion valuation for the company you have to assume the land under each of their existing cell phone tower is worth $550k and the tower itself is worth $150k, over 3x more than what they’ve actually been paying.

 

To use actual cashflow to justify the $66 share price you’d need to assume 5 years of 30% annual growth in dividend, with a terminal value that assumes a perpetual 3% increase in dividend (8% discount rate).  There are 24 analysts covering AMT.  The average growth expectations over the next few years is only about half that, at 17%.  Yet, they are excited about it because it’s a “clean story,” it’s a reit with “growth profile,” and probably their strongest argument is that as a new reit it is underrepresented in reit indexes.  Reit investors look for yield.  Merrill Lynch predicts dividend will grow by 14.2% per year over the next 5 years.  That appears to be in line with other analysts.  It will take 17 years of 14.2% annual dividend boosts for the dividend to catch up to the average reit.   If you’re a “dividend” investor and you understand that reits payout substantially all their profits (thus dividend is all that matters) why would you put money in AMT when the average reit pays almost 3x as much?

 

Name:

 

Ticker:

Yield:

Estimated Growth

Boston Properties

BXP

2.20%

8.60%

Equity Residential

EQR

2.90%

12.90%

HCP, Inc.

 

HCP

5.10%

3.70%

Public Storage

PSA

3.30%

6.90%

Veritas

 

VTR

4.40%

6.50%

   

average

3.6%

7.7%

         
         

American Tower

AMT

1.3%

14.20%

Source: BofA Merrill Lynch Global Research estimates, company reports, Bloomberg

 

 

 

 

Analyst estimates for growth over the next 5 years is too high because the easy growth is behind AMT.   In their May, 2012 investor presentation AMT indicates they can leverage their existing towers by putting multiple antennas on the same site, i.e. putting Verizon, AT&T, and Sprint all on the same pole.  Their ROI for 1 provider on a site is low (4% according to company presentation) but as they add multiple providers the ROI skyrockets (20% for 3 tenants).  Indeed, you were able to see this trend in their numbers going from 2002 to 2008.   Revenue per tower grew.  That trend is over and the towers are full. The last few years the revenue per tower has been flat domestically.  Most importantly, the revenue per tower is now over what they report as the maximum capacity for a tower ($60k).   Revenue per tower has been shrinking internationally.  They didn’t break out international vs domestic towers prior to 2005.

 

 

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

Total revenue per tower

 $51,748

 $57,050

 $63,387

 $67,038

 $60,190

 $57,780

 $41,990

 $47,111

 $42,166

 $38,520

 

 

 

 

2011

2010

2009

2008

2007

2006

2005

domestic revenue per tower

 77,256

 77,246

 72,463

 69,129

 60,396

 57,389

 39,901

               

International revenue per tower

 26,859

 26,683

 37,196

 56,705

 58,837

 60,571

 58,710

 

AMT’s own “U.S. Sample Tower Economics” indicates revenue per tower of $60k when it is fully occupied (3 tenants per domestic tower).  Since their existing domestic revenue per tower is $77k, you’d have to assume there no room left for increased revenue per tower and no more opportunities within their existing portfolio.   It looks like they have 4 cell providers on every pole already.  They don’t break out sample economics for foreign towers but the revenue per tower trend is down. 

 

This blurb on cell tower trends written by MD7, a company that specializes in negotiating tower leases, highlights the advantage of a distributed cell system and connects new technology:  “While one might think the Empire State Building may offer great coverage of Manhattan, it is actually not a useful cell site because a single site that high will not be able to handle the millions of calls made each day in New York. Obviously the best way to cover Manhattan is through several sites, much closer to the ground and spread throughout the city. Additionally, more cell phone users and more varied applications now require a greater bandwidth, which further increases the need for sites closer to the ground. Instead of one mountaintop site covering lots of users, carriers piece together lower elevation sites to accommodate greater bandwidth requirements necessary to meet technology demands. In other words, the average Rad Center is decreasing. As sites come closer to the ground and closer to each other, carriers are less particular about their location. This flexibility combined with an increasing ability to use non-typical cell sites (such as light poles) creates a competitive environment that drives cell site rents down.”

