American Tower Corp. (NYSE: AMT) hopes its decision to reorganize as a real estate investment trust will help its stock continue its upward trend, and the company has already picked up new support on Wall Street. Within the past month, Wedbush Securities, Stifel Nicolaus and Macquarie Securities have all initiated coverage of AMT with “buy” or “outperform” ratings.
“We view the REIT conversion as adding gravy to a hearty growth story,” Wedbush analyst Suhail Chandy said. “We expect additional upside post-conversion and see continued benefit from domestic 4G overlay and exposure to growth markets internationally, albeit partially offset by any weakness in foreign currencies.”
Meanwhile, analysts at JPMorgan Chase & Co. (NYSE: JPM) have downgraded AMT to neutral, with a price target of $62 per share. The firm said AMT already enjoys a premium valuation.
American Tower became a REIT Dec. 31, meaning it will be taxed as a REIT this year, paying no federal income taxes as long as it distributes 90% of its REIT income to shareholders. (These payments to shareholders are taxed as ordinary income and do not qualify for the zero to 15% dividend tax rates that will remain in effect through 2012.)
American Tower REIT now has two main subsidiaries: its qualified REIT holdings in the United States and its taxable REIT holdings outside the country. American Tower has been expanding aggressively overseas, most recently spending half a billion dollars to acquire 2,500 towers from Telefónica’s Mexican subsidiary, Pegaso PCS.
U.S. tax law stipulates that in order to avoid federal income taxes, a REIT must show that 75% of its assets qualify for tax exemption. American Tower notes in its proxy statement that if the market value of its overseas assets exceeds 25% of the market value of its total assets, it could fail to qualify as a REIT. But Wedbush’s Chandy says investors do not need to worry about this: “They can always move international assets into qualified real estate assets.”
Chandy also believes that other tower companies will eventually follow in American Tower’s footsteps by reorganizing as REITs. He points out that Crown Castle and SBC Communications both have significant net operating losses, which currently shield them from tax liabilities. But when those losses are used up, Chandry said, he would not surprised to see REIT conversions now that AMT has taken the step. “It’s easier when somebody blazes the trail for you, so you can kind of follow in their footsteps,” he said.
Disclosure: American Tower is an RCR Wireless sponsor.
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