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Carter Wilkinson


Company Overview

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 The American Tower Corporation is one of the largest independent, global operators of wireless and broadcast communication sites. The company operates more than 37,000 tower sites in the United Sates, Latin America, India, and Africa.  American Tower’s largest customers are wireless carriers, including AT&T, Sprint Nextel, Verizon, and TMobile USA.  Tower companies all have the same basic operating model. These firms own wireless broadcast towers and lease them to telecommunication operators on long-term contracts that escalate in price by 3% to 5% per year.  At the beginning of 2012, American Tower converted into a REIT structure.

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Investment Thesis Explosive Wireless Data Growth

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• The robust growth in wireless data is driving carriers to strengthen existing data coverage and deploy 4G/LTE technologies. In addition to the increasing network capacity demands, new spectrum build outs provide further growth opportunities in the long term.

Pricing Power

• Cell tower companies exert meaningful pricing power and have imposed standard 35% annual price escalators in long-term contracts, a meaningful advantage in today’s deflationary environment.

An Excellent Balance Sheet Posed to Drive Growth

• AMT has the lowest net leverage ratio in the industry and has no material debt maturities until 2014. Given declining leverage and recovering credit markets, AMT will likely consider M&A to expand their tower portfolio. Moreover, their superior towers and excess capacity will also promote organic growth.

International Expansion

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• The company has diversified into eight countries already, with no country but the US accounting for more than 10% of revenue. Penetration rates in Latin America, Africa, and India are well below the level seen in the U.S., leaving more upside for long term growth.


Wireless Data Growth

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Pricing Power  Typical contract terms include an initial term of 5-10 years with multiple 5 year renewal periods and Wireless extensionsNetwork have beenUsage successful.  In the past tenant lease renewals Projected (MB Billions)

 Average escalation in domestic operations of approximately 3.5% per year. Escalations in international operations vary based on local inflation rates.

“When there is a war going on between the telecom carriers, the smartest move is to buy the Source: Fidelity Investments firms that sell the bullets.”

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Management & Performance

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 Chairman & CEO: James Taiclet – Appointed CEO in October 2003 and chairman in February 2004. He joined the company in 2001 and previously served as the COO. – Orchestrated the successful merger with rival firm SpectraSite and the transition to a REIT structure. – Taiclet has also improved through the balance sheet through debt reductions and increased financial flexibility. – Launched the most aggressive tower investment strategy of any tower operator.  The vast majority of this tower investment has come internationally, with roughly 75% of the $2.6 billion in

tower acquisitions spent on an international site.

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Comparables Analysis

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Mkt Cap

YTD Return

EPS (TTM)

EPS Growth % (TTM)

P/E (TTM)

EV/ EBITDA (TTM)

Total Debt/EB ITDA (TTM)

Profit Margin (TTM)

$12.74B

(1.52%)

$0.64

21.0%

110.8x

18.7x

4.5x

7.29%

SBA Communications Corp. (SBAC)

$4.71B

(0.86%)

($1.36)

-1.80%

N/A

20.7x

5.5x

(18.68%)

Average

$8.73B

(1.19%)

4.68%

9.6

109.7x

19.7x

5x

(5.69%)

American Tower (AMT)

$23.62B

(-2.95%)

$1.77

71.2%

43.46x

20.9x

4x

25.60%

($ in Billions)

Crown Castle International (CCI)

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DCF Valuation

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Historical Financials

Basic Information Ticker

AMT

Current Stock Price

$76.73

Shares Outstanding

393.60

Diluted Shares Outstanding

393.60

Equity Value

30201

Plus: Debt

7135

Plus: Preferred Stock

0

Plus: Minority Interest

122

Less: Cash & Equivalents Enterprise Value

330 $37,127

Sales COGS Gross Profit SG&A Other Expenses EBIT D&A CapEx ∆ NWC FCF

Projected Financials

2009A $1,724 416 1,308 202

2010A $1,985 461 1,524 230

2011A $2,386 555 1,831 289

2012E $2,851 671 2,180 337

2013E $3,198 753 2,445 378

2014E $3,465 816 2,649 409

2015E $3,729 878 2,851 440

2016E $3,999 941 3,058 472

251 855 415 250 93 $841

228 1,066 461 347 80 $994

413 1,129 556 523 39 $1,010

412 1,431 671 512 113 $1,334

462 1,605 753 575 13 $1,610

501 1,740 816 623 10 $1,749

539 1,872 878 670 10 $1,883

578 2,008 941 719 10 $2,020

Equity Value WACC Calculation Capital Structure (% Debt)

