American Tower (AMT 0.02%) has been a standout performer over the years. Since converting to a real estate investment trust (REIT) in 2012, it has produced a nearly 17% annualized total return. That has outperformed the broader market, with the S&P 500 delivering a 14.8% annualized total return during that timeframe.
However, the past few months have been a different story. Shares of the infrastructure REIT have slumped 17% from their recent high. Here's a look at whether that sell-off is a great buying opportunity for this REIT.
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What's weighing on American Tower
There are several reasons why shares of American Tower have come off their peak. The broader market has cooled off, driven by inflation and interest rate fears. These headwinds have weighed heavily on the technology and real estate sectors. Those factors could slow growth by making it more expensive for companies to borrow money while increasing operating costs.
Meanwhile, American Tower has made some moves that have concerned investors. It spent more than $20 billion on acquisitions last year, including buying former data center REIT CoreSite Realty for $10.1 billion. That deal was a notable move away from its core cell tower business, adding significant integration risk. It also pushed its leverage ratio well beyond the company's target range. American Tower ended last year with a 6.8 leverage ratio, quite a ways from its sub-5.0 target.
Finally, Sprint's merger with T-Mobile (TMUS -0.87%) is causing some near-term churn in American Tower's U.S. cell tower business. That headwind will cause its U.S. and Canada organic tenant billings growth to slow to 1% this year, instead of the 5% growth it would have delivered without T-Mobile's utilizing fewer towers following the Sprint deal.
What's ahead for the infrastructure REIT
There's no doubt that American Tower is experiencing some near-term headwinds. We saw that in its first-quarter results. While the REIT's adjusted funds from operations (AFFO) per share rose 6.1% year over year, that's a much slower pace than the 11.7% AFFO per share growth it delivered in 2021.
However, American Tower expects its results to reaccelerate later this year. Demand for its U.S. cell towers is strengthening as mobile carriers utilize them to roll out their 5G networks. CEO Tom Bartlett stated in the earnings press release that: "We're off to a strong start in 2022 with Organic Tenant Billings Growth accelerating sequentially in each of our reported segments. 5G is ramping up in the U.S. and Europe today, while 4G coverage and densification initiatives continue to grow in earlier stage markets, and it is clear to us that macro towers will continue to be critical infrastructure for carrier network investments over the next decade and beyond."
The company sees towering growth ahead, powered by 5G. The CEO stated on the first-quarter conference call that he expects "strong growth on our tower assets, both in the near and longer term." He said organic tenant billings growth should ramp in the back half of this year and exit 2022 at a high point. Meanwhile, he sees "strong mid-single-digit organic tenant billings growth in 2023 and beyond."
Combined with its faster-growing international operations and its new data center platform, American Tower sees at least 10% annual AFFO per share growth through 2027. That should enable the company to continue increasing its dividend, which now yields a more attractive 2.2% following the recent decline in the share price.
American Tower's sell-off seems like a great buying opportunity
While American Tower is facing some near-term headwinds, its future looks bright. It expects tower demand to remain strong, which should reaccelerate its growth later this year. The recent slump in the stock price looks like an excellent opportunity to pick up shares of this fast-growing REIT at a lower valuation and higher dividend yield.
