TIVP079 (Video): American Tower (AMT): The Wide Moat Business Your Phone Can't Live Without w/ Kyle Grieve & Shawn O'Malley

24:00It remains a home for serious long-term investors committed to compounding their knowledge, relationships, and finding great stock ideas. And as a member, you'll join monthly video calls with me, Kyle Grieve, and Daniel Maka, where we'll dig into what's actually happening in the markets and in individual businesses. You'll sit on private conversations with fund managers, business operators, and authors that we respect. The kind of access that does not fit inside of a 90-minute podcast. You'll have the chance to join us in roaming Omaha together during Berkshire weekend too. One of my favorite weekends of the year.

24:35If you're looking to expand your circle of investor relationships, get smarter about assessing intrinsic value, and are always looking for new stock ideas, then what are you waiting for? Apply for free now at theinvestorspodcast.com slash mastermind. That's theinvestorspodcast.com slash mastermind. And if your application stands out, I'll be reaching out to you personally to schedule a call. Another good comp in a business we covered a year ago is VeriSign. They own the domain registry rights literally to.com. So if you run a website that ends in.com, you have to pay them a fee every year to have it registered, which is not to get into the technical backbone of how the internet works, but you need to be registered.

25:21And so it's honestly an even better business because the cost of maintaining a digital domain registry is a fraction of maintaining cell towers, I'm sure. But the problem with VeriSign is that their ability to raise prices is closely regulated. So they don't have a ton of leeway on pricing, even if in theory they have an enormous amount of pricing power. They could probably charge much, much more for the dot-com domain rights. And so I would guess that AMT has a lot of pricing power that they could leverage too, but perhaps they're not legally allowed to, or at least they have agreed to not do so as a way of attracting tenants.

26:02But yeah, if AMT wanted to raise prices by 6 % a year as part of the escalator and double their inflation escalator, that would be huge for margins. And yet, I don't think I see this deterring companies like Verizon or AT &T, especially if there's not a clearly lined up competitor. That's a perfect one-to-one, well, we can just switch to this competitor and get a lower rate. There are real switching costs to this business. So clearly, I think we're going pretty in depth today on the competitive advantages of AMT. But I do think it's worth it to do so because there's just so much to try and wrap your head around.

26:42And it's just so rare to find a business with one strong competitive advantage, let alone really multiple competitive advantages from cornered resources and scale economies and network effects that are working in their favor. But you mentioned that they actually have three competitive advantages. So how about we talk about that other one, that third one that you see here with AMT? Yeah. And after everything I've discussed so far, you might be able to kind of already guess that this final competitive advantage is switching costs. So I already mentioned that while it's possible for a customer to switch from AMT to one of its customers, it's not really the cleanest or simplest transition.

27:23Now to help go over some of the details of switching costs, I use the Hidden monopolies framework. And it scored very, very well with a mode score index of about 40. The strongest barriers were the exit and base barriers, while entry barriers were the weakest. So once AMT signs up a customer, as their 2%, you know, churn rate suggests, they are a lot less likely to leave. Now, I think there's a few reasons for that. So with customers, especially in the US, being with these massive telecom companies like AT &T, Verizon, and Telecom, and T-Mobile, the cost of being on a tower is pretty much a rounding error for them.

27:55You know, these three businesses generate over a quarter trillion dollars in revenue combined. So, you know, finicking with moving equipment from one tower to another to save, you know, 20,$30 ,000 just probably isn't the highest priority for them. Then, you know, you have the fact that they know that the towers that they're on with AMT, they work, right? And as long as it works, there just isn't that much of a reason to switch. Then, you know, even if they did decide to switch, they run the risk of degraded quality, which is obviously not good at all for their brand or their customers. So, you know, it's just easiest to just stick with what you know works well.

28:30And then lastly here, I think AMT has a really good reputation. So they've been working for decades now and their customers know that they can trust AMT, which is why they're willing to sign these, you know, five to 10 year contracts in the first place. These long-term contracts are often non-cancelable for a very, very long period of time. So this means customers clearly have a lot of trust in AMT to continue to provide them with this exceptional service. So just to give you an example of how large these non-cancelable customer leases are, they're currently worth$54 billion over the future. Now, wow, you know, I think that was a lot of discussion on competitive advantages, but I think you probably get the point here.

29:07You know, AMT is just a very, very good business. It's a very high quality business. And I would say it has a very high likelihood of being around in 20 plus years, which is something that I have a very hard time saying about many, many of the companies that I look at. I think maybe a way to make a more tangible, personally relatable example of switching costs is just to think about your email account. Hundreds of people might have your address saved and maybe you've got thousands of emails saved in your inbox. And so to go through and update your email on file across all the different apps and services that notify you about, you know, whatever your credit card payments and your bank and your Hulu subscription and your Netflix subscription, changing all of that and the updates in the email, I mean, that is an absolute hassle.

