American Tower Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results compared with Q1 2019. American Tower is a global owner and operator of multitenant communications real estate, primarily leasing tower and other site space to wireless and related tenants. Property operations generated 99% of quarterly revenue.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $1,993.1 million | $1,813.4 million | +10% |
| Operating income | $736.8 million | $614.9 million | +20% |
| Operating margin | 37.0% | 33.9% | +3.1 percentage points |
| Net income attributable to common stockholders | $415.0 million | $397.4 million | +4% |
| Diluted earnings per share | $0.93 | $0.89 | +4% |
| Cash from operating activities | $800.0 million | $785.1 million | +2% |
| Adjusted EBITDA (non-GAAP) | $1,271.0 million | $1,114.4 million | +14% |
| Nareit FFO attributable to common stockholders (non-GAAP) | $819.2 million | $769.6 million | +6% |
| AFFO attributable to common stockholders (non-GAAP) | $945.4 million | $817.8 million | +16% |
Cash and cash equivalents were $1.326 billion at quarter-end. Total reported liquidity was $4.186 billion, including $2.860 billion available under credit facilities. Long-term obligations, including current maturities, totaled $24.6 billion; management reported total outstanding indebtedness of $24.7 billion, with $2.6 billion current. Operating lease liabilities were a further $6.6 billion. The company reported compliance with its credit-facility financial covenants.
Investing cash outflow was $253.4 million and financing cash outflow was $606.0 million; cash and restricted cash declined $177.7 million during the quarter. Capital expenditures were $225.1 million. The company declared a $1.08-per-share distribution, paid April 29, 2020; $454.9 million of common-stock distributions were paid in the quarter.
Material changes and unusual items
- U.S. property revenue rose 11%, while Africa property revenue rose 57%, mainly reflecting the Eaton Towers acquisition. Asia revenue declined 1%; services revenue fell 27%. Foreign-exchange translation reduced reported revenue by about $48 million and operating profit by about $26 million versus Q1 2019.
- Operating income increased, but other expense rose to $297.1 million from $173.3 million. This included $65.5 million of foreign-currency losses versus $20.1 million of gains a year earlier, and a $34.6 million loss on early retirement of 5.9% notes.
- Comprehensive loss attributable to American Tower stockholders was $1.033 billion, primarily reflecting a $1.344 billion foreign-currency translation loss recorded in other comprehensive income; this is distinct from net income.
- The company issued $1.5 billion of 2.4% notes due 2025 and 2.9% notes due 2030, and redeemed $500 million of 5.9% notes. It also acquired MTN’s 49% interests in its Ghana and Uganda joint ventures for approximately $524.4 million, increasing ownership to 100%.
- India carrier churn remained a concern, although aggregate carrier-consolidation effects did not materially affect consolidated property revenue, gross margin or operating profit in Q1. Overall churn was approximately 3% of tenant billings.
Outlook, risks and contingencies
- Management expected 2020 capital expenditures of $1.05–$1.15 billion, including construction of approximately 5,000–6,000 communications sites globally. COVID-19 was expected to delay approximately 1,000 planned India sites and reduce the U.S.-dollar equivalent of spending through currency movements. The filing provides no clear full-year revenue or earnings guidance.
- Management believed operating cash flow, credit capacity and cash on hand would be sufficient for distributions, capital expenditures, debt service and signed acquisitions. This outlook is subject to uncertainty from COVID-19, market volatility, tenant financial health and foreign-exchange movements.
- After quarter-end, the company entered into a $1.19 billion term loan due April 2021 and used proceeds to repay revolving-credit borrowings. It also gave notice to redeem $750 million of 2.8% notes due 2020, with redemption scheduled for May 11, 2020.
- India’s Supreme Court ruling on adjusted gross revenue could impair tenants’ ability to meet obligations and may contribute to further churn or impairment. India goodwill was approximately $1.0 billion; management said the reporting unit’s estimated fair value exceeded carrying value by about 8%, but modest changes in key assumptions could eliminate that headroom.
- Other key risks include COVID-19 effects on tenants, leasing demand and capital markets; currency volatility; customer concentration; high leverage and refinancing needs; acquisition integration; regulatory changes; and potential impairment of goodwill and other assets. Litigation matters were not expected by management to materially affect financial position, results or liquidity.
Important facts for investors to verify
- Whether COVID-19, foreign-exchange changes and delayed site construction materially alter 2020 operating results and capital spending.
- Developments in India, including tenant creditworthiness, churn, potential impairments and the expected redemption of remaining India put-option interests, estimated at approximately $328 million subject to regulatory approval.
- Debt maturities, refinancing costs, covenant capacity and the effect of the April 2020 borrowing and May 2020 notes redemption on liquidity.
- Whether reported growth in Africa and other regions is sustainable apart from acquisitions and currency effects; review non-GAAP reconciliations, which the company cautions are not substitutes for GAAP results or cash flows.
- Execution of signed acquisitions, including remaining Entel site closings and the staged Orange transaction, and any related integration costs or commitments.