American Tower Corporation — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012; unaudited. American Tower owns, operates and develops wireless and broadcast communications sites across the U.S. and international markets. It began operating as a REIT for federal income tax purposes on January 1, 2012. At quarter-end, it reported 50,966 communications sites.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $713.3 million | $630.4 million | $2,107.6 million | $1,790.3 million |
| Operating income | $295.6 million | $228.3 million | $840.5 million | $672.4 million |
| Net income (loss) | $231.8 million | $(19.7) million | $475.9 million | $185.4 million |
| Net income attributable to American Tower | $232.1 million | $(15.7) million | $501.6 million | $191.4 million |
| Diluted EPS | $0.58 | $(0.04) | $1.26 | $0.48 |
| Adjusted EBITDA (non-GAAP) | $463.6 million | $400.6 million | $1,391.8 million | $1,166.8 million |
| Cash provided by operating activities | — | $1,116.5 million | $850.0 million |
- Q3 revenue increased 13%; rental and management revenue rose 13% overall, with domestic growth of 10% and international growth of 22%. Nine-month revenue increased 18%.
- Management attributed growth to new tenants and lease amendments on existing sites, contractual rent increases, and acquisitions/construction. International Q3 growth reflected new sites, partly offset by an approximately 18% foreign-currency translation impact.
- Q3 operating margin was approximately 41.4% versus 36.2% a year earlier, calculated from reported GAAP operating income and revenue. Segment operating profit increased 15% in domestic rental and management and 21% internationally in Q3.
- Q3 interest expense increased 31% to $102.3 million; nine-month interest expense increased 31% to $297.6 million, mainly reflecting approximately $1.7 billion more average debt outstanding. Nine-month depreciation, amortization and accretion rose 13% to $465.8 million.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $382.3 million; current assets were $872.8 million and current liabilities $850.9 million.
- Total debt was approximately $7.49 billion, compared with approximately $7.24 billion at December 31, 2011. The company reported $2.37 billion of total liquidity: cash plus approximately $1.99 billion available under revolving credit facilities, net of letters of credit.
- Nine-month investing cash outflow was $1.17 billion, including $822.7 million for acquisitions and $377.0 million for property, equipment and construction. Financing cash inflow was $112.1 million; distributions paid were $169.8 million.
- The company issued $700 million of 4.70% senior notes due 2022 and entered into a $750 million term loan due 2017. No amounts were drawn on the $1 billion 2011 and $1 billion 2012 revolving facilities at quarter-end. The company said it was in compliance with its financial covenants.
Changes, outlook and notable matters
- Acquisitions and site additions materially expanded the portfolio; management cited approximately 12,860 sites acquired or built since July 1, 2011 for Q3 comparisons. The company spent $624.7 million on acquisitions during the first nine months of 2012 and also paid amounts accrued for prior-year acquisitions.
- Management expected 2012 capital expenditures of approximately $500–$550 million, including $254–$270 million for discretionary projects and construction of approximately 2,000–2,200 new sites. It stated operating cash was expected to cover capital expenditures and debt service over the following 12 months.
- Management cited continued wireless data, 3G/4G deployment and international network build-outs as demand drivers. It expects recurring lease revenue and reported approximately $19 billion of future non-cancellable tenant lease revenue, before straight-line lease accounting.
- Q3 results included $46.2 million of unrealized foreign-currency gains, versus $145.1 million of unrealized losses in Q3 2011. Nine-month 2012 results included $12.9 million of unrealized FX losses, compared with $101.5 million of losses in the prior-year period. These movements materially affected reported net income.
- The nine-month tax provision fell to $64.1 million from $162.0 million, reflecting the REIT conversion and other items; the company also increased valuation allowances on deferred tax assets by $50.4 million, primarily for foreign operations.
- Long-lived asset impairment charges were $10.7 million for the first nine months, including an outdoor DAS network impairment following termination of a tenant lease. Chilean zoning legislation may require modification or removal of approximately 22 towers; management said its proposed remediation, if approved, was not expected to have a material financial impact.
- Risks include tenant concentration (four tenants represented about 74% of domestic rental and management revenue and five about 55% of international revenue for the nine months), foreign exchange and country/regulatory exposure, REIT qualification and distribution requirements, leverage and refinancing needs, and dependence on tenant demand and land rights.
- The company disclosed an ongoing SEC subpoena investigation concerning historical tax accounting and reporting. In Mexico litigation, an appellate judgment set damages at approximately $7.9 million against the primary defendant, with a subsidiary potentially responsible for amounts unrecovered; enforceability in the U.S. is uncertain and further appeal was under consideration.
Key facts for investors to verify
- Whether organic leasing growth, tenant additions and recent acquisitions continue to offset foreign-exchange headwinds and site-level cost increases.
- Debt maturities and refinancing of short-term Colombian facilities; covenant headroom and continued access to revolving capacity.
- REIT qualification, required distributions, limits on distributions from taxable REIT subsidiaries, and the realization of foreign deferred tax assets.
- Outcomes of the SEC inquiry, Mexico litigation and Chile tower remediation, including any material cash or earnings effects.
- Execution and returns on the announced 2012 capital program and continued performance of key carrier tenants.