American Tower Corp. (AMT), a leading global wireless communications tower operator, has stepped up its effort to become a Real Estate Investment trust (REIT). Last Friday, American Tower REIT Inc., a newly formed wholly owned subsidiary of American Tower Corp., filed a proxy statement on Form S-4 with the U.S. SEC to initiate the process of converting into an REIT.
On May 19, 2011, the Board of Directors of American Tower approved the commencement of the steps necessary to reorganize the company to qualify as an REIT for tax purposes. However, the conversion will not take place before January 1, 2012. In order to qualify as a REIT, American Tower will issue a special distribution to stockholders of its undistributed earnings and profits for an aggregate amount no more than $200 million. The company will utilize its liquidity for this purpose. This special distribution of undistributed earnings and profits will happen in the fourth quarter of 2011.
An REIT has to pay out at least 90% of its taxable income to shareholders in the form of dividend every year. After receiving SEC clearance, the existing company will merge into the newly formed American Tower REIT Inc. The company is expected to hold a special meeting of shareholders to vote on the proposed merger.
In a major development, last Friday, American Tower faced a setback. The U.S. SEC issued a subpoena to the company seeking documents related to its tax accounting and reporting from 2007 through the present. Immediately, after this announcement, the stock price of American Tower tumbled nearly 6%, its highest fall in the last two and half months. Management asserted that it will fully cooperate with the SEC.
We also believe the proposed acquisition of T-Mobile USA by AT&T (T) may become a long-run negative for American Tower. T-Mobile currently accounts for around 8% of American Tower’s consolidated revenue. At present, these two companies share 3,100 sites of American Tower. Several industry researchers have estimated that the successful merger of AT&T and T-Mobile may reduce American Tower’s mid-term growth rate in the U.S. by 10%-15%.
We reiterate a long-term Neutral recommendation on American Tower. Currently, it holds a short-term Zacks #3 (Rank).
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