American Tower Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. American Tower is a global communications-site owner and operator organized as a REIT. Property operations generated 97% of revenue.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $2,454.3 | $2,012.9 | $6,911.7 | $5,919.0 |
| Operating income | $827.5 | $785.1 | $2,505.4 | $2,213.2 |
| Net income attributable to common stockholders | $723.0 | $464.4 | $2,114.3 | $1,325.5 |
| Diluted EPS | $1.58 | $1.04 | $4.68 | $2.97 |
| Adjusted EBITDA (non-GAAP) | $1,552.2 | $1,298.4 | $4,467.5 | $3,781.0 |
| AFFO attributable to common stockholders (non-GAAP) | $1,139.1 | $996.9 | $3,318.4 | $2,840.1 |
Q3 revenue increased 22% year over year and nine-month revenue increased 17%. Reported operating margin was approximately 33.7% in Q3 versus 39.0% in Q3 2020; nine-month margin was approximately 36.3% versus 37.4%. These are calculated as GAAP operating income divided by revenue. Revenue and earnings growth reflect acquisitions, particularly Telxius, as well as organic leasing, colocations and services. Q3 net income also benefited substantially from foreign-currency gains.
- Cash flow: Nine-month operating cash flow was $4.14 billion, compared with $2.75 billion. Investing used $10.52 billion, including $9.60 billion for acquisitions. Financing provided $8.28 billion. Cash, cash equivalents and restricted cash increased $1.84 billion to $3.70 billion.
- Capital spending: Nine-month capital expenditures were $941.2 million. Management estimated 2021 capital expenditures of $1.50–$1.60 billion.
- Debt and liquidity: Management reported $33.8 billion of total indebtedness, including $2.1 billion current. Balance-sheet long-term obligations were $33.5 billion, including current maturities; operating lease liabilities were another $8.6 billion. Cash and cash equivalents were $3.28 billion, with $5.43 billion available under revolving facilities, for stated total liquidity of $8.70 billion.
- Dividends: The company paid $3.72 per share during the first nine months and declared a $1.31-per-share distribution paid October 15, 2021.
Material changes and significant transactions
- Completed the Telxius acquisition of approximately 31,000 communications sites in Europe and Latin America for approximately €7.9 billion, or $9.6 billion at closing. Acquired sites contributed approximately $170.2 million of Q3 revenue and $226.2 million for the nine-month period.
- Sold 9.9 million common shares in May for approximately $2.4 billion net proceeds to help fund Telxius. Issued senior notes during 2021 and used proceeds for the acquisition, debt repayment and general corporate purposes.
- Sold 48% of ATC Europe to CDPQ and Allianz for approximately €2.6 billion ($3.1 billion); American Tower retained a 52% controlling interest. The transaction increased noncontrolling interests and helped fund the acquisition and debt repayments.
- Revenue growth was broad-based, but Europe’s sharp increase primarily reflects Telxius. Asia-Pacific gross margin fell 8% in Q3 and 7% year to date, with higher pass-through costs, including fuel, and churn pressures.
- Q3 other operating expenses rose to $85.2 million, including $47.1 million of impairment charges and acquisition-related costs. Nine-month acquisition-related costs were elevated, primarily due to Telxius.
Outlook, risks and contingencies
- Management said operating cash flow and borrowing capacity should be sufficient for 2021 distributions, capital expenditures, debt service and signed acquisitions. No specific revenue, earnings or AFFO guidance is provided in the filing.
- Based on existing leases and exchange rates at quarter-end, the company estimated nearly $61 billion of future non-cancellable tenant lease revenue, before straight-line accounting. This is a forward-looking estimate, not a guarantee of collections.
- Management expected elevated U.S. churn for several years from T-Mobile lease cancellations and non-renewals, and continued elevated churn in India. India’s AGR-related payment rules and tenant financial condition could affect cash flows and asset valuations; Indian tenant-related intangibles carried at $1.0 billion.
- Foreign-currency exposure is material: 43% of nine-month revenue and 51% of operating expenses were denominated in foreign currencies. The company had approximately $8.4 billion of euro-denominated debt; it estimated a 10% adverse euro exchange-rate move could produce approximately $0.9 billion of foreign-currency losses. Nine-month foreign-currency gains boosted earnings, while translation adjustments reduced comprehensive income.
- COVID-19 effects, tenant concentration, access to financing, debt covenant compliance and securitization cash-trap provisions remain relevant risks. The company reported compliance with its credit-facility covenants at September 30. Management said no pending litigation was expected to materially affect financial position, results or liquidity; no material risk-factor changes were reported.
- After quarter-end, the company issued €1.0 billion of notes and repaid the remaining 364-day term loan; it also redeemed $700 million of 4.70% notes for approximately $715.1 million, expecting a $12.4 million retirement loss. It acquired two U.S. data centers for approximately $201 million.
Key facts investors should verify
- How much of revenue, margin and AFFO growth is organic versus attributable to Telxius, InSite and other acquisitions, and how acquisition integration affects results.
- The sustainability of reported earnings given large foreign-currency gains, increased impairment and acquisition costs, and the difference between GAAP earnings and non-GAAP AFFO.
- Debt and refinancing exposure, including post-quarter repayments and euro-denominated borrowings, alongside available liquidity and covenant headroom.
- Actual churn and tenant payment trends in India and under the T-Mobile agreement, including possible effects on Indian asset values.
- Whether the 2021 capital-spending estimate and nearly $61 billion lease-revenue estimate translate into expected cash generation after lease costs, taxes, interest, distributions and foreign-exchange movements.