American Tower on Thursday reported a strong third quarter as carriers continue network investments, but is starting to see a large proportion of churn from legacy Sprint sites.  

American Tower reported property revenue of $2.36 billion in Q3 with growth of 21.9%. It recorded organic tenant billings growth of 4.9%. AFFO was $1.15 billion with growth of 13.3%, while AFFO per share grew at 10.5% to $2.53.

During the quarterly earnings call, executives cited the first and largest batch of Sprint churn as the cause for lower organic growth rates that are expected for American Tower’s U.S. business next quarter. It expects organic tenant billing growth of negative 1% in Q4. That includes about 6.6% churn, of which Sprint accounts for 4.5%.

Sprint is coming off of American Tower lease contracts as T-Mobile removes redundancy and optimizes its network footprint since the 2020 merger.

It isn’t a surprise for the tower company which has been working for some time on avenues to mitigate impacts.     

RELATED: Sprint churn creeps into American Tower’s near-term outlook

American Tower CFO Rod Smith noted on the call that Sprint churn started to hit for the first time and is now active in the current quarter. In 2021 he said they will see $195 million in annual Sprint revenue roll off, followed by lower amounts of $60 million in 2022, $50 million in 2023, and $70 million in 2024.

“Next year, the gross growth, we see the environment being very strong, accelerating through 2021 and we expect that to continue going,” Smith added.

For the U.S. leasing environment, Smith said all the major carriers have been active which showed up most notably in American Tower’s services revenue. In Q3 services revenue was $85 million.

“We’ve seen a tick up in the contribution from collocation and amendment activity into our organic tenant billings growth, so that’s been accelerating through each of the last three quarters, just as we expected from the outset in the year,” Smith said.

American Tower doesn’t release 2022 guidance until next quarter.

RELATED: American Tower sees some U.S. carrier activity trending towards ‘record levels’

MoffettNathanson analyst Nick Del Deo noted that services contribution to the gross margin is more volatile and less valuable than those from towers “but are a positive leading indicator for leasing activity.” Still, the analyst suggested American Tower might not be seeing a huge uptick in activity as quickly as some of its peers. 

“Leasing activity picked up in the U.S., albeit modestly vs. Q2,” Del Deo wrote in a Thursday note to investors. “This trend is moving in the right direction, but perhaps at a slower pace than some observers would like to see, given elevated expectations for the space.”

The decline to negative 1% net growth American Tower cited for Q4 means gross growth would be 5.6%, according to Del Deo, saying it’s “a noticeable decrease.”

Tower companies are expected to see fruits of large swaths of new spectrum deployed, including C-band and 2.5 GHz, along with network densification and the entrance of Dish building a new 5G network in the U.S.  American Tower reached a deal with Dish in March to lease up to 20,000 sites.

Crown Castle just reported third quarter results last week citing expectations for a 20% bump in core leasing tower activity in 2022 following what’s expected to be an already high 2021.

RELATED: Crown Castle expects 20% core tower leasing surge in 2022

Last year American Tower inked a 15-year master lease agreement (MLA) with T-Mobile. Del Deo wrote Thursday that the MLA could dampen American Tower’s activity with T-Mobile compared to Crown Castle, while other factors like elements of an MLA with Verizon and potentially later timing for Dish activity also contribute to some differences between what the two tower companies could see.

Still, with positive third quarter results, American Tower raised the mid-point of its full year 2021 outlook with the following bumps: property revenue (increase by $10 million), net income ($170 million), Adjusted EBITDA ($50 million), and consolidated AFFO ($60 million).

The company still expects around 3% growth rate for organic tenant billings in the U.S. and Canada for the year, with a ramp up in the later half attributed to accelerating 5G deployments.

“We saw strong demand trends across our global business in the third quarter, supported by carrier investments in network densification, new network technologies and spectrum deployments,” said American Tower CEO Tom Bartlett in a statement. “As 5G deployments in the U.S. and Europe progress and 4G buildouts throughout our other markets accelerate, we remain confident in our ability to drive sustainable, recurring growth for years to come across our extensive existing portfolio.”

RELATED: American Tower touts expanded European footprint

In addition to its U.S. tower business, American Tower also has a significant and expanding international presence. In the third quarter it acquired 4,000 remaining rooftop sites in Germany as part of a roughly $9.4 billion deal to acquire Telefonica’s Telxius tower business and a scaled European footprint. It also has international presence in Latin America, Africa and Asia-Pacific regions.

Del Deo said organic tenant billings growth of 5.9% across the company’s international units beat the firm’s expectations and accelerated slightly over 5.3% growth rate in the second quarter.

Tower peer SBA Communications is up next with Q3 earnings scheduled for Monday.

Source link