American Tower Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts are in U.S. dollars; financial statements are unaudited.
Business context
American Tower is a global communications-infrastructure REIT whose primary business is leasing space on multitenant communications sites. Property operations generated 99% of first-half revenue. The company reported U.S., Asia, Africa, Europe, Latin America and services segments. Africa results include the Eaton Towers acquisition, completed at the end of 2019.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $1,913.0M | $1,889.6M | $3,906.1M | $3,703.0M |
| Operating income | $691.3M | $683.9M | $1,428.1M | $1,298.8M |
| Net income | $448.4M | $434.3M | $867.0M | $841.9M |
| Net income attributable to AMT common stockholders | $446.1M | $429.1M | $861.1M | $826.5M |
| Diluted EPS | $1.00 | $0.96 | $1.93 | $1.86 |
| Cash from operating activities | Not separately stated | Not separately stated | $1,788.8M | $1,821.7M |
| Adjusted EBITDA (non-GAAP) | $1,211.6M | $1,183.4M | $2,482.6M | $2,297.8M |
| AFFO attributable to common stockholders (non-GAAP) | $897.8M | $893.1M | $1,843.2M | $1,710.9M |
Q2 revenue rose 1% year over year and first-half revenue rose 5%. Q2 operating margin was approximately 36.1% versus 36.2%; first-half operating margin was approximately 36.6% versus 35.1%. First-half net margin was approximately 22.2% versus 22.7%. These margins are calculated from reported GAAP revenue and income.
First-half operating cash flow declined about 2% year over year, reflecting increased working-capital use, particularly receivables, and higher deferred rent balances. Investing cash outflow was $638.8M; financing cash outflow was $506.8M. Cash and restricted cash totaled $2,106.1M at June 30, up $528.1M from year-end.
At June 30, total outstanding indebtedness was reported as $25.4B, including a $3.4B current portion. The balance sheet lists $21.85B of long-term obligations and $3.37B current. Cash and cash equivalents were $2.04B, and reported total liquidity was $6.49B, including $4.45B available under credit facilities, net of letters of credit. Operating lease liabilities totaled $6.58B.
Material changes versus the prior comparable period
- Q2 property revenue increased 2%; services revenue fell 51%. For the first half, property revenue increased 6% while services revenue fell 42%.
- U.S. property revenue rose 8% in Q2 and 9% in the first half, supported by colocations, amendments and contractual escalations. Africa revenue rose 46% and 51%, respectively, primarily reflecting Eaton Towers.
- Asia revenue declined 16% in Q2 and 9% in the first half, affected by foreign exchange, lower pass-through and other revenue, and churn exceeding escalations. Latin America revenue fell 15% and 7%, respectively, with currency translation a significant headwind.
- Operating income rose 1% in Q2 and 10% in the first half. Net income rose 3% in both periods; first-half diluted EPS increased from $1.86 to $1.93.
- Other expense increased to $231.8M in Q2 and $528.9M in the first half, chiefly reflecting foreign-currency losses. First-half results also included a $34.6M loss on debt retirement.
- First-half accumulated other comprehensive loss widened by $1.45B, largely due to foreign-currency translation. First-half comprehensive loss attributable to AMT stockholders was $589.8M.
- The company bought out MTN’s 49% interests in its Ghana and Uganda joint ventures for approximately $524.4M, raising its interests in both to 100%.
Outlook, management commentary and risks
- Management said operating cash flow, existing cash and borrowing capacity were expected to cover 2020 distributions, capital expenditures, debt service and signed acquisitions. The filing does not provide a clear full-year earnings or revenue forecast.
- 2020 capital expenditure guidance was $1.025B–$1.125B, including construction of approximately 4,500–5,500 sites globally. Management expected COVID-19-related delays to about 1,500 planned India site constructions and currency effects on spending.
- COVID-19’s future effects remained uncertain. Management cited foreign-exchange volatility and estimated adverse currency impacts versus 2019 of about $114M on Q2 revenue and $62M on Q2 operating profit; first-half impacts were about $162M and $88M, respectively.
- India remains a key risk. The Supreme Court’s ruling concerning adjusted gross revenue could weaken tenants’ ability to meet obligations. Management reported elevated near-term churn expectations and said additional impairment or similar charges could result. India reporting-unit fair value exceeded carrying value by approximately 10%, with stated sensitivities to forecast assumptions.
- First-half churn was approximately 3% of tenant billings. The company also reported increased bad-debt expense and receivable reserves for certain Asia and Africa tenants.
- Foreign currencies represented 43% of first-half revenue and 52% of operating expenses. A 10% adverse change in exchange rates on unsettled intercompany debt and similar balances would have produced $115.1M of unrealized losses for the first half.
- Debt refinancing included $3.5B of senior-note offerings with maturities from 2025 to 2050, while new term loans of $750M and $1.19B mature in February and April 2021. After quarter-end, the company redeemed its 3.300% and 3.450% notes due 2021 and expected a further $37.2M debt-retirement loss.
- Other items include $35.8M of long-lived-asset impairment charges in the first half, approximately $328.6M expected to redeem exercised put shares in India subject to regulatory approval, and a roughly $5.0B aggregate purchase option for Verizon-leased and subleased sites in future years. Management said no pending litigation was expected to materially affect financial position, results or liquidity.
Important facts for investors to verify
- Whether currency movements, tenant credit quality and COVID-19 effects continue to pressure reported revenue, cash flow and asset values.
- India tenant churn and the adjusted-gross-revenue litigation implications, including the timing and cost of the remaining put-option redemption.
- Near-term debt maturities, refinancing costs and the effect of the July 2020 note redemptions on leverage and interest expense.
- Whether planned capital spending, acquisitions and REIT distributions remain supported by operating cash flow and available liquidity.
- Growth in bad-debt reserves, impairment charges and the carrying-value assumptions for India assets and goodwill.
Adjusted EBITDA and AFFO are non-GAAP measures and should not be treated as substitutes for GAAP earnings or operating cash flow.