American Tower upped its 2017 outlook by $100 million thanks to an amended lease with a tenant that analysts believe is AT&T. And that’s welcome news in an uncertain tower segment.
American Tower disclosed the amended Master Lease Agreement (MLA) in an 8-K filing with the U.S. Securities and Exchange Commission, saying that it “expects to recognize at least $100 million in additional straight-line revenue” and upping its guidance for total property revenue in 2017 to a range from $6.31 billion to $6.49 billion. While the company didn’t disclose the identity of the tenant, multiple analysts said it was likely the nation’s second-largest carrier.
“We suspect this agreement formalizes AT&T’s intentions to deploy AWS-3 and WCS spectrum later this year,” New Street Research analysts wrote in a note to investors. “This is a positive signal that U.S. spending on towers is set to accelerate, and has a positive read-across to Crown Castle and SBA Communications. Although American Tower did not change cash guidance this morning, we suspect they may modestly raise it when they report Q1 earnings.”
AT&T has roughly 40 MHz of "fallow" AWS-3 and WCS spectrum, Deutsche Bank said last month, and the carrier began rolling out services on its WCS airwaves in 2015. AT&T has declined to disclose how much of that spectrum has since been put to use.
Meanwhile, AT&T is likely to win the FirstNet contract in a move that would provide a significant lift to tower companies, according to analysts. FirstNet hasn’t officially announced anything yet, but ultimately that would give AT&T a 25-year contract to use 20 megahertz of 700 MHz beachfront spectrum and $6.5 billion for designing and operating the nationwide network for federal, state and local authorities, with the right to sell excess capacity on the system.
Investors and analysts have expressed concerns that any potential consolidation in the U.S. wireless market could spell trouble for tower companies, lessening demand for traditional macrocells. But the impending FirstNet buildout is sure to buoy the industry, and American Tower’s new deal is seen as a sign that carriers may begin to open their wallets for capex investments following a relatively lean 2016.
“While a potential Sprint/T-Mobile deal remains an overhang as the incentive auction quiet period ends, we would be buyers of towers in any dip as the financial pressure would be limited (American Tower 4% overlapping revenue exposure with 5-year contract life remaining) and a stronger combined player would drive higher network investment longer-term,” UBS analysts wrote in a research note. “In addition, we expect the revised agreement with AT&T, incremental upside from FirstNet, and additional spending from T-Mobile (as it begins to deploy 600 MHz winnings as early as this year) to support a strong leasing environment for the tower sector going forward.”