Which REIT Stock Is A Better Buy?

American Tower (AMT) and Crown Castle (CCI) are two of the largest real estate investment trusts (REITs) in the United States. They not only compete every day in their businesses, they also compete for potential shareholders. Their stocks are considered close peers. Here is an overview of both companies, so you can compare, contrast and decide for yourself how either or both potentially fits in your investment portfolio.

American Tower (AMT) Business Overview

Industry: REIT
Business: Wireless infrastructure
Headquarters: Boston, Massachusetts
Year Founded: 1995

AMT is in the business of operating cell towers. It owns more than 220,000 of them throughout the U.S. and other parts of the world, including Asia, Latin America, Europe and Africa. The company is also active in the business of operating, and in some cases owning, 25 data centers. AMY was founded in 1995 and is based in Boston. AMT competes for business with CCI (reviewed below), SBA Communications
SBAC
and a group of smaller companies in the cell tower industry.

AMT has distinct advantages as well as disadvantages versus its competitors, due to its size. It owns more cell towers globally than any other company, and slightly more in the U.S. than CCI. With size comes the ability to use its capital to make large acquisitions and borrow from the capital markets by issuing bonds to do so. AMT did this recently, acquiring CoreSite to expand its data center business. The goal is to boost AMT’s business and stock price over time, but in doing so, it adds to its already-hefty debt burden. This is the blessing and curse of size, which distinguishes AMT from the many smaller companies it competes with.

Crown Castle (CCI) Business Overview

Business: Wireless infrastructure
Headquarters: Houston, Texas
Year Founded: 1994

CCI leases and owns approximately 40,000 cell towers in the United States, which is the majority of its business. Unlike AMT, it is not a global company. CCI also owns more than 85,000 miles of fiber, which allows it to extend cellular service to more remote locations. CCI’s business model involves leasing tower space to wireless companies like Verizon, AT&T
T
and T-Mobile, which in turn install equipment on those towers to carry their wireless signals to customers.

CCI was founded in 1994 and is based in Houston. It competes with AMT and many smaller, U.S.-centric companies in its field. Its focus on the United States removes things like currency risk and other risks associated with operating outside of one’s home country.

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AMT Vs. CCI Stock: Key Metrics

The table above contains some important data to characterize these two peer companies and distinguish between them from a quantitative standpoint. AMT, thanks in large part to its global business model, has a market capitalization twice that of CCI, though they have roughly the same number of cell towers in the U.S. CCI’s profit margin is significantly higher, and its price to sales (PS) ratio is significantly lower than that of AMT. CCI’s dividend yield of 6.8% is nearly twice that of AMT, which may signify that investors see AMT as more of a growth-oriented REIT, and CCI as more of an income plus growth proposition.

An important distinction with REITs versus other publicly traded companies is that REITs are not typically valued based on price to earnings. REITs are valued using a different metric called funds from operations (FFO), which better reflects the way real estate businesses generate earnings, and how those earnings are classified for tax purposes.

Recent Business Performance

American Tower

AMT released its third-quarter report to shareholders on October 26. Compared to third-quarter 2022, revenue increased 5.5% to $2.81 billion, Ebitda increased 10.4% to $2.79 billion and net income decreased 29.6% to 577 million. Tom Barlett, who was named CEO of the company on the same day earnings were announced, discussed the company’s resiliency amid what many market participants recognize as a more difficult business environment than we’ve seen in the U.S. and globally in the past few years. The company’s performance was above analyst estimates for FFO and sales.

Crown Castle

CCI’s third-quarter 2023 report was released on October 18, and unlike AMT, its FFO fell below analyst estimates. Also, compared to third quarter 2022, site rental revenue increased 1%, net income decreased from $419 million to $265 million and adjusted Ebitda was $1.05 billion, down from $1.08 billion. Year over year Crown’s dividend per share increased 6.5%. In the announcement, the company cited that one source of revenue from this year that will not continue next year is from Sprint, one its customers, which merged with T-Mobile, thus prompting the payment of cancellation fees to CCI, since Sprint will no longer be in a position to honor those agreements directly. CCI also announced that its CFO
CFO
, Dan Schlanger, will leave the company on March 31 of next year.

Growth Outlook Comparison

American Tower Outlook

It is a time where nearly all companies have outlooks that are less clear than a year ago. The economy has turned down in many aspects, and higher interest rates negatively impact the cost of borrowing for companies. That is reflected in AMT’s revenue growth of 6.6% in the year ahead, according to analysts’ estimates. Yet 17 of 20 Wall Street analysts covering the stock have buy ratings on it.

Crown Castle Outlook

That same source projects that CCI’s revenue will grow only 1.5% in the year ahead. Wall Street analysts are more reserved when it comes to rating CCI versus AMT, as only 7 of the 19 covering the stock have buy ratings.

Share Price & Dividend Comparison

Past performance does not guarantee any future results. As investors, we hear that a lot, but it is particularly relevant to these two companies right now. Their past success is challenged by the broader economy, and the likelihood that their key clients will not grow as they have in the past. That has a trickle down effect for AMT and CCI. As for their respective dividends, AMT’s is potentially more secure since it only pays out 66% of its earnings compared to CCI’s 85%. That said, CCI’s dividend has grown at 8% versus 16% for AMT over the past five years, and that lower growth rate should be easier to maintain than one in the double digits.

Both stocks have seen noticeable price drops during 2023. Through October 25, AMT was down more than 21% and CCI was down 33%. Over the past five years, AMT has gained only 18% in total, including dividends, while CCI has suffered a net loss of 2%. That followed a dramatic runup in both stocks from 2009 through late 2021, a similar path to what the broad stock market has taken, but with much more volatility in both directions.

Bottom Line

It is difficult to be optimistic on a short-term to intermediate-term basis for most stocks, given the pressure on stock prices since early 2022. However, these two giants of the cell tower business have the advantage of established leadership, albeit in an industry that does not have many clients, given the nature of their customer base. Despite these challenges, both stocks sell at price to sales multiples that have not been seen since the midst of the 2008 Global Financial Crisis. At some point, it is quite possible they will represent good long-term buys. However, in the current environment, all investors should do their homework, not rely on the past, and consider not only what they are buying, but why they are buying it and the role each investment plays as part of a broader investment strategy