American Tower Corporation — Q2 2022 Form 10-Q
Business context and period. This unaudited filing covers the quarter and six months ended June 30, 2022. American Tower is a global communications real estate REIT, with tower and related property operations, U.S. data centers, and tower-related services. Results include the impact of the 2021 Telxius and CoreSite acquisitions; CoreSite is reported in a Data Centers segment.
Financial highlights
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $2,674.3M (+16%) | $2,298.9M | $5,334.6M (+20%) | $4,457.4M |
| Operating income | $782.3M (-8%) | $849.2M | $1,507.4M (-10%) | $1,677.9M |
| Net income attributable to common stockholders | $898.2M (+20%) | $746.3M | $1,609.9M (+16%) | $1,391.3M |
| Diluted EPS | $1.95 (+18%) | $1.65 | $3.51 (+13%) | $3.10 |
| Adjusted EBITDA | $1,670.7M (+13%) | $1,475.7M | $3,294.4M (+13%) | $2,915.3M |
| AFFO attributable to common stockholders | $1,155.2M (+7%) | $1,079.5M | $2,322.3M (+7%) | $2,179.3M |
| Cash from operating activities | Not separately presented | Not separately presented | $1,578.9M | $2,044.6M |
Margins and drivers. Property segment gross margin rose 13% in Q2 and 15% year to date. Consolidated operating margin was approximately 29.2% in Q2 versus 36.9% a year earlier, reflecting higher depreciation, amortization and accretion, which rose 49% to $826.5M. Adjusted EBITDA margin was approximately 62.5% versus 64.2%. Revenue growth was supported by acquired sites and data centers, colocations, amendments, and pass-through revenue; higher fuel costs contributed to pass-through revenue and expense.
Cash, debt and liquidity. At June 30, cash and cash equivalents were $2.07B and restricted cash was $136.4M. Total liquidity was reported at $5.43B, including $3.36B available under credit facilities. Long-term obligations, including current maturities, had a carrying value of $40.8B; management separately reported total outstanding indebtedness of $41.1B. Current debt maturities were $3.6B. Six-month capital expenditures were $772.3M; distributions paid on common stock were $1.28B. Cash from operations declined 23%, and cash, cash equivalents and restricted cash decreased $140.2M.
Material changes versus the prior comparable period
- Revenue growth was substantially influenced by acquisitions: Q2 Data Centers revenue was $191.1M versus $2.5M, and Europe revenue was $178.8M versus $87.8M, largely reflecting CoreSite and Telxius-related assets.
- U.S. & Canada revenue was nearly flat. T-Mobile-related churn exceeded contractual escalations by $34.0M in Q2 and $62.1M for the six months.
- Net income benefited from foreign currency gains of $394.7M in Q2 and $636.8M year to date. These gains offset, in reported earnings, higher interest expense and acquisition-related depreciation and amortization; they are not a recurring operating revenue source.
- Operating cash flow fell by $465.7M year to date, driven by changes in unearned revenue, working capital, and increased cash interest and tax payments.
- In June, the company issued 9.185M common shares for approximately $2.3B net proceeds and used proceeds, with cash on hand, to repay $2.3B of its 364-day term loan. It also issued $1.3B of senior notes at 3.65% due 2027 and 4.05% due 2032.
Outlook, commentary and risks
- Management expects 2022 capital expenditures of $1.94B–$2.04B, including construction of approximately 6,000–7,000 communications sites. It said operating cash flow and credit capacity should fund expected distributions, capital expenditures, debt service and signed acquisitions.
- The company expects more than $60B of future non-cancellable customer lease revenue, before straight-line lease accounting. It noted that U.S. & Canada churn is expected to remain elevated for several years because of T-Mobile lease cancellations and non-renewals.
- Management reported compliance with debt covenants at June 30 and stated it expected to remain in compliance over the next 12 months. A $600M borrowing under the revolving credit facility was made after quarter-end.
- Foreign currency exposure is material: 44% of six-month revenue and 50% of operating expenses were denominated in foreign currencies. The filing estimates that a 10% adverse exchange-rate move on outstanding euro debt would produce $0.8B of foreign currency losses; a 10% adverse move on unsettled intercompany balances would produce $35.9M of losses.
- Variable-rate debt and interest-rate sensitivity remain risks; the filing estimates a 10% increase in current interest rates would add $12.5M of interest expense for the six-month period. Customer concentration, refinancing needs, covenant compliance, and securitized-debt cash traps are also liquidity risks.
- In July 2022, American Tower agreed to sell Stonepeak a noncontrolling interest in its U.S. data center business for $2.5B, subject to customary closing conditions. Management expected closing in Q3 2022.
- Management said no pending litigation was expected to materially affect financial position, results or liquidity; there were no material changes to the 2021 Form 10-K risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of reported growth and earnings reflects acquired assets and foreign-exchange gains versus organic operating performance.
- The pace and financial impact of T-Mobile-related churn, particularly against colocations and contractual escalations.
- Debt maturities, refinancing plans, variable-rate exposure, and the effect of currency movements on euro-denominated debt.
- Whether operating cash flow and liquidity remain sufficient to fund distributions, planned capital spending and debt service.
- Closing and final terms of the Stonepeak transaction, and its effect on data center ownership, cash proceeds and future results.