 

Lastly, there are numerous website like Steel In the Air dot com and MD7 that discuss alternatives for individual landowners who want to sell or lease their property.   The lease rates are becoming more transparent.  Glance at a few and make your own judgment about the “feel” of this market but to me it feels like the awareness levels of profit potential have risen to a level that will make the market more difficult for consolidators like CCI and AMT.

http://www.morningstar.com/invest/articles/5097-vertical-consultants-provides-free-review-of-cell-tower-lease-buyout-offers.html

 

Other issues:

AMT’s cash tax rate was too low.  The 10-year average of cash taxes paid for AMT was below average  (21% effective cash tax rate for AMT vs. 30% cash tax rate for the average publicly traded U.S. company).  Over the most recent 5-year period it was significantly below average (6.8% for AMT vs. 29% average).  In June 2011, AMT received a subpoena requesting documents from 2007 through 2011 relating to taxes.  AMT says the SEC investigation is relating to an employee complaint.  It is noteworthy that the IRS is not involved (how come they write me letters when I make tax mistakes?  Why is the SEC taking this one?).  The SEC has escalated it to a formal investigation. “SEC approves requests for formal orders when it finds that it is likely that a securities law violation has occurred… granting them the ability to issue subpoenas and to administer oaths.”   If they would’ve paid 30% cash tax rate over the last 10 years instead of 21%, that work out to be $81 million more than they actually paid (not including late fees, interest, penalties, SEC settlement, etc.).   This $81 million would not make a dent in their valuation but it would provide some headlines.

 

Emerging market meltdown - They’ve been on a major acquisition binge in emerging markets like Ghana, Africa, Columbia, Chile and Brazil.  Over the last 2 years they’ve acquired 8000+ towers (17% of their towers).   They’ve paid, on average, $216k per tower.  When you buy AMT stock you are paying $531k per tower (and assuming some debt).

 

Risks:  Passive Reit Funds have to buy AMT.  AMT’s market cap is large so if they were market cap weighted that would indicate they’d have to buy a lot of it.  Merrill’s June 5 report on pent up demand estimates passive funds will have to buy between $4 billion and $6.6 billion worth of AMT stock.   I agree that this will put upwards pressure on share price as passive reit index funds buy their quota.   Merrill does an excellent job of breaking down specifically which funds the demand might come from.  Interestingly, little has materialized so far this year.

Catalyst

Passive reit index funds get their quota of AMT shares
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    Description

    I recommend a short position in American Tower, (AMT).   They’re an SP500 component that owns and operates cellular phone towers.  It is the lowest yielding reit I’ve ever seen and an expensive stock which ever way you look at it.

     

    Disclosure: I just went into the cell tower business so I am a competitor of AMT.  I had lousy cell coverage in my neighborhood so I put up my own mini cell tower.  It cost me $79 and I installed it in five minutes. Now I enjoy phone conversations that are almost as good as landline offers.   My cell station even has a GPS satellite antenna to make it 911 compliant.  My neighbor is probably talking on my tower right now (if you’re within 30 feet of me and use Verizon then you are on it, too).  Similar to my little cell tower, there’s a whole bunch of interesting gizmos of all sizes coming to market that route cell phone coverage over any broadband connection.  There’s a USB dongle that you pop into any networked computer for instant cell phone coverage.  There is nano particle spray-on antenna material that increases an iPhone’s range by 40%, or you can paint the side of a building to turn it into a massive antenna.  Lucent makes a Rubic’s cube-sized device that is capable of replacing much larger antennas in obscure places.  Qualcomm is testing a similar product.  They attach to existing street lamps, bus shelters, or traffic signal.  These advances in cellular transmission will show that existing cellular phone towers are not immune to technology’s creative destruction.   At the very least, they’re going to make tower locations less special.  Cell towers weren’t here 20 years ago and it is dangerous to bet that they’ll be here in the same form 20 years from now – or that they’ll command the same pricing power they do now. 

     

    Value:  AMT doesn’t have any trademarks, brands, patents, competitive advantages or special expertise.  Their core revenue generating assets are simply 47,047cell phone towers spread all over the world.  The new construction cost of a tower is $150k.  Being very generous and assuming the land (or the long term lease) under the tower is worth on average $150k then that gives you a replacement cost for their assets of $14.1 billion.   Their enterprise value of AMT is over twice that, at $33 billion.  Another way to look at it is via their own balance sheet.  They carry the towers on their balance sheet at $5 billion.  This is not an old business and they depreciate slowly over 20 years so that $5 billion number is probably not too far off true value.   That being said, the best way to estimate replacement cost is just to look at their recent acquisitions.  Over the last year and half they’ve acquired 8,369 towers at an average price of $216k/tower.   To get a $33 billion valuation for the company you have to assume the land under each of their existing cell phone tower is worth $550k and the tower itself is worth $150k, over 3x more than what they’ve actually been paying.

