We Study Billionaires - The Investor’s Podcast Network - TIP826: American Tower (AMT): The Wide Moat Business Your Phone Can't Live Without w/ Kyle Grieve & Shawn O'Malley

Episode Date: June 25, 2026

Kyle Grieve and Shawn O’Malley analyze American Tower, the global cell tower business that powers the wireless networks we rely on every day. They unpack how leasing tower space to carriers creates durable recurring revenue, why its stacked competitive advantages form one of the widest moats in the market, and how a steadily growing debt load complicates the picture. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:01:51) How American Tower powers the wireless networks we use (00:06:21) How AMT creates recurring revenue (00:08:09) Why adding additional tenants dramatically boosts profits per tower (00:13:57) The three moats protecting American Tower from competitors (00:32:13) Why the REIT structure forces heavy reliance on debt (00:38:46) What American Tower's capital allocation reveals about management (00:40:22) Whether the data center deal was worth it (00:57:33) How carrier consolidation threatens even the widest moats (01:01:30) Why a wonderful business isn't always a wonderful investment (01:11:35) Intrinsic value of AMT (01:13:52) Whether Kyle and Shawn will add AMT to the Intrinsic Value Portfolio Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠⁠⁠⁠⁠⁠The Intrinsic Value Portfolio⁠⁠⁠⁠⁠⁠. Brad Jacob’s first book, ⁠How to Make A Few Billion Dollars⁠. Brad Jacob’s follow-up book, ⁠How to Make A Few More Billion Dollars⁠. Listen to Brad Jacob’s ⁠interview with David Senra⁠. Follow Kyle on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow Shawn on ⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠⁠. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠⁠⁠sponsors⁠⁠⁠⁠: ⁠⁠Plus500⁠⁠ ⁠⁠Netsuite⁠⁠ ⁠⁠Vanta⁠⁠ ⁠⁠Shopify⁠⁠ References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. I'm not exactly a huge reek guy, but when I discovered that Chuck Ackrey had this massive position in American Tower, I mean, it peaked my interest, right? And when I found out how much of a multi-bagger it had been for him at 280X, I mean, come on, that's just ridiculous. Yeah, you know, it's always been a business that I think I really found fascinating specifically because of that Chuck acry angle. Then, you know, the more I dug into the business, the more I saw that the business

is still really good, but it's currently in a nearly 40% drawdown, which really, really excited the value investor in me. Oh my gosh. And that drawdowns been going out since 2021. What is driving that? Yeah, it's been a while. I think the business is still quite good. They got some really, really good assets.

They have some really good switching costs. But, you know, over the years, unfortunately, from what I saw, the balance sheet has just gotten a lot uglier. Well, so I didn't even know AMT was a reet until you told me. But, you know, historically, reeds are not known for having the cleanest balance sheets. Right. And I believe this is the first reet that we've even ever covered on the show. So I think it's going to be a really, really fun business to discuss.

All right. Well, if you're ready, let's do it. Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you.

This show is not investment advice. It's intended for informational and entertainment purpose. only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Kyle Greve. Hey, folks, we have covered a handful of businesses with wide moats and high barriers to entry. Transdime comes to mind as a business that owns several proprietary aerospace components, for which customers have very, very few, if any, substitutes. And this creates a unique situation where switching becomes nearly impossible.

And so today, we're going to discuss American Tower, which is another business with a moat that is really about a mile wide to put it honestly. And so this business is fascinating, too, because it's been a massive winner in the past. And I know, Kyle, that, you know, one of your favorite investors, Chuck Akra has taken part and a lot of the upside that American Tower has seen. Yes, Chuck Akri is one of my investing icons and has held AMT well past Hunter Becker-Sata. So he actually still holds it in Akri Capital Management, but he's been selling large amounts of it over the past few years and now it's only a 0.14% portfolio holding. But it's been a major position for his fund throughout its history. It was a top four position in the portfolio for many years up until around 2020

when it looked like he really ramped up the selling. But I've always really admired Chuck's ability to just hold these incredible compounders for decades. He took part in American Tower's IPO all the way back in 1998 at a price of about 80 cents. Now, what might be even more impressive than identifying a winner at the IPO stage is just what Chuck had to go through to realize, you know, those 100-bagger plus returns. So from the depth of the tech bubble to 9-11 and several other market crashes, he was able to build meaningful wealth by just maintaining a very large position in American Tower.

So we'll get into some of the reasons why he might have decided to trim the position later. But I think it's a great case study of just how powerful it is to really, find a business with these compounding characteristics, a multi-decade runway, and one that's run by a very, very talented capital alligator. And this is, I think, how Chuck made, you know, 28,000 percent returns on this one pick. When you put it in percentage terms, it just feels ridiculous. I mean, the results are incredible. And I feel like I have this special connection with Chuck Ockrey, because his firm is based not all that far away from me here in Virginia. And, you know, I think that's pretty cool, right? It feels like New York gets all the attention

with Wall Street or Omaha with Buffett and Berkshire. But here for me, we have a local icon. So that's really fun to see. And I would classify his style as having a relentless focus on quality, looking for businesses that are incredibly impervious to competitive threats. And so I enjoy a good high quality name as much as anyone. So I'm super excited to get into American Tower today. And it's a bit of a weird business that, again, is technically designated as a REIT,

which stands for real estate investment trust. And so the question is going to be, like with any quality business, firstly, do we agree with the premise that this is an exceptional business? And then secondly, and just as importantly, can we get shares in the company at a price that's reasonable? Yeah, I couldn't agree more, Sean. And like you, I also have an affinity for, you know, very, very high quality businesses. So just let me start off here by getting into what exactly American Tower,

which I'm going to refer to here as AMT does. So, AMT is one of the world's largest real estate investment trusts, as you already pointed out there, Sean. And they focus primarily on a single market. So these are tower sites or even wireless cell towers placed at the top of tall buildings. So if you've been to New York and gone to maybe the top of Rockefeller Center or one Vanderbilt, which I've had the pleasure of doing, and you look out below, you'll probably see a number of these towers at the tops of these massive skyscrapers. Now, if you've ever wondered why those towers are there, it's because of companies like AMT.

So they install cellular towers on top of these buildings, and then they lease them out for very, very long periods of time to wireless service providers, radio and TV broadcast companies, wireless carriers, government and municipal agencies, and other adjacent industries. Now, on the surface, it might not seem like a wide moat business, but just bear with me here. So they currently have nearly 150,000 tower assets. And these are split all over the world. So you got about 42,000 in North America, 28,000 in Africa, and Asia Pacific, 32,000 in Europe and about 47,000 in Latin America.

Now, the interesting thing about AMT is that they own the specific areas where these towers can be built, and no other entity can get the exact same access. So AMT has this massive real estate monopoly that would require competitors to spend, you know, billions of dollars just to get access to the same property, and then they would have to construct towers over, you know, a multi-decade time period just to catch up. Now, this is one of the highest moat businesses that I think I've ever come across. So it reminds me a lot of co-part where a big part of their moat is simply owning land that they acquired long ago, where residential areas have developed around what is really prime real estate for junkyards that if they were proposed to be built today, I mean, would never be approved due to zoning laws. Nobody wants to live next to a vehicle junkyard.

Having, you know, existing properties in desirable areas for the business, though, gives them a really substantial advantage. with competitors having to generally acquire parcels much, much further out. So we'll see how that comparison holds up, but that's my first thought of AMT here. And you mentioned that AMT leases the towers to its customers. So what exactly does that mean? You know, as in who are the customers and what are the customers getting out of these 150,000 towers that AMT operates? Yeah.

