American Tower Corporation — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter results. American Tower owns, operates and develops wireless and broadcast communications sites; approximately 98% of 2013 revenue came from rental and management operations. The company reported 67,418 communications sites across the United States and 12 international markets and has operated as a REIT since January 1, 2012.
Financial performance and position
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $3.361 billion | $2.876 billion | +17% |
| Operating income | $1.214 billion | $1.120 billion | +8% |
| Operating margin | 36.1% | 38.9% | Down 2.8 percentage points |
| Net income | $482 million | $594 million | -19% |
| Net income attributable to American Tower | $551 million | $637 million | -13% |
| Diluted earnings per share | $1.38 | $1.60 | -14% |
| Adjusted EBITDA | $2.176 billion | $1.892 billion | +15% |
| NAREIT FFO | $1.257 billion | $1.200 billion | +5% |
| AFFO | $1.470 billion | $1.223 billion | +20% |
| Cash provided by operating activities | $1.599 billion | $1.414 billion | +13% |
| Capital expenditures | $724.5 million | $568.0 million | +28% |
| Long-term obligations, including current portion | $14.478 billion | $8.753 billion | +65% |
| Cash and cash equivalents | $293.6 million | $368.6 million | -20% |
At year-end, the company reported approximately $2.3 billion of available liquidity, including borrowing capacity. Total assets were $20.3 billion and total equity was $3.6 billion. The filing states that net leverage was outside management’s long-term target range following the MIPT acquisition; management intended to reduce it through debt repayment and growth. The company was in compliance with its debt covenants at December 31, 2013.
For the fourth quarter, revenue was $942.0 million versus $768.4 million a year earlier. Net income attributable to American Tower was $100.0 million versus $135.7 million, and diluted EPS was $0.25 versus $0.34.
Material changes and drivers
- Revenue growth reflected organic leasing gains and an expanded site base. Domestic rental and management revenue rose 13% to $2.189 billion; international revenue rose 27% to $1.098 billion.
- International growth benefited from new sites and legacy-site leasing, but foreign-currency translation reduced international revenue growth by approximately 7%.
- The October 1 acquisition of MIPT, parent of Global Tower Partners, added approximately 5,370 sites. Purchase price was approximately $4.9 billion, including $3.3 billion cash and assumption of approximately $1.5 billion debt. MIPT contributed $84.1 million revenue and $65.0 million gross margin in the fourth quarter.
- Consolidated net income fell despite higher operating income, primarily reflecting $211.7 million of unrealized foreign-currency losses and a $38.7 million loss on retirement of debt, alongside higher interest and depreciation expense. Adjusted EBITDA and AFFO increased; these are non-GAAP measures and should not be treated as substitutes for GAAP earnings or operating cash flow.
- Investing cash outflow increased to $5.173 billion, including $4.462 billion for acquisitions. Financing activities provided $3.526 billion. The company repurchased $145 million of shares and paid approximately $434.7 million in stockholder distributions.
Outlook, risks and unusual items
- Management forecast 2014 capital expenditures of approximately $850 million to $950 million, including construction of approximately 2,250 to 2,750 new sites. It expected 2014 operating cash flow to cover operating needs, capital expenditures, required REIT distributions and debt service. The filing does not provide a clear 2014 revenue or EPS forecast.
- Management cited long-term, typically non-cancellable tenant leases, contractual escalators and low incremental site costs as supports for recurring revenue and organic growth. It estimated approximately $23 billion of future non-cancellable tenant lease revenue, before straight-line accounting effects.
- Key risks include substantial leverage and debt service, concentration among a small number of tenants, foreign-exchange and political/regulatory exposure, competition and carrier consolidation, acquisition integration and execution, and potential changes in wireless technology or infrastructure-sharing practices. Four domestic tenants generated approximately 83% of domestic segment revenue; five international tenants generated approximately 55% of international segment revenue.
- Cash flow from certain securitized sites is subject to debt-service coverage tests and cash-trap provisions; a deterioration could restrict distributions of excess cash to the parent. Approximately 88% of towers were on leased land, creating renewal, access and landowner risks.
- The company disclosed TriStar litigation concerning land interests under tower sites; management did not consider other pending matters likely to materially affect consolidated financial position, results or liquidity.
- In January 2014, Indian tax authorities assessed approximately $369 million relating to pre-acquisition transactions of an acquired subsidiary. The company disputed the assessment, said the seller was obligated to indemnify and defend it for the relevant pre-acquisition tax liability, and recorded no obligation.
- Management reported effective disclosure controls and internal control over financial reporting. The MIPT business, representing approximately 25% of consolidated assets and 3% of revenue at year-end, was excluded from the internal-control assessment while integration proceeded.
Most important facts for investors to verify
- Whether post-acquisition results, integration costs and expected benefits from MIPT develop as management anticipated.
- Debt maturities, floating-rate exposure, covenant headroom and progress in reducing leverage; distinguish reported liquidity from unrestricted cash.
- Organic leasing and tenant churn trends, tenant credit quality and the effect of carrier consolidation or network sharing.
- International revenue, cash generation and debt exposure after currency movements, particularly given the large unrealized FX loss in 2013.
- Status and potential exposure from the Indian tax assessment and TriStar litigation, including the practical value of contractual indemnities.
- Whether 2014 capital spending, cash generation and REIT distributions remain consistent with the company’s stated outlook.