Reason for Report: 4Q17 Earnings Update

Mar 15, 2018

American Tower Corp. (AMT-NYSE) $146.46

Note: This report contains substantially new material. Subsequent reports will have new or revised material highlighted.

Prev. Ed.: Nov 9, 2017; 3Q17 Earnings Update

Brokers’ Recommendations: Positive: 100.00% (18 analysts); Neutral: 0.0% (0); Negative: 0.0% (0) Prev. Ed.: 18; 0; 0

Brokers’ Target Price: $158.00 (↑$2.35 from the last edition; 17 analysts) Brokers’ Avg. Expected Return: 8.03%

*Note: Both share price and brokers’ material are as of Mar 15, 2018.

Portfolio Manager Executive Summary

American Tower Corp. (AMT) is one of the largest global real estate investment trusts and a leading independent owner, operator and developer of multitenant communications real estate. The company’s primary business is the leasing of communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. This business is grouped under its Property Segment, which accounts for almost 99% of its total revenues. The company is also engaged in site leasing business, including site acquisition, zoning and permitting and structural analysis services, addition of new tenants and equipment at sites. This is referred to as the company’s Services Segment.

Key factors for determining an investment strategy in AMT are as follows:

 A major portion of the growth comes from the Property Segment, as it provides the leasing the leasing of communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants.  The company has a strong FCF (free cash flow).  The company is well positioned to benefit from wireless reinvestment trends.  Wireless capital spending and cell site deployments are expected to increase in the next ten years. Advent of new technologies, specially 5G and Internet of Things (IoT) are expected to grow consistently for several years thereafter.

Competitors: American Tower continues to compete with some major wireless tower operators like Crown Castle International Corporation and SBA Communications Corporation in the global wireless tower market.

All the 18 firms covering the stock assigned positive ratings. Target prices provided by the analysts range from a low of $135.00 to a high of $175.00, with the average being $158.00. The expected return over the current share price is pegged at 8.03%.

© Copyright 2018, Zacks Investment Research. All Rights Reserved. Positive or equivalent stance (18/18 or 100%) – These analysts are optimistic about American Tower’s prospects mainly because of the positive macro trends in the wireless tower industry, both in the domestic and international markets. These analysts believe that the company will benefit from the contract amendment activity of telecom carriers as they continue to upgrade their network to support the strong demand for voice and data traffic. They believe that domestically, American Tower will benefit from Verizon and AT&T’s nationwide LTE rollout and ramping up of 5G-related trials and deployments by all the wireless carriers. New leasing agreements with carriers will boost growth for American Tower in the international markets. Moreover, strong revenue growth at its core business and efficient cost management raises optimism. Additionally, they remain bullish on American Tower’s attractive valuation, real estate investment trust (REIT) conversion, and heavy cash flow attributable to increased tower acquisitions, better margin, continued free cash flow growth and solid international presence. The analysts also believe that the company will be able to double its operating and financial metrics in the next four years and deliver growth in dividend.

General long-term outlook on AMT: American Tower’s long-term growth outlook remains positive, given its significant revenue growth in the Property segment. Notably, management is more hopeful about the international markets as it expects growth in these markets to exceed that in the domestic space. The firms continue to believe American Tower’s revenues will grow with incremental margins. Going forward, the firms expect to witness significant growth with aggressive tower buyouts in emerging markets and a healthy share buyback program.

Mar 15, 2018

Overview

Based in Boston, American Tower Corp. (AMT) is the premier owner and operator of wireless and broadcast communications sites in North America and Brazil. American Tower Corp.’s primary business consists of leasing out antenna space on multi-tenant communications towers to wireless service providers and radio and TV broadcast companies. It also operates distributed antenna systems within buildings and provides a limited number of network development services that support its rental and management operations.

American Tower’s two operating segments are Property and Services. The Property Segment focuses into leasing of communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. This segment includes the following regional segments: (i) Asia property, (ii) Europe, Middle East and Africa (“EMEA”) property and (iii) Latin America property. The Services segment focuses into the tower- related services, including site acquisition, zoning and permitting and structural analysis services. It is also engaged in site leasing business, including the addition of new tenants and equipment on its sites.

Additional information is available at the company’s website: www.americantower.com

Note: American Tower Corp.’s fiscal year ends on Dec 31.

