American Tower Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results. Unless stated otherwise, financial amounts are in U.S. dollars.
Business context
American Tower is a global REIT that principally leases space on multitenant communications sites; property operations generated 98% of 2018 revenue. The company reported U.S., Asia, EMEA, Latin America and services segments. Its portfolio totaled 170,686 communications sites at year-end. In 2018 it expanded in India, entered Kenya, and acquired urban telecommunications and fiber assets in Brazil. Management cites wireless data growth, network densification and future 5G deployment as demand drivers.
Financial performance and liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $7.440 billion | $6.664 billion | +12% |
| Operating income | $1.905 billion | $1.998 billion | -5% |
| Operating margin | 25.6% | 30.0% | -4.4 percentage points |
| Net income | $1.265 billion | $1.225 billion | +3% |
| Net income attributable to common stockholders | $1.227 billion | $1.152 billion | +7% |
| Diluted EPS | $2.77 | $2.67 | +4% |
| Adjusted EBITDA | $4.667 billion | $4.090 billion | +14% |
| AFFO attributable to common stockholders | $3.191 billion | $2.755 billion | +16% |
| Cash provided by operating activities | $3.748 billion | $2.926 billion | +28% |
| Capital expenditures | $937 million | $824 million | +14% |
Adjusted EBITDA, FFO and AFFO are non-GAAP measures and should not be treated as substitutes for GAAP results or operating cash flow. Property-segment gross margin was $5.188 billion, up 14%.
At December 31, 2018, total long-term obligations were $21.160 billion, including $2.755 billion current; cash and cash equivalents were $1.209 billion ($1.305 billion including restricted cash). Available liquidity was $4.274 billion, including undrawn credit capacity. Interest expense was $826 million, versus $750 million in 2017. Operating cash flow funded capital spending, debt service and distributions. Common distributions declared were $3.15 per share, compared with $2.62.
Fourth-quarter revenue was $2.132 billion, operating income $389 million and net income $293 million, compared with $1.705 billion, $329 million and $195 million, respectively, in Q4 2017. The Tata settlement materially affected the quarter and limits the usefulness of these year-over-year comparisons.
Material changes and unusual items
- Revenue growth reflected acquisitions and organic leasing, but included the Tata settlement in India. The company received approximately $345.5 million in cash; the settlement contributed $333.7 million to property revenue and $326.9 million to operating profit. Including India consolidation-driven churn, the net 2018 impact was positive by $144.6 million to property revenue and $207.1 million to operating profit.
- Operating income declined despite revenue growth, in part because other operating expenses rose to $513 million from $256 million. The company recorded $394 million of impairments, mainly associated with Tata, Aircel’s bankruptcy and other carrier consolidation in India, and $327.5 million of accelerated amortization of Tata tenant-related intangibles.
- India carrier consolidation drove higher churn. Management expected 2019 churn, excluding nonrecurring Tata settlement items, to reduce consolidated property revenue by about $191 million and operating profit by about $148 million.
- Foreign currency translation reduced 2018 revenue in several markets; a $869 million translation loss was recorded in other comprehensive income. The company reported that 47% of revenue and 57% of operating expenses were denominated in foreign currencies.
- Acquisitions and construction added approximately 24,465 sites during 2018; acquisition spending was approximately $1.9 billion. Revenue growth was also supported by colocations, lease amendments and contractual escalations.
Outlook, risks and contingencies
- Management forecast 2019 capital expenditures of $900 million to $1.0 billion, including construction of approximately 2,500 to 3,500 sites. It expected operating cash flow and available borrowing capacity to fund distributions, capital expenditures, debt service and signed acquisitions.
- Minority investors exercised India subsidiary put options; the company expected to pay approximately $420 million in the first half of 2019, subject to regulatory approval. Subsequent to year-end, it refinanced the 2018 term loan with a $1.3 billion term loan and used additional credit-facility borrowings for debt repayment and general corporate purposes.
- Key risks include dependence on a limited number of tenants, carrier consolidation and lease churn, foreign exchange and political/regulatory exposure, high leverage and debt service, site and ground-lease renewal rights, acquisition integration, and potential shifts in wireless technology or carrier network investment. Four tenants accounted for 51% of revenue; AT&T and Verizon Wireless contributed 19% and 15%, respectively.
- The India reporting unit’s estimated fair value exceeded carrying value by about $311 million, or 8%; management disclosed that reasonably possible changes to certain assumptions could eliminate this cushion. The company also noted REIT qualification and distribution requirements, debt covenants, and potential restrictions on cash transfers from foreign subsidiaries.
- Management reported no pending legal matter expected to materially affect consolidated financial position, results or liquidity. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Separate recurring leasing and organic growth from acquisition contributions and the one-time Tata settlement; assess the underlying India churn trend.
- Track 2019 churn against management’s estimated $191 million revenue and $148 million operating-profit impact, as well as any further India impairment charges.
- Verify completion and funding of the approximately $420 million India put-option redemption and review the resulting ownership and cash-flow effects.
- Review debt maturities, refinancing costs, covenant headroom and the uses of available liquidity; distinguish unrestricted cash from restricted cash.
- Assess tenant concentration, foreign-currency exposure and the sensitivity of India goodwill valuation to operating assumptions.
- Compare actual 2019 capital expenditures and site additions with the stated $900 million–$1.0 billion outlook.