American Tower Corporation — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This annual filing reports full-year results; fourth-quarter figures are not summarized separately here. American Tower is a global communications real estate REIT, with leasing operations accounting for 99% of revenue. Its portfolio included 150,181 communications sites at year-end.
Financial performance and position
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Total revenue | $6.664 billion | $5.786 billion | +15% |
| Operating income | $1.998 billion | $1.853 billion | +8% |
| Operating margin | 30.0% | 32.0% | Down 2.0 percentage points |
| Net income attributable to common stockholders | $1.152 billion | $849 million | +36% |
| Diluted earnings per common share | $2.67 | $1.98 | +35% |
| Adjusted EBITDA | $4.090 billion | $3.553 billion | +15% |
| Nareit FFO attributable to common stockholders | $2.697 billion | $2.189 billion | +23% |
| AFFO attributable to common stockholders | $2.755 billion | $2.400 billion | +15% |
| Cash provided by operating activities | $2.926 billion | $2.702 billion | +8% |
Property revenue increased 15% to $6.566 billion; services revenue was $98 million. Growth included the full-year impact of the 2016 Viom acquisition, the 2017 FPS Towers acquisition in France, other site acquisitions, colocations and lease amendments, contractual escalations, and foreign-exchange movements. Adjusted EBITDA, FFO and AFFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Operating expenses rose 19% to $4.666 billion, including depreciation, amortization and accretion of $1.716 billion and other operating expenses of $256 million. The latter included $211 million of impairment charges, principally related to Asia assets and tenant relationships amid carrier consolidation. Interest expense was $750 million, and the company recorded a $70 million loss on retirement of debt. The income tax provision fell to $31 million from $156 million; the reported effective tax rate was 2.4%.
Capital expenditures were $824 million, and acquisition spending was approximately $2.0 billion. Total long-term obligations, including current maturities, were $20.2 billion at year-end, versus $18.5 billion a year earlier; the company separately reported total outstanding indebtedness of approximately $20.3 billion. Cash and cash equivalents were $802 million, with $153 million of restricted cash. Available liquidity, including undrawn credit facilities, was approximately $2.97 billion. The company reported compliance with its credit-facility financial covenants.
Material changes and notable developments
- Revenue grew 15%, with particularly strong reported growth in Asia, EMEA and Latin America; acquisition contributions and currency translation affected year-over-year comparability.
- Operating income increased more slowly than revenue, and operating margin declined, reflecting higher operating costs, depreciation and impairment charges.
- Asia property revenue rose 41%, substantially reflecting Viom, while impairment charges and aged tenant receivables also increased. Management reported $24.6 million of additional Asia bad-debt expense.
- American Tower issued $2.68 billion of senior notes, redeemed $1.3 billion of senior notes, and extended maturities on its revolving credit facilities and term loan. It repurchased $766 million of common stock under its existing program and authorized a further $2.0 billion buyback.
- Common distributions declared increased to $2.62 per share from $2.17. Series A preferred shares converted into common shares in 2017; Series B converted in February 2018, resulting in issuance of approximately 12.0 million common shares.
Outlook, risks and contingencies
- Management expects 2018 capital expenditures of $850 million to $950 million, including construction of approximately 2,500 to 3,500 sites. It stated that expected operating cash flow and available borrowing capacity should fund distributions, capital expenditures, debt service and signed acquisitions.
- Approximately 20,000 India sites under agreements with Idea and Vodafone were expected to be acquired in the first half of 2018, subject to customary closing conditions and regulatory approval.
- Management anticipated modestly higher revenue impact from cancellations and non-renewals in 2018, primarily due to carrier-consolidation-driven churn in Asia. In India, the India reporting unit’s fair value exceeded carrying value by only about 3%; reasonably possible changes in key assumptions could eliminate that cushion. Tata Teleservices-related tenant intangibles had a $436 million net book value.
- Tenant concentration is significant: four tenants generated 53% of 2017 revenue. AT&T represented 19% and Verizon Wireless 16% of consolidated revenue. Tenant consolidation, credit deterioration or network sharing could pressure leasing, collections and cash flow.
- Other material risks include substantial leverage and refinancing needs, foreign-exchange exposure (44% of revenue was denominated in foreign currencies), regulatory and zoning constraints, land-lease renewal and site-access risks, acquisition integration, natural disasters and cybersecurity. The company estimated that a 10% adverse change in relevant exchange rates on unsettled intercompany and similar balances could create $90 million of unrealized losses.
- The Tax Cuts and Jobs Act introduced tax and REIT qualification uncertainties related to international operations and foreign taxable REIT subsidiaries. The company recorded provisional tax effects it estimated were not material, but its analysis remained incomplete.
- Management stated that no pending legal matter was expected to materially affect consolidated financial position, results or liquidity. Deloitte issued an unqualified opinion on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- How India carrier consolidation and tenant churn affect revenue, collections, impairment exposure and the valuation cushion for the India reporting unit.
- Whether the Idea and Vodafone acquisitions closed as expected, and their final costs, financing, integration results and contribution to AFFO.
- Debt maturities, interest costs, leverage and covenant headroom, alongside the funding of acquisitions, distributions, capital expenditure and share repurchases.
- Organic leasing and colocation growth separate from acquisitions, pass-through revenue and foreign-currency translation.
- REIT qualification and tax consequences arising from the Tax Act, including the treatment of foreign subsidiary income.