29:58And then you have to do the calculus of, is it actually worth it to switch providers? And in most cases, at least for emails, the answer is pretty clearly no, unless you have to do so for work. There's just a lot of annoyances that emerge. And really, there's very few benefits, if any, of switching email providers. And so now imagine yourself running a major telecom network. anyone who advocates for making a switch with so much at stake here they are taking a lot of career risk it's you know much easier to default to the status quo of you know we have these towers in place we have these relationships in place we have this contract in place with amt i don't want to i don't want to rock the boat so that would be kind of how i would think about the the very real human level perspective on switching costs when we're talking about something as important as telecom networks with so much capital involved and so many resources involved.

31:03And, you know, one area that I did find curious about AMT when looking at it was the fact that they have so many of these towers. And even though they generate cash, I assume that they've had to come up with money from somewhere to fund this growing tower account. And I presume, given the company's balance sheet, that much of that growth looks to be debt financed. Is that really the right way to be thinking about it? Yeah, Sean, I think you pretty much nailed it there. When we're looking at companies on this podcast, we pay very, very close attention to debt across every single business that we cover.

31:37And I think that's because we're very cognizant of following in Buffett's footsteps of just trying hard not to lose money. And debt, unfortunately, is one of the easiest ways to lose money. Now, as I've discussed previously, I'm not adverse to leverage by any means. I think, you know, when the right company has a large runway to grow and they can continue growing faster than their internal cash flow rate would dictate, then, you know, they should probably lever up to continue adding shareholder value. But from my research, both in looking at case studies from other investors, as well as my own experience, debt can also be very dangerous if the business's business model can no longer support its debt.

32:12Now, when it comes to AMT, it probably won't surprise you to know that this is a business that does utilize debt. So as of the first quarter of 2026, AMT has about$37.3 billion in debt. In full year 2025, they produced about$7.2 billion in adjusted EBITDA. So this gives them a net leverage ratio of about five times. Now, this is a high number for sure. But AMT definitely has a much different debt profile than what I've seen in majority of other businesses that I've ever looked at. So the maturities of their debt extend all the way out until 2051. Now, I think this goes to show you just how strongly lenders view AMT's ability to continuously generate cash.

32:50With their non-cancellable contracts of$54 billion, they should have more than enough capital to service this debt. Now, the terms of the debt are actually also quite favorable. So the weighted average interest rate on their debt is only 3.5%. This is quite low. So, you know, I can see why they've accessed this amount of debt. You know, effective debt management is not something we give enough credit to companies for on this show. But if you can borrow money at low rates for a long time and redeploy it to generate much higher returns, that is going to be wildly accretive to shareholders. And even though the total debt figure is a lot to stomach, it goes from, well, literally being a liability to being something more like a strategic asset.

33:32if you've been able to ladder the debt well. And just from what I see, it does look like they've been able to lock in some very attractive borrowing rates. And one thing that's important to look at are trends in a business leverage profile. Is the business decreasing leverage over time as it makes doing so a priority? Or is it continuing to step on the gas pedal of growth, increasing leverage as a result? And with AMT, it very much seems to be the latter. Yeah, Sean, I think you're completely correct on that assumption. So if you go back to 2017, AMT has continued to basically leverage up from that date.

34:10So in 2017, net leverage, which I'm using as total debt to adjusted EBITDA was just three times. Today, it's risen to five times. So that's nearly a doubling in debt while revenue only grew by about 52%. And this is definitely a red flag, but it actually looks completely above board if you look at it from the view of their covenants. So we've actually see this number continue to rise as their covenants require them to stay below six times. So their debtors allowed AMT to go all the way up to seven and a half times in 2021 to complete the acquisition of Telxius and Corsight. Now, I think the important thing to focus on is what the annual debt service payments are going to look like.

34:45Current debt is$6.1 billion. Annual interest payments are about$1.35 billion, which I think are very, very serviceable given their cash flow. You know, when I'm sitting here, I'm looking at the balance sheet, I see a billion dollars in cash and more than 40 billion dollars in total debt. And then, like you said, annual interest payments of one point three five billion dollars, which is more than the cash they have on their balance sheet. That makes your stomach churn a bit, even if that debt does have distant maturities at low coupon rates. It's a business that is generating more than$5 billion a year in operating cash flow.

35:24In theory, it would be nice for peace of mind to see them using their own cash flows as financing, but I know that's hard to do with REITs. And it just makes your equity value a lot less robust because more of the business belongs to creditors who have first claim on the assets and bankruptcy. I mean, that's what it really means to take on debt. And one thought I had here is just why AMT is leveraging up. And, you know, my guess is perhaps it has to do with the fact that AMT is considered a REIT, which we've talked about. And so let's get into how that REIT status affects their need for outside financing.

36:06Yeah, the good old REIT angle is definitely worth exploring a bit here. So the reason a business like AMT is designated as a REIT is specifically for tax purposes. So as a REIT, AMT avoids a standard 21 % federal corporate income tax on income distributed to shareholders. As a REIT, they also avoid the classic double taxation problem with dividends. So non-REIT businesses pay taxes on dividends at a corporate level and at the individual level. The REIT status allows AMT to be taxed just once. But, you know, unfortunately REITs do have a price of admission and it's quite high. So high that I generally just completely avoid them.

