AMERICAN TOWER CORPORATION This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements relating to our goals, beliefs, plans or current expectations and other statements that are not of historical facts. For example, when we use words such as "project," "believe," "anticipate," "expect," "forecast," "estimate," "intend," "should," "would," "could," "may" or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. Certain important factors may cause actual results to differ materially from those indicated by our forward-looking statements, including those set forth under the caption "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 (the "2019 Form 10-K"), as updated in Part II, Item 1A of this Quarterly Report. Forward-looking statements represent management's current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us. The discussion and analysis of our financial condition and results of operations that follow are based upon our consolidated and condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates and such differences could be material to the financial statements. This discussion should be read in conjunction with our consolidated and condensed consolidated financial statements herein and the accompanying notes, information set forth under the caption "Critical Accounting Policies and Estimates" in the 2019 Form 10-K, and in particular, the information set forth therein under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." During the fourth quarter of 2019, as a result of recent acquisitions, including our acquisition ofEaton Towers Holdings Limited ("Eaton Towers," and the acquisition, the "Eaton Towers Acquisition"), and changes to our organizational structure, we reviewed and changed our reportable segments to divide our EMEA segment into two separate segments,Africa property andEurope property. We now report our results in six segments -U.S. property,Asia property,Africa property,Europe property,Latin America property and services. We believe this change provides more visibility into these operating segments and better aligns our reporting with management's current approach of allocating costs and resources, managing growth and profitability and assessing the operating performance of our business segments. In evaluating financial performance in each business segment, management uses, among other factors, segment gross margin and segment operating profit (see note 15 to our consolidated and condensed consolidated financial statements included in this Quarterly Report). The change in reportable segments had no impact on our consolidated financial statements for any periods. Historical financial information included in Management's Discussion and Analysis of Financial Condition and Results of Operations has been adjusted to reflect the change in reportable segments. Overview We are one of the largest global real estate investment trusts and a leading independent owner, operator and developer of multitenant communications real estate. Our primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold other telecommunications infrastructure, fiber and property interests that we lease primarily to communications service providers and third-party tower operators. We refer to this business as our property operations, which accounted for 99% of our total revenues for the three months endedMarch 31, 2020 and includes ourU.S. property,Asia property,Africa property,Europe property andLatin America property segments. We also offer tower-related services inthe United States , including site acquisition, zoning and permitting and structural analysis, which primarily support our site leasing business, including the addition of new tenants and equipment on our sites. 26 --------------------------------------------------------------------------------
The following table details the number of communications sites, excluding
managed sites, that we owned or operated as of
Number of
Number of Operated Number of
Owned Towers Towers (1) Owned DAS Sites
U.S. 25,019 15,556 409
Asia :
India (2) 73,578 - 1,082
Africa:
Burkina Faso 667 - -
Ghana 3,207 665 27
Kenya 2,060 - 10
Niger 681 - -
Nigeria 5,349 - -
South Africa (2) 2,712 - -
Uganda 3,243 - 12
Africa total 17,919 665 49
Europe:
France 2,204 309 9
Germany 2,211 - -
Europe total 4,415 309 9
Latin America:
Argentina (3) 99 - 10
Brazil (3) 16,700 2,255 104
Chile 2,717 - 22
Colombia 5,002 - 4
Costa Rica 642 - 2
Mexico (4) 9,441 187 92
Paraguay 1,423 - -
Peru 1,835 411 -
Latin America total 37,859 2,853 234
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(1)Approximately 95% of the operated towers are held pursuant to long-term
finance leases, including those subject to purchase options.
(2)In India and South Africa , we also own fiber.
(3)In Argentina and Brazil , we also own or operate urban telecommunications
assets, fiber and the rights to utilize certain existing utility infrastructure
for future telecommunications equipment installation.
(4)In Mexico, we also own or operate urban telecommunications assets, including
fiber, concrete poles and other infrastructure.
