American Tower (NYSE: AMT) isn't exactly a value buy right now. Trading at about $245 per share and just over 26 times its adjusted funds from operation (AFFO) at the time of this writing, it's one of the more richly valued real estate investment trusts (REITs) in the market today. While that's normally a signal to wait until a market correction to buy, there are several reasons American Tower's price tag doesn't worry me. Here's a closer look at why.
Until 2021, American Tower almost exclusively operated in the world of communications real estate, leasing mobile-phone and telecommunications towers to tenants such as Verizon , AT&T , and T-Mobile, among many others. During its 25 years in business, it's become one of the largest communications operators in the world and the second-largest REIT by market cap, in large part because of its portfolio of more than 214 communications towers in 25 countries. But communications towers are no longer its sole business. In late 2021, American Tower branched into the world of data centers with the acquisition of Coresite (NYSE: COR) in the fourth quarter.
The acquisition cost American Tower $10.1 billion but it added 25 data centers in eight major U.S. metro areas, giving the company new exposure to a vital piece of the technological world we live in today. The acquisition is projected to bring a 10% compounded annual growth rate (CAGR) for AMT. This strategic play will undoubtedly add value to AMT over the long term as demand for data storage and 5G services continues to increase.
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Why American Tower's Price Tag Doesn't Worry Me