36:41They are required to pay at least 90 % of their REIT taxable income to their stockholders. This means that AMT must rely on outside financing simply because they just barely have any capital left to reinvest into the business. So since 2016, AMT has increased its dividend by 15 % per annum. So, you know, dividend-loving investors are probably going to be delighted to see the steady rise in the AMT dividend. They've done a few buybacks, but they're quite small in nature, amounting to just about$1.7 billion. So I just mentioned that the price of being a REIT was high, and let me expand a little bit on that.

37:15So I generally like businesses that both have a high ROIC and the ability to reinvest at those high rates, preferably over a multi-year time period. Now with the REIT structure, AMT is unable to reinvest itself in the traditional sense. So in terms of reinvestment, it basically has to rely on outside capital as the dividend requirements caps its ability to reinvest cash back into the business. Again, it's a really super interesting business to study because you don't normally come across businesses that legally have to use outside capital to fund their growth unless you're used to looking at REITs a lot.

37:50And there are pros and cons that come with that. And one thing I noticed is it actually looks like the payout ratio is 110 % of earnings. So they're paying out more than their total net income in dividends. And so obviously that's not completely sustainable. And you mentioned something there that is crucial, and that is that you like businesses with high returns on invested capital, high ROICs. And I think we should look at that here in more detail because it's obvious that these towers where they have three tenants have very, very good ROIs and unit economics, but that is on an individual tower basis and not necessarily looking at the economics for the entire company at the corporate level.

38:35Yeah, good catch there, Sean. And the return on investment as AMT calculates it just takes into account gross margin and doesn't go all the way down the income statement. So let's break down their capital efficiency numbers. So AMT's ROIC is not particularly eye-catching, but it's very solid and very sustainable. So the ROIC for 2025 was about 9.3%. And since 2007, ROIC has stayed between 8 % and 11%. Now with AMT's relative low cost of capital, they're obviously definitely creating shareholder value by using debt to reinvest into the company. The ROIC numbers have been relatively stable as well.

39:11The one big adjustment was in 2021, and that was the same year that they made these very, very large acquisitions. Well, speaking of acquisitions, those are what I would consider capital allocation decisions too. So can you take us through the acquisitions that AMT has made over the years and how they factor into the picture here? Yeah, great point. So I think American Tower can be broken down into a couple different phases. So the first phase lasted until about 2020 and was very simple, you know, buy towers or owners of other towers in markets where wireless demand was continuing to grow. At the same time, you just add tenants to existing towers and you just enjoy the operating leverage.

39:49They made quite a few deals which really helped them expand their tower account all over the world. And most of these deals were valued around$3 billion. Now, 2021 marked the transformation and pivot. Now, I'm not going to say they completely pivoted away from it. It was just kind of an additional service that they added. And that was the deal for CoreSite, which added a kind of a data center angle to AMT. So in Telxius, they doubled their European footprint. But the big difference here was in the purchase price. So like I said earlier, the average deal was for about$3 billion. Telxius was done for $9.6 billion.

40:21And Corsight was done for$10.4 billion. So much larger purchase prices. Now, I would say that most of the deals done before the Corsight deal were quite good as it stayed true to AMT's central theme of just focusing on these cellular towers. But Corsight, in my opinion, was quite expensive. So for$10.4 billion, they got 24 data centers. They also bought this right before interest rates were about to sharply rise. Now, the deal added about$2.5 billion in goodwill to AMT's balance sheet. Now, since the business runs primarily off of hard assets, you know, this just seems a little high to me. The deal also was done for 27 times EBITDA.

40:57Now, since buying Quorsight, its revenue has grown at about an 8 % kegger, which is decent. Operating margins have also expanded from 46 % to 53%. So, you know, I think these are pretty decent growth numbers and operating leverage, but the problem is just the price paid. I think 27 times EBITDA does what I would expect from a fast growing recurring revenue machine. And while you can make the argument that data centers are a recurring revenue machine, the growth just isn't really as high as I would expect for a business with that multiple. You know, had they paid half that multiple, I'm sure the conversation here would be much different.

41:30Oh, and one thing that I want to touch on a little more was the economics of the data center business. As you can tell, the growth numbers have been quite decent, but it's a relatively small part of AMT's overall business. So in the last quarter, it's reported a revenue share of about 10.5%. So I would say, you know, it's doing pretty well. If we annualize the current numbers, its run rate revenue is around$1.1 billion and run rate EBITDA is around$600 million. That brings the current evaluation down to just 17 times EBITDA, which is obviously a lot more palatable. and perhaps you know they anticipated this future growth in the purchase price which is why they paid an optically high price for the business back in 2022 we've spoken at length here about capital efficiency in allocation and i think we can see that amt clearly thinks you know closely and pretty well about capital allocation so maybe we shift gears now to to management to get a better view of how they view capital allocation and how it relates to their incentives, because ultimately, you know, that is what it's going to drive their decision making.

42:34Yeah. And, you know, I was pleasantly surprised to listen to just how exactly they think about capital allocation. So when asked about the return hurdles that AMT looks for in new towers, their CFO Rodney Smith replied, from a return hurdle perspective, I don't want to get into the details here, but certainly being above our weighted average cost of capital by a couple of hundred basis points over a reasonable amount of time. And I'm not going to get into the detail in terms of the terms. That really is what we would expect based on just the fundamentals of the market and the investments that we're making.

