AMERICAN TOWER CORP annual report, FY2019

Business context and reporting period

American Tower Corporation’s Form 10-K covers the fiscal year ended December 31, 2019; it is an annual filing, not a standalone fourth-quarter report. The company owns, operates and develops multitenant communications real estate, principally leasing tower space to wireless carriers. Property operations generated 98% of 2019 revenue. At year-end, its portfolio included 179,520 communications sites across the United States, Asia, Africa, Europe and Latin America. The company operates as a REIT.

Financial results and key metrics

Amounts are in U.S. dollars; financial results are for the year ended December 31 unless stated otherwise.

Metric	2019	2018	Change
Total revenue	$7.580 billion	$7.440 billion	+2%
Operating income	$2.688 billion	$1.905 billion	+41%
Net income	$1.917 billion	$1.265 billion	+52%
Diluted earnings per common share	$4.24	$2.77	+53%
Adjusted EBITDA (non-GAAP)	$4.745 billion	$4.667 billion	+2%
AFFO attributable to common stockholders (non-GAAP)	$3.442 billion	$3.191 billion	+8%
Cash from operating activities	$3.753 billion	$3.748 billion	Approximately flat

Operating income was 35.5% of revenue in 2019, versus 25.6% in 2018. Consolidated AFFO was $3.521 billion, down 1% from $3.539 billion. The filing cautions that its non-GAAP measures are not substitutes for GAAP results or operating cash flow.

Revenue by segment: U.S. property $4.189 billion (+10%); Asia $1.217 billion (-21%); Africa $584 million (+7%); Europe $135 million (-5%); Latin America $1.341 billion (+6%); services $115 million (-8%).
Cash and investment: Cash and cash equivalents were $1.501 billion at year-end; operating cash flow was $3.753 billion, investing cash outflow $3.988 billion and financing cash inflow $522 million. Capital expenditures were approximately $1.030 billion, and acquisition spending was approximately $2.960 billion.
Debt and liquidity: Long-term obligations, including current maturities, were $24.055 billion, compared with $21.160 billion a year earlier. Available liquidity was $4.441 billion, comprising $2.940 billion of undrawn credit facilities net of letters of credit and $1.501 billion of cash. The company reported compliance with its debt covenants.
Distributions: The 2019 common distribution declared was $3.78 per share; cash distributions paid during the year were $3.61 per share. The company must distribute at least 90% of REIT taxable income, subject to applicable rules.

Material changes versus the prior comparable period

Annual revenue grew 2%, but results varied sharply by region. U.S. property growth reflected colocations, lease amendments and escalations; Asia’s decline reflected India churn and the nonrecurrence of a substantial Tata settlement recorded in 2018.
India carrier consolidation reduced 2019 consolidated property revenue by $361.3 million, including about $84.2 million of pass-through revenue, and reduced gross margin and operating profit by $247.7 million. Company-wide churn was approximately 6% of tenant billings, above its historical 1%–2% range.
Net income rose much faster than Adjusted EBITDA. Other operating expenses fell to $166.3 million from $513.3 million, principally because impairment charges declined to $94.2 million from $394.0 million. The 2019 result also included a $113 million tax benefit from an Indian tax-law change; 2018 included a $333.7 million net revenue impact from the Tata settlement.
Debt increased alongside substantial acquisition investment and financing activity. The company completed the Eaton Towers acquisition, adding approximately 5,800 African sites, and acquired approximately 2,400 sites in Chile and Peru in the first Entel transaction tranche. Eaton Towers was acquired on December 31, so it contributed no 2019 revenue.
Adoption of the new lease accounting standard in 2019 added a $7.1 billion operating right-of-use asset and a $6.9 billion lease liability at adoption. Prior periods were not restated.
Fourth-quarter revenue was $1.924 billion, compared with $2.132 billion in fourth-quarter 2018; operating income was $661 million versus $389 million, and net income was $569 million versus $293 million. The filing attributes significant year-over-year comparability effects to unusual prior-year items, including the Tata settlement and impairment activity.

Outlook, management commentary, risks and unusual items

Management expects continued demand from mobile data growth, network densification and 4G/5G deployment, and emphasizes increasing tenancy on existing sites, selective acquisitions and maintaining investment-grade credit ratings. These are expectations, not a quantified revenue or earnings forecast in the provided filing text.
For 2020, the company expected total capital expenditures of $1.1–$1.2 billion, including construction of approximately 6,000–7,000 sites. Management stated that operating cash flow, available borrowing capacity and cash on hand were expected to fund required distributions, capital expenditures, debt service and signed acquisitions.
Near-term India churn remained uncertain following the October 2019 Indian Supreme Court ruling on adjusted gross revenue (AGR), which could affect certain tenants’ financial capacity. The company said it would monitor Indian asset values; its India reporting unit’s estimated fair value exceeded carrying value by only about 7%, and reasonably possible changes in certain assumptions could eliminate that cushion.
Revenue is concentrated: four tenants represented 54% of consolidated revenue. AT&T contributed 22%, Verizon Wireless 15% and T-Mobile 10%; Sprint contributed 8%. T-Mobile and Sprint had announced plans to merge in 2020. Tenant consolidation, credit deterioration or network sharing could increase churn or reduce leasing demand.
International operations expose the company to currency, political, regulatory, tax and licensing risks. Foreign currencies accounted for 43% of revenue and 51% of operating expenses in 2019. The filing estimates that a 10% adverse move in relevant exchange rates on unsettled intercompany debt and similar balances would create $105.4 million of unrealized losses.
Other material risks include substantial leverage and refinancing needs, interest-rate and LIBOR transition exposure, REIT qualification and distribution requirements, zoning and permitting constraints, ground-lease renewals, natural disasters, cybersecurity, environmental liabilities and integration of acquisitions. The company reported no pending legal matter expected to materially affect consolidated financial position, results or liquidity.
After year-end, the company issued $1.5 billion of notes and used the net proceeds to repay credit-facility borrowings; it also redeemed $500 million of 5.9% notes and repaid its $1.0 billion 364-day term loan, partly using a new $750 million term loan. Expected 2020 transactions included a $347.6 million redemption of remaining put shares in its Indian subsidiary and approximately $523 million to acquire MTN’s interests in Ghana and Uganda joint ventures, both subject to conditions and approvals.

Important facts for investors to verify

Track India tenant collections, AGR-related tenant financial exposure, churn, and potential impairment sensitivity in the India reporting unit.
Assess the drivers of reported net-income growth separately from recurring performance, especially lower impairment charges, the Indian tax benefit, and the 2018 Tata settlement comparison.
Review debt maturities, refinancing and interest costs, covenant headroom, and liquidity after the disclosed post-year-end borrowing and repayments.
Monitor tenant concentration and the effects of carrier consolidation, including the announced T-Mobile/Sprint merger.
Confirm the completion, purchase consideration and integration results of the remaining Entel sites, MTN joint-venture interest purchases and Indian put-share redemption.
Evaluate foreign-exchange exposure, ground-lease obligations and the 2020 capital-spending plan against cash flow and distribution requirements.