01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
American Tower (AMT) closed 2018 with record scale and growth: total operating revenues rose 12% to $7.44 billiona, Adjusted EBITDA grew 14% to $4.67 billion, and Nareit FFO attributable to common stockholders increased 19% to $3.21 billion.
Property operations generated 98% of revenue, and the company reports nearly $35 billionb of non-cancellable tenant lease revenue to be collected over future periods. Its portfolio stands at 170,686 communications sites across the U.S., Asia, EMEA and Latin America, and the company operates as a REIT, distributing at least 90% of taxable income. Net income attributable to common stockholders was $1.23 billion, or $2.77 per diluted share, versus $2.67 in 2017, though GAAP results were weighed down by $394 million of impairment charges and $327.5 million of accelerated amortization tied to Indian carrier churn.
The central investor issue for 2018 is Asia, specifically carrier consolidation in India. Churn there reduced property revenue by $189.1 millionc and operating profit by $119.8 million, and management expects continued pressure in 2019 with roughly $191 million of revenue and $148 million of operating profit at risk. This was partly offset by a $345.5 million cash settlement from Tata Teleservices, which lifted 2018 revenue and operating profit.
The India reporting unit's goodwill cushion is only about 8% above carrying value, making it the key impairment watch item. Management also flagged a higher-leverage balance sheet, with total debt of $21.3 billiond, a $1.3 billion term loan maturing in February 2020, and about $4.3 billion of available liquidity. Looking ahead, the company guided to 2019 capital expenditures of $900 million to $1.0 billion and plans to adopt the new lease accounting standard (ASC 842) on January 1, 2019, recognizing roughly $7.1 billion of right-of-use assets and $6.8 billion of lease liabilities.
Shareholders received $3.15 per common share in 2018 distributions, and $2.1 billion remained authorized under buyback programs. Investors should weigh the strong contracted revenue base and REIT cash flow against India churn, rising interest expense, and the large lease-liability increase from the accounting change.
02—Key points
Key Highlights
- Total operating revenues rose 12% to $7.44 billion in 2018, with property revenue of $7.31 billion (98% of total) and services revenue of $125 million.
- Adjusted EBITDA increased 14% to $4.67 billion and Nareit FFO (common stockholders) grew 19% to $3.21 billion, while AFFO (common stockholders) rose 16% to $3.19 billion.
- GAAP diluted EPS was $2.77 versus $2.67 in 2017; results absorbed $394.0 million of impairment charges and $327.5 million of accelerated Tata-related amortization.
- Indian carrier consolidation drove $189.1 million of revenue churn and $119.8 million of gross margin loss in 2018, partly offset by a $345.5 million Tata settlement payment; 2019 churn is expected to cost about $191 million of revenue.
- Nearly $35 billion of non-cancellable tenant lease revenue is expected over future periods, supported by ~3% average U.S. escalators and 1%-2% historical annual churn.
- Total debt stood at $21.3 billion with $4.3 billion of liquidity; the company repaid the $1.5 billion 2018 Term Loan in February 2019 using a new $1.3 billion term loan.
- The company distributed $3.15 per share in 2018 and has $2.1 billion remaining under its stock buyback programs, with 2019 capex guided to $900 million to $1.0 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, American Tower Corp kept $0.17.
- Revenue$7.44B100.0%
- Cost of revenue−$49.1M0.7%
- Gross profit$7.39B99.3%
- Operating costs−$5.49B73.7%
- Operating income$1.91B25.6%
- Interest, other & tax−$668.6M9.0%
- Net income$1.24B16.6%
Where FY2018 revenue went
$7.44B- Other operating costs: $4.75B, 64% of revenue
- Net income: $1.24B, 17% of revenue
- Cost of revenue: $49.1M, 0.7% of revenue
- SG&A: $733.2M, 9.9% of revenue
- Interest, other & tax: $668.6M, 9.0% of revenue
Kept 17% as net incomeCost of revenue $49.1M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.44B$6.66B | +11.6% |
| Cost of Revenue | $49.10M$34.60M | +41.9% |
| Gross Profit | $7.39B$6.63B | +11.5% |
| SG&A Expenses | $733.20M$637.00M | +15.1% |
| Operating Expenses | $5.54B$4.67B | +18.6% |
| Operating Income | $1.91B$2.00B | −4.7% |
| Interest Expense | $825.50M$749.60M | +10.1% |
| Net Income | $1.24B$1.24B | −0.2% |
| EPS (Basic) | $2.79$2.69 | +3.7% |
| EPS (Diluted) | $2.77$2.67 | +3.7% |
| Shares Outstanding (Basic) | 439.61M428.18M | +2.7% |
| Shares Outstanding (Diluted) | 442.96M431.69M | +2.6% |
05—Questions
Frequently Asked Questions
How much revenue is at risk from Indian carrier consolidation?
Management expects carrier consolidation-driven churn in India to reduce 2019 consolidated property revenue by about $191.2 million (including about $22.3 million of pass-through revenue) and operating profit by about $148.0 million. The India reporting unit's fair value exceeded its carrying value by only about $311 million (8%), so further churn or tenant bankruptcies could trigger additional impairments.
Why did GAAP earnings lag the strong growth in Adjusted EBITDA and AFFO?
Net income was held back by $394.0 million of impairment charges (largely Asia, including Tata and Aircel), $327.5 million of accelerated amortization on the Tata tenant relationship, higher depreciation, amortization and accretion (up 23% to $2.11 billion), and higher interest expense ($825.5 million, up 10%). These are largely non-cash items, which is why FFO and AFFO grew faster than GAAP net income.
What is the impact of the new lease accounting standard in 2019?
Effective January 1, 2019, AMT will adopt ASC 842 using the modified retrospective method, recognizing approximately $7.1 billion of operating lease right-of-use assets and $6.8 billion of lease liabilities on the balance sheet. Management does not expect a material impact on results of operations, liquidity or debt covenant compliance, and expects most ground leases to continue to be accounted for as operating leases.
How secure is the company's debt and liquidity position?
At year-end 2018, AMT had $21.3 billion of total outstanding indebtedness, with $2.8 billion current, and $4.3 billion of total liquidity including cash and credit facility availability. Its investment-grade ratings support market access, and the company was in compliance with its covenants (total leverage at or below 6.00x and senior secured leverage at or below 3.00x). The company also has $1.1 billion of cash held by foreign subsidiaries, and it has not historically repatriated those earnings.
Is the dividend sustainable given REIT requirements and India-related risk?
AMT must distribute at least 90% of REIT taxable income and declared $3.15 per common share for 2018 (about $1.39 billion in aggregate), with the Board retaining discretion over distributions. Funds from operations (AFFO of $3.19 billion) comfortably covered the dividend, though the company uses NOLs and TRS structures to manage taxable income, and India's churn and potential put-option redemptions (about $420 million expected in 1H 2019) add some pressure on cash flow.
06—Continue