UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One):
ý | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended December 31, 2018
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to
Commission File Number: 001-14195
American Tower Corporation
(Exact name of registrant as specified in its charter)
Delaware | 65-0723837 | |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617) 375-7500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Name of exchange on which registered | |
Common Stock, $0.01 par value | New York Stock Exchange | |
1.375% Senior Notes due 2025 | New York Stock Exchange | |
1.950% Senior Notes due 2026 | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer | x | Accelerated filer | o | |||
Non-accelerated filer | o | Smaller reporting company | o | |||
Emerging growth company | o | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ¨ No ý
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2018 was $63.1 billion, based on the closing price of the registrant’s common stock as reported on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second quarter.
As of February 20, 2019, there were 441,134,906 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission relative to the registrant’s 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.
AMERICAN TOWER CORPORATION
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2018
Page | ||
PART I | ||
ITEM 1. | ||
ITEM 1A. | ||
ITEM 1B. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
PART II | ||
ITEM 5. | ||
ITEM 6. | ||
ITEM 7. | ||
ITEM 7A. | ||
ITEM 8. | ||
ITEM 9. | ||
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AMERICAN TOWER CORPORATION
TABLE OF CONTENTS—(Continued)
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2018
Page | ||
ITEM 9A. | ||
PART III | ||
ITEM 10. | ||
ITEM 11. | ||
ITEM 12. | ||
ITEM 13. | ||
ITEM 14. | ||
PART IV | ||
ITEM 15. | ||
ITEM 16. | ||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains statements about future events and expectations, or forward-looking statements, all of which are inherently uncertain. We have based those forward-looking statements on our current expectations and projections about future results. When we use words such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “expects” or similar expressions, we are making forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding future prospects of growth in the communications site leasing industry, the level of future expenditures by companies in this industry and other trends in this industry, the effects of consolidation among companies in our industry and among our tenants and other competitive and financial pressures, changes in zoning, tax and other laws and regulations, economic, political and other events, particularly those relating to our international operations, our future capital expenditure levels, the impact of technology changes on our industry and our business, our ability to maintain or increase our market share, our plans to fund our future liquidity needs, our substantial leverage and debt service obligations, our future financing transactions, our future operating results, our ability to remain qualified for taxation as a real estate investment trust (REIT), the amount and timing of any future distributions including those we are required to make as a REIT, natural disasters and similar events and our ability to protect our rights to the land under our towers. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. These assumptions could prove inaccurate. These forward-looking statements may be found under the captions “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this Annual Report generally.
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You should keep in mind that any forward-looking statement we make in this Annual Report or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In any event, these and other important factors, including those set forth in Item 1A of this Annual Report under the caption “Risk Factors,” may cause actual results to differ materially from those indicated by our forward-looking statements. We have no duty, and do not intend, to update or revise the forward-looking statements we make in this Annual Report, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the future events or circumstances described in any forward-looking statement we make in this Annual Report or elsewhere might not occur. References in this Annual Report to “we,” “our” and the “Company” refer to American Tower Corporation and its predecessor, as applicable, individually and collectively with its subsidiaries as the context requires.
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PART I
ITEM 1. BUSINESS |
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. We refer to this business as our property operations, which accounted for 98% of our total revenues for the year ended December 31, 2018. We also offer tower-related services in the United States, which we refer to as our services operations. These services include 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.
American Tower Corporation was originally created as a subsidiary of American Radio Systems Corporation in 1995 and was spun off into a free-standing public company in 1998. We are a holding company and conduct our operations through our directly and indirectly owned subsidiaries and joint ventures. Our principal domestic operating subsidiaries are American Towers LLC and SpectraSite Communications, LLC. We conduct our international operations primarily through our subsidiary, American Tower International, Inc., which in turn conducts operations through its various international holding and operating subsidiaries and joint ventures.
Since inception, we have grown our communications real estate portfolio through acquisitions, long-term lease arrangements and site development. Our portfolio primarily consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, as well as distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. 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.
In 2018, we launched operations in Kenya through our acquisition of communications sites from Telkom Kenya Limited, acquired urban telecommunications assets, including fiber assets in Brazil, and added approximately 20,000 communications sites to our portfolio in India through two acquisitions. As of December 31, 2018, our communications real estate portfolio of 170,686 communications sites included 40,757 communications sites in the U.S., 75,872 communications sites in Asia, 16,665 communications sites in Europe, Middle East and Africa (“EMEA”) and 37,392 communications sites in Latin America, as well as urban telecommunications assets in Argentina, Brazil, Mexico and South Africa.
We operate as a real estate investment trust for U.S. federal income tax purposes (“REIT”). Accordingly, we generally are not required to pay U.S. federal income taxes on income generated by our REIT operations, including the income derived from leasing space on our towers, as we receive a dividends paid deduction for distributions to stockholders that generally offsets our REIT income and gains. However, we remain obligated to pay U.S. federal income taxes on earnings from our domestic taxable REIT subsidiaries (“TRSs”). In addition, our international assets and operations, regardless of their classification for U.S. tax purposes, continue to be subject to taxation in the jurisdictions where those assets are held or those operations are conducted.
The use of TRSs enables us to continue to engage in certain businesses while complying with REIT qualification requirements. We may, from time to time, change the election of previously designated TRSs to be included as part of the REIT. As of December 31, 2018, our REIT-qualified businesses included our U.S. tower leasing business, our operations in Nigeria, most of our operations in Costa Rica and Mexico, a majority of our operations in Germany and a majority of our indoor DAS networks business and services segment. In January 2019, a majority of our operations in France became part of the REIT.
We report our results in five segments – U.S. property, Asia property, EMEA property, Latin America property and services.
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Products and Services
Property Operations
Our property operations accounted for 98%, 99% and 99% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. Our revenue is primarily generated from tenant leases. Our tenants lease space on our communications real estate, where they install and maintain their equipment. Rental payments vary considerably depending upon numerous factors, including, but not limited to, amount, type and position of tenant equipment on the tower, remaining tower capacity and tower location. Our costs typically include ground rent (which is primarily fixed under long-term lease agreements with annual cost escalations) and power and fuel costs, some or all of which may be passed through to our tenants, as well as property taxes and repair and maintenance expenses. Our property operations have generated consistent growth in revenue and typically have low cash flow volatility due to the following characteristics:
• | Long-term tenant leases with contractual rent escalations. In general, a tenant lease has an initial non-cancellable term of ten years with multiple renewal terms, with provisions that periodically increase the rent due under the lease, typically annually, based on a fixed escalation percentage (averaging approximately 3% in the United States) or an inflationary index in our international markets, or a combination of both. Based upon foreign currency exchange rates and the tenant leases in place as of December 31, 2018, we expect to generate nearly $35 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting. |
• | Consistent demand for our sites. As a result of rapidly growing usage of mobile data and other wireless services and the corresponding wireless industry capital spending trends in the markets we serve, we anticipate consistent demand for our communications sites. We believe that our global asset base positions us well to benefit from the increasing proliferation of advanced wireless devices and the increasing usage of high bandwidth applications on those devices. We have the ability to add new tenants and new equipment for existing tenants on our sites, which typically results in incremental revenue and modest incremental costs. Our site portfolio and our established tenant base provide us with a solid platform for new business opportunities, which has historically resulted in consistent and predictable organic revenue growth. |
• | High lease renewal rates. Our tenants tend to renew leases because suitable alternative sites may not exist or be available and repositioning a site in their network may be expensive and may adversely affect network quality. Historically, churn has averaged approximately 1% to 2% of tenant billings per year. We define churn as tenant billings lost when a tenant cancels or does not renew its lease or, in limited circumstances, when the lease rates on existing leases are reduced. We derive our churn rate for a given year by dividing our tenant billings lost on this basis by our prior-year tenant billings. As discussed in Item 7 of this Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview,” we experienced an increase in churn in 2018 due to carrier consolidation-driven churn in India, and we expect this impact to continue in 2019. |
• | High operating margins. Incremental operating costs associated with adding new tenants to an existing communications site are relatively minimal. Therefore, as tenants are added, the substantial majority of incremental revenue flows through to gross margin and operating profit. In addition, in many of our international markets certain expenses, such as ground rent or power and fuel costs, are reimbursed or shared by our tenant base. |
• | Low maintenance capital expenditures. On average, we require relatively low amounts of annual capital expenditures to maintain our communications sites. |
Our property business includes the operation of communications sites and managed networks, the leasing of property interests, the operation of fiber and the provision of backup power through shared generators. Our presence in a number of markets at different relative stages of wireless development provides us with significant diversification and long-term growth potential. Our property segments accounted for the following percentage of consolidated total revenue for the years ended December 31,:
2018 | 2017 | 2016 | ||||||
U.S. | 51 | % | 55 | % | 59 | % | ||
Asia | 21 | % | 17 | % | 14 | % | ||
EMEA | 9 | % | 9 | % | 9 | % | ||
Latin America | 17 | % | 18 | % | 17 | % | ||
Communications Sites. Approximately 96%, 97% and 95% of revenue in our property segments was attributable to our communications sites for the years ended December 31, 2018, 2017 and 2016, respectively.
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We lease space on our communications sites to tenants providing a diverse range of communications services, including cellular voice and data, broadcasting, mobile video and a number of other applications. In addition, in many of our international markets, we receive additional pass-through revenue from our tenants to cover certain costs, including power and fuel costs and ground rent. Our top tenants by revenue for each region are as follows for the year ended December 31, 2018:
• | U.S.: AT&T; Verizon Wireless; Sprint; and T-Mobile US accounted for an aggregate of 88% of U.S. property segment revenue. |
• | Asia: Bharti Airtel Limited (“Airtel”); Tata Teleservices Limited (“Tata Teleservices”); Idea Cellular Limited (“Idea”) and Vodafone India Limited and Vodafone Mobile Services Limited (together, “Vodafone”); and Reliance Jio accounted for an aggregate of 95% of Asia property segment revenue. As discussed in Item 7 of this Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview,” we expect that Tata Teleservices will no longer be a top tenant in 2019. |
• | EMEA: MTN Group Limited and Airtel accounted for an aggregate of 59% of EMEA property segment revenue. |
• | Latin America: Telefónica S.A.; AT&T; and Telecom Italia accounted for an aggregate of 55% of Latin America property segment revenue. |
Accordingly, we are subject to certain risks, as set forth in Item 1A of this Annual Report under the caption “Risk Factors—A substantial portion of our revenue is derived from a small number of tenants, and we are sensitive to changes in the creditworthiness and financial strength of our tenants.” In addition, we are subject to risks related to our international operations, as set forth under the caption “Risk Factors—Our foreign operations are subject to economic, political and other risks that could materially and adversely affect our revenues or financial position, including risks associated with fluctuations in foreign currency exchange rates.”
Managed Networks, Property Interests, Fiber and Shared Generators. In addition to our communications sites, we also own and operate several types of managed network solutions, provide communications site management services to third parties, manage and lease property interests under carrier or other third-party communications sites, lease fiber and provide back-up power sources to tenants at our sites. The balance of our property segment revenue not attributable to our communications sites was attributable to these items.
• | Managed Networks. We own and operate DAS networks in the United States and certain international markets. We obtain rights from property owners to install and operate in-building DAS networks, and we grant rights to wireless service providers to attach their equipment to our installations. We also offer a small portfolio of outdoor DAS networks as a complementary shared infrastructure solution for our tenants in the United States and in certain international markets. Typically, we have designed, built and operated our outdoor DAS networks in areas in which zoning restrictions or other barriers may prevent or delay deployment of more traditional wireless communications sites. We also hold lease rights and easement interests on rooftops capable of hosting communications equipment in locations where towers are generally not a viable solution based on area characteristics. In addition, we provide management services to property owners in the United States who elect to retain full rights to their property while simultaneously marketing the rooftop for wireless communications equipment installation. As the demand for advanced wireless services in urban markets evolves, we continue to evaluate a variety of infrastructure solutions, including small cells and other network architectures that may support our tenants’ networks in these areas. |
• | Fiber. We own and operate fiber in Argentina, Brazil, Mexico and South Africa, which we currently lease to communications and internet service providers and third-party operators to support their telecommunications infrastructure. We expect to continue to evaluate opportunities to invest in and lease these and other similar assets to providers and operators in the future for additional fourth generation (4G) and fifth generation (5G) deployments. |
• | Property Interests. We own a portfolio of property interests in the United States under carrier or other third-party communications sites, which provides recurring cash flow under complementary leasing arrangements. |
• | Shared Generators. We have contracts with certain of our tenants in the United States pursuant to which we provide access to shared backup power generators. |
Services Operations
We offer tower-related services in the United States, including site acquisition, zoning and permitting and structural analysis services. Our services operations primarily support our site leasing business, including through the addition of new tenants and equipment on our sites. This segment accounted for 2%, 1% and 1% of our total revenue for the years ended December 31, 2018, 2017 and 2016, respectively.