     

    To use actual cashflow to justify the $66 share price you’d need to assume 5 years of 30% annual growth in dividend, with a terminal value that assumes a perpetual 3% increase in dividend (8% discount rate).  There are 24 analysts covering AMT.  The average growth expectations over the next few years is only about half that, at 17%.  Yet, they are excited about it because it’s a “clean story,” it’s a reit with “growth profile,” and probably their strongest argument is that as a new reit it is underrepresented in reit indexes.  Reit investors look for yield.  Merrill Lynch predicts dividend will grow by 14.2% per year over the next 5 years.  That appears to be in line with other analysts.  It will take 17 years of 14.2% annual dividend boosts for the dividend to catch up to the average reit.   If you’re a “dividend” investor and you understand that reits payout substantially all their profits (thus dividend is all that matters) why would you put money in AMT when the average reit pays almost 3x as much?

     

    Name:

     

    Ticker:

    Yield:

    Estimated Growth

    Boston Properties

    BXP

    2.20%

    8.60%

    Equity Residential

    EQR

    2.90%

    12.90%

    HCP, Inc.

     

    HCP

    5.10%

    3.70%

    Public Storage

    PSA

    3.30%

    6.90%

    Veritas

     

    VTR

    4.40%

    6.50%

       

    average

    3.6%

    7.7%

             
             

    American Tower

    AMT

    1.3%

    14.20%

    Source: BofA Merrill Lynch Global Research estimates, company reports, Bloomberg

     

     

     

     

    Analyst estimates for growth over the next 5 years is too high because the easy growth is behind AMT.   In their May, 2012 investor presentation AMT indicates they can leverage their existing towers by putting multiple antennas on the same site, i.e. putting Verizon, AT&T, and Sprint all on the same pole.  Their ROI for 1 provider on a site is low (4% according to company presentation) but as they add multiple providers the ROI skyrockets (20% for 3 tenants).  Indeed, you were able to see this trend in their numbers going from 2002 to 2008.   Revenue per tower grew.  That trend is over and the towers are full. The last few years the revenue per tower has been flat domestically.  Most importantly, the revenue per tower is now over what they report as the maximum capacity for a tower ($60k).   Revenue per tower has been shrinking internationally.  They didn’t break out international vs domestic towers prior to 2005.

     

     

    2011

    2010

    2009

    2008

    2007

    2006

    2005

    2004

    2003

    2002

    Total revenue per tower

     $51,748

     $57,050

     $63,387

     $67,038

     $60,190

     $57,780

     $41,990

     $47,111

     $42,166

     $38,520

     

     

     

     

    2011

    2010

    2009

    2008

    2007

    2006

    2005

    domestic revenue per tower

     77,256

     77,246

     72,463

     69,129

     60,396

     57,389

     39,901

                   

    International revenue per tower

     26,859

     26,683

     37,196

     56,705

     58,837

     60,571

     58,710

     

    AMT’s own “U.S. Sample Tower Economics” indicates revenue per tower of $60k when it is fully occupied (3 tenants per domestic tower).  Since their existing domestic revenue per tower is $77k, you’d have to assume there no room left for increased revenue per tower and no more opportunities within their existing portfolio.   It looks like they have 4 cell providers on every pole already.  They don’t break out sample economics for foreign towers but the revenue per tower trend is down. 

     

    This blurb on cell tower trends written by MD7, a company that specializes in negotiating tower leases, highlights the advantage of a distributed cell system and connects new technology:  “While one might think the Empire State Building may offer great coverage of Manhattan, it is actually not a useful cell site because a single site that high will not be able to handle the millions of calls made each day in New York. Obviously the best way to cover Manhattan is through several sites, much closer to the ground and spread throughout the city. Additionally, more cell phone users and more varied applications now require a greater bandwidth, which further increases the need for sites closer to the ground. Instead of one mountaintop site covering lots of users, carriers piece together lower elevation sites to accommodate greater bandwidth requirements necessary to meet technology demands. In other words, the average Rad Center is decreasing. As sites come closer to the ground and closer to each other, carriers are less particular about their location. This flexibility combined with an increasing ability to use non-typical cell sites (such as light poles) creates a competitive environment that drives cell site rents down.”