43:04I think this is just a really, really powerful quote. It shows that they're thinking about capital allocation in definitely the correct way, which is to think about whether it's above or below their cost of capital. I would expect more executives to think this way, But unfortunately, it's a lot more rarer than I would have initially assumed. A lot of CFOs are specifically trained on how to pay lip service to this concept to appease Wall Street. But at least in terms of the prudent use of leverage side of things, their actions do seem to show that they understand how to manipulate their cost of capital lower, which is a huge part of capital efficiency and creating shareholder value ultimately.

43:44But pivoting here a bit with AMT being an$84 billion company in terms of equity market capitalization, I assume they're probably going to have reasonably low insider numbers, given that there's such a mature company. It's just hard to have a lot of insider ownership for a business of that size unless you have some sort of founder that's been with the business all the way through. That's right, Sean. And, you know, the recent proxy shows insiders own just about 0.7 % of the company's shares outstanding. So the insider ownership just, you know, obviously isn't a strength of this business per se.

44:21If you add in options, this jumps up to just 1.1 % or so. So their CFO, Stephen Vondran, owns about 72 ,000 shares. He owns an additional 33 ,000 with options, bringing the total value to just about$20 million. Now, AMT has ownership guidelines specifically for the CEO, including that the CEO must have at least six times their annual base salary in AMT stock. Other executives need just three times. And they have about five years to reach that ownership target. So what exactly are base salaries? I think they're quite reasonable. The CEO, Stephen Vondren, has made about a million in base salary for 2025 and for 2024.

44:58Other execs are making a little over$600K in base salaries. But, you know, with AMT, we have to keep in mind that base salary is a pretty low part of the total compensation package. So for the CEO, base salary is just about 7%. And for other NEOs, it's about 12%. So we definitely need to dial into the incentive program to figure out whether the program is well aligned with shareholders or not. Yeah, I was just thinking about recently I read this article called The Security I Like Best, written by a 21-year-old version of Warren Buffett in 1951, talking about Geico. And he talks about Geico having a low cost advantage that was underappreciated, trading at eight times earnings.

45:40The other thing he mentions is that management owned a third of the company. And so that's something you can only really find in small caps. There's not too many$80 billion companies where management owns a third of the business, but it is a great sign of alignment. And while I think in this case, it's nice to see that execs have fairly reasonable base salaries, they can easily create a mismatch in alignment if the bonus incentives are done wrong. And so Snapchat is always our example of a company where more wealth has been created for insiders and employees than for shareholders. And so that's just kind of a fact.

46:21And what is precisely the opposite of what you would want to see in terms of shareholder alignment, skin in the game with ownership of the stock is one thing, but excessively rewarding management with stock-based compensation to the detriment of shareholders and dilution of everybody else's stake in the business. That is another thing entirely. That's right, Sean. And I will say, I really liked that Geico example that you gave about Warren Buffett. Great article. Now, getting back to incentives, I think we obviously want to avoid that asymmetry where management is padding their own pockets while shareholders' pockets are getting more and more empty.

47:01You know, I think there's just enough businesses out there that are able to align incentives well enough to reward management and shareholders simultaneously. But you know, let me get off my high horse here and let's look at AMT's incentive program. Like many of the businesses that we cover on the show, they have a short-term incentive program and a long-term incentive program. The short-term incentive program is based on three factors. First is an adjusted EBITDA target. Then you have total property revenue target. And lastly, you get other assorted performance goals. It's not my favorite program.

47:31I'm simply not the biggest fan of adjusted EBITDA. But for a business like AMT, which has a ton of depreciated assets, the adjusted EBITDA number is obviously quite inflated. They currently depreciate and amortize about half a billion dollars a quarter. I will add that even though EBITDA is much higher than free cash flow, at least they're growing at similar rates. The short-term incentives are paid out in cash, which I like as this isn't diluting shareholders, execs can make up to about 150 % of their base salaries based on these annual incentives. Now, the long-term incentive program, in my view, is much better in terms of the incentives used, but they are giving bonuses with options.

48:09So the long-term program is based on annual funds from operations or AFFO per share, average ROIC, and relative total shareholder return. Now, I really like the first two, so it's great to see these at an 80 % weighting. I love this incentive plan because it has a per share component as well as a capital efficiency component. It's really hard to beat this as an incentive structure. So I give them a lot of props for developing this program. And clearly it's delivered quite a lot of shareholder value over the years. The stock price since 2016 has conquered at about 6.3%. Now that's not a high number by any means, but we also have to remember that AMT pays out a ton of its profits as a dividend.

48:46The dividend yield is currently around 3.7%. So, you know, you're getting somewhere around a 10 % return. And as I mentioned earlier, 10 % is well aligned with AMT's average ROIC over the last decade or so. I haven't spoken much today about AFFO. So AFFO is a REIT KPI. So AFFO is basically a ceiling on the amount of recurring cash that's distributable to common shareholders. Now, keep in mind that the ceiling isn't the same as the actual dividends being paid out. Some of AFFO is retained by AMT to do things like repay debt, discretionary capex, and for balance sheet purposes. So in AMT's case, the dividend payout ratio is taken from attributable AFFO and not from their net income.

