American Tower Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts are in U.S. dollars unless noted. American Tower is a global owner and operator of multitenant communications sites; property operations generated approximately 99% of nine-month revenue.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $2,012.9m (+3%) | $1,953.6m | $5,919.0m (+5%) | $5,656.6m |
| Operating income | $785.1m (+8%) | $728.3m | $2,213.2m (+9%) | $2,027.1m |
| Net income attributable to AMT stockholders | $464.4m (-7%) | $498.6m | $1,325.5m (approximately flat) | $1,325.1m |
| Diluted EPS | $1.04 (-7%) | $1.12 | $2.97 (-0.3%) | $2.98 |
| Adjusted EBITDA | $1,298.4m (+6%) | $1,229.3m | $3,781.0m (+7%) | $3,527.1m |
| AFFO attributable to AMT common stockholders | $996.9m (+16%) | $861.0m | $2,840.1m (+10%) | $2,571.9m |
GAAP operating margin was approximately 39.0% in Q3 versus 37.3% a year earlier, and 37.4% for the nine months versus 35.8%. Q3 net margin attributable to AMT stockholders was approximately 23.1% versus 25.5%; nine-month margin was approximately 22.4% versus 23.4%.
- Revenue mix and drivers: Q3 property revenue increased 3%; Africa grew 48%, mainly from the Eaton Towers acquisition. U.S. property revenue grew 2%. Asia declined 2% and Latin America declined 9%, with currency translation a major drag. Services revenue fell 21%. For the nine months, Africa grew 50%, while Asia and Latin America declined 6% and 8%, respectively.
- Cash flow: Nine-month operating cash flow was $2,749.1m, down slightly from $2,758.9m. Investing used $970.6m, including $668.8m for property, equipment and construction and $333.6m for acquisitions. Financing used $1,519.4m. Cash and restricted cash increased $152.2m to $1,730.2m.
- Debt and liquidity: Total outstanding indebtedness was approximately $24.9bn, including $0.8bn current; balance-sheet long-term obligations, including current portion, were $24.8bn. Cash and cash equivalents were $1,626.0m. Available credit facilities, net of letters of credit, were $5,055.4m; reported total liquidity was $6,681.4m. The company reported compliance with debt covenants.
- Distributions: AMT paid $1.4bn in common-stock distributions during the nine-month period. A $1.14-per-share distribution, totaling $506.4m, was paid October 16, 2020.
Material changes and unusual items
- Revenue and operating income grew, but net income was pressured by foreign-exchange losses, debt-retirement costs and higher depreciation and amortization. Nine-month other expense included $152.7m of foreign-currency losses, compared with $13.7m of gains in the prior-year period, and $71.8m of debt-retirement losses versus $22.2m.
- AMT issued approximately $6.3bn of senior notes during the nine months, with maturities from 2025 to 2050, and redeemed approximately $2.7bn of senior notes. It also repaid $350m of securitized debt. The refinancing included euro notes bearing 0.500% and 1.000% interest, due 2028 and 2032.
- AMT completed its purchase of MTN’s 49% interests in Ghana and Uganda for approximately $524.4m, bringing those joint ventures to 100% ownership.
- Foreign-currency movements reduced reported revenue and operating profit by an estimated $89m and $50m in Q3, and $251m and $138m, respectively, for the nine months, compared with the prior-year periods.
Outlook, management commentary and risks
- No overall earnings guidance is stated in the provided filing text. AMT expected 2020 capital expenditures of $1.1bn–$1.2bn, including construction of approximately 5,000–6,000 sites. Management said spending had been delayed earlier in the year by COVID-19 but had accelerated again in recent months.
- A September 2020 T-Mobile master lease agreement added $17.1bn to future minimum rental receipts and extended the lease term. Management nevertheless expects elevated U.S. churn for several years from T-Mobile and legacy Sprint lease cancellations and non-renewals.
- Management reported approximately 3% tenant-billing churn for the first nine months. It warned that churn in India could remain elevated while carriers assess payments arising from the Indian Supreme Court’s adjusted-gross-revenue ruling; reduced tenant cash flows could lead to further asset impairment. India goodwill fair value exceeded carrying value by approximately 10%, with management noting sensitivity to modest changes in certain assumptions.
- COVID-19’s subsequent impact remained uncertain. Management cited possible effects on tenants, site demand, capital markets and foreign exchange. AMT noted that 43% of nine-month revenue was denominated in foreign currencies; further currency moves could materially affect results.
- Other risks include reliance on a small number of significant tenants, refinancing and interest-rate exposure, debt covenant compliance, and potential limits on access to cash held by foreign subsidiaries or securitization entities. Management stated that pending litigation was not expected to have a material adverse effect; it reported no material changes to previously disclosed risk factors.
Investor verification priorities
- Confirm reported growth against constant-currency results, particularly in Latin America and Africa, and assess the effect of foreign-exchange losses on earnings and equity.
- Review the drivers and sustainability of AFFO growth, including non-GAAP adjustments, cash interest, capital spending and distributions.
- Track India carrier credit, collections, churn and impairment assumptions following the AGR ruling, including valuation headroom for goodwill and intangible assets.
- Assess the net effect of the T-Mobile agreement: extended contracted receipts versus expected Sprint-related cancellations and churn.
- Check debt maturities, variable-rate exposure, refinancing needs and liquidity after the September 30 reporting date; the filing notes $275m of subsequent net credit-facility borrowings.
- Monitor completion of signed acquisitions, planned capital expenditures, the outstanding India put-option redemption (approximately $336m at the period-end exchange rate, subject to regulatory approval), and any use of the $1bn ATM equity program.