So AMT customers would include massive wireless carriers that, you know, Sean, you're probably already paid. So this would be businesses like AT&T, Verizon and T-Mobile. You can think of it as AMT owning the roof of a tower, then renting out that roof to whichever tenants are just willing to pay. And that's another great part of this business. So one asset can actually have multiple tenants, meaning with barely any incremental expense,

AMT can scale their profits on each of their assets simply by just signing more tenants. So let me give you a quick example of what that might look like. To pay for the construction of a tower or upgrade an existing location for just one tenant is going to cost $275,000. Now, with one tenant, AMT gets about $20,000 of revenue with about $12,000 in OPEX.

Now, OPEX includes things like ground rent and property taxes. Now, this yields a gross margin of about 40%, which is still really, really good. But when it's only one tenant, the numbers, you know, they're not particularly interesting. What gets really, really interesting, though, is when you add one or even two more tenants. So in this scenario, let's say you have three tenants.

So AMT would now be making about $80,000 in revenue. But the key here is in the operating leverage. OPEX would only increase from that 12K number to just 14K. So while the revenue just increased 400%, OPEX is increasing by 16%. And that is really the definition of operating leverage. It's a good way to put it. And just to recap that for listeners,

the unit economics in places where they have one customer are decent. But if they can add multiple tenants to the same tower, the profit margins basically explode. because a huge part of the cost is just the fixed land cost. But you don't need to add more land to add more tenants, right? You can stack cellular customers vertically onto the same tower. So the incremental cost of catering to new customers in is very, very low, right? If you can start out with Verizon and then get AT&T to stack and use the same tower,

that is going to be hugely profitable for AMT. And, you know, this is really exactly the type of marker you'd want to see in subjectively determining whether you think of business is of unusually good quality, right, to have this sort of operating leverage. And, you know, for AMT, clearly their tenants are very important. And I assume there's a lot of work on the ground that goes into keeping these towers running. So my question for you is, does all that maintenance fall to AMT or are the tenants closely involved in maintaining the towers as well? Yeah, that's a great question there, Sean. So while the maintenance costs on AMT are definitely

minimal. Given the OPEX numbers that I just shared, there are actually certain tasks that are shared by both AMT and then also with the tenant. So for AMT, they're focused on a few key areas. The first is the tower structure. So these are made of steel and designed to support multiple tenants. Second is the land parcel. So the land under the tower is either owned or operated by AMT according to specific long-term leases. And then third is the backup power. So the towers obviously can't afford to go down. So AMT supplies the backup power via batteries or even generators to maintain that availability. Now, the tenant on the other hand, is responsible for all the antenna equipment, sheltering that equipment, HVAC, which is owned and operated by the tenant, as well as

the cabling that runs up the tower, and connects electricity between the power supply and the antenna. Now, another interesting aspect of AMT's business model that I haven't discussed in detail yet is just how the rental payment agreements are structured, and this is a huge strength. So they're what I would consider to be very, very good specifically for AMT. So tenant leases with wireless carriers have non-cancellable turns for five to 10 years. Since we also live in a world where inflation is driving up input costs, AMT also has a fixed 3% escalation in the U.S. And then when you look at international markets, the escalators are tied to inflation indexes and therefore can be quite a bit higher. Now, AMT also closely monitors churn.

And it's very low at only 2% in 2025. So this means 98% of their customers pretty much just stick with them. And since they have these escalators in their contract, they can offset that 2% loss with the escalators, though the margin is pretty slim there. So people know that I'm a big fan of Netflix, and it's a holding in our intrinsic value portfolio. And so one observation I've had from that love affair with Netflix is, you know, how churn can fluctuate based on one-off events for subscription-based businesses. And, you know, sometimes people simply subscribe to watch a show or a sporting event and then unsubscribe. And that's one type of problem. But then you also get these factors that are just totally outside of your

control that drive churn. And so we saw that for Netflix back in 2022 in response to Russia's invasion of Ukraine and the sanctions on Russia. Netflix lost all of its subscribers overnight. And so for context, that was roughly 700,000 subscribers that Netflix lost. Yeah, I remember that happening in Netflix and just how much fear that really induce into the market. But the crazy thing was that was actually a great opportunity to actually buy shares as shares since then have compounded 48% annually since that event. But you're right to flag churn here as a potential issue for AMT. And even though the annual rates are just 2%,

it's not a linear number that we can rely on. The main culprit that can really impact churn rates are usually from the consolidation of carriers. So there have been kind of two recent events that have impacted AMT. The first event was from about 2018 and 2020, and this occurred in India. So there was a consolidation of carriers in Vodafone and IDEA. Reliance Geo was another business that disrupted the industry,

which many believe was the cause of this merger in the first place. Then you had the collapse of Tata teleservices, which would have opened the door to more rapid changes that impacted AMT. And the changes for AMT were so bad that they actually fully exited India in 2024. Now, in the U.S. between 2021 and 2024, T-Mobile absorbed Sprints network. And as part of the master lease agreement signed between the two companies, T-Mobile wound down a number of Sprint's redundant lease agreements with AMT. And this ended up creating some multi-year churn, which just,

recently has normalized. Now, the issue here is pretty simple. If a current customer is acquired by a customer, the consolidated businesses will then have two sets of towers doing essentially the same job. So once the companies consolidate, they will decommission redundant towers just to reduce costs. So even if the two companies are customers of AMT, if they were to consolidate, it would actually be a net negative for AMT because they'd likely churn a number of their towers since they wouldn't renew towers that were in proximity to each other. Now, I think that AMT learned from this kind of painful experience they had in India. So once they caught wind of the sprint and T-Mobile event, they acted very, very quickly. So AMT negotiated a master-release agreement with T-Mobile to lay out very, very

specifically how the cancellation process would happen over time. And this allowed the churn to take place over a multi-year time period rather than all at once, which is why the churn weights were lower in that time period. So it's an interesting challenge to confront, right? We're used to thinking about how consolidation and monopolies impact consumers or maybe the investment prospects of those businesses, you don't normally think about the implications for parallel industries and how telecom consolidation is actually bad for American Tower of all companies. But still, even with the large churn from carriers that we've seen in some of these massive markets, like India and the U.S., the overall churn rate is still actually very reasonable compared to what

you might have initially expected. So I think that does speak to the resiliency of the business. And I mentioned earlier that AMT has a moat about a mile wide. And I think this is a good illustration of it in action. But I would want to spend some more time looking at just why that is the case. As stock investors, it's wonderful to own a business that enjoys a large moat today. But your future returns as a shareholder are going to correlate more to whether that moat shrinks or expands in the future. So you're really trying to understand how the moat is going to evolve looking forward.

Yeah, and I think this really reminds me of a great Buffett quote, which is economic modes are almost never stable. Because of the competition, they're getting a little bit wider or a little narrower every day. And I think you'd agree with me, Sean, that we both want businesses inside of the intrinsic value portfolio that are hopefully expanding their modes. And even though that's a very difficult thing to do in business over the long term, they still exist out there. So AMT is a wide moat business because it has more than one mode that helps protect it from competitors. I actually see three modes. So the first one is corner resources. So you can think of AMT as kind of a monopoly.

Once a tower is built on a land parcel, it just becomes much easier to use AMT rather than to start from scratch. If a network needs coverage in a specific area, they just need to ring up AMT and get a space on the tower that they already have installed on their premises. Now keep in mind that AMT has a ridiculously large footprint. So I mentioned earlier that AMT just in North America has about 42,000 towers. This means they're essentially able to cover all of North America, making it very very very difficult for new competitors to really offer anything close to the same product or service

that AMT can. So there isn't technically any reason that a competitor couldn't build a tower next to a parcel of land that AMT owns, but there are a number of areas of friction that give AMT the first mover advantage. So first is that zoning and permitting is a real challenge and takes both time and energy to overcome. People don't really want these large towers, you know, all over the place. So it's just not as easy as you'd think to get regulatory approval.

