American Tower Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited consolidated results. American Tower is a global owner and operator of multitenant communications real estate; property operations generated 98% of first-half revenue.
Financial performance
| Metric | Q2 2019 | Six months 2019 | Comparison with 2018 |
|---|---|---|---|
| Revenue | $1.890 billion | $3.703 billion | Up 6% and 5%, respectively |
| Operating income | $683.9 million | $1.299 billion | Up 25% and 37% |
| Net income attributable to common stockholders | $429.1 million | $826.5 million | Up 40% and 42% |
| Diluted EPS | $0.96 | $1.86 | Up from $0.69 and $1.32 |
| Adjusted EBITDA | $1.183 billion | $2.298 billion | Up 9% and 7% |
| Nareit FFO attributable to common stockholders | $828.6 million | $1.598 billion | Up 17% and 10% |
| AFFO attributable to common stockholders | $893.1 million | $1.711 billion | Up 15% and 12% |
Q2 operating margin was approximately 36.2%, compared with 30.7% a year earlier. First-half operating cash flow was $1.822 billion, versus $1.732 billion. Investing cash outflow was $590.7 million, including $134.5 million for acquisitions; financing cash outflow was $1.247 billion, including $775.1 million of common-stock distributions and $425.7 million to redeem Indian noncontrolling interests. Cash and restricted cash totaled $1.286 billion at period end.
At June 30, total debt and finance/capital lease obligations were $21.058 billion, including $2.442 billion current. Separately, adoption of lease accounting put $6.832 billion of operating lease liabilities on the balance sheet. Reported available liquidity was $5.490 billion: $4.298 billion of undrawn credit capacity, net of letters of credit, plus $1.192 billion of cash.
Changes versus prior period
- Revenue gains reflected tenant colocations, amendments and contractual escalations across regions, partly offset by churn and currency headwinds. First-half property revenue increased 5%; services revenue increased 8%.
- First-half operating profit grew across all property segments. Asia gross margin was nearly flat for the six months, while U.S. gross margin increased 7%.
- Net income growth was aided by substantially lower impairment charges: first-half impairments were $31.1 million, compared with $180.6 million in 2018. Other operating expenses also declined.
- First-half financing included $3.530 billion net proceeds from senior notes and repayment of $1.7 billion of senior notes. Total debt was broadly similar to year-end 2018, while debt composition and maturities changed.
Outlook, commentary and risks
- Management expected 2019 capital expenditures of $1.0–$1.1 billion, including construction of approximately 3,000–4,000 communications sites. It stated operating cash flow and credit capacity should cover expected distributions, capex, debt service and signed acquisitions in 2019.
- India carrier consolidation was a significant headwind. For the first half it reduced consolidated property revenue by $177.2 million, including $42.3 million of pass-through revenue, and reduced gross margin and operating profit by $120.6 million. Management estimated a full-year 2019 operating-profit impact of approximately $141 million versus 2018 and expected above-historical churn through 2019. It also noted potential impairment risk in India.
- At June 30, the India reporting unit’s estimated fair value exceeded carrying value by approximately $365.7 million, or 9%; management identified sensitivity to revenue, discount-rate and terminal-growth assumptions.
- In May, the company agreed to acquire Eaton Towers, with approximately 5,500 sites in five African markets, for about $1.85 billion including assumed debt; closing was expected by year-end, subject to approvals. A separate agreement to acquire approximately 400 U.S. towers for about $0.5 billion was announced in July, after quarter end.
- In April, Indian shareholders exercised puts on their remaining ATC TIPL holdings. American Tower expected to pay approximately $359.4 million in Q3, subject to regulatory approval; completion would raise its ownership to about 92%.
- Management cited foreign-exchange exposure: 44% of first-half revenue and 51% of operating expenses were denominated in foreign currencies. A 10% adverse move in unsettled foreign-currency intercompany and similar balances was estimated to produce $111.2 million of unrealized losses for the six-month period. A 10% rise in interest rates was estimated to add $7.2 million of interest expense for the period.
- The company adopted the new lease standard on January 1, 2019, recognizing $7.1 billion of right-of-use assets and $6.9 billion of lease liabilities at adoption. Prior-year balance-sheet amounts were not restated, limiting direct comparability.
- Management reported compliance with debt covenants and no pending litigation expected to materially affect financial position, results or liquidity. An Indian tax assessment of approximately $69.8 million remained under appeal; no liability was recorded, and the company said it believed its position would be sustained.
Important facts for investors to verify
- Track India tenant churn, settlements, margins and impairment assumptions against management’s 2019 estimates.
- Confirm the timing, regulatory approvals and funding for the ATC TIPL put redemption and announced acquisitions.
- Review debt maturities and covenant headroom, including the $1.3 billion term loan due in February 2020 and the separately reported operating lease burden.
- Assess whether operating cash flow can support planned capital spending and distributions; AFFO and Adjusted EBITDA are non-GAAP measures and are not substitutes for cash flow.
- Consider lease-accounting comparability and the effects of foreign-currency and interest-rate movements on reported results.