We operate in six reportable segments: U.S. property, Asia property, Africa
property, Europe property, Latin America property and services. In evaluating
operating performance in each business segment, management uses, among other
factors, segment gross margin and segment operating profit (see note 15 to our
consolidated and condensed consolidated financial statements included in this
Quarterly Report).
The 2019 Form 10-K contains information regarding management's expectations of
long-term drivers of demand for our communications sites, as well as key trends,
which management believes provide valuable insight into our operating and
financial resource allocation decisions. The discussion below should be read in
conjunction with the 2019 Form 10-K and, in particular, the information set
forth therein under Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Executive Overview."
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In most of our markets, our tenant leases with wireless carriers generally have
initial non-cancellable terms of five to ten years with multiple renewal terms.
Accordingly, the vast majority of the revenue generated by our property
operations during the three months ended March 31, 2020 was recurring revenue
that we should continue to receive in future periods. Based upon foreign
currency exchange rates and the tenant leases in place as of March 31, 2020 , we
expect to generate over $42.7 billion of non-cancellable tenant lease revenue
over future periods, before the impact of straight-line lease accounting. Most
of our tenant leases have provisions that periodically increase the rent due
under the lease, typically based on an annual fixed escalation (averaging
approximately 3% in the United States ) or an inflationary index in our
international markets, or a combination of both. In addition, certain of our
tenant leases provide for additional revenue primarily to cover costs
(pass-through revenue), such as ground rent or power and fuel costs.
The revenues generated by our property operations may be affected by
cancellations of existing tenant leases. As discussed above, most of our tenant
leases with wireless carriers and broadcasters are multiyear contracts, which
typically are non-cancellable; however, in some instances, a lease may be
cancelled upon the payment of a termination fee. Revenue lost from either tenant
lease cancellations or the non-renewal of leases or rent renegotiations, which
we refer to as churn, has historically not had a material adverse effect on the
revenues generated by our consolidated property operations. During the three
months ended March 31, 2020 , churn was approximately 3% of our tenant billings.
Beginning in late 2017, we experienced an increase in revenue lost from
cancellations or non-renewals primarily due to carrier consolidation-driven
churn in India , which compressed our gross margin and operating profit,
particularly in our Asia property segment, although this impact was partially
offset by lower expenses due to reduced tenancy on existing sites and the
decommissioning of certain sites. For the three months ended March 31, 2020 ,
aggregate carrier consolidation in India did not have a material impact on our
consolidated property revenue, gross margin or operating profit.
We anticipate that our churn rate in India will move closer to historical levels
over time and result in reduced impacts on our property revenue, gross margin
and operating profit. In the immediate term, we expect that our churn rate will
remain elevated, primarily due to the uncertainty created by the recent court
ruling by the Indian Supreme Court , as set forth in Item 1A of the 2019 Form
10-K, as updated in Part II, Item 1A of this Quarterly Report, under the
captions "Risk Factors-A substantial portion of our revenue is derived from a
small number of tenants, and we are sensitive to adverse changes in the
creditworthiness and financial strength of our tenants" and "Risk Factors-Our
business, and that of our tenants, is subject to laws, regulations and
administrative and judicial decisions, and changes thereto, that could restrict
our ability to operate our business as we currently do or impact our competitive
landscape." We expect to periodically evaluate the carrying value of our Indian
assets, which may result in the realization of additional impairment expense or
other similar charges. For more information, please see Item 7 of the 2019 Form
10-K under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Critical Accounting Policies and Estimates."
As further set forth under the caption "Risk Factors" in Part I, Item 1A of the
2019 Form 10-K, as updated in Part II, Item 1A of this Quarterly Report, the
recent coronavirus ("COVID-19") pandemic, as well as the response to mitigate
its spread and effects, may adversely impact us and our tenants and the demand
for our communications sites in the United States and globally. We have taken a
variety of actions to ensure the continued availability of our communications
sites, while ensuring the safety and security of our employees, tenants, vendors
and communities. These measures include providing support for our tenants
remotely, requiring work-from-home arrangements and travel restrictions for our
employees where practicable and other modifications to our business practices.
