Business context and reporting period
American Tower Corporation (AMT), a global REIT that leases multitenant communications sites, filed this unaudited Form 10-Q for the quarter ended September 30, 2019. Property operations generated 98% of revenue for the first nine months. The filing compares the three and nine months ended September 30, 2019 with the corresponding 2018 periods.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $1,953.6m | $1,785.5m | $5,656.6m | $5,308.2m |
| Operating income | $728.3m | $567.2m | $2,027.1m | $1,516.1m |
| Net income attributable to common stockholders | $498.6m | $366.9m | $1,325.1m | $949.4m |
| Diluted EPS | $1.12 | $0.83 | $2.98 | $2.15 |
| Adjusted EBITDA (non-GAAP) | $1,229.3m | $1,095.3m | $3,527.1m | $3,241.8m |
| AFFO attributable to common stockholders (non-GAAP) | $861.0m | $779.6m | $2,571.9m | $2,313.6m |
Revenue increased 9% in Q3 and 7% for nine months. Operating income increased 28% and 34%, respectively; common-stockholder net income increased 36% and 39%. Nine-month Nareit FFO attributable to common stockholders was $2,498.2m, up 13%. Non-GAAP measures are company-defined and are not substitutes for GAAP results or cash flow.
For the nine months, operating cash flow was $2,758.9m (2018: $2,485.1m); investing cash outflow was $1,400.8m (2018: $2,055.1m); financing cash outflow was $1,174.6m (2018: $34.3m). Cash and restricted cash ended at $1,448.3m, up $143.4m from year-end. Capital expenditures were $754.9m and acquisitions used $687.6m.
At September 30, total long-term obligations were $21,483.6m, including $2,443.6m current and $19,040.0m long-term; principal indebtedness was reported as $21.6bn. The company reported $5,170.6m of liquidity: $3,818.0m available under credit facilities, net of letters of credit, plus $1,352.6m cash. It was in compliance with debt covenants. The $1.3bn 2019 Term Loan was due February 2020; subsequent October financing proceeds were used in part to repay it.
Material changes versus the prior comparable period
- Growth reflected higher leasing activity, contractual escalations, acquisitions and, in the U.S., increased straight-line revenue associated largely with the new AT&T master lease. Q3 U.S. property revenue rose 14%; Asia declined 3%; EMEA and Latin America each grew 9%.
- India carrier consolidation remained a significant headwind. For nine months it reduced consolidated property revenue by $268.4m, including $63.4m of pass-through revenue, and gross margin and operating profit by $183.2m. Consolidated churn was approximately 6% of tenant billings.
- Nine-month other operating expenses fell to $83.5m from $269.6m, chiefly because impairment charges declined to $45.1m from $182.4m in 2018. Net income also benefited from operating growth and lower stock compensation; the 2019 period included a $22.2m debt-retirement loss and a higher tax provision.
- New lease accounting adopted January 1, 2019 added a $7.1bn right-of-use asset and $6.9bn lease liability at adoption. At September 30, operating lease assets were $7,214.7m and operating lease liabilities $6,923.1m. Prior periods were not restated, limiting balance-sheet comparability.
- AMT redeemed certain Indian minority interests for $425.7m, increasing its ATC TIPL ownership from 63% to 79%. A further redemption of approximately $350.1m was expected in Q4, subject to regulatory approval.
Outlook, commentary and risks
- Management expected 2019 capital expenditures of $1.05bn–$1.15bn, including construction of approximately 4,000–4,500 communications sites. It said operating cash flow and credit capacity were expected to fund distributions, capital expenditures, debt service and signed acquisitions.
- Management estimated 2019 India carrier consolidation would reduce consolidated property revenue by approximately $178m and operating profit by approximately $134m versus 2018, with stated assumptions including settlement-payment effects. It expected elevated churn and pressure on Asia results through 2019 and noted potential for further Indian asset impairments.
- AMT had agreed to acquire Eaton Towers, with approximately 5,500 sites across five African markets, for consideration including assumed debt of about $1.85bn. Closing was expected by year-end, subject to customary conditions and regulatory approvals; the company also anticipated acquiring MTN’s interests in its Ghana and Uganda joint ventures.
- Other risks include dependence on a relatively small number of tenants and their creditworthiness, foreign-currency exposure, interest-rate changes, refinancing and covenant requirements, and the possibility that securitization cash-flow tests could restrict distributions from pledged assets. Management reported no pending litigation expected to materially affect financial position, results or liquidity.
- For the nine months, 43% of revenue and 51% of operating expenses were denominated in foreign currencies. A 10% adverse move in rates on unsettled intercompany balances was estimated to produce $117.2m of unrealized losses; a 10% increase in current interest rates was estimated to add $11.2m of interest expense for the period.
Most important facts for investors to verify
- Whether India carrier churn, tenant settlements and asset values track management’s assumptions, including the disclosed revenue and operating-profit impacts.
- Completion, consideration and financing of the ATC TIPL put-option redemption and the Eaton Towers acquisition, including the proposed MTN joint-venture interest purchases.
- Debt maturities and refinancing, particularly the 2019 Term Loan and the effects of post-quarter-end note issuance and repayments.
- 2019 capital expenditure delivery, cash generation and distributions, and the effect of the new lease accounting presentation on comparisons.
- Tenant concentration, currency and interest-rate exposure, covenant headroom, and any developments in tax assessments or other contingencies.