Second, the towers have to create an actual network, and these networks have to be in close proximity to each other. So if you build further away than the optimal point, let's say that's maybe, you know, 200 feet outside of the optimal range, then you actually degrade the quality of the network that the towers are servicing. That means things like dropped calls, dead zones, or even interference from adjacent sites. Now, me, having built networks just in people's homes in my past, I actually know just how finicky this type of equipment is.

And, you know, what I was doing was on a much, much tinier scale. So I would have to go into people's houses, map out where to put these wireless access points, and then I have to go around the house and test it out. This meant installing it into people's ceilings and walking around the house, ensuring that the signal was strong in every area of the entire house. And sometimes you have to physically move the hardware just to get coverage in areas with a weak signal. So in the example of an AMT competitor, you know, you can't just go and pick up a tower and move it to an adjacent area to get better results.

So, you know, once it's there, it had better work. And third here is that even if a competitor completes permitting and finds even the perfect spot for a tower, it just might not make economic sense for them to develop the land. So a new tower, like I said earlier, can cost somewhere between 250 to 350K. And if they build it next to an AMT tower, they would then have to put out the CAPX to build the tower, then they have to actually get the customer to pay them. And this would mean stealing a customer away from AMT. So as I mentioned, if a customer already has equipment installed on an AMT tower, it's very unlikely

that they're going to jump ship, as this means a carrier would have to decommission the existing site, reinstall the equipment, retest its coverage and absorb any downtime in that entire process. You know, it's funny. We always like to joke about the importance of having consumer insights into the businesses that we look at. And it's not so much a joke, but as much as, you know, the way we stretch the definition of what consumer insights are.

And so I think you have your own form, maybe not have consumer insights, but, you know, worker insights with this wireless network installation experience you have. So, you know, that's pretty cool. And yeah, I think you put together a really nice outline there. And the way I would think about it is for a competitor, someone would need to have a ton of capital handy, it sounds like. And they'd need to be able to deploy that capital and have a tolerance for the potentially reduced economics that would come with cutting prices enough to pool customers from AMT, right? And perhaps it's not impossible to do this. There's certainly a ton of friction there, it seems. And I think I can identify two additional friction points a competitor might face. You know, you already mentioned that AMT

has these long-term leases in place. So even if a competitor offered a discount, if the tenant had multiple years left on the contract, that means the competitor would have to either buy out the existing contract on behalf of the carrier or get them to move once the contract in. So that ends up, making the economics of spinning up a new tower, even worse for a competitor, sort of solidifying AMT's moat further. And then you have the problem of AMT having this first mover advantage on the best possible land parcels for setting up these cellular networks. And that kind of brings to life the copart metaphor that I made earlier. Yeah. And I see a lot of strength in that similarity, which is probably why both these businesses have just been such incredible value creators for shareholders

over the years. Now, getting back to the competitive advantage, so the second competitive advantage that AMT has is in its multi-tenant leverage, which I already mentioned. So I will label this more as kind of an economies of scale advantage. As AMT builds out more and more towers, it can add incremental revenue at a much, much lower cost. Now, this is a very interesting area to stress out. So on the one hand, it's obvious that AMT has economies of scale. They've increased their gross profit margins from 68% in 2016, all the way up to 74% today. And even if we look a little further down the financials, EBIDDA margins have gone from about 58% in 2016 to 64% today. So, you know, the numbers very clearly tell us that as AMT grows, more and more of that

revenue is flowing down to operating income. The problem is in determining exactly where this operating leverage is coming from. So the easy thing to say is that they are increasing their average tenant count per tower. Now, AMT used to disclose this up until around 2017. At that point, the global average tenants per tower was about 1.9. Unfortunately, they quietly stopped publishing this KPI after the 2017 annual report. Now, I'm only speculating. here, but perhaps this is partly because India was making these numbers a little bit uglier. But, you know, even without this data, I think it's fair to assume that the economics of a tower are clearly offering scale benefits to AMT. The more tenants they get on the towers, the better

AMT's economics will be. Now, I mentioned earlier that the economics of scaling one tower from one to two tenants are highly value-creative for AMT, and this is for a few reasons. So revenue scale very, very well. The first tenant generally pays AMT about $20,000, but additional tenants pay a 50% premium of 50,000 to add their equipment to that tower. Second, you get the operating leverage just right off the bat. And that increases gross margins from 40% with one tenant up to 74% with two tenants and 83% for three tenants. And then last year, it's just the returns on investment improve. So with only one tenant, ROI is a measly 3%. But scale that up to three and you get an ROI of 24%. But I would say that there are some other factors here as well. So even with zero new tenants,

margins will continue to expand over time because of AMT's pricing power embedded in its contracts. So with these annual fee escalators, they will continue to grow just as long as they can stabilize their tenants, albeit at probably single digit rates. The weakest contributor to future growth is kind of in the portfolio mix. So the U.S. has the best margins because it's the market that has maximized the advantages of the multi-tenant strategy the best. Other markets are probably a little too young at the moment to offer as many two or three tenant towers as there are in the U.S. market. Also, with a departure, of the lower margin Indian market, the revenue mix has shifted to a slightly higher margin market, which I think has made margins look a little bit better. The reason I say this is a weaker

argument is that the margins were already improving pre and post the India exit, but intuitively it makes sense. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet. You're not alone. And Plus 500 futures is a great place to start. The futures markets are moving fast, and with plus 500, you can explore popular assets like oil, gold, S&P 500, Bitcoin, and more. From crypto to commodities, there's always something happening. The platform is super easy to use, so you can trade on the go right from your phone. You can get started with just $100 and jump into the action.

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Plus 500. It's trading with a plus. Spending my days digging through the financials of the world's best businesses, and one thing becomes obvious fast. The companies that win are the ones that can actually see what's happening inside their own operation. And these days, they say that every day, your business is late to AI, you fall two days behind. The competition is only moving faster, but fortunately, there's NetSuite Next. You've probably already known NetSuite, the AI-powered

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That's V-A-N-T-A dot com slash T-I-P. All right, back to the show. Another good comp in a business we covered a year ago is Farrisonin. They own the domain registry rights literally to dot. So if you run a website that ends in dot com, you have to pay them a fee every year to have it registered, which is not to get into the technical backbone of how the internet works, but you need to be registered. And so it's honestly an even better business because the cost of maintaining a digital domain registry is a fraction of maintaining cell towers, I'm sure. But the problem with Veracine

is that their ability to raise prices is closely regulated. So they don't have a, ton of leeway on pricing, even if, in theory, they have an enormous amount of pricing power. They could probably charge much, much more for the dot-com domain rights. And so I would guess that AMT has a lot of pricing power that they could leverage to, but perhaps they're not legally allowed to, or at least, you know, they have agreed to not do so as a way of attracting tenants. But, yeah, if AMT wanted to raise prices by 6% a year as part of the escalator and double their inflation escalator, that would be huge for margins. And yet, I don't think I see this deterring

companies like Verizon or AT&T, especially if there's not a clearly lined up competitor. That's a perfect, you know, one-to-one, well, we can just switch to this competitor and get a lower rate, right? There are real switching costs to this business. So clearly, I think we're going pretty in-depth today on the competitive advantages of AMT. But I do think it's worth it to do so, because there's just so much to try and wrap your head around. And it was just so rare to find a business with one strong competitive advantage, let alone really multiple competitive advantages from cornered resources and scale economies and network effects that are working in their favor. But you mentioned that they actually have three competitive advantages. So how about we talk about that other one, that third

one that you see here with AMT. Yeah, and after everything I've discussed so far, you might be able to kind of already guess that this final competitive advantage is switching costs. So I already mentioned that while it's possible for a customer to switch from AMT to one of its customers, it's not really the cleanest or simplest transition. Now, to help go over some of the details of switching costs, I use the Hidden Monopoly's framework, and it scored very, very well with a Mote Score Index of about 40. The strongest barriers were the exit and base barriers, while entry barriers were the weakest.

