American Tower Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Amounts below are in U.S. dollars; financial figures are in millions unless noted. American Tower is a global REIT that primarily leases multitenant communications sites to wireless carriers and other tenants.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Total operating revenue | $2,298.9 | $1,913.0 | +20% |
| Operating income | $849.2 | $691.3 | +23% |
| Net income attributable to common stockholders | $746.3 | $446.1 | +67% |
| Diluted earnings per share | $1.65 | $1.00 | +$0.65 |
| Adjusted EBITDA | $1,475.7 | $1,211.6 | +22% |
| AFFO attributable to common stockholders | $1,079.5 | $897.8 | +20% |
For the six months, revenue was $4,457.4 million (+14%); operating income was $1,677.9 million (+17%); net income attributable to common stockholders was $1,391.3 million (+62%); diluted EPS was $3.10 versus $1.93; Adjusted EBITDA was $2,915.3 million (+17%); and common-stockholder AFFO was $2,179.3 million (+18%).
Q2 operating margin was approximately 36.9%, compared with 36.1% a year earlier. Property revenue, which represented 97% of Q2 revenue, rose 18%; services revenue increased to $65.9 million from $19.8 million. Segment results were supported by acquisitions, colocations and amendments, contractual rent escalations, and pass-through revenue. Asia-Pacific property gross margin declined 6% for the first half, with higher pass-through costs, including fuel, contributing to pressure.
Cash flow, balance sheet and liquidity
- Six-month cash from operations was $2,044.6 million, up from $1,788.8 million. Investing used $9,505.6 million, including $8,882.6 million for acquisitions. Financing provided $7,587.0 million. Capital expenditures were $620.2 million; operating cash flow less capital expenditures was approximately $1,424 million.
- At June 30, cash and cash equivalents were $1,928.0 million (restricted cash: $72.8 million). Total debt obligations were $35.6 billion, including $2.6 billion current; the filing describes total outstanding indebtedness as $35.8 billion. Operating lease liabilities totaled $8.8 billion.
- Reported liquidity was $4,720.4 million, comprising cash and $2,792.4 million of net availability under revolving credit facilities. The company reported compliance with its debt covenants.
- Total assets were $59.0 billion, versus $47.2 billion at year-end 2020; the increase primarily reflects acquisitions. Common distributions paid in the first half were $1.1 billion, or $2.45 per share.
Material changes and notable transactions
- In June, American Tower completed most of its Telxius acquisition, acquiring nearly 27,000 communications sites for approximately €7.2 billion (about $8.8 billion at closing). Approximately 4,000 remaining German sites were expected to close in August 2021. The acquisition materially increased Europe and Latin America operations and contributed to higher depreciation and amortization.
- To finance the transaction, the company issued 9.9 million shares for net proceeds of approximately $2.4 billion and issued senior notes with aggregate net proceeds of approximately $3.8 billion. It also drew delayed-draw term loans and used revolving credit facilities. A bridge financing commitment was terminated without borrowing.
- Q2 reported earnings benefited from $146.9 million of foreign-currency gains and $29.4 million of unrealized gains on U.S. equity securities. For the six months, foreign-currency gains were $241.6 million. These non-operating items materially supported reported net income.
- Q2 income tax provision was $72.8 million, compared with $11.1 million; the first-half provision was $123.1 million versus $32.2 million. The company cited higher foreign earnings, tax-position reserves and foreign tax-law changes. First-half results also included a $25.7 million loss on retirement of debt, related to repayment of InSite debt.
Outlook, risks and contingencies
- Management expected 2021 total capital expenditures of $1.5–$1.6 billion, including construction of approximately 6,500–7,500 communications sites. No full-year revenue, EPS or AFFO guidance is stated in the provided filing text.
- Management said operating cash flow and borrowing capacity were expected to cover 2021 distributions, capital expenditures, debt service and signed acquisitions. Following Telxius, the credit-facility total-debt-to-Adjusted-EBITDA covenant limit was raised to 7.50x for four quarters, then steps down to 6.00x; the company reported compliance at quarter-end.
- Management expected several years of elevated U.S. churn from T-Mobile and legacy Sprint lease cancellations. India churn remained elevated relative to historical levels, and tenant ability to meet obligations under India’s adjusted-gross-revenue payment rulings could affect cash flows and asset values. The company identified $1.0 billion of India tenant-related intangibles, $1.0 billion of tower assets and $389.2 million of network-location intangibles.
- Other exposures include foreign exchange movements, variable interest rates, tenant concentration, debt refinancing and covenant compliance, and possible effects of COVID-19. A 10% adverse move in exchange rates on specified unsettled balances was estimated to produce $569.1 million of unrealized losses; a 10% increase in current interest rates would add $4.8 million of first-half interest expense.
- Management reported no pending litigation expected to materially affect financial position, results or liquidity, and no material changes to the risk factors in the 2020 Form 10-K. Tax authorities’ claims remain subject to dispute; unrecognized tax benefits affecting the effective tax rate were approximately $97.2 million.
- After quarter-end, CDPQ and Allianz agreed to acquire interests in ATC Europe; Allianz subsequently elected to increase its stake. The transactions were expected to close in Q3, subject to customary conditions, and would leave American Tower with a 52% controlling interest. A separate planned redemption of the remaining India minority interest was subject to regulatory approval.
Key facts for investors to verify
- How much of revenue and AFFO growth reflects acquired Telxius and InSite assets versus organic leasing, and how the remaining Telxius sites performed after closing.
- The effect of foreign-currency and equity-security gains on reported earnings, compared with recurring operating performance and cash generation.
- Debt, near-term maturities and covenant headroom after acquisition financing, including the temporary 7.50x leverage limit and the 364-day term loan maturity.
- Whether expected 2021 capital spending, distributions and signed acquisitions remain supportable by operating cash flow and available liquidity.
- Developments in India tenant payment capacity and churn, T-Mobile-related cancellations, tax assessments, and the pending European and India ownership transactions.