     

    Lastly, there are numerous website like Steel In the Air dot com and MD7 that discuss alternatives for individual landowners who want to sell or lease their property.   The lease rates are becoming more transparent.  Glance at a few and make your own judgment about the “feel” of this market but to me it feels like the awareness levels of profit potential have risen to a level that will make the market more difficult for consolidators like CCI and AMT.

    http://www.morningstar.com/invest/articles/5097-vertical-consultants-provides-free-review-of-cell-tower-lease-buyout-offers.html

     

    Other issues:

    AMT’s cash tax rate was too low.  The 10-year average of cash taxes paid for AMT was below average  (21% effective cash tax rate for AMT vs. 30% cash tax rate for the average publicly traded U.S. company).  Over the most recent 5-year period it was significantly below average (6.8% for AMT vs. 29% average).  In June 2011, AMT received a subpoena requesting documents from 2007 through 2011 relating to taxes.  AMT says the SEC investigation is relating to an employee complaint.  It is noteworthy that the IRS is not involved (how come they write me letters when I make tax mistakes?  Why is the SEC taking this one?).  The SEC has escalated it to a formal investigation. “SEC approves requests for formal orders when it finds that it is likely that a securities law violation has occurred… granting them the ability to issue subpoenas and to administer oaths.”   If they would’ve paid 30% cash tax rate over the last 10 years instead of 21%, that work out to be $81 million more than they actually paid (not including late fees, interest, penalties, SEC settlement, etc.).   This $81 million would not make a dent in their valuation but it would provide some headlines.

     

    Emerging market meltdown - They’ve been on a major acquisition binge in emerging markets like Ghana, Africa, Columbia, Chile and Brazil.  Over the last 2 years they’ve acquired 8000+ towers (17% of their towers).   They’ve paid, on average, $216k per tower.  When you buy AMT stock you are paying $531k per tower (and assuming some debt).

     

    Risks:  Passive Reit Funds have to buy AMT.  AMT’s market cap is large so if they were market cap weighted that would indicate they’d have to buy a lot of it.  Merrill’s June 5 report on pent up demand estimates passive funds will have to buy between $4 billion and $6.6 billion worth of AMT stock.   I agree that this will put upwards pressure on share price as passive reit index funds buy their quota.   Merrill does an excellent job of breaking down specifically which funds the demand might come from.  Interestingly, little has materialized so far this year.

    Catalyst

    Passive reit index funds get their quota of AMT shares

    Messages


    SubjectRE: RE: RE: REIT
    Entry06/18/2012 02:35 AM
    Membersurf1680

     

     

    Sorry for the slow response:

     

    Utah –  Valuation and common sense are the only catalyst.  I don’t think an AMT holder will care if they cut the dividend because there’s not much one to start with.  There is no strong catalyst for this idea.  I came across this idea because I was screening to create my own index to short as a hedge - it has some nice features as an ingredient in that regard:  cheap to borrow, expensive valuation, and small dividend.

    You must have good cell coverage.  It’s such a relief to have good coverage that $79 for the microcell didn’t hurt a bit..  What’s to stop AT&T from sticking a femtocell chip in their household cable modem?  The box already has a phone jack, a cable tv connector, Ethernet, DV recorder and wifi,.   They’re trying to consolidate their offerings.

     

     

    Nails -  Vodaphone is trying it now in England.  Theoretically, if you could space the femtocells just right, and get wired net access to them - you could cover an entire mile with cell phone coverage using models like my $79 femtocell for $16k.   A cell tower would cost $300k.  As far as international numbers, they have been making so many international acquisitions on so many different continents the last couple of years, so many things coming and going, that it is hard to make any assumptions about what’s going on there.  I’ll keep digging on your other questions, I heard CCI gives more details in their filings, so that may be a place to start.

     

     

    Andrew – I didn’t do any projections like that.    Cashflow from operations has been $2-$3 per share the last couple of years (2x-3x eps), so I imagine that’s what bulls are looking at to start to justify $67.

     

     

    BJG – my $79 Femtocell does the handover in 1 direction only, but it still does do a handover.  In other words, I can make a call.  Take a walk while on the call.  It will hand me off to a big cell tower.  If I return home while still on the same call, it stays on the big cell tower.  If I hang up and make another call from home, it starts again on my personal cell tower (I love calling it that).