So once AMT signs up a customer, as their 2% turn rate suggests, they are a lot less likely to leave. Now, I think there's a few reasons for that. So with customers, especially in the U.S., being with these massive telecom companies like AT&T, Verizon, and T-Mobile, the cost of being on a tower is pretty much a rounding error for them. You know, these three businesses generate over a quarter trillion dollars in revenue combined. So, you know, finicking with moving equipment from one tower to another to save, you know, $20,000, $30,000. just probably isn't the highest priority for them. Then, you know, you have the fact that they know that the towers that they're on with

AMT, they work, right? And as long as it works, there just isn't that much of a reason to switch. Then, even if they did decide to switch, they run the risk of degraded quality, which is obviously not good at all for their brand or their customers. So, you know, it's just easiest to just stick with what you know works well. And then lastly here, I think AMT has a really good reputation. So they've been working for decades now and their customers, know that they can trust AMT, which is why they're willing to sign these five to 10 year

contracts in the first place. These long-term contracts are often non-cancelable for a very, very long period of time. So this means customers clearly have a lot of trust in AMT to continue to provide them with this exceptional service. So just to give you an example of how large these non-cancelable customer leases are, they're currently worth $54 billion over the future. Now, wow, you know, I think that was a lot of discussion on competitive advantages, but I think you probably get the point here. You know, AMT is just a very, very good business. It's a very high quality business. And I would say it has a very high likelihood of being around in 20 plus years, which is something that I have a very hard time saying about many, many of the companies that I look at.

I think maybe a way to make a more tangible, personally relatable example of switching costs is just to think about your email account, right? You know, hundreds of people might have your address saved. And maybe you've got thousands of email saved. in your inbox. And so to go through and update your email on file across all the different apps and services that notify you about, you know, whatever, your credit card payments and your bank and your Hulu subscription and your Netflix subscription, changing all of that and the updates and the email, I mean, that is an absolute hassle. And then you have to do the calculus of, you know, is it actually worth it to switch providers? And in most cases, at least for emails,

The answer is pretty clearly no, right? Unless you have to do so for work. There's just a lot of annoyances that emerge. And really, there's very few benefits, if any, of switching email providers. And so now imagine yourself running a major telecom network. Anyone who advocates for making a switch with so much at stake here, they are taking a lot of career risk. It's, you know, much easier to default to the status quo of, you know, we have these

towers in place. We have these relationships in place. We have this contract in place with AMT. I don't want to rock the boat. So that would be kind of how I would think about the very real human level perspective on switching costs when we're talking about something as important as telecom networks was so much capital involved and so many resources involved. And one area that I did find curious about AMT when looking at it was the fact that they have so many of these towers. And even though they generate cash, I assume that they've had to come up with money from somewhere to fund this growing tower account. And I presume, given the company's balance sheet, that much of that growth looks to be

debt financed. Is that really the right way to be thinking about it? Yeah, Sean, I think you pretty much nailed it there. When we're looking at companies on this podcast, we pay very, very close attention to debt across every single business that we cover. And I think that's because we're very cognizant of following and Buffett's footsteps of just trying hard not to lose money. And debt, unfortunately, is one of the easiest ways to lose money.

Now, as I've discussed previously, I'm not adverse to leverage by any means. I think, you know, when the right company has a large runway to grow and they can continue growing faster than their internal cash flow rate would dictate, then they should probably lever up to continue adding shareholder value. But from my research, both in looking at case studies from other investors, as well as my own experience, debt can also be very dangerous if the business's business model can no longer support its debt. Now, when it comes to AMT, it probably won't surprise you to know that this is a business that does utilize debt. So as of the first quarter of 2026, AMT has about $37.3 billion

in debt. In full year 2025, they produce about $7.2 billion in adjusted EBITDA. So this gives them a net leverage ratio of about five times. Now, this is a high number for sure. But AMT definitely has a much different debt profile than what I've seen in majority of other businesses that I've ever looked at. So the maturities of their debt extend all the way out until 2051. Now, I think this goes to show you just how strongly lenders view AMT's ability to continuously generate cash. With their non-canceable contracts of, you know, $54 billion, they should have more than enough capital to service this debt. Now, the terms of the debt are actually also quite favorable. So the weighted average interest rate on their debt is only 3.5%. This is quite

low. So, you know, I can see why they've accessed this amount of debt. You know, effective debt management is not something we give enough credit to companies for on this show. But if you can borrow money at low rates for a long time and redeploy it to generate much higher returns, that is going to be wildly accruive to shareholders. And even though the total debt figure is a lot to stomach, it goes from, well, literally being a liability to being something more like a strategic asset. that if you've been able to ladder the debt well. And just from what I see, it does look like they've been able to lock in some very attractive borrowing rates.

And, you know, one thing that's important to look at are trends in a business leverage profile. Is the business decreasing leverage over time as it makes doing so a priority? Or is it continuing to step on the gas pedal of growth, increasing leverage as a result? And with A&T, it very much seems to be the latter. Yeah, Sean, I think you're completely completely. correct on that assumption. So if you go back to 2017, AMT has continued to basically leverage up from that date. So in 2017, net leverage, which I'm using as total debt to adjusted EBITDA,

was just three times. Today, it's risen to five times. So, you know, that's nearly a doubling in debt while revenue only grew by about 52%. And this is definitely a red flag, but, you know, it actually looks completely above board if you look at it from the view of their covenants. So we've actually seen this number continue to rise as their covenants require them to stay below six times. So their debtors allowed AMT to go all the way up to seven and a half times in 2021 to complete the acquisition of Telxias and Korsite. Now, I think the important thing to focus on is what the annual debt service payments are going to look like. You know, current debt is $6.1 billion. Annual interest payments are about $1.35 billion, which I think are very, very serviceable given

their cash. I'm sitting here, and I'm looking at the balance rate, and I see a billion dollars in cash and more than $40 billion in total debt. And then like you said, annual interest payments, of $1.35 billion, which is more than the cash to have on their balance yet, I mean, that makes your stomach churned a bit, even if that debt does have distant maturities at low coupon rates. And, you know, it's a business that is generating more than $5 billion a year in operating cash flow. So, you know, in theory would be nice for peace of mind to see them using their own cash flows as financing. But I know that's hard to do with the REITs. And it just makes your equity value, a lot less robust because more of the business belongs to creditors who

have first claim on the assets and bankruptcy. I mean, that's what it really means to take on dead. And, you know, one thought I had here is just why AMT is leveraging up. And, you know, my guess is perhaps it has to do with the fact that AMT is considered a REIT, which, you know, we've talked about. And so let's get into how that REIT status affects their need for outside financing. Yeah, the good old REIT angle is definitely worth exploring a bit here. So the reason a business like AMT is designated as a REIT is specifically for tax purposes. So as a REIT, AMT avoids the standard 21% federal corporate income tax on income distributed