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Site Acquisition, Zoning and Permitting. We engage in site acquisition services on our own behalf in connection with our tower development projects, as well as on behalf of our tenants. We typically work with our tenants’ engineers to determine the geographic areas where new communications sites will best address the tenants’ needs and meet their coverage objectives. Once a new site is identified, we acquire the rights to the land or structure on which the site will be constructed, and we manage the permitting process to ensure all necessary approvals are obtained to construct and operate the communications site.
Structural Analysis. We offer structural analysis services to wireless carriers in connection with the installation of their communications equipment on our towers. Our team of engineers can evaluate whether a tower structure can support the additional burden of the new equipment or if an upgrade is needed, which enables our tenants to better assess potential sites before making an installation decision. Our structural analysis capabilities enable us to provide higher quality service to our existing tenants by, among other things, reducing the time required to achieve on-air readiness, while also providing opportunities to offer structural analysis services to third parties.
Strategy
Operational Strategy
As the use of wireless services on handsets, tablets and other advanced mobile devices grows and evolves, there is a corresponding increase in demand for the communications infrastructure required to deploy current and future generations of wireless communications technologies. To capture this demand, our primary operational focus is to (i) increase the occupancy of our existing communications real estate portfolio to support global connectivity, (ii) invest in and selectively grow our communications real estate portfolio, (iii) further improve upon our operational performance and efficiency, including through innovation initiatives and (iv) maintain a strong balance sheet. We believe these efforts to meet our tenants’ needs will support and enhance our ability to capitalize on the growth in demand for wireless infrastructure. In addition, we expect to explore new opportunities to enhance or extend our shared communications infrastructure businesses, including those that may make our assets incrementally more attractive to new tenants, or to existing tenants for new uses, and those that increase our operational efficiency.
• | Increase the occupancy of our existing communications real estate portfolio to support global connectivity. We believe that our highest incremental returns will be achieved by leasing additional space on our existing communications sites. Increasing demand for wireless services in our served markets has resulted in significant capital spending by major wireless carriers and other connectivity providers. As a result, we anticipate consistent demand for our communications sites because they are attractively located and typically have capacity available for additional tenants. In the United States, incremental carrier network activity is being driven primarily by the construction and densification of 4G networks, while in our international markets, carriers are deploying a combination of second generation (2G), third generation (3G) and, more recently, 4G networks, depending on the specific market. We believe that the majority of our towers have capacity for additional tenants and that substantially all of our towers that are currently at or near full structural capacity can be upgraded or augmented to meet future tenant demand with relatively modest capital investment. Therefore, we will continue to target our sales and marketing activities to increase the utilization and return on investment of our existing communications sites. |
• | Invest in and selectively grow our communications real estate portfolio to meet our tenants’ needs. We seek opportunities to invest in and grow our operations through our capital expenditure program, new site construction and acquisitions. We believe we can achieve attractive risk-adjusted returns by pursuing such investments. In addition, we seek to secure property interests under our communications sites to improve operating margins as we reduce our cash operating expense related to ground leases. A significant portion of our inorganic growth has been focused on properties with lower initial tenancy because we believe that over time we can significantly increase tenancy levels, and therefore, drive strong returns on those assets. |
• | Further improve upon our operational performance and efficiency, including through innovation initiatives. We continue to seek opportunities to improve our operational performance throughout the organization. This includes investing in our systems and people as we strive to improve efficiency and provide superior service to our tenants. To achieve this, we intend to continue to focus on customer service initiatives, such as reducing cycle times for key functions, including lease processing and tower structural analysis. We are also focused on developing and implementing renewable power solutions across our footprint to reduce our reliance on fossil fuels and help improve the overall efficiency of the communications infrastructure and wireless industries. |
• | Maintain a strong balance sheet. We remain committed to disciplined financial policies, which we believe result in our ability to maintain a strong balance sheet and will support our overall strategy and focus on asset growth and operational excellence. As a result of these policies, we currently have investment grade credit ratings. We continue to focus on maintaining a robust liquidity position and, as of December 31, 2018, had $4.3 billion of available liquidity. |
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We believe that our investment grade credit ratings provide us consistent access to the capital markets and our liquidity provides us the ability to selectively invest in our portfolio.
Capital Allocation Strategy
The objective of our capital allocation strategy is to simultaneously increase adjusted funds from operations and our return on invested capital over the long term. To maintain our qualification for taxation as a REIT, we are required annually to distribute an amount equal to at least 90% of our REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain) to our stockholders. After complying with our REIT distribution requirements, we plan to continue to allocate our available capital among investment alternatives that meet or exceed our return on investment criteria, while taking into account the repayment of debt consistent with our financial policies.
• | Capital expenditure program. We expect to continue to invest in and expand our existing communications real estate portfolio through our annual capital expenditure program. This includes capital expenditures associated with site maintenance, increasing the capacity of our existing sites and projects such as new site construction, land interest acquisitions and power solutions. |
• | Acquisitions. We intend to pursue acquisitions of communications sites in our existing or new markets where we can meet or exceed our risk-adjusted return on investment criteria. Our risk-adjusted hurdle rates consider additional factors such as the country and counterparties involved, investment and economic climate, legal and regulatory conditions and industry risk, among others. |
• | Return excess capital to stockholders. If we have excess capital available after funding (i) our required distributions, (ii) capital expenditures, (iii) the repayment of debt consistent with our financial policies and (iv) anticipated future investments, including acquisition and select innovation opportunities, we will seek to return such excess capital to stockholders, including through our stock repurchase programs. |
International Growth Strategy
We believe that, in certain international markets, we can create substantial value by either establishing a new, or expanding our existing, communications real estate leasing business. Therefore, we expect we will continue to seek international growth opportunities where we believe our risk-adjusted return objectives can be achieved. We strive to maintain a diversified approach to our international growth strategy by operating in a geographically diverse array of markets in a variety of stages of wireless network development. Our international growth strategy includes a disciplined, individualized market evaluation, in which we conduct the following analyses, among others:
• | Country analysis. Prior to entering a new market, we conduct an extensive review of the country’s historical and projected macroeconomic fundamentals, including inflation and foreign currency exchange rate trends, demographics, capital markets, tax regime and investment alternatives, and the general business, political and legal environments, including property rights and regulatory regime. |
• | Wireless industry analysis. To confirm the presence of sufficient demand to support an independent tower leasing model, we analyze the competitiveness of the country’s wireless market. This includes an evaluation of the industry’s pricing environment, past and potential consolidation and the stage of its wireless network development. Characteristics that result in an attractive investment opportunity include (i) multiple competitive wireless service providers who are actively seeking to invest in deploying voice and data networks and (ii) ongoing or expected deployment of incremental spectrum from recent or anticipated auctions. |
• | Opportunity and counterparty analysis. Once an investment opportunity is identified within a geographic area with an attractive wireless industry, we conduct a multifaceted opportunity and counterparty analysis. This includes evaluating (i) the type of transaction, (ii) its ability to meet our risk-adjusted return criteria given the country and the counterparties involved, including the anticipated anchor tenant and (iii) how the transaction fits within our long-term strategic objectives, including future potential investment and expansion within the region. |
Regulatory Matters
Towers, Antennas and Fiber. Our U.S. and international tower leasing businesses are subject to national, state and local regulatory requirements with respect to the registration, siting, construction, lighting, marking and maintenance of our towers. In the United States, which accounted for 52% of our total property segment revenue for the year ended December 31, 2018, the construction of new towers or modifications to existing towers may require pre-approval by the Federal Communications Commission (“FCC”) and the Federal Aviation Administration (“FAA”), depending on factors such as tower height and proximity to public airfields. Towers requiring pre-approval must be registered with the FCC and maintained in accordance
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with FAA standards. Similar requirements regarding pre-approval of the construction and modification of towers are imposed by regulators in other countries. Non-compliance with applicable tower-related requirements may lead to monetary penalties or site deconstruction orders.
Certain of our international operations are subject to regulatory requirements with respect to licensing, registration, permitting and public listings. In India, each of our operating subsidiaries holds an Infrastructure Provider Category-I (“IP-I”) Registration Certificate issued by the Indian Ministry of Communications and Information Technology, which permits us to provide tower space to companies licensed as telecommunications service providers under the Indian Telegraph Act of 1885. As a condition to the IP-I, the Indian government has the right to take over telecommunications infrastructure in the case of emergency or war. Additionally, in 2018, ATC Telecom Infrastructure Private Limited (“ATC TIPL”) issued non-convertible debentures, which are listed on the National Stock Exchange of India. Although the debt is held by another subsidiary of ours and is eliminated in consolidation, ATC TIPL is still subject to the listing requirements of such exchange. In Ghana, our subsidiary holds a Communications Infrastructure License, issued by the National Communications Authority (“NCA”), which permits us to establish and maintain passive telecommunications infrastructure services and DAS networks for communications service providers licensed by the NCA. In Uganda, our subsidiary holds a Public Infrastructure Service License, issued by the Uganda Communications Commission (“UCC”), which permits us to establish and maintain passive telecommunications infrastructure and DAS networks for communication service providers licensed by the UCC. In Nigeria, our subsidiary holds a license for Infrastructure Sharing and Collocation Services, issued by the Nigerian Communications Authority (“NCC”), which permits us to establish and maintain passive telecommunications infrastructure for communication service providers licensed by the NCC. In Kenya, our subsidiary holds a “Network Facilities Provider License”, issued by the Communications Authority of Kenya (“CA”), which permits us to establish and maintain passive telecommunications infrastructure services.
In Chile, our subsidiary is classified as a Telecom Intermediate Service Provider. We have received a number of site specific concessions and are working with the Chilean Subsecretaria de Telecommunicaciones to receive concessions on our remaining sites in Chile. Comunicaciones y Consumos, S.A. holds a telecom license for a number of services it provides and is regulated by the Ente Nacional de Comunicaciones (ENACOM) in Argentina. In many of the markets in which we operate we are required to provide tower space to service providers on a non-discriminatory basis, subject to the negotiation of mutually agreeable terms.
Our international business operations may be subject to increased licensing fees or ownership restrictions. For example, in South Africa, the Broad-Based Black Economic Empowerment Act, 2003 (the “BBBEE Act”) has established a legislative framework for the promotion of economic empowerment of South African citizens disadvantaged by Apartheid. Accordingly, the BBBEE Act and related codes measure BBBEE Act compliance and good corporate practice by the inclusion of certain ownership, management control, employment equity and other metrics for companies that do business there. In Kenya, the CA requires all holders of a commercial license to issue at least 20% of their shares to Kenyans within three years of receiving the license unless a waiver is obtained. In addition, certain municipalities have sought to impose permit fees based upon structural or operational requirements of towers and certain regional and other governmental bodies have sought to impose levies or other forms of fees. Our foreign operations may be affected if a country’s regulatory authority restricts, revokes or modifies spectrum licenses of certain wireless service providers or implements limitations on foreign ownership.