Zacks Investment Research Page 2 www.zackspro.com Key Positive Arguments K Key Negative Arguments  Substantial operating margin  American Tower relies on a smaller improvement number customers for much of its  Strong FCF revenues.  Increased share buyback program  Well positioned to benefit from  Possibility of new competitors. wireless reinvestment trends.  Largest tower portfolio in the United  Wireless carrier consolidation could States. Financial ability to expand in dampen growth prospects. order to ensure industry growth.  Foreign currency fluctuation raise  Increased deployment of 4G and 4G caution as the company has a huge LTE networks global presence.  Aggressive tower buyouts in  Higher volatility in the debt market will emerging markets. lead to higher cost of raising debt.

Mar 15, 2018

Long-Term Growth

American Tower has a large tower portfolio of high quality assets and the financial leverage to build more towers at a faster pace compared to its competitors, leading to more lease revenues and corresponding cash flow opportunities. The company expects the rental and management system to primarily drive much of the adjusted EBITDA growth in the year. Moreover, rollout of 4G and 4G LTE network by large carriers like Verizon Communication Inc. (VZ) and AT&T Inc. (T) coupled with accretive mergers and acquisitions in the overseas market will bolster the tower business, going forward.

Management at American Tower is bullish about the robust growth of mobile data and communication in the U.S. and around the world. Mobile Network traffic is expected to grow approximately 10 times over the next five years and a major part of it will be delivered by traditional cell towers.

India, EMEA and Latin American markets together have contributed nearly 50% of the organic core revenue growth. Notably, within the Property segment, revenues from the United States totaled $852 million, up 2.8% year over year. Meanwhile, total international revenues amounted to $670 million, up 58.6% year over year. Within this, revenues from Asia totaled $270 million, up 324.9% year over year. EMEA revenues grossed $134 million, up 8.1% year over year. Latin America revenues totaled $265 million, up 13.2% year over year. The company’s total revenue from international business is likely to outperform the U.S. revenues in the next three to seven years. Increased spending by Airtel, Vodafone and Telefonica on 4G LTE networks has resulted in such strong organic revenue growth. Moreover, American Tower has a specific focus on India. Moreover, American Tower announced into a joint venture called ATC Europe with Dutch Pension Fund manager PGGM. The venture will focus on the growth opportunities of telecom real estate in Europe. With the advent of new technologies, specially 5G and Internet of Things (IoT), Europe, being a matured market has high margins and hence is an important focus for American Tower.

American Tower generates most of its revenues from long-term (typically 5-10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers, and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle. The revenues generated from leasing and management of such networks is remarkable and over 95% is recurring in nature. Moreover, most of its towers are over 210 feet tall, thus allowing sufficient space for its

Zacks Investment Research Page 3 www.zackspro.com customers to install transmission equipment. The company also holds 29% of the land under its towers in the U.S.

For 2018, American Tower anticipates property revenues in the range of $6,930 to $7,120 million, reflecting growth of 7% at the midpoint. Net income is expected between $1,390 million and $1,470 million, reflecting growth of 16.7% at the midpoint. Adjusted EBITDA is anticipated in the range of $4,300-$4,400 million, reflecting midpoint growth of 6.4%. Consolidated AFFO is expected in the range of $3,160-$3,260 million, reflecting midpoint growth of 10.6%.

Given American Tower’s leading position in the tower space in the U.S., the analysts believe that the company is uniquely positioned to benefit from an increased wireless infrastructure spending over the next several years, particularly in LTE, as carriers continue to prioritize network quality. Moreover, as the penetration of LTE-based device increases, demand for voice over LTE (VoLTE) service is expected to grow in the coming years. VoLTE necessarily increases carriers’ efficiency regarding wireless spectrum and reallocate the airwaves to 4G-based data services. In order to deliver effective VoLTE service, spending on network rollout is only expected to escalate in the future as each operator needs to expand its capacity and coverage.

According to management, the company’s diversified business structure will help offset the slowdown in the domestic business with international assets and support steady growth for years to come. They expect prolonged demand in the international market based on the accelerated data growth particularly in Asia, Latin America and Africa where smartphone sales continue to surge. Within Latin America, countries like Brazil, Mexico and Columbia have just started their LTE deployment and are still 2-5 years behind the U.S. in rolling out the latest technology. Countries like India and Ghana, where 3G is being rolled out, are lagging far behind the U.S. in LTE deployment. However, these countries will contribute positively to the company’s growth in the international market in the coming years.