to shareholders. As a REIT, they also avoid the classic double taxation problem with dividends. So non-REAT businesses pay taxes on dividends at a corporate level and at the individual level. The REIT status allows AMT to be taxed just once. But, unfortunately, reeds do have a price of admission, and it's quite high, so high that I generally just completely avoid them. They are required to pay at least 90% of their re-taxable income to their stockholders. This means that AMT must rely on outside financing, simply because they just barely have any capital left to reinvest into the business. So since 2016, AMT has increased

its dividend by 15% per annum. So, you know, dividend-loving investors are probably going to be delighted to see the steady rise in the AMT dividend. They have done a few. buybacks, but they're quite small in nature, amounting to just about $1.7 billion. So I just mentioned that the price of being a REIT was high. And let me expand a little bit on that. So I generally like businesses that both have a high ROIC and the ability to reinvest at those high rates, preferably over a multi-year time period. Now, with the REIT structure, AMT is unable to reinvest itself in the traditional sense. So in terms of reinvestment, it basically has to rely on outside capital as a dividend requirements caps its ability to reinvest cash back into the

business. Again, it's a really super interesting business to study because you don't normally come across businesses that legally have to use outside capital to fund their growth, unless you're used to looking at REITs a lot. And there are pros and cons that come with that. And, you know, one thing I noticed is it actually looks like the payout ratio is 110% of earnings. So they're paying out more than their total net income in dividends. And so obviously that's not completely sustainable. And, you know, you mentioned something there that is crucial. And that is that you like businesses with high returns on invested capital, high ROICs. And, you know, I think we should look at that here in more detail because it's obvious that these towers where they have three tenants have very, very good

ROIs and unit economics. But that is on an individual tower basis and not necessarily looking at the economics for the entire company at the corporate level. Yeah, good catch there, Sean. And the return on investment as AMT calculates it just takes into account gross margin and doesn't go all the way down the income statement. So let's break down their capital efficiency numbers. So AMT's ROIC is not particularly eye-catching, but you know, it's very solid and very sustainable.

So the ROIC for 2025 was about 9.3%. And since 2007, RIC has stayed between 8% and 11%. Now, with AMT's relative low, cost of capital, they're obviously definitely creating shareholder value by using debt to reinvest into the company. The ROC numbers have been relatively stable as well. You know, the one big adjustment was in 2021 and that was the same year that they made these very, very large acquisitions. Well, speaking of acquisitions, those are what I would consider capital allocation decisions too. So can you take us through the acquisitions that AMT has made over the years

and how they factor into the picture here? Yeah, great point. So I think American Tower can be broken down into a couple different phases. So the first phase lasted until about 2020 and was very simple, you know, buy towers or owners of other towers in markets where wireless demand was continuing to grow. At the same time, you just add tendons to existing towers and you just enjoy the operating leverage. They made quite a few deals, which really helped them expand their tower account all over the world. And most of these deals were valued around $3 billion. Now, 2021 marked the transformation and pivot. Now, I'm not going to say they completely pivoted away from it. It was just kind of an additional service that they added. And that was the deal for CoreSite, which added a kind of a data center

angle to AMT. So in Telxias, they doubled their European footprint, but the big difference here was in the purchase price. So like I said earlier, the average deal was for about $3 billion. Telxias was done for $9.6 billion and CoreSight was done for $10.4 billion. So much larger purchase prices. Now, I would say that most of the deals done before the Coretside deal were quite good, as it stayed true to AMT's central theme of, you know, just focusing on these cellular towers. A CoreSite, in my opinion, was quite expensive. So for $10.4 billion, they got 24 data centers. They also bought this right before interest rates were about to sharply rise.

Now, the deal added about $2.5 billion in goodwill to AMT's balance sheet. Now, since the business runs primarily off of hard assets, you know, this just seems a little high to me. The deal also was done for 27 times EV to EBDA. Now, since buying CoreSite, its revenue has grown at about an 8% kegger, which is decent. Operating margins have also expanded from 46% to 53%. So, you know, I think these are pretty decent growth numbers and operating leverage, but the problem is just the price paid. I think 27 times EBDA EB does what I would expect from a, you know, fast growing recurring revenue machine.

And while you can make the argument that data centers are a recurring revenue machine, the growth just isn't really as high as I would expect for a business with that multiple. You know, had they paid half that multiple, I'm sure the conversation here would be much different. And one thing that I wanted to touch on a little more was the economics of the data center business. As you can tell, the growth numbers have been quite decent, but it's a relatively small part of AMT's overall business. So in the last quarter, it's supported a revenue share of about 10.5%. So I would say, you know, it's doing pretty well. If we annualize the current numbers, its run rate revenue is around $1.1 billion and run rate EBITDA is around $600 million. That brings the current evaluation

down to just 17 times EBITDA, which is obviously a lot more palatable. And perhaps, you know, they anticipated this future growth in the purchase price, which is why they paid an optically high price for the business back in 2022. We spoke in at length here about capital efficiency in allocation. And I think we can see that AMT clearly thinks closely and pretty well about capital allocation. So maybe we ship gears now to management to get a better view of how they view capital allocation and how it relates to their incentives, because ultimately, you know, that is what it's going to drive. their decision making.

Yeah. And, you know, I was pleasantly surprised to listen to just how exactly they think about capital allocation. So when asked about the return hurdles that AMT looks for in U-Towers, their CFO Rodney Smith replied, from a return hurdle perspective, I don't want to get into the details here, but certainly being above our weighted average cost of capital by a couple of hundred basis points over a reasonable amount of time. And I'm not going to get into the detail in terms of the terms.

That really is what we would expect based on just the fundamentals of the market and the investments that we're making. I think this is just a really, really powerful quote, which shows that they're thinking about capital allocation in definitely the correct way, which is to think about whether it's above or below their cost of capital. I would expect more executives to think this way, but unfortunately, it's a lot more rarer than I would have initially assumed. A lot of CFOs are specifically trained on how to pay lip service to this concept to appease

Wall Street. But at least in terms of prudent use of leverage side of things, there's a lot of people. actions do seem to show that they understand how to manipulate their cost of capital lower, which is a huge part of capital efficiency and creating shareholder value ultimately. But pivoting here a bit with AMT being an $84 billion company in terms of equity market capitalization, I assume they're probably going to have reasonably low insider numbers, given that they're such a mature company, right? It's just hard to have a lot of insider ownership for a business of that size unless you have some sort of founder that's been with the business all the way through.

That's right, Sean. And, you know, the recent proxy shows insiders own just about 0.7% of the company's shares outstanding. So the insider ownership just, you know, obviously isn't a strength of this business per se. If you add in options, it jumps up to just 1.1% or so. So their CFO, Stephen Vondren, owns about 72,000 shares. He owns an additional 33,000 with options bringing the total value to just about $20 million. Now, AMT has ownership guidelines specifically for the CEO, including that the CEO must have at least six times their annual base salary in AMT stock. Other executives need just three times.

And they have about five years to reach that ownership target. So what exactly are base salaries? I think they're quite reasonable. The CEO, Stephen Vondren, has made about a million in base salary for 2025 and for 2024. Other execs are making a little over 600k in base salaries. But with AMT, we have to keep in mind that base salary is a pretty low part of the total compensation package. So for the CEO, base salary is just about 7%.

And for other NEOs, it's about 12%. So we definitely need to dial into the incentive program to figure out whether the program is well aligned with shareholders or not. Yeah, I was just thinking about recently I read this article called the security I like best, written by a 21-year-old version of Warren Buffett in 1951 talking about Geico. And he talks about Geico having a low-cost advantage that was underappreciated, trading at eight times earnings. The other thing he mentions is that management owned a third of the company.