In all countries where we operate, we are subject to zoning restrictions and restrictive covenants imposed by local authorities or community organizations. While these regulations vary, they typically require tower owners or tenants to obtain approval from local authorities or community standards organizations prior to tower construction or the addition of a new antenna to an existing tower. Local zoning authorities and community residents often oppose construction in their communities, which can delay or prevent new tower construction, new antenna installation or site upgrade projects, thereby limiting our ability to respond to tenant demand. This opposition and existing or new zoning regulations can increase costs associated with new tower construction, tower modifications or additions of new antennas to a site or site upgrades, as well as adversely affect the associated timing or cost of such projects. Further, additional regulations may be adopted that cause delays or result in additional costs to us or changes in the competitive landscape that may negatively affect our business. These factors could materially and adversely affect our operations. In the United States, the Telecommunications Act of 1996 prohibits any action by state and local authorities that would discriminate between different providers of wireless services or ban altogether the construction, modification or placement of communications sites. It also prohibits state or local restrictions based on the environmental effects of radio frequency emissions to the extent the facilities comply with FCC regulations. Further, in February 2012, the United States government adopted regulations requiring that local and state governments approve modifications or colocations that qualify as eligible facilities under the regulations.
Portions of our business are subject to additional regulations, for example, in a number of states throughout the United States, certain of our subsidiaries hold Competitive Local Exchange Carrier (CLEC) or other status, in connection with the operation of our outdoor DAS networks business. In addition, we, or our tenants, may be subject to new regulatory policies in
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certain jurisdictions from time to time that may materially and adversely affect our business or the demand for our communications sites.
In Mexico, our subsidiaries that hold our fiber business are regulated by the Federal Institute of Telecommunications as concession holders and permit holders authorized to provide telecommunications services.
Environmental Matters. Our U.S. and international operations are subject to various national, state and local environmental laws and regulations, including those relating to the management, use, storage, disposal, emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials and wastes and the siting of our towers. We may be required to obtain permits, pay additional property taxes, comply with regulatory requirements and make certain informational filings related to hazardous substances or devices used to provide power such as batteries, generators and fuel at our sites. Violations of these types of regulations could subject us to fines or criminal sanctions.
Additionally, in the United States and in other countries where we operate, before constructing a new tower or adding an antenna to an existing site, we must review and evaluate the impact of the action to determine whether it may significantly affect the environment and whether we must disclose any significant impacts in an environmental assessment. If a tower or new antenna might have a material adverse impact on the environment, FCC or other governmental approval of the tower or antenna could be significantly delayed.
Health and Safety. In the United States and in other countries where we operate, we are subject to various national, state and local laws regarding employee health and safety, including protection from radio frequency exposure.
Competition
Our industry is highly competitive. We compete, both for new business and for the acquisition of assets, with other public tower companies, such as Crown Castle International Corp., SBA Communications Corporation, Telesites S.A.B. de C.V. and Cellnex Telecom, S.A., wireless carrier tower consortia such as Indus Towers Limited and private tower companies, private equity sponsored firms, carrier-affiliated tower companies, independent wireless carriers, tower owners, broadcasters and owners of non-communications sites, including rooftops, utility towers, water towers and other alternative structures. We believe that site location and capacity, network density, price, quality and speed of service have been, and will continue to be, significant competitive factors affecting owners, operators and managers of communications sites.
Our services business competes with a variety of companies offering individual, or combinations of, competing services. The field of competitors includes site acquisition consultants, zoning consultants, real estate firms, right-of-way consultants, structural engineering firms, tower owners/managers, telecommunications equipment vendors who can provide turnkey site development services through multiple subcontractors and our tenants’ personnel. We believe that our tenants base their decisions for services on various criteria, including a company’s experience, local reputation, price and time for completion of a project.
For more information on demand trends in our industry, see Item 7 of this Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.”
Employees
As of December 31, 2018, we employed 5,026 full-time individuals and consider our employee relations to be satisfactory.
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Available Information
Our internet website address is www.americantower.com. Information contained on our website is not incorporated by reference into this Annual Report, and you should not consider information contained on our website as part of this Annual Report. You may access, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, plus amendments to such reports as filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), through the “Investor Relations” portion of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
We have adopted a written Code of Ethics and Business Conduct Policy (the “Code of Conduct”) that applies to all of our employees and directors, including, but not limited to, our principal executive officer, principal financial officer and principal accounting officer or controller or persons performing similar functions. The Code of Conduct is available on the “Corporate Responsibility” portion of our website and our Corporate Governance Guidelines and the charters of the audit, compensation and nominating and corporate governance committees of our Board of Directors are available on the “Investor Relations” portion of our website. In the event we amend the Code of Conduct, or provide any waivers of the Code of Conduct to our directors or executive officers, we will disclose these events on our website as required by the regulations of the New York Stock Exchange (the “NYSE”) and applicable law.
In addition, paper copies of these documents may be obtained free of charge by writing us at the following address: 116 Huntington Avenue, Boston, Massachusetts 02116, Attention: Investor Relations; or by calling us at (617) 375-7500.
ITEM 1A. | RISK FACTORS |
A significant decrease in leasing demand for our communications infrastructure would materially and adversely affect our business and operating results, and we cannot control that demand.
A significant reduction in leasing demand for our communications infrastructure could materially and adversely affect our business, results of operations or financial condition. Factors that may affect such demand include:
• | increased mergers or consolidations that reduce the number of wireless service providers or use of network sharing among governments or wireless service providers; |
• | zoning, environmental, health, tax or other government regulations or changes in the application and enforcement thereof; |
• | the financial condition of wireless service providers; |
• | governmental licensing of spectrum or restriction or revocation of our tenants’ spectrum licenses; |
• | a decrease in consumer demand for wireless services, including due to general economic conditions or disruption in the financial and credit markets; |
• | the ability and willingness of wireless service providers to maintain or increase capital expenditures on network infrastructure; |
• | delays or changes in the deployment of next generation wireless technologies; and |
• | technological changes. |
Increasing competition within our industry may materially and adversely affect our revenue.
Our industry is highly competitive and our tenants have numerous alternatives in leasing antenna space. Pricing competition from peers could materially and adversely affect our lease rates. We may not be able to renew existing tenant leases or enter into new tenant leases, or if we are able to renew or enter into new leases, they may be at rates lower than our current rates or on less favorable terms than our current terms, resulting in a material adverse impact on our results of operations and growth rate. In addition, should inflation rates exceed our fixed escalator percentages in markets where our leases include fixed escalators, our income could be adversely affected.
If our tenants consolidate their operations, exit the telecommunications business or share site infrastructure to a significant degree, our growth, revenue and ability to generate positive cash flows could be materially and adversely affected.
Significant consolidation among our tenants could reduce demand for our communications infrastructure and may materially and adversely affect our growth and revenues. Certain combined companies have rationalized duplicative parts of their networks or modernized their networks, and these and other tenants could determine not to renew, or attempt to cancel, avoid or limit leases with us or related payments. In the event a tenant terminates its business or separately sells its spectrum,
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we may experience increased churn as a result. Our ongoing contractual revenues and our future results may be negatively impacted if a significant number of these leases are terminated or not renewed. For example, see our discussion of carrier consolidation-driven churn in our Asia segment in Item 7 of this Annual Report, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.” In addition, extensive sharing of site infrastructure, roaming or resale arrangements among wireless service providers as an alternative to leasing our communications sites, without compensation to us, may cause new lease activity to slow if carriers utilize shared equipment rather than deploy new equipment, or may result in the decommissioning of equipment on certain existing sites because portions of the tenants’ networks may become redundant.
Our business is subject to government and tax regulations and changes in current or future laws or regulations could restrict our ability to operate our business as we currently do or impact our competitive landscape.
Our business and those of our tenants are subject to federal, state, local and foreign regulations. In certain jurisdictions, these regulations could be applied or enforced retroactively, which could require that we modify or dismantle existing towers at significant cost. Zoning authorities and community organizations are often opposed to the construction of communications sites in their communities, which can delay, prevent or increase the cost of new tower construction, modifications, additions of new antennas to a site or site upgrades, thereby limiting our ability to respond to tenant demands. Existing or new regulatory policies, zoning regulations or construction laws may materially and adversely affect the timing, cost or completion of construction projects associated with our communications sites or result in changes in the competitive landscape that may negatively affect our business. Noncompliance could result in the imposition of fines or an award of damages to private litigants or result in decreased revenue due to removal of towers to ensure compliance. In addition, in certain jurisdictions, we are required to pay annual license fees, which may be subject to substantial increases by the government, or new fees may be enacted and applied retroactively. Governmental licenses may also be subject to periodic renewal and additional conditions to receive or maintain such license. Furthermore, the tax laws, regulations and interpretations governing our business in jurisdictions where we operate may change at any time, potentially with retroactive effect. This includes changes in tax laws, administrative guidance or judicial interpretations thereof. In addition, some of these changes could have a more significant impact on us as a REIT relative to other REITs due to the nature of our business and our use of TRSs. These factors could materially and adversely affect our business, results of operations or financial condition.
Our foreign operations are subject to economic, political and other risks that could materially and adversely affect our revenues or financial position, including risks associated with fluctuations in foreign currency exchange rates.
Our international business operations and our expansion into new markets in the future expose us to potential adverse financial and operational problems not typically experienced in the United States. We anticipate that revenues from our international operations will continue to grow. Accordingly, our business is subject to risks associated with doing business internationally, including:
• | uncertain, inconsistent or changing laws, regulations, rulings or methodologies impacting our existing and anticipated international operations, fees or other requirements directed specifically at the ownership and operation of communications sites or our international acquisitions, any of which laws, fees or requirements may be applied retroactively or with significant delay, or failure to retain our tax status or to obtain an expected tax status for which we have applied; |
• | expropriation or governmental regulation restricting foreign ownership or requiring reversion or divestiture; |
• | laws or regulations that tax or otherwise restrict repatriation of earnings or other funds or otherwise limit distributions of capital; |
• | changes in a specific country’s or region’s political or economic conditions, including inflation or currency devaluation; |
• | changes to zoning regulations or construction laws, which could be applied retroactively to our existing communications sites; |
• | actions restricting or revoking our tenants’ spectrum licenses or suspending or terminating business under prior licenses; |
• | failure to comply with anti-bribery laws such as the Foreign Corrupt Practices Act or similar local anti-bribery laws, or the Office of Foreign Assets Control requirements; |
• | failure to comply with data privacy laws and other protections of employee health and personal information; |
• | material site issues related to security, fuel availability and reliability of electrical grids; |
• | significant increases in, or implementation of new, license surcharges on our revenue; |
• | loss of key personnel, including expatriates, in markets where talent is difficult or expensive to acquire; and |
• | price-setting or other similar laws or regulations for the sharing of passive infrastructure. |
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We also face risks associated with changes in foreign currency exchange rates, including those arising from our operations, investments and financing transactions related to our international business. Volatility in foreign currency exchange rates can also affect our ability to plan, forecast and budget for our international operations and expansion efforts. Our revenues earned from our international operations are primarily denominated in their respective local currencies. We have not historically engaged in significant currency hedging activities relating to our non-U.S. Dollar operations, and a weakening of these foreign currencies against the U.S. Dollar would negatively impact our reported revenues, operating profits and income.
In addition, as we continue to invest in joint venture opportunities internationally, our partners may have business or economic goals that are inconsistent or conflict with ours, be in positions to take action contrary to our interests, policies or objectives, have competing interests in our, or other, markets that could create conflict of interest issues, withhold consents contrary to our requests or become unable or unwilling to fulfill their commitments, any of which could expose us to additional liabilities or costs, including requiring us to assume and fulfill the obligations of that joint venture or to execute buyouts of their interests.
A substantial portion of our revenue is derived from a small number of tenants, and we are sensitive to changes in the creditworthiness and financial strength of our tenants.
A substantial portion of our total operating revenues is derived from a small number of tenants. If any of these tenants is unwilling or unable to perform its obligations under their agreements with us, our revenues, results of operations, financial condition and liquidity could be materially and adversely affected. In the ordinary course of our business, we do occasionally experience disputes with our tenants, generally regarding the interpretation of terms in our leases. Historically, we have resolved these disputes in a manner that did not have a material adverse effect on us or our tenant relationships. However, it is possible that such disputes could lead to a termination of our leases with tenants, a material modification of the terms of those leases or a deterioration in our relationships with those tenants that leads to a failure to obtain new business from them, any of which could have a material adverse effect on our business, results of operations or financial condition. If we are forced to resolve any of these disputes through litigation, our relationship with the applicable tenant could be terminated or damaged, which could lead to decreased revenue or increased costs, resulting in a corresponding adverse effect on our business, results of operations or financial condition.
