American Tower Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Amounts are in U.S. dollars, generally millions, unless noted. American Tower is a global owner and operator of communications sites; most revenue comes from leasing site capacity to wireless and other tenants.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $2,158.5 | $1,993.1 | +8% |
| Operating income | $828.7 | $736.8 | +12% |
| Operating margin | 38.4% | 37.0% | +1.4 percentage points |
| Net income | $652.3 | $418.6 | +56% |
| Net income attributable to common stockholders | $645.0 | $415.0 | +55% |
| Diluted EPS | $1.45 | $0.93 | +$0.52 |
| Adjusted EBITDA (non-GAAP) | $1,439.6 | $1,271.0 | +13% |
| Nareit FFO attributable to common stockholders (non-GAAP) | $1,105.4 | $819.2 | +35% |
| AFFO attributable to common stockholders (non-GAAP) | $1,099.8 | $945.4 | +16% |
Revenue growth reflected higher U.S. & Canada, Africa, Europe, and services revenue; Asia-Pacific declined and Latin America was flat. U.S. & Canada revenue rose 13%, including contribution from InSite. Asia-Pacific revenue fell 2%, primarily reflecting churn and foreign exchange. Segment operating profit increased 13% for property operations overall. These segment measures are management-defined and are not GAAP operating income.
Cash flow, liquidity and debt
- Operating cash flow was $1,092.7, versus $800.0 a year earlier. Investing used $438.7; financing used $480.0. Cash and restricted cash increased $131.9 to $1,993.3.
- Capital expenditures were $334.5 and acquisition spending was $114.8. Common-stock distributions paid were $544.9.
- Cash and cash equivalents were $1,913.6 at quarter-end. Reported total liquidity was $6,294.0, including $4,380.4 of net availability under revolving credit facilities; this excludes approximately $7.3 billion of delayed-draw and bridge financing intended for the pending Telxius acquisition.
- Long-term obligations, including the current portion, had a carrying value of $29,326.8; the company separately reported total outstanding indebtedness of $29.5 billion. Current portion of long-term obligations was $1,336.5. Operating lease liabilities totaled $7,368.7.
- The company reported compliance with its debt covenants at March 31. Its consolidated total leverage covenant was 6.00x at that date; following closing of the Telxius acquisition, the permitted ratio rises to 7.50x for four fiscal quarters, then steps down to 6.00x, subject to agreement terms.
Material changes and unusual items
- Other income included a $94.7 foreign-currency gain, compared with a $65.5 loss in Q1 2020. This materially aided the year-over-year increase in net income; reported results therefore include significant currency-related volatility.
- Other operating expenses rose to $50.4 from $14.2, mainly because of acquisition-related and integration costs associated largely with the pending Telxius transaction. The company also recorded a $25.7 loss on retirement of debt, principally related to repayment of InSite debt.
- On March 29, the company issued $700 million of 1.600% notes due 2026 and $700 million of 2.700% notes due 2031. Net proceeds were used to repay revolving credit borrowings. It also refinanced facilities and repaid the 2020 term loan and InSite debt.
- The company agreed to acquire approximately 31,000 Telxius sites in Europe and Latin America for approximately €7.7 billion, subject to conditions and adjustments. As of April 28, 2021, it expected most European closings in Q2 2021, about 4,000 German sites in Q3, and Latin American closings in late Q2 or Q3, subject to approvals and other conditions.
- Management expected 2021 capital expenditures of $1.375–$1.475 billion, including approximately 6,000–7,000 communications sites in discretionary capital projects. This is capital-spending guidance, not earnings or revenue guidance.
Management commentary and principal risks
- Management said recurring, largely non-cancellable tenant leases support future revenue and estimated more than $60 billion of future non-cancellable tenant lease revenue based on existing leases and quarter-end exchange rates, before straight-line lease accounting.
- Churn was approximately 3% of tenant billings in Q1. Management expected elevated U.S. churn for several years under the T-Mobile master lease agreement. India churn remained elevated amid tenant responses to the Supreme Court’s adjusted-gross-revenue ruling; management noted potential for further asset impairment if expected tenant cash flows decline.
- Management believed operating cash flow and financing capacity would be sufficient for 2021 distributions, capital expenditures, debt service, and signed acquisitions. The company noted that covenant compliance, access to capital, foreign-exchange movements, tenant concentration, and acquisition closing requirements affect liquidity and results.
- COVID-19 remained a risk to the company, tenants, and demand, although management did not expect significant exchange-rate impacts in 2021; adverse currency movements could still materially affect future results. A 10% adverse move in specified unsettled foreign-currency balances would produce an estimated $71.1 million unrealized loss. A 10% increase in current interest rates was estimated to add $1.4 million of interest expense for the quarter.
- If the Telxius acquisition does not close, the company may owe material payments under the agreements. The filing reported no pending litigation expected by management to materially affect financial position, results, or liquidity, and no material changes to the risk factors in the 2020 Form 10-K.
Most important facts for investors to verify
- How much of reported earnings growth persists excluding the $94.7 million foreign-currency gain and other non-recurring or transaction-related items.
- Telxius acquisition closing timetable, final purchase price, funding mix, and resulting leverage and covenant headroom.
- Whether India tenant collections and churn stabilize, and whether the AGR ruling changes expected cash flows or triggers impairment.
- Actual T-Mobile-related churn and its effect on U.S. revenue, including the role of straight-line lease accounting in reported growth.
- Cash conversion and capital allocation: operating cash flow, planned capital expenditures, distributions, and financing needs relative to debt maturities.