49:26I guess when it comes to management incentives, you get sort of a existential question and whether you want the REIT to continue reinvesting with growth CapEx or do you want it to simply maintain its current assets and payout dividends and really do nothing more. And your incentives are going to matter a lot depending on what you want, how to adjust them. And normally I think of the latter with REITs, where they're just primarily focused on paying out dividends. But it's really interesting to see how AMT has taken this more compounder approach, right? They've tried to bring this quality compounding idea to REITs, which is just really unique.

50:08And so with that, I want to go into one more thing here on the incentive program before we move on. And that's how the long-term incentives are being distributed. You discussed how these were being paid out in options, but maybe if you can go into more detail into whether that's mainly in PSUs, performance stock units, or if they have an RSU restricted stock unit component to it as well. Yeah, so AMT is using both RSUs and PSUs. So RSUs are bonuses I think nicer of us are particularly crazy about. They vest over a three-year time period. I would prefer that businesses just get away from RSUs and tie all compensation to performance and not to tenure.

50:51I get the argument, you know, if owners of the RSUs do not create value, then the RSU is worthless. But I just think that you can accomplish the same thing with PSUs. And while not perfect, at least make it so management is more aligned with shareholders. Now, the PSU grant covers a three-year performance period and pays out about 0 % to 200 % of the target share amount. I do like that the PSU-RSU mix is at least 70 % to 30%. The relative total shareholder return compares AMT with reconsituents that are inside of the S &P 500 index. It's a decent setup, and I think you captured my thoughts pretty well on RSUs.

51:28We'll leave it at that. And, you know, we haven't had much of a chance, though, to discuss AMT's specific competitors. So I think that's worth getting into a little bit more before we start to talk valuation. While AMT does have these monopoly-like characteristics that we've talked about, I think oligopoly, as I understand it, would be a better way to describe the industry they compete in. But is that in line with how you think about it? Yeah, Sean, I think I completely agree with you there. Whereas, you know, a business like Verisign is, I would say, a monopoly, right? They're kind of the one big player.

52:02AMT definitely has competition all across the world, but it's not a lot of competition. So I think oligopoly is definitely the term that I would use. So if you're looking for competitors, they're definitely out there, but it's not a market where competitors are springing up all over the place. So if we look at the US, for instance, there's basically just two large competitors. They are Crown Castle and SBA Communications. So Crown Castle has about 40 ,000 towers all in the US. SBA has about 17 ,000 in the US and tens of thousands more towers worldwide. Now, just to compare the US numbers, AMT has about 42 ,000 towers in the US alone.

52:39Now, the US has approximately 140 to 150 ,000 towers in total. So AMT has somewhere about 30 % of the market. So it's clearly in a very, very powerful position. And as time goes on, and given, I think, AMT's acquisition history, I think it's pretty likely that we'll see this number of competitors continue to shrink as the smaller players continue to get eaten up by some of the bigger ones. Now, if we examine how sensitive AMT would be to key factors in the industry, there are a few characteristics worth zooming in on. So first is that further consolidation of the cellular carriers. So the U.S.

53:12is obviously served by these three major carriers. And as the disruption from the T-Mobile Sprint merger showed, this can cause elevated churn to the industry in its entirety. AMT has obviously taken steps to try and ameliorate this, but it's still something that AMT will have to be sensitive to, and this applies globally and not just in the U.S. The thing I really want to understand better is how closely regulated AMT is by the government. And to me, that could really make or break the investment. But I also wanted to mention that one smaller area of the business I came across when reviewing the stock that we'll be talking about today It was these distributed antenna systems that are known as DAS networks.

53:54And so these look sort of like logistics for getting wireless coverage into large towers and other outdoor areas is maybe how I would put it. But how does this relate to the potential pressure that competitors can leverage over AMT? Yeah. So let me get to your point there on regulations first, Sean. So it's a little tougher to get a really good call on this. So it appears that the government actually hasn't stepped in to their price increases in AMT's past. So in the US, the contracts give them this 3 % annual escalator. And my educated guess is that all tower businesses are probably offering pretty similar escalators.

54:31And if they were to restructure the contracts where the rise was too high, then perhaps they run the risk that customers aren't going to ring you. And then they would just go to a competitor with a lower fee escalator. Now, as for the international markets, the escalators tend to be higher due to currency devaluation of their base currencies. But overall, I was actually quite surprised by just how little regulatory interference is run on AMT's business. So, you know, overall, I would say it's not like VeriSign, in which case it's highly regulated. I just think that because AMT is in this oligopoly, economically speaking, they can't have that fee escalator get too high.

55:08Otherwise, like I said, customers will jump ship. Now, I want to get to your DAS question. I was actually coming home yesterday with my son and wife from his swimming lessons. And it was out in an area where you have to go into this more rural area of Vancouver. And actually, right before we got on the highway, I saw two towers that literally looked exactly the same as the ones that AMT would have. And it just kind of got me thinking, okay, well, these towers, you're not going to see them in the city. No chance, especially with how expensive our real estate is. So that's why you're going to see these towers in more rural areas.