Due to the long-term nature of our tenant leases, we depend on the continued financial strength of our tenants. Many wireless service providers operate with substantial levels of debt. Sometimes our tenants, or their parent companies, face financial difficulty, file for bankruptcy or terminate operations. In our international operations, many of our tenants are subsidiaries of global telecommunications companies. These subsidiaries may not have the explicit or implied financial support of their parent entities.
In addition, many of our tenants and potential tenants rely on capital raising activities to fund their operations and capital expenditures, which may be more difficult or expensive in the event of downturns in the economy or disruptions in the financial and credit markets. If our tenants or potential tenants are unable to raise adequate capital to fund their business plans or face capital constraints, they may reduce their spending, which could materially and adversely affect demand for our communications sites and our services business. If, as a result of a prolonged economic downturn or otherwise, one or more of our tenants experiences financial difficulties or files for bankruptcy, it could result in uncollectible accounts receivable and an impairment of our deferred rent asset, tower asset, network location intangible asset, tenant-related intangible asset or goodwill. The loss of significant tenants, or the loss of all or a portion of our anticipated lease revenues from certain tenants, could have a material adverse effect on our business, results of operations or financial condition.
Our expansion initiatives involve a number of risks and uncertainties, including those related to integrating acquired or leased assets, that could adversely affect our operating results, disrupt our operations or expose us to additional risk.
As we continue to acquire communications sites in our existing markets and expand into new markets, we are subject to a number of risks and uncertainties, including not meeting our return on investment criteria and financial objectives, increased costs, assumed liabilities and the diversion of managerial attention due to acquisitions. Achieving the benefits of acquisitions depends in part on timely and efficient integration of operations, telecommunications infrastructure assets and personnel. Integration may be difficult and unpredictable for many reasons, including, among other things, portfolios without requisite permits, differing systems, cultural differences, and conflicting policies, procedures and operations. Significant acquisition-related integration costs, including certain nonrecurring charges such as costs associated with onboarding employees, acquiring permits and visiting, inspecting, engineering and upgrading tower sites, could materially and adversely affect our results of operations in the period in which such charges are recorded or our cash flow in the period in which any related costs are actually paid. Some of our acquired tower portfolios have included sites that do not meet our structural specifications, including sites that may be overburdened. In these cases, in addition to additional capital expenditures, general liability risks associated with such towers will exist until such time as those towers are upgraded or otherwise remedied. In addition, integration may
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significantly burden management and internal resources, including through the potential loss or unavailability of key personnel. If we fail to successfully integrate the assets we acquire or fail to utilize such assets to their full capacity, we may not realize the benefits we expect from our acquired portfolios, and our business, financial condition and results of operations may be adversely affected. Our international expansion initiatives are subject to additional risks such as those described above.
As a result of acquisitions, we have a substantial amount of intangible assets and goodwill. In accordance with accounting principles generally accepted in the United States (“GAAP”), we are required to assess our goodwill and other intangible assets annually or more frequently in the event of circumstances indicating potential impairment to determine if they are impaired. If, as a result of the factors noted above, the testing performed indicates that an asset may not be recoverable, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or the estimated fair value of other intangible assets in the period the determination is made.
Our expansion initiatives may not be successful or we may be required to record impairment charges for our goodwill or for other intangible assets, which could have a material adverse effect on our business, results of operations or financial condition.
New technologies or changes in our or a tenant’s business model could make our tower leasing business less desirable and result in decreasing revenues and operating results.
The development and implementation of new technologies designed to enhance the efficiency of wireless networks or changes in a tenant’s business model could reduce the need for tower-based wireless services, decrease demand for tower space or reduce previously obtainable lease rates. In addition, tenants may allocate less of their budgets to leasing space on our towers, as the industry is trending towards deploying increased capital to the development and implementation of new technologies. Examples of these technologies include spectrally efficient technologies, which could relieve a portion of our tenants’ network capacity needs and, as a result, could reduce the demand for tower-based antenna space. Additionally, certain small cell complementary network technologies or satellite services could shift a portion of our tenants’ network investments away from the traditional tower-based networks, which may reduce the need for carriers to add more equipment at certain communications sites. Moreover, the emergence of alternative technologies could reduce the need for tower-based broadcast services transmission and reception. Further, a tenant may decide to cease outsourcing tower infrastructure or otherwise change its business model, which would result in a decrease in our revenue and operating results. Our failure to innovate in response to the development and implementation of these or other new technologies or changes in a tenant’s business model could have a material adverse effect on our business, results of operations or financial condition. Conversely, we may invest significant capital in technologies, innovation projects or new additions to our core business that may not provide expected returns or profitability, which could divert management attention and have a material adverse effect on our operating results.
Competition for assets could adversely affect our ability to achieve our return on investment criteria.
We may experience increased competition for the acquisition of assets or contracts to build new communications sites for tenants, which could make the acquisition of high quality assets significantly more costly or prohibitive or cause us to lose contracts to build new sites. Some of our competitors are larger and may have greater financial resources than we do, while other competitors may apply less stringent investment criteria than we do. In addition, we may not anticipate increased competition entering a particular market or competing for the same assets. Higher prices for assets or the failure to add new assets to our portfolio could make it more difficult to achieve our anticipated returns on investment or future growth, which could materially and adversely affect our business, results of operations or financial condition.
Our leverage and debt service obligations may materially and adversely affect our ability to raise additional financing to fund capital expenditures, future growth and expansion initiatives and to satisfy our distribution requirements.
Our leverage and debt service obligations could have significant negative consequences to our business, results of operations or financial condition, including:
• | requiring the dedication of a substantial portion of our cash flow from operations to service our debt, thereby reducing the amount of our cash flow available for other purposes, including capital expenditures and REIT distributions; |
• | impairing our ability to meet one or more of the financial ratio covenants contained in our debt agreements or to generate cash sufficient to pay interest or principal due under those agreements, which could result in an acceleration of some or all of our outstanding debt and the loss of the towers securing such debt if a default remains uncured; |
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• | limiting our ability to obtain additional debt or equity financing, thereby placing us at a possible competitive disadvantage to less leveraged competitors and competitors that may have better access to capital resources, including with respect to acquiring assets; and |
• | limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete. |
We may need to raise additional capital through debt financing activities, asset sales or equity issuances, even if the then-prevailing market conditions are not favorable, to fund capital expenditures, future growth and expansion initiatives, required purchases of our joint venture partners’ interests and to satisfy our distribution requirements and debt service obligations. An increase in our total leverage could lead to a downgrade of our credit rating below investment grade, which could negatively impact our ability to access credit markets or preclude us from obtaining funds on investment grade terms, rates and conditions or subject us to additional loan covenants. In addition, potential changes to, or the elimination of, the London Interbank Offered Rate (“LIBOR”), may adversely affect interest expense related to borrowings under our credit facilities, certain other debt service obligations and interest rate swaps, which could potentially negatively impact our financial condition. Further, certain of our current debt instruments limit the amount of indebtedness we and our subsidiaries may incur. Additional financing, therefore, may be unavailable, more expensive or restricted by the terms of our outstanding indebtedness.
If we fail to remain qualified for taxation as a REIT, we will be subject to tax at corporate income tax rates, which may substantially reduce funds otherwise available, and even if we qualify for taxation as a REIT, we may face tax liabilities that impact earnings and available cash flow.
Commencing with the taxable year beginning January 1, 2012, we have operated as a REIT for federal income tax purposes.
Qualification for taxation as a REIT requires the application of certain highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), which provisions may change from time to time, to our operations as well as various factual determinations concerning matters and circumstances not entirely within our control. Further, tax legislation may adversely affect our ability to remain qualified for taxation as a REIT or the benefits or desirability of remaining so qualified. There are few judicial or administrative interpretations of the relevant provisions of the Code.
If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Code:
• | we will not be allowed a deduction for distributions to stockholders in computing our taxable income; |
• | we will be required to pay federal and state income tax on our taxable income at regular corporate income tax rates; and |
• | we will be disqualified from REIT tax treatment for the four taxable years immediately following the year during which we were so disqualified. |
We are subject to certain federal, state, local and foreign taxes on our income and assets, including taxes on any undistributed income and state, local or foreign income, franchise, property and transfer taxes. While state and local income tax regimes often parallel the U.S. federal income tax regime for REITs, many of these jurisdictions do not completely follow U.S. federal rules and some may not follow them at all. For example, some state and local jurisdictions currently or in the future may limit or eliminate a REIT’s deduction for dividends paid, which could increase our income tax expense. We are also subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service and state, local and foreign tax authorities. The results of an audit and examination of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability.
Our domestic TRS assets and operations are subject, as applicable, to federal and state corporation income taxes. Our foreign operations, whether in the REIT or TRSs, are subject to foreign taxes in jurisdictions in which those assets and operations are located.
Any corporate tax liability could be substantial and would reduce the amount of cash available for other purposes. If we fail to qualify for taxation as a REIT, we may need to borrow additional funds or liquidate some investments to pay any additional tax liability. Accordingly, funds available for investment, operations and distribution would be reduced.
Furthermore, we have owned and may from time to time own direct and indirect ownership interests in subsidiary REITs. When we own interests in a subsidiary REIT, we must demonstrate that such subsidiary REIT complies with the same REIT requirements that we must satisfy, together with all other rules applicable to REITs. If the subsidiary REIT is determined to have failed to qualify for taxation as a REIT and certain relief provisions do not apply, then the subsidiary REIT would be
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subject to federal income tax, which tax we would economically bear along with applicable penalties and interest. In addition, our ownership of shares in such subsidiary REIT would fail to be a qualifying asset for purposes of the asset tests applicable to REITs and any dividend income or gains derived by us from such subsidiary REIT may cease to be treated as income that qualifies for purposes of the 75% gross income test. These consequences could have a material adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify for taxation as a REIT.
Complying with REIT requirements may limit our flexibility or cause us to forego otherwise attractive opportunities.
Our use of TRSs enables us to engage in non-REIT qualifying business activities. Under the Code, no more than 20% of the value of the assets of a REIT may be represented by securities of one or more TRSs and other non-qualifying assets. This limitation may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities and investments in the businesses to be conducted by our TRSs, and to that extent limit our opportunities and our flexibility to change our business strategy.
Specifically, this limitation may affect our ability to make additional investments in our managed networks business or services segment as currently structured and operated, in other non-REIT qualifying operations or assets, or in international operations conducted through TRSs that we do not elect to bring into the REIT structure. Further, acquisition opportunities in the United States and international markets may be adversely affected if we need or require the target company to comply with certain REIT requirements prior to closing.
Further, as a REIT, we must distribute to our stockholders an amount equal to at least 90% of the REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may otherwise be invested in future acquisitions, capital expenditures or repayment of debt. As no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying types of income, our ability to receive distributions from our TRSs may be limited, which may impact our ability to fund distributions to our stockholders or to use income of our TRSs to fund other investments.
In addition, the majority of our income and cash flows from our TRSs are generated from our international operations. In many cases, there are local withholding taxes and currency controls that may impact our ability or willingness to repatriate funds to the United States to help satisfy REIT distribution requirements.
Restrictive covenants in the agreements related to our securitization transactions, our credit facilities and our debt securities could materially and adversely affect our business by limiting flexibility, and we may be prohibited from paying dividends on our common stock, which may jeopardize our qualification for taxation as a REIT.
The agreements related to our securitization transactions include operating covenants and other restrictions customary for loans subject to rated securitizations. Among other things, the borrowers under the agreements are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets. A failure to comply with the covenants in the agreements could prevent the borrowers from taking certain actions with respect to the secured assets and could prevent the borrowers from distributing any excess cash from the operation of such assets to us. If the borrowers were to default on any of the loans, the servicer on such loan could seek to foreclose upon or otherwise convert the ownership of the secured assets, in which case we could lose such assets and the cash flow associated with such assets. We enter into hedges for certain debt instruments. These hedges may have an adverse impact on our results to the extent that the counterparties do not perform as expected at the inception of each hedge.
