American Tower Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unaudited consolidated results. American Tower is a global communications-infrastructure REIT; property leasing generated 99% of revenue for the first nine months.
Financial performance
Amounts below are USD millions except per-share data. Comparisons are with the corresponding 2016 period.
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Revenue | $1,680.8 | $1,514.8 | $4,959.4 | $4,246.1 |
| Operating income | $561.2 | $479.1 | $1,669.4 | $1,363.7 |
| Net income | $334.7 | $263.7 | $1,030.6 | $737.5 |
| Net income attributable to common stockholders | $298.4 | $237.7 | $931.9 | $646.9 |
| Diluted EPS | $0.69 | $0.55 | $2.16 | $1.51 |
| Operating margin | 33.4% | 31.6% | 33.7% | 32.1% |
| Adjusted EBITDA (non-GAAP) | $1,040.2 | $915.0 | $3,058.5 | $2,617.1 |
| NAREIT FFO attributable to common stockholders (non-GAAP) | $668.0 | $577.6 | $1,981.6 | $1,631.4 |
| AFFO attributable to common stockholders (non-GAAP) | $704.7 | $612.0 | $2,066.4 | $1,769.2 |
Q3 revenue rose 11%, operating income 17%, and net income 27%. Nine-month revenue increased 17%, operating income 22%, and net income 40%. Nine-month diluted EPS rose 43%. Growth reflected organic leasing, acquisitions and foreign-currency effects; acquisition contributions were particularly significant in Asia, following Viom, and EMEA, following FPS Towers in France. Nine-month foreign-exchange translation increased reported revenue in Asia and Latin America but reduced EMEA revenue.
- Revenue drivers: Q3 U.S. property revenue grew 8%; Asia 10%; EMEA 19%; Latin America 15%; services 50%. Management cited colocations, lease amendments and contractual escalators. Nine-month Asia growth was substantially acquisition-related, principally Viom.
- Cash flow: Nine-month operating cash flow was $2,131.8 versus $1,978.4; investing cash outflow was $1,510.5 versus $1,786.2; financing cash outflow was $613.9 versus $26.7. Cash and equivalents ended at $799.5, up $12.3 from year-end 2016.
- Capital spending: Nine-month capital expenditures were $578.0. 2017 guidance was $800–$900, including construction of approximately 1,750–2,750 sites globally.
- Debt and liquidity: Long-term obligations, including current maturities, totaled $19,268.8 at September 30, versus $18,533.5 at year-end 2016; the current portion was $687.4. Management described total outstanding indebtedness as $19.4 billion. Cash plus available credit-facility capacity was $2,523.6. Current liabilities exceeded current assets by approximately $296.7.
- Interest and distributions: Nine-month interest expense was $559.5, up from $531.1. Common distributions declared were $1.92 per share for the nine months, versus $1.59; the quarterly declared distribution increased to $0.66 from $0.55. The Series A preferred stock converted to common stock; Series B remained outstanding and was scheduled to convert in February 2018.
Material changes and unusual items
- Acquired FPS Towers in France in February for approximately $771 million, adding nearly 2,500 sites. Nine-month acquisition spending was $956.9 million, primarily for FPS. The company also acquired 1,112 other sites for $214.6 million.
- Issued €500 million of 1.375% senior notes due 2025 and $750 million of 3.55% notes due 2027, using proceeds principally to repay revolving credit-facility borrowings. Redeemed the 7.25% notes and 4.50% notes and repaid certain securitized debt; related nine-month loss on retirement of debt was $69.9 million.
- Repurchased 5.46 million common shares for $676.9 million during the first nine months under the $1.5 billion buyback authorization.
- Nine-month tax provision declined to $84.2 million from $94.7 million, including an $11.6 million tax benefit following clarification of Ghana tax law. Q3 tax provision increased to $33.4 million from $22.0 million.
Outlook, risks and contingencies
- Management expected operating cash flow and credit capacity to fund required distributions, capital spending, debt service and signed acquisitions for 2017. No full-year revenue, earnings or AFFO guidance is provided in the supplied filing text.
- Management cited wireless-data growth, network densification, spectrum deployment and tenant colocations as long-term demand drivers. It expects selective acquisitions and development to supplement organic growth. Churn was approximately 2% of tenant billings for the first nine months.
- In October, Indian tenant Tata Teleservices announced its intent to exit wireless service and transfer its business. The company said it would monitor developments; changes in expected cash flows could affect assets, including tenant-related intangibles with a $445 million net book value.
- Post-quarter activity included acquisition of more than 500 U.S. sites for about $465 million, partly financed with $445 million of revolver borrowings, and an announced approximately $500 million Mexico infrastructure acquisition expected to close by year-end. A Colombia site acquisition was also pending, subject to customary closing conditions.
- Currency exposure is material: 44% of nine-month revenue and 49% of operating expenses were denominated in foreign currencies. Management estimated a 10% adverse exchange-rate change on unsettled intercompany and similar balances would produce $92.3 million of unrealized losses for the nine-month period.
- Debt covenants were in compliance at September 30. Management warned that covenant breaches could restrict borrowing or accelerate debt repayment; securitized cash flows are also subject to coverage tests and may be trapped. Litigation was not considered likely to materially affect financial position, results or liquidity.
- The company reported that the forthcoming lease-accounting standard was expected to materially increase balance-sheet assets and liabilities for operating leases where it is the lessee. Management did not expect material financial-statement effects from adoption of the new revenue-recognition standard.
Important facts for investors to verify
- How much reported growth reflects organic tenant demand versus acquisitions, pass-through revenue and currency movements, especially in Asia.
- The financial and asset-value effects if Tata Teleservices’ exit disrupts tenant payments or expected cash flows.
- Debt maturities, refinancing needs, borrowing costs and covenant headroom against the company’s substantial debt load.
- Whether 2017 capital expenditure and acquisition plans remain within management’s stated ranges and can be funded alongside distributions and share repurchases.
- Potential dilution from the remaining Series B mandatory conversion and outstanding equity awards, and the Board’s future distribution decisions.