23.6%

Risk-Free Rate

2.1%

Beta

0.80

Market Risk Premium Cost of Equity (re)

7.0%

10.0% 7.09%

Assumptions

3.5% $103,108 60,314 41,377 30,700 23,847

4.0% $150,997 75,062 48,306 34,644 26,355

2.5% $62,403 42,932 32,037 25,110 20,340

3.0% $77,720 50,125 36,130 27,711 22,118

3.5% $102,680 60,098 41,364 30,880 24,214

4.0% $150,569 74,845 48,293 34,824 26,721

3.5% $261.96 153.24 105.13 78.00 60.59

4.0% $383.63 190.71 122.73 88.02 66.96

Research

COGS/Sales

23.5%

Gross Marg

76.5%

SGA/Sales

11.8%

Other/Sales

14.5%

EBIT Marg

64.7%

D&A/PP&E

12.3%

CapEx/Sales

18.0%

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3.0% $78,148 50,341 36,144 27,531 21,752

Present Value of Terminal Value

5.0%

Tax Rate WACC

NWC/Sales

5.09% 6.09% 7.09% 8.09% 9.09%

2.0% $52,046 37,498 28,748 22,935 18,813

2.5% $62,831 43,148 32,050 24,929 19,974

7.7%

Cost of Debt (rd)

Sales

5.09% 6.09% 7.09% 8.09% 9.09%

2.0% $52,474 37,714 28,761 22,755 18,447

3.7%

Intrinsic Stock Price 5.09% 6.09% 7.09% 8.09% 9.09%

2.0% $133.32 95.82 73.07 57.81 46.87

2.5% $159.63 109.62 81.43 63.34 50.75

3.0% $198.55 127.90 91.83 69.95 55.26


The AFFO/Share Method

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 AMT is a REIT, so the FCF is basically the same as the Adjusted Funds From Operations, or AFFO. Calculations Net Income + Depreciation - Gain on (Depreciable) Property Sales Other Misc. Deprecation and Gains Equals Funds From Operations (FFO) FFO - Capex - Other Amortizations Equals Adjusted Funds From Operations (AFFO)

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AFFO AFFO/Share

2012E $1,334 $3.39

2013E $1,610 $4.09

2014E $1,749 $4.44

2015E $1,883 $4.78

2016E $2,020 $5.13

I want to determine a price target for the year-end of 2013, so I’m interested in the AFFO/Share for 2014E. Personal REIT research and analyst reports suggest an AFFO multiple of 20x is appropriate. This is in line with comparable REIT valuations and the firm’s current trading levels. Therefore, $4.44 * 20 = $88.8 Price Target


Final Valuation

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Target Price: $90.32

WACC: 7.09 %

DCF $91.83

AFFO/Share $88.80

Multiple: 20x

Recommendations

Current #

Analyst Price Targets

Target Price

Strong Buy

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Mean

$84.6

Buy

11

Median

$85

Hold

5

High

$99

Underperform

0

Low

$75

Sell

0

Standard Dev.

5.4

Total

22

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Risks to Consider

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 Sector Consolidation: Sector consolidation is the biggest potential risk that could impact longer term revenue growth.  Urban Cannibalization: Femtocells and distributed antennae systems (DAS) could cannibalize some of the urban tower deployments.  New Technologies: New technologies that allow carriers to use their infrastructure more efficiently could be disruptive to current tower business models.  International Expansion Could Create Uncertainty: Building up a bigger presence in any emerging market, in which the wireless industry is still developing and country-specific risks are very different from those in the United States, could negatively impact the company’s risk profile and multiple.

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Recommendation

Buy 78 shares of American Tower Corporation (AMT) at $76.73 per share (~$7500) 1 Year Price Target: $90.32 Potential Upside: 17.7%

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Appendix I: International Expansion

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Appendix Ib: A Pretty Map of International Expansion

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Appendix II: Global Wireless Penetration

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Appendix III: Capacity Demonstration

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Appendix IV: Capital Allocation Highlights

 So far in FY2012 American Tower has: – – – –

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Paid $261 million in dividends Constructed 157 sites domestically and 1,677 internationally Acquired 86 sites domestically and 3,470 sites internationally Repurchased $17 million of stock pursuant to their stock repurchase plan

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