We will continue to actively monitor the situation and may take further actions
as may be required by governmental authorities or that we determine are in the
best interests of our employees, tenants and business partners.
As a result of the impact of COVID-19 on global financial markets, we have
experienced volatility in foreign currency exchange rates in many of the markets
in which we operate. We estimate that the adverse impact from changes in foreign
currency exchange rates in the current period, as compared to the three months
ended March 31, 2019 , on our consolidated revenue and operating profit was
approximately $48 million and $26 million , respectively. If exchange rates
continue at their current levels, the impact to our revenue and other future
operating results could be material. Additionally, the impact of COVID-19 on our
operational results in subsequent periods will largely depend on future
developments, which are highly uncertain and cannot be accurately predicted at
this time. These developments may include, but are not limited to, new
information concerning the severity of COVID-19, the degree of success of
actions taken to contain or treat COVID-19 and the reactions by consumers,
companies, governmental entities and capital markets to such actions.
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Non-GAAP Financial Measures
Included in our analysis of our results of operations are discussions regarding
earnings before interest, taxes, depreciation, amortization and accretion, as
adjusted ("Adjusted EBITDA"), Funds From Operations, as defined by the National
Association of Real Estate Investment Trusts ("Nareit FFO") attributable to
American Tower Corporation common stockholders, Consolidated Adjusted Funds From
Operations ("Consolidated AFFO") and AFFO attributable to American Tower
Corporation common stockholders.
We define Adjusted EBITDA as Net income before Income (loss) from equity method
investments; Income tax benefit (provision); Other income (expense); Gain (loss)
on retirement of long-term obligations; Interest expense; Interest income; Other
operating income (expense); Depreciation, amortization and accretion; and
stock-based compensation expense.
Nareit FFO attributable to American Tower Corporation common stockholders is
defined as net income before gains or losses from the sale or disposal of real
estate, real estate related impairment charges, real estate related
depreciation, amortization and accretion and dividends on preferred stock, and
including adjustments for (i) unconsolidated affiliates and (ii) noncontrolling
interests. In this section, we refer to Nareit FFO attributable to American
Tower Corporation common stockholders as "Nareit FFO (common stockholders)."
We define Consolidated AFFO as Nareit FFO (common stockholders) before
(i) straight-line revenue and expense; (ii) stock-based compensation expense;
(iii) the deferred portion of income tax; (iv) non-real estate related
depreciation, amortization and accretion; (v) amortization of deferred financing
costs, capitalized interest, debt discounts and premiums and long-term deferred
interest charges; (vi) other income (expense); (vii) gain (loss) on retirement
of long-term obligations; (viii) other operating income (expense); and
adjustments for (ix) unconsolidated affiliates and (x) noncontrolling interests,
less cash payments related to capital improvements and cash payments related to
corporate capital expenditures.
We define AFFO attributable to American Tower Corporation common stockholders as
Consolidated AFFO, excluding the impact of noncontrolling interests on both
Nareit FFO (common stockholders) and the other adjustments included in the
calculation of Consolidated AFFO. In this section, we refer to AFFO attributable
to American Tower Corporation common stockholders as "AFFO (common
stockholders)."
