American Tower Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; amounts in U.S. dollars unless noted. American Tower is a global communications-infrastructure REIT, with tower and related property leasing as its primary business and data centers added as a separate reportable segment following the 2021 CoreSite acquisition.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $2,660.3 million | $2,158.5 million | +23% |
| Operating income | $725.1 million | $828.7 million | -13% |
| Operating margin | 27.3% | 38.4% | Down 11.1 percentage points |
| Net income | $702.7 million | $652.3 million | +8% |
| Net income attributable to common stockholders | $711.7 million | $645.0 million | +10% |
| Diluted EPS | $1.56 | $1.45 | +8% |
| Operating cash flow | $663.6 million | $1,092.7 million | -39% |
| Adjusted EBITDA | $1,623.7 million | $1,439.6 million | +13% |
| Nareit FFO attributable to common stockholders | $1,400.1 million | $1,105.4 million | +27% |
| AFFO attributable to common stockholders | $1,167.1 million | $1,099.8 million | +6% |
Adjusted EBITDA, Nareit FFO and AFFO are non-GAAP measures; the company cautions they are not substitutes for GAAP results or operating cash flow. Revenue growth was substantially acquisition-related, especially CoreSite and Telxius. Data Centers contributed $184.3 million of revenue versus $2.5 million in the prior-year quarter. Europe revenue rose 345%, also primarily reflecting Telxius and other acquired sites.
Operating income fell despite higher revenue, primarily as depreciation, amortization and accretion increased 56% to $815.8 million, and SG&A rose 61% to $293.9 million. Net income included $242.1 million of foreign-currency gains, compared with $94.7 million a year earlier; the lower tax provision also supported earnings. The effective tax rate was 3.1%, versus 7.2%, partly reflecting valuation-allowance reversals.
Cash, debt and liquidity
- Cash and cash equivalents were $1.94 billion at March 31, 2022; restricted cash was $329.9 million. Reported total liquidity, including available credit-facility capacity net of letters of credit, was $4.16 billion.
- Total outstanding indebtedness was approximately $43.7 billion, including $5.3 billion current; long-term obligations on the balance sheet were $38.2 billion. The current portion included a $3.0 billion delayed-draw term loan due December 2022.
- Operating cash flow of $663.6 million, less $513.1 million of investing outflows, left negative $250.9 million before foreign-exchange effects and financing. Cash flow from operations declined amid working-capital changes, unearned-revenue movements, and higher cash interest and taxes.
- Cash capital expenditures were reported at $394.5 million. The company forecast 2022 total capital expenditures of $2.0–$2.1 billion, including $820–$850 million for discretionary projects and construction of approximately 6,000–7,000 communications sites.
- In April, after quarter-end, the company issued $650 million of 3.650% notes due 2027 and $650 million of 4.050% notes due 2032. Net proceeds of about $1.28 billion were used to repay credit-facility and delayed-draw borrowings.
Material changes, outlook and risks
- Property revenue rose 22%; services revenue rose 107%. Higher pass-through revenue in several international markets reflected increased fuel and other costs, which also lifted operating expenses.
- U.S. & Canada revenue was nearly flat. Management reported churn of approximately 6% of tenant billings and expects elevated churn for several years due to T-Mobile and legacy Sprint lease cancellations and non-renewals.
- Common distributions paid in the quarter were $1.39 per share; a $1.40 per-share distribution was declared for payment in April. The board determines future distributions, subject to REIT requirements and other constraints.
- Management said operating cash flow plus credit capacity was expected to fund 2022 distributions, capital expenditures, debt service and signed acquisitions. This is a liquidity assessment, not specific earnings guidance.
- Interest-rate exposure includes substantial variable-rate borrowing. The filing estimates a 10% increase in current interest rates would add $5.4 million of interest expense for the quarter. A 10% adverse move in exchange rates on outstanding euro debt was estimated to produce $0.9 billion of foreign-currency losses in quarterly earnings.
- Key risks include dependence on a relatively small number of large customers, foreign-exchange and interest-rate volatility, access to capital, debt covenant compliance, lease churn, and the integration of CoreSite and Telxius. No material change to previously disclosed risk factors was reported. Management stated there were no pending legal matters expected to materially affect financial position, results or liquidity.
Important facts for investors to verify
- How much of reported growth and FFO/AFFO growth reflects acquired assets versus organic leasing, and how acquired-asset costs affect margins and cash generation.
- The sustainability of earnings excluding the quarter’s large foreign-currency gains and the effect of future currency movements on euro-denominated debt.
- The trend in operating cash flow and working capital, including the impact of customer advance payments and higher cash taxes and interest.
- Near-term refinancing and liquidity needs, particularly the $3.0 billion term loan due in December 2022, and the company’s leverage and covenant headroom.
- Whether T-Mobile-related cancellations and broader tenant churn remain consistent with management’s expectations, and whether forecast capital spending earns targeted returns.