And so that's something you can only really find in small caps. It was not too many $80 billion companies where management owns a third of the business. But it is a great sign of alignment. And while I think in this case, it's nice to see that execs have fairly reasonable base salaries, and they can easily create a mismatch in alignment if the bonus incentives are done wrong. And so, you know, Snapchat is always our example of a company where more wealth has been created for insiders and employees than for shareholders. And so that's just kind of a fact.

And what is precisely the opposite of what you would want to see in terms of shareholder alignment, Skin in the game with ownership of the stock is one thing, but excessively rewarding management with stock-based compensation to the detriment of shareholders and dilution of everybody else's stake in the business. That is another thing entirely. That's right, Sean. And I will say I really liked that Geico example that you gave about Warren Buffett, a great article. Now, getting back to incentives, I think we obviously want to avoid that asymmetry where management is patting their own pockets while shareholders pockets are getting more and more empty.

You know, I think there's just enough businesses out there that are able to align incentives well enough to reward management and shareholders simultaneously. But, you know, let me get off my high horse here and let's look at AMT's incentive program. Like many of the businesses that we cover on the show, they have a short-term incentive program and a long-term incentive program. The short-term incentive program is based on three factors. First is an adjusted EBITDA target. Then you have total property revenue target.

And lastly, you get other assorted performance goals. It's not my favorite program. I'm simply not the biggest fan of adjusted EBITDA. But for a business like AMT, which has a ton of depreciated assets, the adjusted EBITDA number is obviously quite inflated. They currently depreciate and amortize about half a billion dollars a quarter. I will add that even though EBITDA is much higher than free cash flow, at least they're growing at similar rates.

The short term incentives are paid out in cash, which I like, as this isn't diluting shareholders. Execs can make up to about 150% of their base salaries based, on these annual incentives. Now, the long-term incentive program, in my view, is much better in terms of the incentives used, but they are giving bonuses with options. So the long-term program is based on annual funds from operations or AFFO per share, average ROIC, and relative total shareholder return. Now, I really like the first two, so it's great to see these at an 80% weighting. I love this incentive plan because it has a per share component as well as a capital efficiency component.

It's really hard to beat this as an incentive structure. So I give them a lot of problems. for developing this program, and clearly it's delivered quite a lot of shareholder value over the years. The stock price since 2016 has cagged at about 6.3%. Now, that's not a high number by any means, but we also have to remember that AMT pays out a ton of its profits as a dividend. The dividend yield is currently around 3.7%, so you know, you're getting somewhere around a 10% return. And as I mentioned earlier, 10% is well aligned with AMT's average ROIC over the last decade or so. I haven't spoken much today about AFFO. So AFFO is a really really, REIT KPI. So AFFO is basically a ceiling on the amount of recurring cash that's distributable

to common shareholders. Now, keep in mind that the ceiling isn't the same as the actual dividends being paid out. Some of AFFO is retained by AMT to do things like repaid debt, discretionary CAPEX and for balance sheet purposes. So in AMT's case, the dividend payout ratio is taken from attributable AFFO and not from their net income. Let's take a quick break and hear from today's Spending my days digging through the financials of the world's best businesses, and one thing becomes obvious fast. The companies that win are the ones that can actually see what's happening inside their own operation.

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Sign up for your $1 per month trial at Shopify.com slash TIP. Go to Shopify.com slash TIP. That's Shopify.com slash TIP. All right. Back to the show. I guess when it comes to management incentives, you get sort of an existential question and whether you want the REIT to continue reinvesting

with growth CAPEX, or do you want it to simply maintain its current assets and pay out dividends and they really do nothing more? And, you know, your incentives are going to matter a lot depending on what you want, you know, how to adjust them. And normally I think of the latter with REITs where they're just primarily focused on paying out dividends, but it's really interesting to see how AMT has taken this more compounder approach, right? They've tried to bring this quality compounding idea to REITs, which is just really unique. And so with that, I want to go into one more thing here on the incentive program before we move on. And that's how the long-term incentives are being

distributed. You discussed how these were being paid out in options. But maybe if you can go into more detail into whether that's mainly in PSU's performance stock units or if they have an RSU restricted stock unit component to it as well. Yeah, so AMT is using both RSIs. So RSUs and PSUs. So RSUs are bonuses, I think, niser of us are particularly crazy about. They vest over a three-year time period. I would prefer that businesses just get away from RSUs and tie all compensation to performance and not to tenure.

I get the argument, you know, if owners of the RSUs do not create value, then the RSU is worthless. But I just think that you can accomplish the same thing with PSUs. And while not perfect, at least make it so management is more aligned with shareholders. Now, the PSU grant covers a three-year performance period and pays out about zero. to 200% of the target share amount. I do like that the PSU-R-SU mix is at least 70% to 30%. The relative total shareholder return compares AMT with reconstituance that are inside of the S&P 500

index. It's a decent setup. And I think you captured my thoughts pretty well on RSUs. We'll leave it at that. And we haven't had much of a chance, though, to discuss AMT's specific competitors. So I think that's worth getting into a little bit more before we start to talk valuation. While AMT does have these monopoly-like characteristics that we've talked about, I think oligopoly, as I understand it, would be a better way to describe the industry they compete in.

But is that in line with how you think about it? Yeah, Sean, I think I completely agree with you there. Whereas, you know, a business like Veracine is, I would say a monopoly, right? They're kind of the one big player. AMT definitely has competition all across the world, but it's not a lot of competition. So I think oligopoly is definitely the term that I would use. So if you're looking for competitors, they're definitely out there, but it's not a market where competitors are springing up all over the place.

So if we look at the U.S., for instance, there's basically just two large competitors. They are Crown Castle and SBA Communications. So Crown Castle has about 40,000 towers all in the U.S. SBA has about 17,000 in the U.S. and tens of thousand more towers worldwide. Now, just to compare the U.S. numbers, AMT has about 42,000 towers in the U.S. alone. Now, the U.S. has approximately 140 to 150,000 towers in total. So, AMT has somewhere about 30% of the market. So it's clearly in a very, very powerful position.

And as time goes on, and given I think AMT's acquisition history, I think it's pretty likely that we'll see this number of competitors continue to shrink as the smaller players continue to get eaten up by some of the bigger ones. Now, if we examine how sensitive AMT would be to key factors in the industry, there are a few characteristics worth zooming in on. So first is that further consolidation of the cellular characteristics. So the U.S. is obviously served by these three major carriers. And as the disruption from the T-Mobile Sprint merger showed, this can cause elevated churn to the industry in its entirety. AMT has obviously

taken steps to try and ameliorate this, but it's still something that AMT will have to be sensitive to. And this applies globally and not just in the U.S. The thing I really want to understand better is how closely regulated AMT is by the government. And, you know, to me, that could really make or break the investment. But, you know, I also wanted to mention that one smaller area of the business I came across when reviewing the stock that we'll be talking about today was these distributed antenna systems that are known as DAS networks. And so these look sort of like logistics for getting wireless coverage into large towers in other outdoor areas, is maybe how I would put it. But how does this relate to the potential

pressure that competitors can leverage over AMT? Yeah, so let me get to your point there on regulations first, Sean. So it's a little tougher to get a really good call on this. So it appears that the government actually hasn't stepped in to their price increases in AMT's past. So in the U.S., the contracts give them this 3% annual escalator. And my educated guess is that all tower businesses are probably offering pretty similar escalators. And if they were to restructure the contracts where the rise was too high, then perhaps they, you know, run the risk that customers aren't going to renew you. and then they would just go to a competitor with a lower fee escalator.