Adjusted EBITDA, Nareit FFO (common stockholders), Consolidated AFFO and AFFO
(common stockholders) are not intended to replace net income or any other
performance measures determined in accordance with GAAP. None of Adjusted
EBITDA, Nareit FFO (common stockholders), Consolidated AFFO or AFFO (common
stockholders) represents cash flows from operating activities in accordance with
GAAP and, therefore, these measures should not be considered indicative of cash
flows from operating activities, as a measure of liquidity or a measure of funds
available to fund our cash needs, including our ability to make cash
distributions. Rather, Adjusted EBITDA, Nareit FFO (common stockholders),
Consolidated AFFO and AFFO (common stockholders) are presented as we believe
each is a useful indicator of our current operating performance. We believe that
these metrics are useful to an investor in evaluating our operating performance
because (1) each is a key measure used by our management team for decision
making purposes and for evaluating our operating segments' performance; (2)
Adjusted EBITDA is a component underlying our credit ratings; (3) Adjusted
EBITDA is widely used in the telecommunications real estate sector to measure
operating performance as depreciation, amortization and accretion may vary
significantly among companies depending upon accounting methods and useful
lives, particularly where acquisitions and non-operating factors are involved;
(4) Consolidated AFFO is widely used in the telecommunications real estate
sector to adjust Nareit FFO (common stockholders) for items that may otherwise
cause material fluctuations in Nareit FFO (common stockholders) growth from
period to period that would not be representative of the underlying performance
of property assets in those periods; (5) each provides investors with a
meaningful measure for evaluating our period-to-period operating performance by
eliminating items that are not operational in nature; and (6) each provides
investors with a measure for comparing our results of operations to those of
other companies, particularly those in our industry.
Our measurement of Adjusted EBITDA, Nareit FFO (common stockholders),
Consolidated AFFO and AFFO (common stockholders) may not, however, be fully
comparable to similarly titled measures used by other companies. Reconciliations
of Adjusted EBITDA, Nareit FFO (common stockholders), Consolidated AFFO and AFFO
(common stockholders) to net income, the most directly comparable GAAP measure,
have been included below.
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Results of Operations
Three Months Ended March 31, 2020 and 2019
(in millions, except percentages)
Revenue
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Property
U.S. $ 1,089.9 $ 986.3 11 %
Asia 286.6 288.9 (1)
Africa 225.5 144.0 57
Europe 34.5 33.5 3
Latin America 336.7 333.3 1
Total property 1,973.2 1,786.0 10
Services 19.9 27.4 (27)
Total revenues $ 1,993.1 $ 1,813.4 10 %
Three Months Ended March 31, 2020
U.S. property segment revenue growth of $103.6 million was attributable to:
• Tenant billings growth of $57.1 million , which was driven by:
• $43.4 million due to leasing additional space on our sites ("colocations") and
amendments;
• $12.3 million from contractual escalations, net of churn; and
• $4.1 million generated from sites acquired or constructed since the beginning
of the prior-year period ("newly acquired or constructed sites");
• Partially offset by a decrease of $2.7 million from other tenant billings; and
• An increase of $46.5 million in other revenue, which includes a $51.4 million
increase due to straight-line accounting.
Asia property segment revenue decrease of $2.3 million was attributable to:
• A decrease of $4.6 million in other revenue;
• Partially offset by pass-through revenue growth of $3.8 million and an
increase in tenant billings of $4.6 million , which was driven by:
• $19.5 million due to colocations and amendments; and
• $5.5 million generated from newly acquired or constructed sites;
• Partially offset by:
?A decrease of $20.2 million resulting from churn in excess of contractual
escalations; and
?A decrease of $0.2 million from other tenant billings.
Segment revenue decline includes a decrease of $6.1 million attributable to the
negative impact of foreign currency translation related to fluctuations in
Indian Rupee ("INR").
Africa property segment revenue growth of $81.5 million was attributable to:
• Tenant billings growth of $61.2 million , which was driven by:
• $51.5 million generated from newly acquired or constructed sites, primarily
due to the Eaton Towers Acquisition;
• $5.0 million due to colocations and amendments;
• $3.9 million from contractual escalations, net of churn; and
• $0.8 million from other tenant billings;
• An increase in pass-through revenue of $20.2 million ; and
• An increase of $6.9 million in other revenue.
Segment revenue growth includes a decrease of $6.8 million attributable to the
negative impact of foreign currency translation, which included, among others,
$3.2 million related to fluctuations in Ghanaian Cedi and $2.8 million related
to fluctuations in South African Rand.
