Muddy Waters Research is out with a new report on American Tower Corp (NYSE:AMT).
American Tower Corp (NYSE:AMT) recently announced that it had agreed to acquire a total of 4,456 towers from NII Holdings Inc (NASDAQ: NIHD) for approximately $811 million, which is a blended average price of $182,000 per tower. This valuation is in the range of 15x to 21x EBITDA, even the low end of which is a worryingly high multiple for any tower portfolio – particularly one as risky as this one. Including required capex, that multiple increases about one turn (i.e. 16x to 22x). We discussed the possibility of this transaction happening in our initial report, and raised red flags about certain aspects of it. , This transaction appears to be yet another low quality, growth at any price transaction AMT management is making merely because it can (and is compensated to do). On a not unrelated note, last week, CEO James Taiclet pocketed approximately $4 million in profits from exercising options for 100,000 shares and immediately selling all of the stock.
Our analysis of the most recent NIHD transaction follows.
• The valuation of this transaction is in the range of 15x to 21x EBITDA, which is very frothy. AMT disclosed that it expects gross margin from the transaction of $55 million. AMT reports gross profit prior to expensing depreciation, so we assume the $55 million is also prior to expensing depreciation. We estimate that SG&A for this portfolio under AMT should be $17 million. AMT’s direct SG&A in its international markets generally runs 15% of revenue net of pass through. We estimate that pass through revenue is 25% of gross revenue in Mexico and Brazil, making our estimate of revenue, net of pass through, $112 million. If our estimates are correct, then the multiple AMT is paying is 21x EBITDA.
• This transaction is risky for AMT from both counterparty bankruptcy risk and consolidation risk perspectives. Our industry sources had previously opined that due to these risks, there was limited interest in this portfolio at this multiple, aside from AMT’sinterest. Therefore it is likely that the above market rents AMT will collect from NIHD do not compensate for these risks.