Now, as for the international markets, the escalators tend to be higher due to currency devaluation of their base currencies. But overall, I was actually quite surprised by just how little regulatory interference is run on AMT's business. So, you know, overall, I would say it's not like Veracine, in which case it's highly regulated. I just think that because AMT is in this oligopoly, economically speaking, they can't have that fee escalator get too high. otherwise, like I said, customers will jump ship. Now, I want to get to your DAS question. I was actually

coming home yesterday with my son and wife from his swimming lessons and it was out in an area where you have to go into this more rural area of Vancouver. And actually right before we got on the highway, I saw two towers that literally looked exactly the same as the ones that AMT would have. And it just kind of got me thinking, okay, well, these towers, you're not going to see them in the city. No chance, especially with how expensive our real estate is. So that's why you're going to see these towers and more rural areas. And in this one area we went through is there's, there's, like there's farms, right? So this is the kind of customer that AMT will put their towers on on farms. But then when you go into cities like Vancouver where I live, you don't see any of these

towers. So instead, you're going to see these DAS sites. So I want to get to that question there on DAS. So AMT has only 858 DAS sites. So this is a relatively small part of their business. Now, what exactly is a DAS? It has multiple parts to it. So first you have the signal source. So this would be an antenna on a roof that needs to point at some sort of nearby cell tower. Now, from this antenna, you have to run a cable down to some amplifier or nodes within the building. Now, these amplifiers and nodes then distribute the cellular coverage to devices inside of the building. That's why when you go into an office building, you have internet coverage. Now, the DAS structure are used in highly dense urban environments. So think of like,

you know, your downtown cores. Now, even though DAS is an interesting business model, I don't really see it as a major competitive pressure for AMT, given that it accounts for, you know, a single digit share of AMT's overall revenue. And even though DAS appears to be an interesting growth segment, Crown Castle actually already tried to pivot more towards DAS, but unfortunately, it actually hasn't worked out that well. The margins from DAS networks aren't as good as traditional towers. So even though AMT has a few of them, I don't think it's likely that they're going to continue to make growing that segment much of a priority. I think it's pretty interesting that this business doesn't necessarily correlate directly with population concentration, right?

Like, you can have really densely populated cities, and then the DAS business doesn't have the same kind of margins as a tower maybe in a more rural area or the suburbs or whatever it is. So that's sort of counterintuitive. And it does seem like not expanding aggressively into DAS has been a pretty intentional feature of American Tower's capital allocation. And so at this point, I think it's very clear that they're the dominant player in the cell tower industry. But there are some new technologies out there that are changing some of the industry

dynamics that make me inclined to perhaps put this in my too hard bucket if you're, you know, getting an early preview of the portfolio decision, but we'll see. At the time we're recording here, we're waiting on the SpaceX IPO. and there's plenty of speculation abound about how their technology will disrupt various industries. But it does seem like companies like SpaceX are helping make satellites a growing threat to AMT. And before I get carried away on a tangent about that, I'll just let you expand on how you think about those risks facing the company.

Yes. So even a business as strong as AMT does, you know, unfortunately have some exposure to technological advances. And the big one right now, like you just pointed out, out there is the expanding availability of satellite technology. So if you followed, you know, SpaceX's Starlink or even ASTS, you know exactly what we're talking about. So these are both businesses that basically put up satellites and then they can use them to have customers on the ground, use them as a source of an internet signal. Now, AMT actually made a strategic acquisition into

ASTS when it was a very small private company and they actually divested the majority of its stake at the end of 2025 at a very large gain. So they still actually have a board seat in ASTS just to monitor what's going on. So AMT's CTO, Ed Knapp, has that board seat, which gives him direct access to what exactly is happening with satellite technology. So the thesis, from what I can tell from the AMT earnings calls, is that investors are worried that the satellite internet will disrupt cellular towers where AMT obviously operates. Now, so far, AMT doesn't seem to be very afraid of Starlink and ASTS. It's interesting because even when I think of the few Starlink ads that I've seen, it's usually some gamer in a truck in the middle of nowhere using Starlink.

It's generally, from what I've seen at least, not someone in an urban area. Now, the main reason AMT doesn't seem to fear these satellite-based networks is that it will be complementary to AMT and not a direct competitor. So where satellite-based networks are a threat is more of in the rural or underserved area of the planet where tower placement just isn't economically viable. So on the Q2 2025 earnings call, AMT's CEO said he thinks satellite. Networks are a net positive because it will allow more people to access the internet in areas that they might not otherwise have access to. So he mentioned areas, you know, like the Grand Canyon,

rural Montana, or sub-Saharan Africa. These are areas where satellite networks will have an impact, but he doesn't have the towers in those areas simply because it just doesn't make any business sense. Now, I went on a camping trip last year with my wife and son, and we rented out a large space in a provincial park, and we shared it with a few other families. One of the other people there actually had a Starlink Mini, but he said you don't get a ton of data on his plan, so he didn't share the login information to be used by everyone else. Now, I just checked the pricing on a Starlink mini on a monthly basis, and it ranges from about $50, so over $250 per month. So, you know, I can see how this would be interesting to sign up for if you're a, you know, camping enthusiasts or if you're

going on some sort of cross-country RV trip. But at that price, I think you can easily get unlimited internet for less at your home. And the terrestrial internet is where AMT plays. It's funny, whether it's AI or satellites, every time there's a big threat to a business, I feel like I always see your management of the affected company saying, oh, well, you know, actually this is an opportunity for us. And that may be true. But really, the question is, after folks in rural areas have initially gotten access to the internet via satellites, will satellite internet keep improving to a point where it never

makes sense for them to switch over to a network powered by AMT? And unless satellite internet becomes dramatically better and cheaper, which it very well could in the coming years, I mostly see that as a threat on the margins in rural areas where AMT might have been considering rolling out towers in the future as those areas develop. But, you know, another risk that I want to come back to is the consolidation of carriers. I wouldn't say we need to litigate this topic again entirely, but it is probably the most tangible risk to the business. So it's certainly something to be noted.

And another related risk to that is customer concentration. So the U.S. market is being served primarily by three customers. And if the financial condition of one of these big carriers like AT&T Verizon, they deteriorate, well, that would be very bad news for AMT. And they have these guaranteed contracts. But if a company were to, say, file for bankruptcy, I don't think AMT is going to get paid. And then this customer of theirs is probably going to get acquired by one of the other two carriers. And then that creates an even bigger problem for AMT.

So really, customer concentration is a challenge for them in many ways. Yeah, 100%, Sean, I can't argue at all. So the only thing I do see is it's a risk. But obviously, because they're geographically dispersed around the world, you know, it would still hurt, especially in the high margin American market. but, you know, I don't think it's something that would necessarily destroy the company. If you look at AMT and what it offers, you know, there's entire nations, you know, that rely on working internet. So let's say a carrier were to go bankrupt. I think it's very likely that

that carrier is like you just mentioned, is going to be acquired by another company rather than having its assets completely liquidated. And obviously, if they were completely liquidated, that would be horrible for AMT. But, you know, as of now, assuming that satellites aren't the biggest threat that AMT thinks they are. Those assets that would then be sold off are going to be very, very valuable. So I think there's a very, very good chance that they would find a willing buyer. And hopefully they would continue to honor their contracts with AMT, although they might go through some turn like they did with the Sprint deal.

