Better Buy: American Tower or Crown Castle?

American Tower (AMT -0.59%) and Crown Castle (CCI 1.42%) are two of the leading communications infrastructure REITs (real estate investment trusts). These companies play a critical role in keeping the world connected through the development and leasing of cellphone towers and antennas to major communications companies.

But operating in the same industry doesn't mean the companies hold the same investment opportunities. If you're wondering which of these industry leaders is more worthy of your investment dollars today, let's take a closer look at how they stack up and see which is the better buy of the two.

Data source: Author's calculations using data from YCharts and company earnings reports.

The same business model but done in very different ways

American Tower and Crown Castle both earn money from leasing their assets to companies such as AT&T, Verizon, and T-Mobile.

Despite having similar business models, there are some major differences between the two companies. To start, Crown Castle operates exclusively in the U.S. with interest or ownership in roughly 40,000 cellphone towers across the country. American Tower operates internationally with communication assets located in 19 countries. It also has a much larger portfolio with interest or ownership in roughly 225,000 communications assets, including data center facilities.

American Tower acquired data center REIT Coresite at the end of 2021 in a $10 billion deal. This helped the REIT diversify and gain exposure to a new way of serving the fast-growing, high-demand data industry.

Future growth

5G technology has been paving the way for outpaced growth for both REITs over the last few years. The U.S. has adopted these new technologies rapidly, and growing data usage thanks to increased mobile phone and data needs means there's ample opportunity for long-term growth with both companies.

However, only one has the opportunity to take that 5G demand globally. American Tower has made a tremendous effort over the past decade to expand its presence in global markets. Many of these countries are just now starting to roll out things like 4G and 5G technologies, and they face financial barriers that make it difficult to develop the necessary infrastructure.

This gives American Tower the upper hand when it comes to expanding because there's a lot more room to grow outside the U.S. But that doesn't mean American Tower wins this category outright. Operating globally means American Tower is more susceptible to things like foreign currency impacts, an issue the REIT is battling.

The rollout and demand for 5G will likely happen at a faster clip in the U.S. than on a global level. So over the short term, there's a good chance Crown Castle will perform better than its larger global peer. But over the long term, American Tower is better positioned to provide attractive growth.

Recent performance

Crown Castle's performance was in line with American Tower's last year. Revenue, adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and adjusted funds from operations (AFFO) were up across the board. However, currency fluctuations and rising interest rates have weighed on American Tower more heavily, leading 2022 net income to fall 31% from a year earlier while Crown Castle's was up 52%.

Data source: Author's calculations using data from companies' Q4 and full-year 2022 earnings reports. Chart by author. 

American Tower and Crown Castle both have floating-rate debt on their balance sheets. These loans adjust immediately as interest rates increase or decrease, which is not ideal when interest rate rise as they have in the past year. American Tower just has a lot more floating-rate debt than Crown Castle. About 22% of its debt outstanding is floating-rate debt, while Crown Castle stands at about 13%. This 9% difference may not seem like a big difference, but when you consider American Tower also has $15 billion of debt on its balance sheet, the percentage differential looms large.

American Tower is paying down some of its floating-rate debt to address this issue, but its forecast for 2023 shows a decline in AFFO due to these challenges. Crown Castle expects AFFO to grow positively.

Price and dividend

Crown Castle's dividend yield of 3.5% is slightly juicier than American Tower's 3% yield, but American Tower's dividend is better covered by its operations. This means American Tower is in a better position to bump its dividend this year, even with its less-than-ideal forecast for operations. It's worth noting that both have a great track record of raising dividends during the past 10 years, and dividend increases are likely in the future for both companies.

AMT Dividend Data souyrce: YCharts

When it comes to pricing, Crown Castle is currently trading at a lower price-to-FFO than American Tower. But this isn't a huge surprise. American Tower is the second-largest REIT by market capitalization. REITs of its size and prestige often trade at a premium compared to their peers.

So which is the winner?

Both companies are smart investments for income-focused investors. They both pay attractive dividends while having a long history of dividend increases and giving investors exposure to a growing industry. However, if I could only choose one today, I would go with Crown Castle.

In the short term, let's say in the next one to three years, Crown Castle is likely to outperform its larger peer due to larger macroeconomic issues weighing on American Tower. It also offers a slightly higher yield and has more favorable pricing right now.