American Tower’s latest acquisition has secured high quality assets with strong existing cash flows and significant opportunity for future growth. The tenancy ratio on GTP’s domestic portfolio is believed to be around 2, while American Tower’s is 2.6, with the difference attributable to the younger age of GTP’s assets. GTP’s towers typically have capacity for four tenants without the need for upgrade investment.
This acquisition extends American Tower’s runway for growth in their domestic market. With an acquisition of 5,400 towers, many in top metropolitan markets, plus 9,000 domestic managed sites (primarily rooftops), and with 70% of GTP’s revenue coming from the ‘Big Four’ carriers, American Tower has strengthened their hand to secure business as 4G deployment shifts into a higher gear.
American Tower Chairman, President and CEO Jim Tailcet characterises 4G deployment as an 8-10 year process in which various carriers are between years 1 and 3. Phase one, according to Taiclet, is characterised by substantial amendment revenue as carriers add additional equipment to existing sites. Phase two, which first-mover US carriers are entering, tends to require new macro sites and thus drives co-location revenues.
Applications for tenancies on American Tower’s own sites have been at record levels in 2013.
Implications for emerging market towers
While benchmarks are not readily transferable from the domestic US market to less mature and more operationally complex emerging markets, this deal illustrates what emerging market tower portfolios have to compete with to attract investment from international towercos.
While this transaction temporarily brings American Tower’s leverage up to 5.8, above their target range of 3-5%, they have expressed intent to bring that back down to within the target range in the short term, and the company expressed an appetite to continue to seek acquisition opportunities. American Tower has been linked with opportunities to acquire towers from MTN in South Africa, Rwanda and Zambia in recent months.
The GTP deal illustrates the strength of American Tower’s balance sheet and access to capital markets, with the US$4.8bn purchase price (subject to some post closing adjustments, and inclusive of the assumption of about US$1.5bn of existing GTP debt) funded largely through the company’s current liquidity of over $3.2bn and their existing capacity under their revolvers.
The deal is expected to close in Q4 2013.