American Tower Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless stated otherwise.
Business context
American Tower is a global REIT that primarily leases space on multitenant communications sites; property operations generated 99% of 2020 revenue. Its portfolio included 185,641 communications sites across the Americas, Asia-Pacific, Africa and Europe. The company added sites through acquisitions and construction, including the December 2020 InSite acquisition, and launched operations in Canada and Australia.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $8.042 billion | $7.580 billion | +6% |
| Operating income | $2.888 billion | $2.688 billion | +7% |
| Net income | $1.692 billion | $1.917 billion | -12% |
| Net income attributable to common stockholders | $1.691 billion | $1.888 billion | -10% |
| Diluted earnings per share | $3.79 | $4.24 | -11% |
| Adjusted EBITDA | $5.156 billion | $4.745 billion | +9% |
| Nareit FFO attributable to common stockholders | $3.511 billion | $3.492 billion | +1% |
| AFFO attributable to common stockholders | $3.764 billion | $3.442 billion | +9% |
Operating margin was approximately 35.9% of revenue, versus 35.5% in 2019. Property segment gross margin was $5.766 billion, up 9%. The filing cautions that Adjusted EBITDA, FFO and AFFO are non-GAAP measures and are not substitutes for GAAP net income or operating cash flow.
Cash flow and investment: Operating cash flow was $3.881 billion, up from $3.753 billion. Investing activities used $4.785 billion, including $3.799 billion for acquisitions; capital expenditures were $1.071 billion. Financing activities provided $1.215 billion. Cash and cash equivalents were $1.746 billion at year-end.
Debt and liquidity: Total outstanding indebtedness was $29.5 billion, including $0.8 billion current. Available liquidity was $4.897 billion, comprising $1.746 billion cash and $3.150 billion net availability under credit facilities. The company reported compliance with applicable credit-facility covenants at year-end. Operating lease liabilities totaled $7.424 billion, separately from debt.
Distributions: Common-stock distributions declared for 2020 were $4.53 per share, or approximately $2.011 billion; cash paid during 2020 was $1.928 billion. Management expected 2021 distributions of approximately $2.3 billion, subject to board discretion and other constraints.
Material changes versus 2019
- Revenue growth reflected acquisitions and organic leasing, partly offset by foreign-exchange effects and weaker revenue in Asia-Pacific and Latin America. Africa revenue rose 52%, primarily following the Eaton Towers acquisition; U.S. & Canada revenue rose 8%.
- Net income declined despite higher operating income. Key factors included $216.4 million of foreign-currency losses in other expense, a $71.8 million loss on debt retirement, higher depreciation and amortization, and higher impairment charges. The 2019 comparison included a $113.0 million one-time tax benefit related to Indian tax-law changes.
- Impairment charges rose to $222.8 million from $94.2 million, including $76.1 million on right-of-use assets. No potential goodwill impairment was identified in 2020.
- Foreign-exchange movements reduced year-over-year consolidated revenue by an estimated $315 million and operating profit by $172 million. Foreign-currency translation losses in other comprehensive income were $701.5 million.
- The company issued approximately $8.0 billion of senior notes and redeemed approximately $2.7 billion of senior notes during 2020, among other refinancing and debt transactions. Year-end debt increased from $24.1 billion in 2019 to $29.5 billion, including debt assumed in the InSite acquisition.
- 2020 cash distributions paid on common and preferred stock increased to $1.928 billion from $1.603 billion.
Outlook, commentary and risks
- Management expects continued demand from mobile data growth, network densification and 4G/5G deployment, while emphasizing occupancy growth, selective investment, operating efficiency and balance-sheet discipline. The filing does not provide a clear quantified forecast for 2021 revenue, earnings or AFFO.
- 2021 capital expenditures were estimated at $1.35 billion to $1.45 billion, including construction of approximately 6,000 to 7,000 communications sites.
- In January 2021, the company agreed to acquire approximately 31,000 Telxius sites in Europe and Latin America for approximately €7.7 billion (about $9.4 billion at signing). Closings were expected in tranches beginning in Q2 2021, subject to conditions and regulatory approvals. Financing arrangements included delayed-draw term loans, expanded credit facilities and a reduced bridge commitment.
- Management expects elevated churn in India in the near term, partly reflecting tenants’ exposure to Indian Supreme Court rulings on adjusted gross revenue fees. It also expects elevated U.S. & Canada churn for several years under the T-Mobile master lease agreement, including legacy Sprint leases. Consolidated churn was approximately 3% of tenant billings in 2020.
- COVID-19’s future effects remained uncertain. The company reported remote-work and travel measures and said its sites remained available; it warned of possible effects on tenants, capital markets, operations and currencies.
- Other notable risks include significant tenant concentration (55% of revenue came from three tenants: AT&T 22%, T-Mobile 19% and Verizon 14%), foreign-exchange and political risks, leverage and refinancing needs, regulation and zoning, technology substitution, ground-lease renewal exposure, and acquisition integration. The company had approximately $59 billion of non-cancellable future tenant lease revenue, before straight-line accounting.
- Management reported no currently pending legal matter expected to have a material effect on consolidated financial position, results or liquidity. The independent auditor issued an unqualified opinion on the financial statements and internal controls; InSite was excluded from the year-end internal-control assessment while integration proceeded.
Most important facts for investors to verify
- Track Telxius closing, funding mix, resulting leverage and integration costs; the transaction was pending at the filing date.
- Assess tenant credit and churn exposure, particularly T-Mobile lease cancellations and Indian tenants’ ability to meet obligations following the AGR rulings.
- Reconcile GAAP net-income decline with growth in Adjusted EBITDA and AFFO, including the effects of foreign exchange, impairments, debt-retirement losses and the prior-year tax benefit.
- Review debt maturities, covenant headroom, refinancing terms and the company’s ability to fund distributions, capital spending and acquisitions while maintaining investment-grade ratings.
- Evaluate sensitivity to foreign currencies: 42% of revenue and 52% of operating expenses were denominated in foreign currencies in 2020; the filing estimates that a 10% adverse move in specified unsettled intercompany balances would produce $129.2 million of unrealized losses.
- Monitor impairment assumptions and acquisition purchase-price allocations, including the preliminary valuation of InSite intangible assets and the carrying values of Indian tenant-related assets.