So there's actually been a recent example of a customer failing to pay its bill. So DISH recently actually defaulted on its lease obligation to AMT. So they're now in federal court trying to figure that out. DISH represented about 4% of AMT's North American revenue. So, you know, while it's not an existential amount by any means, it will still have effects on AMT's revenue and create some near-term headwinds. So the multi-year lease agreements were worth about $200 million per year. Another example was in Mexico's AT&T business.

So that business was withholding tower rents throughout 2025. They withheld somewhere around 300 million in tenant payments. But luckily, since then, the dispute was resolved. AT&T, Mexico will actually end up remitting the payments into the future and has already started back up with the regular payments. So while this is a risk, because of AMT's large scale and international reach, it would be pretty hard for just one customer to sink the ship. U.S. consolidation definitely would be their biggest risk here. I'd mainly be concerned about this kind of thing happening in the U.S. Since the U.S. market is so much more profitable than the other markets they operate in,

the effects would be disproportionately negative. And, you know, the last, The last stress that I wanted to discuss with you here in further detail today is, again, the debt. We talked about the pros of pragmatically using leverage with long-term financing locked in at low rates, but still, if you're carrying a ton of debt, it's ultimately a big risk for shareholders. And the interest seats into your net income. And then if there's another financial crisis where liquidity evaporates, they may no longer be able to access outside financing to roll over their debt, which is a huge problem. with their business model that they've been building here.

And it becomes very challenging when you're legally required to pay out most of your earnings to shareholders to then be able to accommodate the debt. And so in that kind of environment, if AMT has a big bill come due, I do think that could be a real problem if lenders are not interested in, you know, rolling over debt to them at all or at, you know, only at egregious interest rates. Yeah, I mean, I'm also still not crazy about all that debt, even if they don't have to pay it off for multiple decades. I think the business does have some structural handicaps being a REIT. And as I mentioned, the REIT structure really forces them to use debt to reinvest into the business.

So, you know, right off the bat, you can expect a business like this, which will probably continue to expand to continue to also have quite significant amounts of debt. And, you know, even if you go back in time, three times was the lowest leverage ratio they've had in the last decade or so. So, you know, my assumption is that we're going to continue to see a leverage ratio around that 3 to 6x for the foreseeable future. Now, the fixed rates on their debts are very reasonable. So obviously that's a bonus. But like you said, over time, there is a chance that they're going to have to roll that debt over. And if interest rates go up significantly, that's going to definitely eat into their

AFFO number. And, you know, if you have to reduce the dividend, that tends to be something that shareholders do not like at all. I guess it's just a risk. I'm going to have to get more comfortable with if we ever want to own REITs. But I'm used to buying these tech companies with negative net debt and a ton of free cash flow to use at their discretion. But of course, that often comes with lots of stock-based comp, right?

Because they're paying out employees and a lot of their internal costs just by giving them stock. So the cash flow numbers look very good. And you know, you're just trading one problem for another, basically. You either got a ton of debt or you've got a ton of stock-based comp. And that's kind of a simple thing. but that is sort of the model you see across a lot of businesses. And with all that said, I think it's that time of the episode where we discuss the intrinsic value of AMT. And I'm looking at your model now and AMT does have some very impressive margins. And as you outline, these margins are

likely to continue improving if they can increase their tenant count. But what do you think about AMT as a business and as an investment for us at today's prices? Yeah, I mean, simply put, I think AMT is an incredible business. You know, there's no doubt in my mind about that. It's a business that sells a service that is needed by essentially the entire world. You and I use services that use cell towers on a daily basis, Sean. This business simply cannot go away. And I don't see satellites disrupting the core business model anytime soon, if ever. But, you know, we also have to take into account that this is a very mature business with a market cap of $88 billion. The business offers pretty limited organic growth other than developing new towers,

adding some tenants and those annual fee escalators. Perhaps they may decide to further scale the data center biz, and then on the inorganic side, they can buy out their smaller competitors. But it doesn't seem like this is a business that's going to continue to grow its top line much beyond the mid single digits. So in my base case, I assume AMT's margins rise very modestly to about 66%, with the U.S. market quite saturated. There's still some room for tenant growth,

but I don't think it'll be anything close to what it had been in the past. As for tenant growth globally, it's really hard to get a very hard to get a very important. view on this as AMT just doesn't share those numbers. So while they may sign up some new customers, I think most of this growth is going to come from fee escalators. Now, as the business ages, I apply a 5% revenue growth rate. This is slightly lower than their 10-year historical growth rate, but it's important to remember that even though AMT seems like a boring asset-heavy business, it's still a recurring revenue machine. The contracts are long and customers are very, very locked in. Now, because of this, AMT has historically gotten a pretty premium EV to EBITDA multiple. So as of

Today, it's trading at a low multiple not seen since 2017, at about 19 times. Now, with these inputs and applying a 21 times exit multiple than applying a 10% margin of safety, I'm getting returns a touch below 9%. Given their Roik trends, this seems to be pretty in line with the long-term returns of the business. Charlie Munger has this great quote about the long-term returns of a business mirroring that business's capital efficiency numbers and ROIC, Roik, whatever you want to call it, is what we're referring to there. And so in AMT's case, this seems quite accurate, right?

When you first discussed AMT, it gave me a lot of Veracine vibes and copart vibes. And they're both businesses with deep moats, but are also mature businesses with limited reinvestment opportunities and growth opportunities too. And so for Veracine, they didn't have the same debt structure though. And we still ended up passing on the opportunity simply due to price. And, you know, more than 30 times earnings. It didn't feel like we had any margin of safety. But that stock has actually only gone up since we first looked at it. So that's just how it goes sometimes. But, you know, point being, while I see both of them sticking around for the long term, I don't think either of those companies at current prices belong in intrinsic value portfolio. And American Tower

actually is a brown, a similar P.E. to Veracine. But then again, it has all that debt that we've talked about it. So that's not to say that they're not great businesses because they are truly excellent, both of them. But more that just the price isn't right. And with AMT, there's this further complication from the debt. That is how I would think about it. Yeah, I mean, I completely agree with you, Sean. This looks like a great business if you want, you know, high single-digit returns and income. But, you know, that's not really what we're focused on with the intrinsic value portfolio. Well, I think this is a very interesting business. It's just one of those classic examples where a quality business doesn't necessarily mean it's a right investment for everyone.

I think you and I both appreciate quality and AMT clearly oozes quality, but that doesn't make sense as an investment for us today. I think with the limited growth opportunities for this business, it's unlikely that it's probably ever going to be that interesting unless the price drops substantially and then you could make a return from a mix of EPS growth, dividends, and multiple expansion. But even then, you know, once the price and value converged, I would be very likely to just sell the business because in the long term, I just don't really think you're going to get returns much above high single digits. Now, as for Chuck Akrie and his decision to drastically trim his AMT position, I think it's because he sees potential slowdowns

in AMT's growth. And perhaps it's reached a point where the business can just no longer grow faster than the benchmark, which has caused him to lose interest. Now, I'm just speculating here, but that's what my best guess would be along with what your point was along the debt issues and how that's continuing to rise up. Now, I want to leave you with a quote today from the legendary Charlie Munger about cinches when it comes to investments. What percentage of your net worth should you put into an investment if it's an absolute cinch?

The answer is 100%. Now, I don't think AMT is an absolute cinch anymore. 10 to 20 years ago, I think it probably was. And that's why investors like Chuck Ackery just did so well. Today, it's a very good business and there are still a few question marks that just really didn't exist back then. And with that, I hope you enjoyed today's episode and I'll see you next. time. Thanks for listening to TIP. Follow the Investors podcast on your favorite podcast app and visit

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