55:40And in this one area we went through is, there's farms, right? So this is kind of the kind of customer that AMT will put their towers on on farms. But then when you go into cities, like Vancouver, where I live, you don't see any of these towers. So instead, you're going to see these DAS sites. So I want to get to that question there on DAS. So AMT has only 858 DAS sites. So this is a relatively small part of their business. Now, what exactly is a DAS? It has multiple parts to it. So first you have the signal source. So this would be an antenna on a roof that needs to point at some sort of nearby cell tower.

56:14Now from this antenna, you have to run a cable down to some amplifier or nodes within the building. Now these amplifiers and nodes then distribute the cellular coverage to devices inside of the building. That's why when you go into an office building, you have internet coverage. Now the DAS structure are used in highly dense urban environments. So think of like, you know, your downtown course. Now, even though DAS is an interesting business model, I don't really see it as a major competitive pressure for AMT, given that it accounts for, you know, a single digit share of AMT's overall revenue. And even though DAS appears to be an interesting growth segment, Crown Castle actually already tried to pivot more towards DAS, but unfortunately it actually hasn't worked out that well.

56:53The margins from DAS networks aren't as good as traditional towers. So even though AMT has a few of them, I don't think it's likely that they're gonna continue to make growing that segment much of a priority. I think it's pretty interesting that this business doesn't necessarily correlate directly with population concentration, right? Like you can have really densely populated cities and then the DAS business doesn't have the same kind of margins as a tower, maybe in a more rural area or the suburbs or whatever it is. So that's sort of counterintuitive. And it does seem like not expanding aggressively into DAS has been a pretty intentional feature of American Towers capital allocation.

57:37And so at this point, I think it's very clear that they're the dominant player in the cell tower industry. But there are some new technologies out there that are changing some of the industry dynamics that make me inclined to perhaps put this in my too hard bucket if we're getting an early preview of the portfolio decision. but we'll see. At the time of recording here, we're waiting on the SpaceX IPO. And there's plenty of speculation abound about how their technology will disrupt various industries. But it does seem like companies like SpaceX are helping make satellites a growing threat to AMT.

58:14And before I get carried away on a tangent about that, I'll just let you expand on how you think about those risks facing the company? Yes. So even a business as strong as AMT does, you know, unfortunately have some exposure to technological advances. And the big one right now, like you just pointed out there, is the expanding availability of satellite technology. So if you followed, you know, SpaceX's Starlink or even ASTS, you know exactly what we're talking about. So these are both businesses that basically put up satellites and then they can use them to have customers on the ground, use them as a source of an internet signal.

58:50Now, AMT actually made a strategic acquisition into ASTS when it was a very small private company, and they actually divested the majority of its stake at the end of 2025 at a very large gain. So they still actually have a board seat in ASTS just to monitor what's going on. So AMT's CTO, Ed Knapp, has that board seat, which gives him direct access to what exactly is happening with satellite technology. So the thesis, from what I can tell from the AMT earnings calls, is that investors are worried that the satellite internet will disrupt cellular towers where AMT obviously operates. Now, so far, AMT doesn't seem to be very afraid of Starlink and ASTS.

59:26It's interesting because even when I think of the few Starlink ads that I've seen, it's usually some gamer in a truck in the middle of nowhere using Starlink. It's generally, from what I've seen at least, not someone in an urban area. Now, the main reason AMT doesn't seem to fear these satellite-based networks is that it will be complementary to AMT and not a direct competitor. So where satellite-based networks are a threat is more of in the rural or underserved area of the planet where tower placement just isn't economically viable. So on the Q2 2025 earnings call, AMT's CEO said he thinks satellite networks are a net positive because it will allow more people to access the internet in areas that they might not otherwise have access to.

1:00:06So he mentioned areas, you know, like the Grand Canyon, rural Montana, or sub-Saharan Africa. These are areas where satellite networks will have an impact, but he doesn't have the towers in those areas simply because it just doesn't make any business sense. I went on a camping trip last year with my wife and son, and we rented out a large space in a provincial park, and we shared it with a few other families. One of the other people there actually had a Starlink Mini, but he said you don't get a ton of data on his plan, so he didn't share the login information to be used by everyone else. Now, I just checked the pricing on a Starlake Mini on a monthly basis, and it ranges from about$50 to over$250 per month.

1:00:43So, you know, I can see how this would be interesting to sign up for if you're a, you know, camping enthusiast or if you're going on some sort of cross-country RV trip. But at that price, I think you can easily get unlimited internet for less at your home. And the terrestrial internet is where AMT plays. You know, it's funny, whether it's AI or satellites, every time there's a big threat to a business, I feel like I always hear management of the affected company saying, oh, well, you know, actually this is an opportunity for us. And, you know, that may be true. But really the question is, after folks in rural areas have initially gotten access to the Internet via satellites, will satellite Internet keep improving to a point where it never makes sense for them to switch over to a network powered by AMT?