Europe property segment revenue growth of $1.0 million was attributable to:
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• An increase of $1.3 million in other revenue;
• Tenant billings growth of $0.6 million , which was driven by:
• $0.9 million due to colocations and amendments; and
• $0.1 million generated from newly acquired or constructed sites;
• Partially offset by a decrease of $0.4 million from contractual escalations,
net of churn; and
• An increase of $0.1 million in pass-through revenue.
Segment revenue growth includes a decrease of $1.0 million attributable to the
negative impact of foreign currency translation related to fluctuations in the
Euro ("EUR").
Latin America property segment revenue growth of $3.4 million was attributable
to:
• Tenant billings growth of $27.7 million , which was driven by:
• $11.1 million generated from newly acquired or constructed sites, primarily
due to the transaction in Chile and Peru with Entel PCS Telecomunicaciones S.A.
and Entel Peru S.A. (the "Entel Acquisition");
• $10.4 million due to colocations and amendments;
• $5.5 million from contractual escalations, net of churn; and
• $0.7 million from other tenant billings;
• Pass-through revenue growth of $10.2 million ; and
• A decrease of $0.6 million in other revenue.
Segment revenue growth includes a decrease of $33.9 million attributable to the
negative impact of foreign currency translation, which included, among others,
$23.7 million related to fluctuations in Brazilian Real, $3.5 million related to
fluctuations in Mexican Peso, $3.1 million related to fluctuations in Colombian
Peso and $3.1 million related to fluctuations in Chilean Peso.
The decrease in services segment revenue of $7.5 million was primarily
attributable to a decrease in site acquisition, zoning and permitting services.
Gross Margin
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Property
U.S. $ 899.9 $ 795.0 13 %
Asia 122.6 110.9 11
Africa 147.8 90.5 63
Europe 27.9 27.3 2
Latin America 231.5 229.9 1
Total property 1,429.7 1,253.6 14
Services 12.3 17.3 (29) %
Three Months Ended March 31, 2020
•The increase in U.S. property segment gross margin was primarily attributable
to the increase in revenue described above and a decrease in direct expenses of
$1.3 million .
•The increase in Asia property segment gross margin was primarily attributable
to a decrease in direct expenses of $10.6 million , the majority of which was
from lower land rent costs, primarily due to site decommissioning. Direct
expenses also benefited by $3.4 million from the impact of foreign currency
translation. These benefits were partially offset by the decrease in revenue
described above.
•The increase in Africa property segment gross margin was primarily attributable
to the increase in revenue described above, partially offset by an increase in
direct expenses of $24.2 million , primarily due to the Eaton Towers Acquisition,
which also included a benefit of $2.4 million attributable to the impact of
foreign currency translation on direct expenses.
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•The increase in Europe property segment gross margin was primarily attributable
to the increase in revenue described above, partially offset by an increase in
direct expenses of $0.4 million , which also included a benefit of $0.2 million
attributable to the impact of foreign currency translation on direct expenses.
•The increase in Latin America property segment gross margin was primarily
attributable to the increase in revenue described above, partially offset by an
increase in direct expenses of $1.8 million , primarily due to the Entel
Acquisition, which also included a benefit of $11.6 million attributable to the
impact of foreign currency translation on direct expenses.
•The decrease in services segment gross margin was primarily due to the decrease
in revenue described above, partially offset by a decrease in direct expenses of
$2.5 million .
Selling, General, Administrative and Development Expense ("SG&A")
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Property
U.S. $ 42.0 $ 41.7 1 %
Asia 32.6 26.6 23
Africa 17.1 13.2 30
Europe 5.5 5.2 6
Latin America 26.6 27.7 (4)
Total property 123.8 114.4 8
Services 3.5 3.4 3
Other 90.5 80.3 13
Total selling, general, administrative and
development expense $ 217.8 $ 198.1 10 %
Three Months Ended March 31, 2020
•The increases in each of our U.S. , Asia , Africa and Europe property segment
SG&A were primarily driven by increased personnel costs to support our business,
including due to the Eaton Towers Acquisition in Africa . The increase in our
Asia property segment SG&A was also driven by an increase in bad debt expense of
$3.6 million .