Further, the analysts believe that the positive trend in the tower leasing business will lead to incremental capital spending in the next couple of years. They believe that the continuous increase in international towers will put pressure on margins in the early stages; however, they believe that it will benefit the company in the upcoming years as the average tenant per international tower increases with the lease of its tower assets.

Mar 15, 2018

Target Price/Valuation

Provided below is a summary of valuation and ratings as compiled by Zacks Research Digest:

R Rating Distribution Positive 100.00%↔ Neutral 0.00%↔ Negative 0.00%↔ Maximum Target Price $175.00↑ Minimum Target Price $135.00↔ Avg. Target Price $158.00↑ Firms with Target Price/Total no. of Firms 1 17/18

According to the firms, risks to ratings and target prices include slowdown in wireless traffic growth coupled with spending cuts at any of the major U.S. wireless providers. Additionally, technology upgrades and

Zacks Investment Research Page 4 www.zackspro.com enhancements that may reduce carriers’ need to put more equipment on towers; potential wireless carrier consolidation that could temporarily dampen growth prospects; macroeconomic challenges arising in the wireless industry; and fluctuation in interest rates and foreign-exchange risk in international markets are some of the other risks involved.

Recent Events

On Mar 8, 2018, American Tower’s board of directors has declared a quarterly cash distribution of 75 cents per share on the company’s common stock. The distribution is payable on Apr 27, 2018 to such stockholders of record at the close of business on Apr11, 2018.

On Dec 7, 2017, American Tower’s board of directors approved a $2.0-billion stock repurchase program. The company currently has approximately $345 million shares left to be repurchased under existing repurchase authorization, approved in March 2011. In the same press release, the company also announced a quarterly cash distribution of 70 cents per share on its common stock, payable on Jan 16, 2018 to such stockholders of record as of Dec 28, 2017.

Revenue

According to the company press release, in 4Q17, total revenues of $1,704.5 million increased 10.7% year over year, beating the Zacks Consensus Estimate of $1,692.1 million. The company’s top line witnessed a significant upside, primarily attributable to the favorable global wireless trend coupled with strong performance by the company’s domestic and international segments.

Segment Revenues

Property Segment (98.46% of total revenue in 4Q17): Quarterly revenues grossed $1,678.3 million compared with $1,521.3 million in the year-ago quarter. Operating profit was $959 million and operating profit margin was 63% in the reported quarter.

Within the Property segment, revenues from the United States totaled $852 million, up 2.8% year over year. Total international revenues amounted to $670 million, up 58.6% year over year. Within this, revenues from Asia totaled $270 million, up 324.9% year over year. EMEA revenues grossed $134 million, up 8.1% year over year. Latin America revenues totaled $265 million, up 13.2% year over year.

Services Segment (1.54%): Quarterly revenues totaled $26.2 million compared with $18.3 million in the year-ago quarter. Operating profit was $9 million and operating profit margin was 50% in the reported quarter.

Outlook

For 2018, American Tower anticipates property revenues in the range of $6,930 to $7,120 million, reflecting growth of 7% at the midpoint. Notably, the company continues to benefit from the recent towers acquisition. Further, most of the analysts expect the company to benefit from its Distributed Antenna Systems (DAS) and small cell segment, which is increasingly gaining traction.

A major portion of the expected core revenue growth is being driven by new business commitments. Total revenue from international business is likely to outperform the U.S. revenues in the next three to seven

Zacks Investment Research Page 5 www.zackspro.com years. Higher revenues are expected in Africa because of high fuel usage. According to the analysts, the consumers’ demand for mobile communication and data are increasing rapidly in the U.S. and around the world. This will require intensive investment in network infrastructure, thus, providing an opportunity for tower companies like American Tower. It expects contract amendment activities to drive revenue growth before the carriers concentrate on increasing their network capacity.

The newly signed tower deals coupled with the 9-year Master Lease Agreement (MLA) with Sprint Corp. will boost American Tower’s top line, going forward. Also, signing of a long-term (14 years) leasing agreement with AT&T in Mexico, pertaining to the recently acquired Iusacell and Nextel assets by AT&T, is a major positive, given the abundant opportunities in Mexico, underscored by comparatively low smartphone penetration. The company is poised to benefit from its diversified asset base, with some moderation in site leasing activity in Brazil being offset by the accelerated activity in markets like Mexico and India.

