If you’re an income investor or even a growth investor, American Tower (AMT) should be a stock that has your attention. AMT is a company that leases wireless communication towers. From cell phone service to radio and television, they own 37,000 of the towers you see across the land enabling our communications infrastructure to function.
While I think the company is in a great industry that will continue to grow as we become more connected (especially internationally), an interesting event is set to transpire later this year. AMT is planning to convert itself from a regular corporation to a Real Estate Investment Trust (REIT). This would mean they would not be taxed as much at the corporate level and be required to pay 90 of its taxable profits as dividends.
As a REIT, AMT would be a very interesting investment. As the country expands into developing countries, you cannot ignore that there is a significant growth story to possibly be had, yet if AMT is a REIT and most of its money (90%) is being paid out as a dividend, can the company continue expanding as it has?
I’ve noted before that one problem some REITs have when growing is that they cannot retain enough of their earnings to finance their desired expansion. Sometimes this causes dilution of the stock’s shares because new shares will be issued to raise capital. The S&P currently maintains a BB+ credit rating on AMT, which isn’t all that bad (The better the credit rating the less you must spend to borrow money from lenders.).
If the change to a REIT occurs it will be interesting to see how investors react. This would be an obvious draw for income investors, but what will be the reaction of investors looking to gain more on the growth side? My guess is that the investors looking for more intensive growth will be gone by the time the potential conversion occurs. Therefore, the news will bring more buyers looking for investments paying regular dividend distributions.
A few days ago a news story broke that the SEC had requested tax-documents from AMT from 2007 to the present. I’m not sure if this is some regular procedure that occurs when a company is converting to a REIT or if it should be a yellow flag. In either case, it provides investors a point of information to look forward to finding more information out about in the future, if there is an issue. Otherwise, the next big news should be the REIT conversion.
Disclosure: No Position