•The decrease in our Latin America property segment SG&A was primarily driven by
a decrease in canceled construction costs of $1.1 million and a decrease in bad
debt expense of $0.7 million . The benefit of foreign currency translation on
SG&A was offset by increased personnel costs to support our business during
period.
•Services segment SG&A was relatively consistent year over year.
•The increase in other SG&A was primarily attributable to an increase in
stock-based compensation expense of $5.2 million and an in increase in corporate
SG&A.
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Operating Profit
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Property
U.S. $ 857.9 $ 753.3 14 %
Asia 90.0 84.3 7
Africa 130.7 77.3 69
Europe 22.4 22.1 1
Latin America 204.9 202.2 1
Total property 1,305.9 1,139.2 15
Services 8.8 13.9 (37) %
•The increases in operating profit for the three months ended March 31, 2020 for
our U.S. , Asia , Africa and Europe property segments were primarily attributable
to increases in our segment gross margin, partially offset by increases in our
segment SG&A.
•The increase in operating profit for the three months ended March 31, 2020 for
our Latin America property segment was primarily attributable to an increase in
our segment gross margin and a decrease in our segment SG&A.
•The decrease in operating profit for the three months ended March 31, 2020 for
our services segment was primarily attributable to a decrease in our segment
gross margin and an increase in our segment SG&A.
Depreciation, Amortization and Accretion
Three Months
Ended
2020 2019 Percent Increase (Decrease)
Depreciation, amortization and accretion $ 472.3 $ 436.9 8 %
The increase in depreciation, amortization and accretion expense for the three
months ended March 31, 2020 was primarily attributable to the acquisition, lease
or construction of new sites since the beginning of the prior-year period,
including the Eaton Towers Acquisition and the Entel Acquisition, which resulted
in increases in property and equipment and intangible assets subject to
amortization.
Other Operating Expenses
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Other operating expenses $ 14.2 $ 20.1 (29) %
The decrease in other operating expenses during the three months ended March 31,
2020 was primarily attributable to a decrease of $12.2 million in impairment
charges and losses on sales or disposals of assets, which was partially offset
by an increase in acquisition related costs of $8.1 million , primarily
attributable to the Eaton Towers Acquisition. Other one-time items in the
current year substantially offset a one-time credit related to a pre-acquisition
contingency in France in the prior-year period.
Total Other Expense
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Total other expense $ 297.1 $ 173.3 71 %
Total other expense consists primarily of interest expense and realized and unrealized foreign currency gains and losses. We record unrealized foreign currency gains or losses as a result of foreign currency exchange rate fluctuations primarily associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries' functional currencies.
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The increase in total other expense during the three months ended March 31, 2020
was due to foreign currency losses of $65.5 million in the current period,
compared to foreign currency gains of $20.1 million in the prior-year period,
and a loss on the retirement of long-term obligations of $34.6 million ,
attributable to the retirement of the 5.900% senior unsecured notes due 2021
(the "5.900% Notes") during the period.
Income Tax Provision
Three Months Ended March 31,
2020 2019 Percent Increase (Decrease)
Income tax provision $ 21.1 $ 34.0 (38) %
Effective tax rate 4.8 % 7.7 %
As a real estate investment trust for U.S. federal income tax purposes ("REIT"),
we may deduct earnings distributed to stockholders against the income generated
by our REIT operations. In addition, we are able to offset certain income by
utilizing our net operating losses ("NOLs"), subject to specified limitations.
Consequently, the effective tax rate on income from continuing operations for
the three months ended March 31, 2020 and 2019 differs from the federal
statutory rate.
The decrease in the income tax provision was primarily attributable to realized
foreign exchange losses during the three months ended March 31, 2020 and the
nonrecurrence of a one-time true up adjustment during the three months ended
March 31, 2019 .
Net Income/Adjusted EBITDA and Net Income/Nareit FFO/Consolidated AFFO
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