    Anecdotally, I’ve been hearing the same thing about rents going down.  I just heard a municipal government really put the squeeze on AMT.  


    SubjectValuation
    Entry06/18/2012 03:14 PM
    Memberjuice835
    Thanks for the interesting idea. I'm not saying that this ISN'T overvalued but i think using only dividend yield as a proxy for valuation is pretty imprecise. If (and i agree it's a decent size if) you use a multiple of free cash flow with a maintenance type capex number you can get a Price / FCF multiple that is far lower than the low dividend yield implies-- if you assume that half of the "discretionary capex" is actually maintenance it's mid 20s times FCF at this price.  Not cheap but perhaps not completely insane for a business that grows consistently, etc.

    SubjectTrio arrested for bogus mobile tower installation
    Entry06/21/2012 08:53 AM
    Membertugger85

    June 21 (PTI) -- Three persons, including a woman, were arrested in the capital for allegedly cheating a number of people on the pretext of installing mobile towers on their premises, police said today.

         Rajesh, Narender and Mamta Arora were arrested yesterday and fake rubber stamps of different mobile tower companies, information letter, rent agreement and job appointment letters of different mobile tower companies were recovered from their possession.

         The trio duped many persons on the fake promise of installing mobile towers and they were arrested after police came to know about the gang which issues advertisements in this regard.

         Police used a decoy customer to contact Rajesh, who said that he knew 25 people from different areas in NCR interested in installing mobile towers at their field, rooftop and vacant plots.

         As per the plan, Rajesh picked up the decoy customer from Rohini yesterday and got Rs 4,000 as registration fee and gave him information letter, rent agreement and job appointment letter of American Tower Company.

         "This document was prepared by him alongwith his associates namely Narender and Mamta Arora alias Chhavi present in his office. They also put rubber stamp of American Tower Company and signed on the documents. As soon as a deal was completed, the shadow witness came out from office and signalled to the police party which was waiting outside the office," a senior police official said.

         The police team immediately raided the office and apprehended Rajesh, Narender and Mamta. The cops recovered Rs

    4,000 given by the decoy customer for installation of mobile tower.

         A number of documents, articles and a car were recovered from their possession. During interrogation, Rajesh and Narender disclosed that they were previously involved in several crime incidents. PTI ETB RAI 06211812


    SubjectTower Zoning Permits are Extremely Valuable
    Entry06/22/2012 04:31 PM
    MemberLukai
    Hi Surf,
     
    Thanks for the write-up. This thing looks expensive but I didn't see any discussion on the extreme difficulty or prohibitively high cost of getting a zoning permit for a new cell tower in a major metro area. These permits are extremely valuable, in perpetuity. The actual towers themselves are just a piece of metal and AMT doesn't even own the radio or base station equipment - that's provided by the operator. Doing a replacement value analysis on the metal or some per acre value of land isn't relevant.
     
    I can appreciate your pico-/femto-cell disintermediation argument. These solutions however, require significant radio frequency planning and are meant more to offload data onto wifi than to broadly replace macrocells for voice given QoS limitations on the public Internet. Some are also just there to amplify the signal from the cell tower itself.
     
    Overall this looks expensive but it's a valuation short with no time-bound catalyst and the underlying assets are scarce and highly valuable.
     
     

    SubjectRE: Tower Zoning Permits are Extremely Valuable
    Entry05/02/2013 08:49 PM
    Membersurf1680
    Mr. Market prices AMT and their towers as a perpetuity but QCOM could be a disruptor.  This technology makes sense!

    http://www.technologyreview.com/news/514531/qualcomm-proposes-a-cell-phone-network-by-the-people-for-the-people/
     
    Qualcomm’s chief technology officer, Mat Grob, pitched the idea at an event in Santa Clara, California, on Tuesday, showing off a base station small enough to be integrated into a set top box or home router. “We are working extensively with operators on this particular project,” Grob told MIT Technology Review after his presentation. Qualcomm has installed 20 of the small prototypes in office buildings around its San Diego campus. A person driving or walking through the area receives a stronger signal on his phone, and faster downloads, as his device hops between the many small base stations, each with a range of tens of meters. “Our next step is to do a larger test, with a network operator and an infrastructure vendor,” says Grob.

