Buy Pitch: American Tower NYSE: AMT

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Buy Pitch American Tower (NYSE AMT)

• By Anthony Vitiello
• 2/18/2007

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What is AMT? What does AMT do?

• American Tower is one of the largest cell tower
  owner/operators in the country w/20,000
• AMT maintains towers and leases them out to
  wireless providers under long-term contracts
• End to end service Help secure zoning-lease
• Also provide in building (casino, office
  building) cell points
• International division in Brazil Mexico

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Why should we buy?

• Leverage Operating Balance Sheet
• High Growth (Domestic International)
• Cell phones in India-- 300,000 towers to be built
• AMT thinks its stock is still cheap
• FCC Auction results still pending.
• Mispriced Relative to main competitor

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Industry Overview

• Three main players AMT, CCI SBA
• AMT CCI are the largest by size
• AMT 20,000 Towers, 16bil Marketcap
• CCI 23,000 Towers, 10bil Marketcap
• This is not the PC Industry
• Both companies have pricing power
• 1.25 tenants of demand/ tower
• Both companies offer long short term growth
  potential
• AMT is better positioned going forward because of
  past financing discipline

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Operating Leverage

• Wireless Infrastructure is an attractive business
  model
• Once initial towers are built little upkeep
• AMT only had to build 30 of its towers
• Mostly Long term, no cancelable contracts w/fixed
  annual increases (8.3bil in NC rev. through 2012)
• Should limit correlation to GDP I.e. recession
  does not matter
• Customers can be added for little cost
• Additional customers drop straight to profit
• Multiple Carriers at one site
• AMT has focused on retaining only high margin
  sites
• 68 margins vs. 56 for CCI (EBITDA)

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A little like Countrywide..but

• AMT has been selling of non-core assets
• Now site management leasing higher margins
• They enter into the lease contracts, securitize
  them, and sell CMBS
• They dont lease to Blue Collar Joe ATT,
  Verizon, Cingular, Clearwire
• Large, stable companies that dont go out of
  business
• However, they do not securitize to the extent of
  CCI they retain interest in many of their towers
• So, who cares

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CMBS Problems

• First CMBS deal being sold right now
• Investors are demanding 200bps more yield
• Trouble brewing (see CMBX chart)
• If market collapses/funding costs rise, CCI is in
  trouble(80) AMT is not (30)
• Regardless of problems in credit markets,
  wireless growth is here to stay

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CMBX Chart
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Balance Sheet Leverage

• AMT has been making a effort to bring down
  leverage now lowest in industry
• Down from 11.5x to 4x in 6 years
• Vs. 7.8 for CCI and 9.3 for SBA
• This give the company flexibility
• Can increase leverage to meet demand or continue
  to refinance/payoff debt (i.e. reduce cost)
• Important because of Interest Rate environment
  company can add fixed rate debt at low point of
  Interest Rate cycle

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Growth US Abroad

• In three years, Wireless subscribers grew from
  158.7MM to 219.4MM
• American consumers are using more data heavy
• Increase in text messaging, Wireless internet,
  Blackberry
• Last year, 1.6trillion minutes of wireless
• 36 YoY growth No end in sight
• Enough growth for to go around
• AMT CCI do not have to fight for customers
• Continued opportunity for those who have capacity
• People cutting the cord
• In 2007 Estimated that wireless min wireline
  min

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Demand Abroad

• While AMT is US focused, 13 of the companies
  profit comes from abroad
• Mexico and Brazil are both experiencing rapid
  growth diversify away from USD
• Mexico 76 Growth (3yr) 50 penetration
• Brazil 115 Growth (3yr) 53 penetration
• As demand abroad continues to grow, so will AMTs
  international profit
• Lower penetration vs. US makes this a high
  probability bet

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Cell phones in India

• Recently, the Indian Government announced plans
  to build 300,000 towers in the country
• AMT in 9/07 opened an office in Delhi to begin
  expansion into India
• Stock is down 3 since them
• Is there a good reason to completely ignores
  this? In my opinion there is not.

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Company thinks stock is cheap- with 100 P/E!

• Look at P/E on Yahoo Finance, they look at this
• Its about relative, not absolute value
• The company been buying back stock _at_ 40.48 (2
  above current price)
• There is 500mil remaining on authorization
• Not only is company buying back, but also
  announced plans to borrow from revolver
• Buybacks come from companies w/cash
• Borrowing to buyback is similar to using a credit
  card to buy stock
• Only works for those who know what they are
  doing sure stock is going up

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FCC Auction 73 Underway

• The FCC is currently auctioning of a prized piece
  of the airway (700MHZ)
• Results will be announced soon different CAPEX
  from different winners
• However, most of auction is complete
• 19.4bil raised already
• If companies will pay record setting prices for
  airwaves, how much will they spend on
  infostructure
• We believe the 700 MHz auction could result in
  potential new entrants, which may serve as a
  positive catalyst for the tower group heading
  into the end of the year," Citigroup analyst Mike
  Rollins

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Mispriced relative to CCI
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Mispriced relative to CCI

• If AMT has lower leverage, more opportunities for
  growth abroad, and higher margins, why should
  they trade in lockstep with CCI?
• In my opinion, there is no reason, and the market
  is mispricing CCI
• AMT/CCI Pair trade the best way
• Would remove market risk capitalize on
  different position

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Risks

• AMT is a risky company because of debt
• Massive slowdown in wireless, spike in funding
  costs would cause major problems
• AMT is also highly valued right now
• While I believe there growth deserves this
  valuation, execution problems can cause the stock
  to fall

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2 Year Chart
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Conclusion

• AMT is a disciplined growth story
• One of a duopoly in wireless cell tower industry
• Attractive industry, pricing power
• In the long run industry will outperform due to
  continued demand
• While competitor is growing too, AMTs lower
  leverage gives it an opportunity to better
  capitalize on this growth
• AMT has superior growth prospects for abroad
• I propose we buy xxx shares for yyy