According to most of the analysts, the continuous acquisition of towers in global markets, mostly the emerging nations like South America and Africa, should boost the top line. Further, apparently, the future financials of the industry are likely to be propelled by strong demand for wireless voice, broadband wireless data and video networks, which require more tower space. Management also believes that increased penetration of LTE-based devices will lead to higher data demand. Moreover, the deployment of 3G mobile networks necessitates the expansion of coverage and infrastructure by carriers. Next-generation 4G LTE networks and the increased usage of smartphones and tablets will also create impressive demand for tower leasing. The analysts expect the new business to be impacted by Verizon and AT&T’s nationwide LTE rollout and the ramping up of LTE activity by Sprint and T-Mobile. Also, the introduction of VoLTE should act as a major catalyst for the growth of the next phase of network layout.

However, management is more optimistic about the international markets as they believe growth in these markets will surpass that in the domestic space. Management believes international operations would continue to benefit from favorable technology trends. The availability of cheaper smartphones, the lack of fixed line alternatives and the preference among the emerging middle class for advanced wireless applications and devices are jointly driving significant levels of network investments across all these countries.

Most analysts believe American Tower will increase its capital spending in markets like Mexico, Brazil, India, South Africa and Columbia among others as they expect a surge in demand for tower infrastructure to support the customers’ appetite for wireless data. Within Latin America, the company’s top line is expected to benefit from the new leasing agreement with America Movil, Nextel and Telefonica while in India the growth is expected to come from Idea and Bharti, who continue to invest in network enhancement. Vodafone and MTN are expected to bolster growth in Africa.

However, foreign exchange rate fluctuations can dent international revenues by a few millions in the near term. Also, customer concentration is very high for American Tower as the top four customers account for nearly 60% of its quarterly revenues. The loss of any of these customers or consolidation among them will have a significant material impact on the company’s top line.

Margins

According to the press release, Adjusted EBITDA in the reported quarter was $1,031 million, up 10.2% from the prior-year quarter. Adjusted EBITDA margin was 60.5% in the reported quarter.

Selling, general & administrative expenses totaled $171.1 million compared with $138.3 million in the year-earlier quarter.

Operating income was $329 million compared with $489.3 million in the year-ago quarter.

Zacks Investment Research Page 6 www.zackspro.com Outlook

For FY18, management forecasts adjusted EBITDA in the range of $4,300-$4,400 million, reflecting midpoint growth of 6.4%. The outlook for adjusted EBITDA primarily takes into account the strong revenue growth at the company’s core business and continued focus on cost management, which are expected to more than offset the foreign exchange headwinds.

Meanwhile, most of the analysts believe that in addition to driving revenues, the company is focusing on cost control, which will improve its margins in the coming quarters. American Tower’s policy of acquiring land beneath the towers has increased the company’s operational efficiency, thus, positively impacting the company’s margins. Over the long term, American Tower expects its SG&A expenses to decline further as the company continues to drive organic growth across its portfolio. Thus, despite continuous acquisitions, they expect international operating margins to improve as American Tower continues to share its operating cost with its tenants.

Please refer to the Zacks Research Digest spreadsheet for more details.

Earnings per Share

As per the company press release, quarterly adjusted funds from operations (AFFO) came in at $707 million compared with $655 million in the year-ago quarter. AFFO per share came in at $1.59, which lagged the Zacks Consensus Estimate of $1.68.

Outlook

For 2018, management projects net income is expected between $1,390 million and $1,470 million, reflecting growth of 16.7% at the midpoint. Consolidated AFFO is expected in the range of $3,160-$3,260 million, reflecting midpoint growth of 10.6%.

The firms believe that the investments made over the last few years will lead to improved cash flow for American Tower. Moreover, management assumes that the company is well positioned to continue generating meaningful AFFO per share and dividend growth. Further, aggressive buyouts of towers in emerging markets, strong organic growth and the company’s continued focus on cost management should offset the foreign exchange pressure and bolster American Tower’s bottom line, going forward.

Please refer to the Zacks Research Digest spreadsheet for more details.

Mar 15, 2018

Research Associate: Sanjana Goswami QCA: Maharathi Basu Reason for Update: Earnings Update

Zacks Investment Research Page 7 www.zackspro.com