     


    SubjectRE: muddy waters
    Entry07/17/2013 07:36 PM
    Membertyler939
    AMT is already out with an 8k disputing Block's characteization of the Barzil acquisition.
     
      • AMT released information in response to a report published today, which contained inaccurate statements. While the company disputes a number of statements in the report, the following information is being provided specifically in response to allegations with respect to the company’s acquisition of certain communications sites in Brazil in 2011.
      • The company completed the acquisition of a privately-held, independently operated tower company in Brazil, which included the purchase of 666 communications sites during the year ended 31-Dec-11 for an aggregate purchase price of approximately BRL 974M, or approximately $585M.
      • To fund the acquisition, the company’s Brazilian subsidiary, ATC do Brasil – Cessao de Infra-Estruturas Ltda., utilized cash on hand from a combination of intercompany loans and equity contributions from its parent, and cash from operations. The intercompany loans of BRL 554M, or approximately $335M are registered with the Central Bank of Brazil. In addition, the company utilized equity contributions of BRL 303M, or approximately $184M which are also registered with the Central Bank of Brazil. The remainder of the aggregate purchase price was cash from operations. The company received documentation confirming the full payment of these funds to the seller.
      • The company retained an internationally-recognized accounting firm to assist in the purchase price allocation of the acquisition. In addition, Deloitte & Touche LLP audited the company’s financial statements for each of its last three fiscal years.

    Reference Link: 8K filing

    SubjectRE: RE: RE: RE: muddy waters
    Entry07/18/2013 02:21 AM
    Membertyler939
    Shoe, what are your thoughts on Slide 7:
     
    •AMT’s De Facto International Lending Business Distorts Growth
    –AMT overpays for towers in exchange for rent overpayments – a de facto loan
    –AMT books loan repayments as rental revenue, artificially inflating revenue, EBITDA, and AFFO
    –Increasing tenancy ratios therefore does not grow the business as much as investors expect
    –At the end of the lease, these rents are likely to be reset at the market rate, causing negative future growth
    –Only way to continue to grow business is to “feed the beast” with more and bigger acquisitions – impossible to sustain
     
    Do you consider this immaterial because international is not a big part of the business, and how do you think the SEC will think about this (I assume that given Block's past performance, whatever contact he has at the SEC is at least going to take a look)?

    SubjectMuddy Waters
    Entry07/18/2013 11:20 AM
    MemberMencken

    I’ll share my experience because I did months of due diligence on a large tower portfolio owned by an emerging market carrier (where I won’t say) which my old firm got close to buying but ultimately passed.

    The “(i) higher annual lease payments vs. (ii) higher purchase price” decision is incredibly standard practice for these tower purchases. Ask anyone who’s bought them – there are dozens of transaction precedents. It’s like any sale-leaseback transaction – just as one can adjust the OID vs. the Coupon to achieve yield equivalency for a bond offering, one can adjust the sale $ amount vs. the annual lease $ amount to achieve identical IRR targets. This is what appears to have been done in AMT’s Brazil tower purchases.

    Btw, the main reason why towers have so much value in the US / Europe is due to NIMBY regulations – emerging market tower portfolios generally aren’t worth what people are paying for them because it’s easy as hell to slap up an ugly cell tower on any old building in urban Bangkok / KL / Jakarta / Hanoi / Chennai / Bangalore / Mumbai. Drive around those cities and you’ll see them everywhere. You simply can’t do that in the US / Europe, so the installed base carries that much more value. This is a large part of the reason why KKR got smoked on their Indian tower purchases in 2007-08. Try putting up a new tower in NYC or San Francisco and see how far you get with the municipality’s building code authorities.

    As for the rest of Muddy Water’s observations, none of them *should* surprise anyone owning the stock. If they were surprised, they simply don’t know what they own.

    My personal view on the stock is that it’s overvalued but not a good short. I just wouldn’t own it at this price, that’s all. The idea basically amounts to a valuation short, and as any experienced short-seller will tell you, your time and money is typically better spent elsewhere.

    Re: the deceptive accounting points made by Muddy Waters, sure, they’re probably right that the numbers can probably be massaged more than they should be able to. But unless you’re in a trust-based business like banking / insurance / specialty finance / brokering which depends on constantly rolling over short term funding obligations, investors will climb a wall of worry. In fact, hard asset type businesses (like REITs) alleged with fraud or financial statement misstatements are my absolute favorite categories of digging up value.

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