The agreements for our credit facilities also contain restrictive covenants and leverage and other financial maintenance tests that could limit our ability to take various actions, including incurring additional debt, guaranteeing indebtedness or making distributions to stockholders, including our required REIT distributions, and engaging in various types of transactions, including mergers, acquisitions and sales of assets. Additionally, our debt agreements restrict our and our subsidiaries’ ability to incur liens securing our or their indebtedness. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, new tower development, mergers and acquisitions or other opportunities. Further, reporting and information covenants in our credit agreements and indentures require that we provide financial and operating information within certain time periods. If we are unable to provide the required information on a timely basis, we would be in breach of these covenants. For more information regarding the covenants and requirements discussed above, please see Item 7 of this Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Factors Affecting Sources of Liquidity” and note 8 to our consolidated financial statements included in this Annual Report.
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Our towers, fiber networks, data centers or computer systems may be affected by natural disasters, security breaches and other unforeseen events for which our insurance may not provide adequate coverage.
Our towers and fiber networks are subject to risks associated with natural disasters, including those that may be related to climate change, such as hurricanes, ice and wind storms, tornadoes, floods, earthquakes and wildfires, as well as other unforeseen events, such as acts of terrorism. Any damage or destruction to, or inability to access, our towers or data centers may impact our ability to provide services to our tenants and lead to tenant loss, which could have a material adverse effect on our business, results of operations or financial condition.
As part of our normal business activities, we rely on information technology and other computer resources to carry out important operational, reporting and compliance activities and to maintain our business records. Our computer systems, network operation centers or power systems, or those of our cloud or Internet-based providers, could fail on their own accord and are subject to interruption or damage from power outages, computer and telecommunications failures, computer viruses, security breaches (including through cyber attack and data theft), usage errors, catastrophic events such as natural disasters and other events beyond our control. Although we and our vendors have disaster recovery programs and security measures in place, if our computer systems and our backup systems are compromised, degraded, damaged, breached or otherwise cease to function properly, we could suffer interruptions in our operations, including our ability to correctly record, process and report financial information, our tenants’ network availability may be impacted or we could unintentionally allow misappropriation of proprietary or confidential information (including information about our tenants or landlords), which could result in a loss of revenue, damage our reputation, litigation, penalties under existing or future data privacy laws and require us to incur significant costs to remediate or otherwise resolve these issues. In addition, our recent acquisitions, including acquisitions of fiber businesses, may increase our exposure to the risks described above and have material and adverse effects on our business.
While we maintain insurance coverage for natural disasters, business interruption and cybersecurity, we may not have adequate insurance to cover the associated costs of repair or reconstruction of sites or fiber for a major future event, lost revenue, including from new tenants that could have been added to our towers or fiber networks but for the event, or other costs to remediate the impact of a significant event. Further, we may be liable for damage caused by towers that collapse for any number of reasons including structural deficiencies, which could harm our reputation and require us to incur costs for which we may not have adequate insurance coverage.
Our costs could increase and our revenues could decrease due to perceived health risks from radio emissions, especially if these perceived risks are substantiated.
Public perception of possible health risks associated with cellular and other wireless communications technology could slow the growth of wireless companies, which could in turn slow our growth. In particular, negative public perception of, and regulations regarding, these perceived health risks could undermine the market acceptance of wireless communications services and increase opposition to the development and expansion of tower sites. If a scientific study, court decision or government agency ruling resulted in a finding that radio frequency emissions pose health risks to consumers, it could negatively impact our tenants and the market for wireless services, which could materially and adversely affect our business, results of operations or financial condition. We do not maintain any significant insurance with respect to these matters.
We could have liability under environmental and occupational safety and health laws.
Our operations are subject to various federal, state, local and foreign environmental and occupational safety and health laws and regulations, including those relating to the management, use, storage, disposal, emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials and wastes. As the owner, lessee or operator of real property and facilities, including generators, we may be liable for substantial costs of investigation, removal or remediation of soil and groundwater contaminated by hazardous materials, and for damages and costs relating to off-site migration of hazardous materials, without regard to whether we, as the owner, lessee or operator, knew of, or were responsible for, the contamination. We may also be liable for certain costs of remediating contamination at third-party sites to which we sent waste for disposal, even if the original disposal may have complied with all legal requirements at the time. Many of these laws and regulations contain information reporting and record keeping requirements. We may not be at all times in compliance with all environmental requirements. We may be subject to potentially significant fines or penalties if we fail to comply with any of these requirements.
The requirements of the environmental and occupational safety and health laws and regulations are complex, change frequently and could become more stringent in the future. In certain jurisdictions these laws and regulations could be applied retroactively, or be broadened to cover situations or persons not currently considered. It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on our business, results of operations or financial condition. While we maintain environmental and workers’ compensation insurance, we may not have adequate insurance to cover all costs, fines or penalties.
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If we are unable to protect our rights to the land under our towers, it could adversely affect our business and operating results.
Our real property interests relating to our towers consist primarily of leasehold and sub-leasehold interests, fee interests, easements, licenses and rights-of-way. A loss of these interests at a particular tower site may interfere with our ability to operate that tower site and generate revenues. For various reasons, we may not always have the ability to access, analyze and verify all information regarding titles and other issues prior to completing an acquisition of communications sites, which can affect our rights to access and operate a site. From time to time we also experience disputes with landowners regarding the terms of easements or ground agreements for land under towers, which can affect our ability to access and operate tower sites. Further, for various reasons, landowners may not want to renew their ground agreements with us, they may lose their rights to the land, or they may transfer their land interests to third parties, including ground lease aggregators, which could affect our ability to renew ground agreements on commercially viable terms. A significant number of the communications sites in our portfolio are located on land we lease pursuant to long-term operating leases. Further, for various reasons, title to property interests in some of the foreign jurisdictions in which we operate may not be as certain as title to our property interests in the United States. Our inability to protect our rights to the land under our towers may have a material adverse effect on our business, results of operations or financial condition.
If we are unable or choose not to exercise our rights to purchase towers that are subject to lease and sublease agreements at the end of the applicable period, our cash flows derived from those towers will be eliminated.
Our communications real estate portfolio includes towers that we operate pursuant to lease and sublease agreements that include a purchase option at the end of the lease period. We may not have the required available capital to exercise our right to purchase the towers at the end of the applicable period, or we may choose, for business or other reasons, not to do so. If we do not exercise these purchase rights, and are unable to extend the lease or sublease or otherwise acquire an interest that would allow us to continue to operate these towers after the applicable period, we will lose the cash flows derived from the towers. If we decide to exercise these purchase rights, the benefits of acquiring a significant number of towers may not exceed the associated acquisition, compliance and integration costs, which could have a material adverse effect on our business, results of operations or financial condition.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
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ITEM 2. | PROPERTIES |
Details of each of our principal offices as of December 31, 2018 are provided below:
Location | Function | Size (approximate square feet) | Property Interest | ||||
U.S. | |||||||
Boston, MA | Corporate Headquarters | 39,800 | Leased | ||||
Miami, FL | Latin America Operations Center | 6,300 | Leased | ||||
Atlanta, GA | Network Operations and Program Management Office Field Personnel | 21,400 | Leased | ||||
Marlborough, MA | Information Technology Headquarters | 24,000 | Leased | ||||
Woburn, MA | U.S. Tower Division Headquarters, Accounting, Lease Administration, Site Leasing Management, Broadcast Division and Managed Site Headquarters | 163,200 | Owned | ||||
Cary, NC | U.S. Tower Division, Network Operations Center and Engineering Services Headquarters | 75,500 | Owned and Leased (1) | ||||
Asia | |||||||
Delhi, India | India Headquarters | 7,200 | Leased | ||||
Gurgaon, India | India Operations Center | 78,800 | Leased | ||||
Singapore | Asia Finance and Administration | 90 | Leased | ||||
EMEA | |||||||
Malakoff, France | France Headquarters | 15,400 | Leased | ||||
Ratingen, Germany | Germany Headquarters | 12,500 | Leased (2) | ||||
Accra, Ghana | Ghana Headquarters | 18,500 | Leased | ||||
Nairobi, Kenya | Kenya Headquarters | 9,800 | Leased | ||||
Amsterdam, Netherlands | American Tower International Headquarters | 2,400 | Leased | ||||
Lagos, Nigeria | Nigeria Headquarters | 13,400 | Leased | ||||
Johannesburg, South Africa | South Africa Headquarters | 27,100 | Leased (3) | ||||
Kampala, Uganda | Uganda Headquarters | 8,800 | Leased | ||||
Latin America | |||||||
Buenos Aires, Argentina | Argentina Headquarters | 24,500 | Leased | ||||
Sao Paulo, Brazil | Brazil Headquarters | 44,900 | Leased | ||||
Santiago, Chile | Chile Headquarters | 6,900 | Leased | ||||
Bogota, Colombia | Colombia Headquarters | 13,800 | Leased (4) | ||||
San Jose, Costa Rica | Costa Rica Headquarters | 2,400 | Leased | ||||
Mexico City, Mexico | Mexico Headquarters | 44,900 | Leased | ||||
Asunción, Paraguay | Paraguay Headquarters | 900 | Leased | ||||
Lima, Peru | Peru Headquarters | 3,700 | Leased | ||||
_______________
(1) | The owned Cary facility is approximately 48,300 square feet. Currently, our offices occupy approximately 44,300 square feet. We lease the remaining space to an unaffiliated tenant. In addition, we lease approximately 31,200 square feet of office space in Cary, NC for our U.S. Tower Division, Managed Networks and Innovation function. |
(2) | We lease two office spaces that together occupy an aggregate of approximately 12,500 square feet. |
(3) | We lease two office spaces that together occupy an aggregate of approximately 27,100 square feet. |
(4) | We lease two office spaces that together occupy an aggregate of approximately 13,800 square feet. |
In addition to the principal offices set forth above, we maintain offices in the geographic areas we serve through which we operate our tower leasing and services businesses. We believe that our owned and leased facilities are suitable and adequate to meet our anticipated needs.
As of December 31, 2018, we owned and operated a portfolio of 170,686 communications sites, including 1,701 DAS networks. See the table in Item 7 of this Annual Report, under the caption “Management’s Discussion and Analysis of Financial
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Condition and Results of Operations—Executive Overview” for more detailed information on the geographic locations of our communications sites. In addition, we own property interests that we lease to communications service providers and third-party tower operators in the United States, which are included in our U.S. property segment.
Our interests in our communications sites consist of a variety of ownership interests, including leases created by long-term ground lease agreements, easements, licenses or rights-of-way granted by government entities.
A typical tower site consists of a compound enclosing the tower site, a tower structure and one or more equipment shelters that house a variety of transmitting, receiving and switching equipment. In addition, many of our international sites typically include backup or auxiliary power generators and batteries. The principal types of our towers are guyed, self-supporting lattice and monopole, and rooftops in our international markets.
• | A guyed tower includes a series of cables attaching separate levels of the tower to anchor foundations in the ground and can reach heights of up to 2,000 feet. A guyed tower site for a typical broadcast tower can consist of a tract of land of up to 20 acres. |
• | A self-supporting lattice tower typically tapers from the bottom up and usually has three or four legs. A lattice tower can reach heights of up to 1,000 feet. Depending on the height of the tower, a lattice tower site for a typical wireless communications tower can consist of a tract of land of 10,000 square feet for a rural site or fewer than 2,500 square feet for a metropolitan site. |
• | A monopole tower is a tubular structure that is used primarily to address space constraints or aesthetic concerns. Monopoles typically have heights ranging from 50 to 200 feet. A monopole tower site used in metropolitan areas for a typical wireless communications tower can consist of a tract of land of fewer than 2,500 square feet. |
• | Rooftop towers are primarily used in metropolitan areas in our Asia, EMEA and Latin America markets, where locations for traditional tower structures are unavailable. Rooftop towers typically have heights ranging from 10 to 100 feet. |
U.S. Property Segment Encumbered Sites. As of December 31, 2018, the loan underlying the securitization transactions completed in March 2013 and March 2018 (the “2013 Securitization” and the “2018 Securitization”, respectively, and together, the “Trust Securitizations”) is secured by mortgages, deeds of trust and deeds to secure the loan on substantially all of the 5,116 broadcast and wireless communications towers and related assets owned by the borrowers (the “Trust Sites”) and the secured revenue notes issued in a private transaction completed in May 2015 (the “2015 Securitization”) are secured by mortgages, deeds of trust and deeds to secure debt on substantially all of the 3,556 communications sites owned by subsidiaries of the issuer (the “2015 Secured Sites”).
