American Tower Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited results; amounts are in U.S. dollars unless stated otherwise. American Tower is a global owner and operator of multitenant communications real estate. Property operations contributed 98% of revenue.
Key financial results
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $1,813.4 million | $1,741.8 million | +4% |
| Operating income | $614.9 million | $402.9 million | +53% |
| Net income | $407.6 million | $280.3 million | +45% |
| Net income attributable to common stockholders | $397.4 million | $275.8 million | +44% |
| Diluted earnings per share | $0.89 | $0.63 | +41% |
| Operating cash flow | $785.1 million | $791.8 million | -1% |
| Adjusted EBITDA (non-GAAP) | $1,114.4 million | $1,062.4 million | +5% |
| Nareit FFO attributable to common stockholders (non-GAAP) | $769.6 million | $747.6 million | +3% |
| AFFO attributable to common stockholders (non-GAAP) | $817.8 million | $759.3 million | +8% |
Reported operating margin was approximately 33.9%, versus 23.1% a year earlier; the comparison benefited substantially from lower impairment charges. Net margin was approximately 22.5%, versus 16.1%. Adjusted EBITDA margin was approximately 61.5%, versus 61.0%. Non-GAAP measures are company-defined and are not substitutes for GAAP results or cash flow.
Property revenue rose 4% to $1,786.0 million. U.S. property revenue grew 6%; Asia grew 6%; EMEA grew 2%; Latin America was approximately flat. Services revenue declined 13% to $27.4 million. Foreign exchange reduced reported revenue growth in several international segments.
Balance sheet, cash flow and capital
- Cash and cash equivalents were $1,004.8 million at quarter-end; cash plus restricted cash was $1,099.7 million. Reported total liquidity, including available credit facilities, was $3,604.8 million.
- Total long-term obligations, including current maturities and lease obligations, were $21.2 billion. The company separately reported outstanding principal indebtedness of $21.3 billion, including a $2.1 billion current portion. Interest expense was $207.5 million, up from $199.6 million.
- Cash from operations was $785.1 million; investing activities used $323.3 million and financing activities used $650.4 million. Cash and restricted cash decreased $205.2 million during the quarter. Common-stock distributions paid were $377.1 million.
- At adoption of the new lease standard on January 1, 2019, American Tower recognized a $7.1 billion right-of-use asset and $6.9 billion lease liability, primarily for ground leases. At March 31, operating lease liabilities totaled $6.8 billion. Prior-year figures were not restated.
- Quarterly capital expenditures were $230.6 million. The company forecast 2019 capital expenditures of $950 million to $1.05 billion, including construction of approximately 2,750 to 3,750 communications sites globally.
Changes, outlook and notable items
- Net income increased largely because other operating expenses fell to $20.1 million from $167.8 million. Impairment charges were $18.1 million versus $147.4 million in Q1 2018, when Aircel’s bankruptcy contributed to impairment charges. The prior-year comparison also included higher asset-disposal losses.
- India carrier consolidation was a significant headwind: it reduced Q1 consolidated property revenue by $89.2 million, including about $21 million of pass-through revenue, and reduced gross margin and operating profit by $61.5 million. Management expected the 2019 impact, compared with 2018, to be approximately $191 million on property revenue and $148 million on operating profit. Management anticipated elevated churn through 2019; quarterly churn was approximately 6% of tenant billings.
- Management said India-related churn could continue to compress Asia margins and that Indian assets may be subject to future impairment. India reporting-unit goodwill was $1,054.6 million; estimated fair value exceeded carrying value by approximately $327.8 million, or 8%. Management reported no material change in its impairment sensitivity analysis during the quarter.
- On March 15, the company issued $650 million of 3.375% notes due 2024 and $600 million of 3.950% notes due 2029; proceeds were used to repay credit-facility borrowings. It repaid $1.0 billion of notes due in February and refinanced a prior term loan with a $1.3 billion term loan due February 2020.
- American Tower spent $425.7 million to purchase Indian subsidiary noncontrolling interests during Q1, increasing its ATC TIPL ownership from 63% to 79%. After quarter-end, remaining minority holders exercised put options; the company expected to pay approximately $358.7 million, subject to regulatory approval, and reach approximately 92% ownership in 2019.
- After quarter-end, the company redeemed its 5.050% notes for $726.0 million and expected to record an approximately $22.1 million loss on retirement. It also borrowed an additional $920 million under its revolving credit facility after quarter-end.
- Foreign currency exposure is material: 44% of Q1 revenue and 51% of operating expenses were denominated in foreign currencies. Management estimated that a 10% adverse move in rates on unsettled intercompany and similar balances would produce $115.1 million of unrealized losses for the quarter. A 10% rise in current interest rates was estimated to add $5.2 million of quarterly interest expense.
- Management stated that operating cash flow and credit capacity were expected to be sufficient for 2019 distributions, capital expenditures, debt service and signed acquisitions. This is a forward-looking statement, not a guarantee. The company reported compliance with debt covenants at March 31 and said no pending litigation was expected to materially affect its financial position, results or liquidity.
Important facts for investors to verify
- Whether India carrier consolidation, customer churn and any further impairments track management’s 2019 expectations.
- How reported operating profit and net income compare after accounting for the unusually large year-over-year reduction in impairment charges; review FFO and AFFO reconciliations as well.
- Debt maturities, refinancing needs, variable-rate exposure and the effect of the $6.8 billion operating lease liability on leverage and future cash commitments.
- Completion, regulatory approval and funding of the expected $358.7 million ATC TIPL put-option redemption, and the resulting ownership percentage.
- Delivery of the stated 2019 capital expenditure plan and whether cash generation supports distributions, debt service and investment plans.
- The assumptions behind India goodwill valuation and sensitivity, along with foreign-exchange and tenant concentration risks.