1:01:27And unless satellite internet becomes dramatically better and cheaper, which it very well could in the coming years, I mostly see that as a threat on the margins in rural areas where AMT might have been considering rolling out towers in the future as those areas develop. But another risk that I want to come back to is the consolidation of carriers. I wouldn't say we need to litigate this topic again entirely, but it is probably the most tangible risk to the business. So it's certainly something to be noted. And another related risk to that is customer concentration. So the US market is being served primarily by three customers.

1:02:07And if the financial condition of one of these big carriers like AT &T, Verizon, they deteriorate, well, that would be very bad news for AMT. And they have these guaranteed contracts, but if a company were to, say file for bankruptcy, I don't think AMT is going to get paid. And then this customer of theirs is probably going to get acquired by one of the other two carriers. And then that creates an even bigger problem for AMT. So really customer concentration is a challenge for them in many ways. Yeah, 100%, Sean, I can't argue at all. So the only thing I do see is it's a risk, But because they're geographically dispersed around the world, you know, it would still hurt, especially in the high margin American market.

1:02:54But, you know, I don't think it's something that would necessarily destroy the company. You know, if you look at AMT and what it offers, there's entire nations that rely on working Internet. So let's say a carrier were to go bankrupt. I think it's very likely that that carrier is like you just mentioned, is going to be acquired by another company rather than having its assets completely liquidated. And obviously, if they were completely liquidated, that would be horrible for AMT. Um, but you know, as of now, assuming that satellites aren't, uh, the biggest threat that AMT thinks they are, um, those assets that would then be sold off are going to be very, very valuable.

1:03:29So I think there's a very, very good chance that they would find a willing buyer and hopefully they would continue to honor their contracts with AMT. Although they might, you know, go through some turn like they did with that, uh, the sprint deal. So there's actually been a recent example of a customer failing to pay its bill. So DISH recently actually defaulted on its lease obligation to AMT. So they're now in federal court trying to figure that out. DISH represented about 4 % of AMT's North American revenue. So, you know, while it's not an existential amount by any means, it will still have effects on AMT's revenue and create some near-term headwinds.

1:04:03So the multi-year lease agreements were worth about$200 million per year. Another example was in Mexico's AT &T business. So that business was actually withholding tower rents throughout 2025. They withheld somewhere around$300 million in tenant payments. But luckily, since then, the dispute was resolved. AT &T Mexico will actually end up remitting the payments into the future and has already started back up with the regular payments. So while this is a risk, because of AMT's large scale and international reach, it would be pretty hard for just one customer to sink the ship. U.S. consolidation definitely would be their biggest risk here.

1:04:40I'd mainly be concerned about this kind of thing happening in the U.S. since the U.S. market is so much more profitable than the other markets they operate in. The effects would be disproportionately negative. And the last risk that I wanted to discuss with you here in further detail today is, again, the debt. We talked about the pros of pragmatically using leverage with long-term financing locked in at low rates. But still, if you're carrying a ton of debt, it's ultimately a big risk for shareholders. And the interest seeds into your net income. And then if there's another financial crisis where liquidity evaporates, they may no longer be able to access outside financing to roll over their debt, which is a huge problem with their business model that they've been building here.

1:05:27And it becomes very challenging when you're legally required to pay out most of your earnings to shareholders to then be able to accommodate the debt. And so in that kind of environment, if AMT has a big bill come due, I do think that could be a real problem if lenders are not interested in rolling over debt to them at all or only at egregious interest rates. Yeah. I mean, I'm also still not crazy about all that debt, even if they don't have to pay it off for multiple decades. I think the business does have some structural handicaps being a REIT. And as I mentioned, the REIT structure really forces them to use debt to reinvest into the business.

1:06:09So, you know, right off the bat, you can expect a business like this, which will probably continue to expand to continue to also have quite significant amounts of debt. And, you know, even if you go back in time, three times was the lowest leverage ratio they've had in the last decade or so. So, you know, my assumption is that we're going to continue to see a leverage ratio around that three to six X for the foreseeable future. Now the fixed rates on their debts are very reasonable. So obviously that's a bonus, but like you said, over time, there is a chance that they're going to have to roll that debt over.

1:06:39And if interest rates go up significantly, um, that's going to definitely eat into their AFFO number. And you know, if you have to reduce the dividend, that tends to be something that shareholders do not like at all. I guess it's just a risk. I'm going to have to get more comfortable with if we ever want to own REITs. But I'm used to buying these tech companies with negative net debt and a ton of free cash flow to use at their discretion. But of course, that often comes with lots of stock-based comp, right? Because they're paying out employees and a lot of their internal costs just by giving them stock.

1:07:14So the cash flow numbers look very good. And you're just trading one problem for another, basically. You either got a ton of debt or you've got a ton of stock-based comp. And That's kind of a simplification, but that is sort of the model you see across a lot of businesses. And with all that said, I think it's that time of the episode where we discuss the intrinsic value of AMT. And I'm looking at your model now, and AMT does have some very impressive margins. And as you outline, these margins are likely to continue improving if they can increase their tenant count. But what do you think about AMT as a business and as an investment for us at today's prices?