Asia Property Segment Encumbered Sites. Certain of the outstanding indebtedness is secured by ATC TIPL’s short-term and long-term assets, including an aggregate of 75,872 sites.
EMEA Property Segment Encumbered Sites. Our outstanding indebtedness in South Africa is secured by an aggregate of 1,899 towers.
Latin America Property Segment Encumbered Sites. Our outstanding indebtedness in Brazil is secured by an aggregate of 760 towers and outstanding indebtedness in Colombia is secured by an aggregate of 3,563 towers.
Ground Leases. Of the 168,985 towers in our portfolio as of December 31, 2018, 90% were located on land we lease. Typically, we seek to enter long-term ground leases, which have initial terms of approximately five to ten years with one or more automatic or exercisable renewal periods. As a result, 46% of the ground leases for our sites have a final expiration date of 2028 and beyond.
Tenants. Our tenants are primarily wireless service providers, broadcasters and other companies in a variety of industries. For the year ended December 31, 2018, our top four tenants by total revenue were AT&T (19%), Verizon Wireless (15%), T-Mobile (9%) and Sprint (8%). Across most of our markets, our tenant leases generally have an initial non-cancellable term of at least ten years, with multiple renewal terms. As a result, approximately 49% of our current tenant leases have a renewal date of 2024 or beyond.
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ITEM 3. | LEGAL PROCEEDINGS |
We periodically become involved in various claims and lawsuits that are incidental to our business. In the opinion of management, after consultation with counsel, there are no matters currently pending that would, in the event of an adverse outcome, have a material impact on our consolidated financial position, results of operations or liquidity.
ITEM 4. | MINE SAFETY DISCLOSURES |
N/A.
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is listed on the NYSE under the ticker symbol AMT. As of February 20, 2019, we had 441,134,906 outstanding shares of common stock and 145 registered holders.
Dividends
As a REIT, we must annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). Generally, we have distributed and expect to continue to distribute all or substantially all of our REIT taxable income after taking into consideration our utilization of net operating losses (“NOLs”).
The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will depend upon various factors, a number of which may be beyond our control, including our financial condition and operating cash flows, the amount required to maintain our qualification for taxation as a REIT and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt and preferred equity instruments, our ability to utilize NOLs to offset our distribution requirements, limitations on our ability to fund distributions using cash generated through our TRSs and other factors that our Board of Directors may deem relevant.
Performance Graph
This performance graph is furnished and shall not be deemed ‘‘filed’’ with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Index, the Dow Jones U.S. Telecommunications Equipment Index and the FTSE Nareit All Equity REITs Index. The performance graph assumes that on December 31, 2013, $100 was invested in each of our common stock, the S&P 500 Index, the Dow Jones U.S. Telecommunications Equipment Index and the FTSE Nareit All Equity REITs Index. The cumulative return shown in the graph assumes reinvestment of all dividends. The performance of our common stock reflected below is not necessarily indicative of future performance.
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Cumulative Total Returns | ||||||||||||||||||||||||
12/13 | 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | |||||||||||||||||||
American Tower Corporation | $ | 100.00 | $ | 125.76 | $ | 125.76 | $ | 139.86 | $ | 192.57 | $ | 218.22 | ||||||||||||
S&P 500 Index | 100.00 | 113.69 | 115.26 | 129.05 | 157.22 | 150.33 | ||||||||||||||||||
Dow Jones U.S. Telecommunications Equipment Index | 100.00 | 115.21 | 102.76 | 122.43 | 150.65 | 163.51 | ||||||||||||||||||
FTSE Nareit All Equity REITs Index | 100.00 | 128.03 | 131.64 | 143.00 | 155.41 | 149.12 | ||||||||||||||||||
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Issuer Purchases of Equity Securities
In March 2011, our Board of Directors approved a stock repurchase program, pursuant to which we are authorized to repurchase up to $1.5 billion of our common stock (the “2011 Buyback”). In addition to the 2011 Buyback, in December 2017, our Board of Directors approved an additional stock repurchase program, pursuant to which we are authorized to repurchase up to $2.0 billion of our common stock (the “2017 Buyback”, and together with the 2011 Buyback the “Buyback Programs”).
During the three months ended December 31, 2018, we repurchased a total of 301,946 shares of our common stock for an aggregate of $43.6 million, including commissions and fees, pursuant to the 2011 Buyback. We had no repurchases under the 2017 Buyback. The table below sets forth details of our repurchases under the 2011 Buyback during the three months ended December 31, 2018.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||
(in millions) | ||||||||||||||
October 1, 2018 - October 31, 2018 | 301,946 | $ | 144.35 | 301,946 | $ | 112.0 | ||||||||
November 1, 2018 - November 30, 2018 | — | $ | — | — | $ | — | ||||||||
December 1, 2018 - December 31, 2018 | — | $ | — | — | $ | — | ||||||||
Total Fourth Quarter | 301,946 | $ | 144.35 | 301,946 | $ | 112.0 | ||||||||
_______________
(1) | Repurchases made pursuant to the 2011 Buyback. Under this program, our management is authorized to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, we make purchases pursuant to trading plans under Rule 10b5-1 of the Exchange Act, which allows us to repurchase shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. This program may be discontinued at any time. |
(2) | Average price paid per share is a weighted average calculation using the aggregate price, excluding commissions and fees. |
We have repurchased a total of 14.0 million shares of our common stock under the 2011 Buyback for an aggregate of $1.4 billion, including commissions and fees. We expect to continue to manage the pacing of the remaining $2.1 billion under the Buyback Programs in response to general market conditions and other relevant factors. We expect to fund any further repurchases of our common stock through a combination of cash on hand, cash generated by operations and borrowings under our credit facilities. Purchases under the Buyback Programs are subject to our having available cash to fund repurchases.
ITEM 6. | SELECTED FINANCIAL DATA |
The selected financial data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the related notes to those consolidated financial statements included in this Annual Report.
Year-over-year comparisons are significantly affected by our acquisitions, dispositions and construction of towers. Our transaction with Verizon Communications Inc. (“Verizon” and the transaction, the “Verizon Transaction”) and the acquisition of a controlling ownership interest in Viom Networks Limited (“Viom” and the acquisition, the “Viom Acquisition”), which closed in March 2015 and April 2016, respectively, significantly impact the comparability of reported results between periods. Our principal 2018 acquisitions are described in note 6 to our consolidated financial statements included in this Annual Report.
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Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
(In millions, except share and per share data) | ||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Property | $ | 7,314.7 | $ | 6,565.9 | $ | 5,713.1 | $ | 4,680.4 | $ | 4,006.9 | ||||||||||
Services | 125.4 | 98.0 | 72.6 | 91.1 | 93.1 | |||||||||||||||
Total operating revenues | 7,440.1 | 6,663.9 | 5,785.7 | 4,771.5 | 4,100.0 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of operations (exclusive of items shown separately below) | ||||||||||||||||||||
Property | 2,128.7 | 2,022.0 | 1,762.7 | 1,275.4 | 1,056.2 | |||||||||||||||
Services | 49.1 | 34.6 | 27.7 | 33.4 | 38.1 | |||||||||||||||
Depreciation, amortization and accretion | 2,110.8 | 1,715.9 | 1,525.6 | 1,285.3 | 1,003.8 | |||||||||||||||
Selling, general, administrative and development expense | 733.2 | 637.0 | 543.4 | 497.8 | 446.5 | |||||||||||||||
Other operating expenses | 513.3 | 256.0 | 73.3 | 66.8 | 68.5 | |||||||||||||||
Total operating expenses | 5,535.1 | 4,665.5 | 3,932.7 | 3,158.7 | 2,613.1 | |||||||||||||||
Operating income | 1,905.0 | 1,998.4 | 1,853.0 | 1,612.8 | 1,486.9 | |||||||||||||||
Interest (expense) income, TV Azteca, net | (0.1 | ) | 10.8 | 10.9 | 11.2 | 10.5 | ||||||||||||||
Interest income | 54.7 | 35.4 | 25.6 | 16.5 | 14.0 | |||||||||||||||
Interest expense | (825.5 | ) | (749.6 | ) | (717.1 | ) | (595.9 | ) | (580.2 | ) | ||||||||||
(Loss) gain on retirement of long-term obligations | (3.3 | ) | (70.2 | ) | 1.2 | (79.6 | ) | (3.5 | ) | |||||||||||
Other income (expense) (1) | 23.8 | 31.3 | (47.7 | ) | (135.0 | ) | (62.0 | ) | ||||||||||||
Income from continuing operations before income taxes | 1,154.6 | 1,256.1 | 1,125.9 | 830.0 | 865.7 | |||||||||||||||
Income tax benefit (provision) | 110.1 | (30.7 | ) | (155.5 | ) | (158.0 | ) | (62.5 | ) | |||||||||||
Net income | 1,264.7 | 1,225.4 | 970.4 | 672.0 | 803.2 | |||||||||||||||
Net (income) loss attributable to noncontrolling interests | (28.3 | ) | 13.5 | (14.0 | ) | 13.1 | 21.7 | |||||||||||||
Net income attributable to American Tower Corporation stockholders | 1,236.4 | 1,238.9 | 956.4 | 685.1 | 824.9 | |||||||||||||||
Dividends on preferred stock | (9.4 | ) | (87.4 | ) | (107.1 | ) | (90.2 | ) | (23.9 | ) | ||||||||||
Net income attributable to American Tower Corporation common stockholders | $ | 1,227.0 | $ | 1,151.5 | $ | 849.3 | $ | 594.9 | $ | 801.0 | ||||||||||
Net income per common share amounts: | ||||||||||||||||||||
Basic net income attributable to American Tower Corporation common stockholders | $ | 2.79 | $ | 2.69 | $ | 2.00 | $ | 1.42 | $ | 2.02 | ||||||||||
Diluted net income attributable to American Tower Corporation common stockholders | $ | 2.77 | $ | 2.67 | $ | 1.98 | $ | 1.41 | $ | 2.00 | ||||||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||||||
Basic | 439,606 | 428,181 | 425,143 | 418,907 | 395,958 | |||||||||||||||
Diluted | 442,960 | 431,688 | 429,283 | 423,015 | 400,086 | |||||||||||||||
Distribution declared per common share | $ | 3.15 | $ | 2.62 | $ | 2.17 | $ | 1.81 | $ | 1.40 | ||||||||||
Distribution declared per preferred share, Series A | $ | — | $ | 2.63 | $ | 5.25 | $ | 3.94 | $ | 3.98 | ||||||||||
Distribution declared per preferred share, Series B | $ | 13.75 | $ | 55.00 | $ | 55.00 | $ | 38.65 | $ | — | ||||||||||
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As of December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 (2) | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents (including restricted cash) (3) | $ | 1,304.9 | $ | 954.9 | $ | 936.5 | $ | 462.9 | $ | 473.7 | ||||||||||
Property and equipment, net | 11,247.1 | 11,101.0 | 10,517.3 | 9,866.4 | 7,590.1 | |||||||||||||||
Total assets | 33,010.4 | 33,214.3 | 30,879.2 | 26,904.3 | 21,263.6 | |||||||||||||||
Long-term obligations, including current portion | 21,159.9 | 20,205.1 | 18,533.5 | 17,119.0 | 14,540.3 | |||||||||||||||
Redeemable noncontrolling interest | 1,004.8 | 1,126.2 | 1,091.3 | — | — | |||||||||||||||
Total American Tower Corporation equity | 5,336.1 | 6,241.5 | 6,763.9 | 6,651.7 | 3,953.6 | |||||||||||||||
_______________
(1) | For the years ended December 31, 2018, 2017, 2016, 2015 and 2014, amount includes foreign currency (losses) gains of ($4.5) million, $26.4 million, ($48.9) million, ($134.7) million and ($63.2) million, respectively. |
(2) | Balances have been revised to reflect debt issuance cost adjustments and purchase accounting measurement period adjustments for the year ended December 31, 2014. |
(3) | As of December 31, 2018, 2017, 2016, 2015 and 2014, amount includes $96.2 million, $152.8 million, $149.3 million, $142.2 million and $160.2 million, respectively, of restricted funds pledged as collateral to secure obligations and cash, the use of which is otherwise limited by contractual provisions. |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The discussion and analysis of our financial condition and results of operations that follow are based upon our consolidated financial statements, which have been prepared in accordance with 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 financial statements included in this Annual Report and the accompanying notes, and the information set forth under the caption “Critical Accounting Policies and Estimates” below.
