American Tower Corporation — Q1 2013 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2013, compared with Q1 2012. American Tower owns, operates and develops wireless and broadcast communications sites across the U.S. and international markets. It reported 55,966 sites at quarter-end; rental and management generated about 97% of revenue. The company has operated as a REIT since January 1, 2012.
Key financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $802.7 million | $696.5 million | +15% |
| Operating income | $299.7 million | $274.4 million | +9% |
| Operating margin | 37.3% | 39.4% | Down 2.1 percentage points |
| Net income | $160.9 million | $210.4 million | -23% |
| Net income attributable to American Tower | $171.4 million | $221.3 million | -23% |
| Diluted EPS | $0.43 | $0.56 | -23% |
| Operating cash flow | $394.0 million | $402.0 million | -2% |
| Adjusted EBITDA | $524.4 million | $462.5 million | +13% |
| NAREIT FFO | $327.8 million | $353.6 million | -7% |
| AFFO | $357.8 million | $325.5 million | +10% |
Rental and management revenue rose 14%: domestic revenue increased 6% and international revenue 33%. International growth included acquisition and site growth, partly offset by an 8% foreign-currency headwind. Network development services revenue rose 102% to $25.3 million. Segment operating profit was $400.9 million domestic, $136.5 million international and $12.1 million network development services.
SG&A increased 27% to $101.2 million; depreciation, amortization and accretion rose 24% to $185.8 million. Rental and management operating growth was driven by new tenants, lease amendments, contractual escalators and approximately 10,180 sites acquired or built since January 1, 2012.
Financial position, liquidity and capital allocation
- At March 31, 2013, cash and cash equivalents were $441.7 million; total current assets were $903.6 million and current liabilities were $739.1 million. Reported liquidity was approximately $2.12 billion, including available credit-facility capacity.
- Total debt was approximately $8.85 billion, versus $8.75 billion at December 31, 2012, based on reported balances. Long-term obligations had a carrying value of about $8.8 billion and estimated fair value of $9.4 billion.
- Cash used for investing was $376.6 million, including $245.1 million for acquisitions and $123.9 million for property, equipment and construction. Cash provided by financing was $34.6 million; cash increased $73.1 million, including a positive $21.1 million foreign-exchange effect.
- The company issued $1.0 billion of 3.50% senior notes due 2023 and used proceeds to repay credit-facility borrowings. It also refinanced $1.75 billion of 2007 securitized debt with $1.8 billion of tower revenue securities, at a stated weighted-average effective rate of 2.648%.
- The quarterly distribution declared was $0.26 per share; approximately $102.8 million was paid April 25, 2013. The company repurchased $12.5 million of stock during the quarter.
Material changes, outlook and risks
- Net income was reduced by a $35.3 million loss on retirement of debt, including a $29.2 million prepayment charge and $6.1 million of deferred financing cost write-offs. Interest expense increased 18%, mainly because average debt was approximately $1.6 billion higher, despite a lower weighted-average borrowing cost.
- Other income fell to $22.3 million from $52.9 million, primarily because unrealized foreign-currency gains declined to $22.1 million from $55.8 million. These noncash currency gains and losses can materially affect reported earnings.
- Management expected 2013 capital expenditures of approximately $550–$650 million, including $240–$300 million of other discretionary projects and construction of approximately 2,250–2,750 new sites. Management said expected operating cash flow should cover the next 12 months’ distributions, capital expenditures and debt service, with credit facilities available if needed. No specific revenue or earnings guidance was provided.
- The new securitization can trap excess cash if debt-service coverage remains at or below 1.30x for two consecutive quarters; at or below 1.15x, excess cash is applied to principal. The reported DSCR was 9.06x at quarter-end. Default could expose 5,195 secured towers and their cash flows to foreclosure.
- Key risks include tenant concentration (four tenants represented about 75% of domestic rental revenue; five represented about 55% of international rental revenue), foreign exchange and political/regulatory exposure, REIT qualification and distribution requirements, leverage and refinancing needs, acquisition integration, ground-lease rights, and changing wireless technology or carrier consolidation.
- The company reported no pending litigation expected by management to materially affect its financial position, results or liquidity. It received an Indian tax authority notice concerning pre-acquisition transfer-pricing matters; no liability was recorded, and the seller has specified indemnification obligations.
Investor verification priorities
- Reconcile reported net income of $160.9 million with income attributable to American Tower of $171.4 million, including the noncontrolling-interest presentation.
- Assess organic same-site growth, acquisition contributions, foreign-exchange effects and the sustainability of unusually strong international growth.
- Review debt maturities, variable-rate exposure, refinancing terms and securitization cash-trap covenants; distinguish anticipated repayment dates from final legal maturities.
- Compare capital spending and acquisition outlays with operating cash generation, distributions, repurchases and management’s 2013 capital expenditure range.
- Monitor tenant concentration, the Indian tax matter, REIT compliance and material changes in foreign exchange or regulatory conditions.