1:07:54Yeah, I mean, simply put, I think AMT is an incredible business. You know, there's no doubt in my mind about that. It's a business that sells a service that is needed by essentially the entire world. You and I use services that use cell towers on a daily basis, Sean. This business simply cannot go away. And I don't see satellites disrupting the core business model anytime soon, if ever. But, you know, we also have to take into account that this is a very mature business with a market cap of$88 billion. The business offers pretty limited organic growth other than developing new towers, adding some tenants, and those annual fee escalators.

1:08:29Perhaps they may decide to further scale the data center biz, and then on the inorganic side, they can buy out their smaller competitors. But it doesn't seem like this is a business that's going to continue to grow its top line much beyond the mid-single digits. So in my base case, I assume AMT's margins rise very modestly to about 66%, with the U.S. market quite saturated. there's still some room for tenant growth, but I don't think it'll be anything close to what it had been in the past. As for tenant growth globally, it's really hard to get a view on this as AMT just doesn't share those numbers.

1:08:59So while they may sign up some new customers, I think most of this growth is gonna come from fee escalators. Now, as the business ages, I apply a 5 % revenue growth rate. This is slightly lower than their 10-year historical growth rate, but it's important to remember that even though AMT seems like a boring, asset-heavy business, it's still a recurring revenue machine. The contracts are long and customers are very, very locked in. Now, because of this, AMT has historically gotten a pretty premium EV to EBITDA multiple. So as of today, it's trading at a low multiple not seen since 2017 at about 19 times.

1:09:32Now, with these inputs and applying a 21 times exit multiple, then applying a 10 % margin of safety, I'm getting returns a touch below 9%. Given their ROIC trends, this seems to be pretty in line with the long-term returns of the business. Charlie Munger has this great quote about the long-term returns of a business mirroring that business's capital efficiency numbers and ROIC, ROIC, whatever you want to call it, is what we're referring to there. And so in AMT's case, this seems quite accurate, right? When you first discussed AMT, it gave me a lot of VeriSign vibes and Copart vibes. And they're both businesses with deep moats, but are also mature businesses with limited reinvestment opportunities and growth opportunities too.

1:10:18And so for VeriSign, they didn't have the same debt structure though. And we still ended up passing on the opportunity simply due to price and more than 30 times earnings. It didn't feel like we had any margin of safety, but that stock has actually only gone up since we first looked at it. So that's just how it goes sometimes. But Point being, while I see both of them sticking around for the long term, I don't think either of those companies at current prices belong in intrinsic value portfolio. And American Tower actually is around a similar PE to VeriSign, but then again, it has all that debt that we've talked about.

1:10:57And so that's not to say that they're not great businesses because they are truly excellent, both of them. but more that just the price isn't right. And with AMT, there's this further complication from the debt. That is how I would think about it. Yeah, I mean, I completely agree with you, Sean. This looks like a great business if you want high single digit returns and income. But that's not really what we're focused on with the intrinsic value portfolio. While I think this is a very interesting business, it's just one of those classic examples where a quality business doesn't necessarily mean it's a right investment for everyone.

1:11:30I think you and I both appreciate quality and AMT clearly oozes quality, but that doesn't make sense as an investment for us today. I think with the limited growth opportunities for this business, it's unlikely that it's probably ever going to be that interesting unless the price drops substantially. And then you could make a return from a mix of EPS growth, dividends, and multiple expansion. But even then, you know, once the price and value converged, I'll be very likely to just sell the business because in the long term, I just don't really think you're going to get returns much above high single digits.

1:12:02Now, as for Chuck Ackrey and his decision to drastically trim his AMT position, I think it's because he sees potential slowdowns in AMT's growth. And perhaps it's reached a point where the business can just no longer grow faster than the benchmark, which has caused him to lose interest. Now, I'm just speculating here, but that's what my best guess would be, along with what your point was along the debt issues and how that's continuing to rise up. Now, I want to leave you with a quote today from the legendary Charlie Munger about cinches when it comes to investments. What percentage of your net worth should you put into an investment if it's an absolute cinch?

1:12:34The answer is 100%. Now, I don't think AMT is an absolute cinch anymore. 10 to 20 years ago, I think it probably was. And that's why investors like Chuck Ackrey just did so well. Today, it's a very good business and there are still a few question marks that just really didn't exist back then. And with that, I hope you enjoyed today's episode and I'll see you next time. Just a quick note before you go, this episode would not be possible if it weren't for our friends at Fiscal AI. It's our complete stock research terminal that Daniel and I use on every single episode and with every company we dig into, pulling 20 years worth of financials, digging into segment data, grabbing quotes from the latest earnings calls, and making use of real-time institutional grade data all in one place.

1:13:18And if you want to try it yourself, well, head to fiscal.ai slash T-I-V-P. That'll include two weeks of Fiscal Pro for free and 15 % off if you upgrade to a paid plan. That's fiscal.ai slash T-I-V-P. Thanks for listening. Thanks for listening to TIP. Follow the Intrinsic Value Podcast on your favorite podcast app and visit theinvestorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax, or legal advice. The content is impersonal and does not consider your objectives, financial situation, or needs.

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