We report our results in five segments: U.S. property, Asia property, EMEA property, Latin America property and services. In evaluating financial performance in each business segment, management uses, among other factors, segment gross margin and segment operating profit (see note 20 to our consolidated financial statements included in this Annual Report).
Executive Overview
We are one of the largest global REITs 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 98% of our total revenues for the year ended December 31, 2018 and includes our U.S. property segment, Asia property segment, EMEA property segment and Latin America property segment.
We also offer tower-related services in the 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.
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The following table details the number of communications sites, excluding managed sites, that we owned or operated as of December 31, 2018:
Number of Owned Towers | Number of Operated Towers (1) | Number of Owned DAS Sites | |||||||
Domestic: | |||||||||
United States | 24,454 | 15,905 | 398 | ||||||
Asia: | |||||||||
India | 74,804 | — | 1,068 | ||||||
EMEA: | |||||||||
France | 2,186 | 309 | 9 | ||||||
Germany | 2,208 | — | — | ||||||
Ghana | 2,279 | — | 24 | ||||||
Kenya | 715 | ||||||||
Nigeria | 4,760 | — | — | ||||||
South Africa (2) | 2,652 | — | — | ||||||
Uganda | 1,523 | — | — | ||||||
EMEA total | 16,323 | 309 | 33 | ||||||
Latin America: | |||||||||
Argentina (3) | 36 | — | 4 | ||||||
Brazil (3) | 16,632 | 2,257 | 91 | ||||||
Chile | 1,298 | — | 18 | ||||||
Colombia | 4,943 | — | 2 | ||||||
Costa Rica | 553 | — | 2 | ||||||
Mexico (4) | 9,047 | 186 | 85 | ||||||
Paraguay | 1,276 | — | — | ||||||
Peru | 690 | 272 | — | ||||||
Latin America total | 34,475 | 2,715 | 202 | ||||||
_______________
(1) | Approximately 98% of the operated towers are held pursuant to long-term capital leases, including those subject to purchase options. |
(2) | In 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. |
In most of our markets, our tenant leases with wireless carriers generally have an initial non-cancellable term of at least ten years, with multiple renewal terms. Accordingly, the vast majority of the revenue generated by our property operations during the year ended December 31, 2018 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 December 31, 2018, we expect to generate nearly $35 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, 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 cancellations or the non-renewal of leases or rent renegotiations, which we refer to as churn, historically has not had a material adverse effect on the revenues generated by our consolidated property operations. This was again the case during the year ended December 31, 2018, in which loss of tenant billings from tenant lease cancellations, non-renewal or renegotiations represented approximately 4% of our tenant billings.
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In 2018, we experienced an increase in revenue lost from cancellations or non-renewals primarily due to carrier consolidation-driven churn in India, which we expect will continue to result in a higher impact on our revenues, including tenant billings, as compared to the historical average, in 2019. We also expect this churn will compress our gross margin and operating profit in 2019, particularly in our Asia property segment, although we expect this to be partially offset by lower expenses due to reduced tenancy on existing sites or the decommissioning of sites. In addition, 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 the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”
In October 2018, we entered into agreements with one of our tenants in India, Tata Teleservices and related entities (collectively, “Tata”), for a settlement and release of certain contractual lease obligations of Tata.
For the year ended December 31, 2018, carrier consolidation-driven churn in India, including churn associated with our settlement with Tata, negatively impacted our consolidated property revenue by $189.1 million, including approximately $61.0 million in pass-through revenue, and negatively impacted our gross margin and operating profit by $119.8 million.
The effects of carrier consolidation-driven churn described above were offset by the impact of the settlement with Tata, which resulted in a net positive impact to property revenue of $333.7 million as a result of the $345.5 million cash payment, partially offset by the impact of straight-line accounting and other amounts directly related to the settlement. The settlement also resulted in a net positive impact to operating profit of $326.9 million.
On a net basis, carrier consolidation-driven churn and our settlement with Tata positively impacted our full year 2018 consolidated property revenue by $144.6 million and our full year 2018 operating profit by $207.1 million. In 2019, we expect carrier consolidation-driven churn in India, excluding the impact of the nonrecurrence of one-time items related to the settlement with Tata in 2018, to negatively impact our consolidated property revenue by approximately $191.2 million, including approximately $22.3 million in pass-through revenue, and our operating profit by approximately $148.0 million.
We also recorded impairment charges of $164.2 million as a result of the settlement with Tata in October 2018 and $147.4 million as a result of one of our tenants in India, Aircel Ltd.’s (“Aircel”), filing for bankruptcy protection in February 2018.
Property Operations Revenue Growth. Due to our diversified communications site portfolio, our tenant lease rates vary considerably depending upon numerous factors, including, but not limited to, amount, type and position of tenant equipment on the tower, remaining tower capacity and tower location. We measure the remaining tower capacity by assessing several factors, including tower height, tower type, environmental conditions, existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located. In many instances, tower capacity can be increased with relatively modest tower augmentation capital expenditures.
The primary factors affecting the revenue growth of our property segments are:
• | Growth in tenant billings, including: |
• | New revenue attributable to leases in place on day one on sites acquired or constructed since the beginning of the prior-year period; |
• | New revenue attributable to leasing additional space on our sites (“colocations”) and lease amendments; and |
• | Contractual rent escalations on existing tenant leases, net of churn. |
• | Revenue growth from other items, including additional tenant payments primarily to cover costs, such as ground rent or power and fuel costs included in certain tenant leases (“pass-through”), straight-line revenue and decommissioning. |
We continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless services globally and our ability to meet the corresponding incremental demand for our communications real estate. By adding new tenants and new equipment for existing tenants on our sites, we are able to increase these sites’ utilization and profitability. We believe the majority of our site leasing activity will continue to come from wireless service providers, with tenants in a number of other industries contributing incremental leasing demand. Our site portfolio and our established tenant base provide us with new business opportunities, which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks, while also deploying next generation wireless technologies. In addition, we intend to continue to supplement our organic growth by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk-adjusted return on investment objectives.
Property Operations Organic Revenue Growth. Consistent with our strategy to increase the utilization and return on investment from our sites, our objective is to add new tenants and new equipment for existing tenants through colocation and lease amendments. Our ability to lease additional space on our sites is primarily a function of the rate at which wireless carriers
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and other tenants deploy capital to improve and expand their wireless networks. This rate, in turn, is influenced by the growth of wireless services, the penetration of advanced wireless devices, the level of emphasis on network quality and capacity in carrier competition, the financial performance of our tenants and their access to capital and general economic conditions. According to industry data, recent aggregate annual wireless capital spending in the United States has averaged approximately $30 billion, resulting in consistent demand for our sites.
Based on industry research and projections, we expect that a number of key industry trends will result in incremental revenue opportunities for us:
• | In less advanced wireless markets where initial voice and data networks are still being deployed, we expect these deployments to drive demand for our tower space as carriers seek to expand their footprints and increase the scope and density of their networks. We have established operations in many of these markets at the early stages of wireless development, which we believe will enable us to meaningfully participate in these deployments over the long term. |
• | Subscribers’ use of mobile data continues to grow rapidly given increasing smartphone and other advanced device penetration, the proliferation of bandwidth-intensive applications on these devices and the continuing evolution of the mobile ecosystem. We believe carriers will be compelled to deploy additional equipment on existing networks while also rolling out more advanced wireless networks to address coverage and capacity needs resulting from this increasing mobile data usage. |
• | The deployment of advanced mobile technology, such as 4G and 5G, across existing wireless networks will provide higher speed data services and further enable fixed broadband substitution. As a result, we expect that our tenants will continue deploying additional equipment across their existing networks. |
• | Wireless service providers compete based on the quality of their existing networks, which is driven by capacity and coverage. To maintain or improve their network performance as overall network usage increases, our tenants continue deploying additional equipment across their existing sites while also adding new cell sites. We anticipate increasing network densification over the next several years, as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage. |
• | Wireless service providers continue to acquire additional spectrum, and as a result are expected to add additional sites and equipment to their networks as they seek to optimize their network configuration and utilize additional spectrum. |
• | Next generation technologies requiring wireless connectivity have the potential to provide incremental revenue opportunities for us. These technologies may include autonomous vehicle networks and a number of other internet-of-things, or IoT, applications, as well as other potential use cases for wireless services. These technologies may create new and complementary use cases for our communications real estate over time, although these use cases are currently in nascent stages. |
As part of our international expansion initiatives, we have targeted markets in various stages of network development to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over the long term. In addition, we have focused on building relationships with large multinational carriers such as Airtel, Telefónica S.A. and Vodafone Group PLC, among others. We believe that consistent carrier network investments across our international markets position us to generate meaningful organic revenue growth going forward.
In emerging markets, such as Ghana, India, Kenya, Nigeria and Uganda, wireless networks tend to be significantly less advanced than those in the United States, and initial voice networks continue to be deployed in certain underdeveloped areas. A majority of consumers in these markets still utilize basic wireless services, predominantly on feature phones, while advanced device penetration remains low. In more developed urban locations within these markets, data network deployments are underway. Carriers are focused on completing voice network build-outs while also investing in initial data networks as mobile data usage and smartphone penetration within their customer bases begin to accelerate.
In India, the ongoing transition from 2G technology to 4G technology has included a period of carrier consolidation, which we expect to continue through 2019, whereby the number of carriers operating in the marketplace has been reduced through mergers, acquisitions and select carrier exits from the marketplace. Over the long term, this consolidation process is expected to result in a more favorable structural environment for both the wireless carriers as well as communications infrastructure providers. In the shorter term, as described above, the consolidation process continues to result in elevated levels of churn within our India business, as merging carriers rationalize redundant legacy equipment installations and as select carriers exit the marketplace.
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In markets with rapidly evolving network technology, such as South Africa and most of the countries in Latin America where we do business, initial voice networks, for the most part, have already been built out, and carriers are focused on 3G and 4G network build outs. Consumers in these regions are increasingly adopting smartphones and other advanced devices, in particular as lower cost smartphones become increasingly available. As a result, the usage of bandwidth-intensive mobile applications is growing materially. Recent spectrum auctions in these rapidly evolving markets have allowed incumbent carriers to accelerate their data network deployments and have also enabled new entrants to begin initial investments in data networks. Smartphone penetration and wireless data usage in these markets are advancing rapidly, which typically requires that carriers continue to invest in their networks to maintain and augment their quality of service.
Finally, in markets with more mature network technology, such as Germany and France, carriers are focused on deploying 4G data networks to account for rapidly increasing wireless data usage among their customer base. With higher smartphone and advanced device penetration and significantly higher per capita data usage, carrier investment in networks is focused on 4G coverage and capacity.
We believe that the network technology migration we have seen in the United States, which has led to significantly denser networks and meaningful new business commencements for us over a number of years, will be replicated in our less advanced international markets over time. As a result, we expect to be able to leverage our extensive international portfolio of approximately 129,930 communications sites and the relationships we have built with our carrier tenants to drive sustainable, long-term growth.
We have master lease agreements with certain of our tenants that provide for consistent, long-term revenue and reduce the likelihood of churn. Certain of those master lease agreements are holistic in nature and further build and augment strong strategic partnerships with our tenants and have significantly reduced colocation cycle times, thereby providing our tenants with the ability to rapidly and efficiently deploy equipment on our sites.
Demand for our communications sites could be negatively impacted by a number of factors, including an increase in network sharing or consolidation among our tenants, as set forth in Item 1A of this Annual Report under the caption “Risk Factors—If our tenants consolidate their operations, exit the telecommunications business or share site infrastructure to a significant degree, our growth, revenue and ability to generate positive cash flows could be materially and adversely affected.” In addition, the emergence and growth of new technologies could reduce demand for our sites, as set forth under the caption “Risk Factors—New technologies or changes in our or a tenant’s business model could make our tower leasing business less desirable and result in decreasing revenues and operating results.” Further, our tenants may be subject to new regulatory policies from time to time that materially and adversely affect the demand for our communications sites.
Property Operations New Site Revenue Growth. During the year ended December 31, 2018, we grew our portfolio of communications real estate through the acquisition and construction of approximately 24,465 sites globally, as well as the acquisition of certain urban telecommunications assets in Brazil. In a majority of our Asia, EMEA and Latin America markets, the revenue generated from newly acquired or constructed sites resulted in increases in both tenant and pass-through revenues (such as ground rent or power and fuel costs) and expenses. We continue to evaluate opportunities to acquire communications real estate portfolios, both domestically and internationally, to determine whether they meet our risk-adjusted hurdle rates and whether we believe we can effectively integrate them into our existing portfolio.
New Sites (Acquired or Constructed) | 2018 | 2017 | 2016 | |||||
U.S. | 285 | 635 | 65 | |||||
Asia | 21,470 | 1,135 | 43,865 | |||||
EMEA | 1,055 | 2,755 | 665 | |||||
Latin America | 1,655 | 2,360 | 715 | |||||
Property Operations Expenses. Direct operating expenses incurred by our property segments include direct site level expenses and consist primarily of ground rent and power and fuel costs, some or all of which may be passed through to our tenants, as well as property taxes, repairs and maintenance. These segment direct operating expenses exclude all segment and corporate selling, general, administrative and development expenses, which are aggregated into one line item entitled Selling, general, administrative and development expense in our consolidated statements of operations. In general, our property segments’ selling, general, administrative and development expenses do not significantly increase as a result of adding incremental tenants to our sites and typically increase only modestly year-over-year. As a result, leasing additional space to new tenants on our sites provides significant incremental cash flow. We may, however, incur additional segment selling, general, administrative and development expenses as we increase our presence in our existing markets or expand into new markets. Our
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profit margin growth is therefore positively impacted by the addition of new tenants to our sites but can be temporarily diluted by our development activities.
Services Segment Revenue Growth. As we continue to focus on growing our property operations, we anticipate that our services revenue will continue to represent a small percentage of our total revenues.
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
Years Ended December 31, 2018, 2017 and 2016
(in millions, except percentages)
Revenue
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Property | |||||||||||||||||
U.S. | $ | 3,822.1 | $ | 3,605.7 | $ | 3,370.1 | 6 | % | 7 | % | |||||||
Asia | 1,540.5 | 1,164.4 | 827.6 | 32 | 41 | ||||||||||||
EMEA | 687.3 | 626.2 | 529.5 | 10 | 18 | ||||||||||||
Latin America | 1,264.8 | 1,169.6 | 985.9 | 8 | 19 | ||||||||||||
Total property | 7,314.7 | 6,565.9 | 5,713.1 | 11 | 15 | ||||||||||||
Services | 125.4 | 98.0 | 72.6 | 28 | 35 | ||||||||||||
Total revenues | $ | 7,440.1 | $ | 6,663.9 | $ | 5,785.7 | 12 | % | 15 | % | |||||||
Year ended December 31, 2018
U.S. property segment revenue growth of $216.4 million was attributable to:
• | Tenant billings growth of $264.0 million, which was driven by: |
• | $188.5 million due to colocations and amendments; |
• | $59.6 million from contractual escalations, net of churn; and |
• | $21.0 million generated from newly acquired or constructed sites; |
• | Partially offset by a decrease of $5.1 million from other tenant billings; and |
• | A decrease of $47.6 million in other revenue, which includes an $81.3 million decrease due to straight-line accounting. |
Asia property segment revenue growth of $376.1 million was attributable to:
• | Tenant billings growth of $31.0 million, which was driven by: |
• | $123.7 million generated from newly acquired or constructed sites, including $117.7 million from the transactions with Vodafone (the “Vodafone Acquisition”) and Idea (the “Idea Acquisition”); |
• | $49.5 million due to colocations and amendments; and |
• | $0.6 million from other tenant billings; |
• | Partially offset by a decrease of $142.8 million resulting from churn in excess of contractual escalations, including $128.1 million due to carrier consolidation-driven churn in India; |
• | Pass-through revenue growth of $59.7 million; and |
• | An increase of $349.3 million in other revenue, primarily due to the net impact of our settlement with Tata and a decrease in revenue reserves. The settlement with Tata contributed $333.7 million to other revenue, as a result of the approximately $345.5 million cash settlement payment, partially offset by the net impacts of straight-line accounting and other amounts directly related to the settlement. |
Segment revenue growth was partially offset by a decrease of $63.9 million attributable to the negative impact of foreign currency translation related to fluctuations in Indian Rupees (“INR”).
EMEA property segment revenue growth of $61.1 million was attributable to:
• | Tenant billings growth of $47.1 million, which was driven by: |
• | $17.3 million due to colocations and amendments; |
• | $13.8 million from contractual escalations, net of churn; |
• | $15.0 million generated from newly acquired or constructed sites, primarily due to the full-year impact of the 2017 acquisition of FPS Towers in France through our European joint venture (the “FPS Acquisition”) and the acquisition of communication sites in Kenya (the “Kenya Acquisition”); and |
• | $1.0 million from other tenant billings; |
• | An increase of $15.4 million in other revenue, primarily due to back-billing; and |
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• | Pass-through revenue growth of $8.2 million. |
Segment growth was partially offset by a decrease of $9.6 million attributable to the negative impact of foreign currency translation, which included, among others, $8.6 million related to fluctuations in Nigerian Naira (“NGN”) and $7.4 million related to fluctuations in Ghanaian Cedi (“GHS”), and was partially offset by an increase of $6.0 million related to fluctuations in the Euro (“EUR”).
Latin America property segment revenue growth of $95.2 million was attributable to:
• | Tenant billings growth of $118.2 million, which was driven by: |
• | $48.1 million due to colocations and amendments; |
• | $34.0 million from contractual escalations, net of churn; |
• | $26.1 million generated from newly acquired or constructed sites; and |
• | $10.0 million from other tenant billings; |
• | Pass-through revenue growth of $25.6 million; and |
• | An increase of $49.8 million in other revenue, due in part to $62.6 million from our fiber businesses in Mexico and Brazil and a $6.0 million reduction in revenue reserves from a settlement related to the judicial reorganization of a tenant in Brazil, partially offset by the impact of straight-line accounting. |
Segment revenue growth was partially offset by a decrease of $98.4 million attributable to the negative impact of foreign currency translation, which included, among others, $81.1 million related to fluctuations in Brazilian Reais (“BRL”), $10.2 million related to fluctuations in Argentinean Pesos (“ARS”) and $7.1 million related to fluctuations in Mexican Pesos (“MXN”).
The increase in services segment revenue of $27.4 million was primarily attributable to an increase in site acquisition projects.
Year ended December 31, 2017
U.S. property segment revenue growth of $235.6 million was attributable to:
• | Tenant billings growth of $206.6 million, which was driven by: |
• | $151.2 million due to colocations and amendments; |
• | $42.9 million from contractual escalations, net of churn; |
• | $11.5 million generated from newly acquired or constructed sites; and |
• | $1.0 million from other tenant billings; and |
• | $29.0 million of other revenue growth, primarily due to a $66.4 million impact of straight-line accounting, partially offset by a $37.4 million net decrease in other revenue, primarily due to the absence of $38.8 million in decommissioning revenue recognized in the prior year. |
Asia property segment revenue growth of $336.8 million was attributable to:
• | Tenant billings growth of $192.2 million, which was driven by: |
• | $143.7 million generated from newly acquired sites, due to the Viom Acquisition; |
• | $58.8 million due to colocations and amendments; and |
• | $6.8 million generated from newly constructed sites; |
• | Partially offset by, |
▪ | A decrease of $16.8 million from churn in excess of contractual escalations; and |
▪ | A decrease of $0.3 million from other tenant billings; |
• | Pass-through revenue growth of $129.3 million, primarily due to the Viom Acquisition; and |
• | A decrease of $20.2 million in other revenue, primarily due to an increase of $13.1 million in revenue reserves. |
Segment revenue also increased by $35.5 million attributable to the impact of foreign currency translation related to fluctuations in INR.
EMEA property segment revenue growth of $96.7 million was attributable to:
• | Tenant billings growth of $99.1 million, which was driven by: |
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• | $62.4 million generated from newly acquired or constructed sites, primarily due to the full-year impact of the FPS Acquisition; |
• | $17.9 million due to colocations and amendments; |
• | $17.8 million from contractual escalations, net of churn; and |
• | $1.0 million from other tenant billings; |
• | Pass-through revenue growth of $35.3 million; and |
• | $3.4 million of other revenue growth, primarily attributable to the impact of straight-line accounting. |
Segment revenue growth was partially offset by a decrease of $41.1 million attributable to the negative impact of foreign currency translation, which included, among others, $35.0 million related to fluctuations in NGN and $14.5 million related to fluctuations in GHS, partially offset by an increase of $9.8 million related to fluctuations in South African Rand (“ZAR”).
Latin America property segment revenue growth of $183.7 million was attributable to:
• | Tenant billings growth of $92.4 million, which was driven by: |
• | $38.9 million due to colocations and amendments; |
• | $32.7 million from contractual escalations, net of churn; |
• | $18.7 million generated from newly acquired or constructed sites; and |
• | $2.1 million from other tenant billings; |
• | Pass-through revenue growth of $22.2 million; and |
• | $17.6 million of other revenue growth, due in part to $7.1 million from our newly acquired fiber business in Mexico and a $7.0 million reduction in revenue in the prior-year period resulting from a judicial reorganization of a tenant in Brazil, partially offset by the impact of straight-line accounting. |
Segment revenue also increased $51.5 million attributable to the positive impact of foreign currency translation, which included, among others, $49.9 million related to fluctuations in BRL and $2.8 million related to fluctuations in Colombian Pesos (“COP”), partially offset by a decrease of $3.3 million related to fluctuations in MXN.
The increase in services segment revenue of $25.4 million was primarily attributable to an increase in site acquisition projects.
Gross Margin
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Property | |||||||||||||||||
U.S. | $ | 3,051.1 | $ | 2,859.2 | $ | 2,636.7 | 7 | % | 8 | % | |||||||
Asia | 829.6 | 515.4 | 361.7 | 61 | 42 | ||||||||||||
EMEA | 449.2 | 387.9 | 305.8 | 16 | 27 | ||||||||||||
Latin America | 858.4 | 794.3 | 658.8 | 8 | 21 | ||||||||||||
Total property | 5,188.3 | 4,556.8 | 3,963.0 | 14 | 15 | ||||||||||||
Services | 77.2 | 64.2 | 45.6 | 20 | % | 41 | % | ||||||||||
Year ended December 31, 2018
• | The increase in U.S. property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $24.5 million. |
• | The increase in Asia property segment gross margin was primarily attributable to the increase in revenue described above and a benefit of $36.5 million attributable to the impact of foreign currency translation on direct expenses, partially offset by an increase in direct expenses of $98.4 million, primarily due to the Vodafone Acquisition and the Idea Acquisition. |
• | The increase in EMEA property segment gross margin was primarily attributable to the increase in revenue described above and a benefit of $9.4 million attributable to the impact of foreign currency translation on direct expenses, |
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partially offset by an increase in direct expenses of $9.2 million, primarily due to the FPS Acquisition and the Kenya Acquisition.
• | The increase in Latin America property segment gross margin was primarily attributable to the increase in revenue described above and a benefit of $33.3 million attributable to the impact of foreign currency translation on direct expenses, partially offset by an increase in direct expenses of $53.5 million, primarily due to our fiber businesses in Mexico and Brazil, and a reduction of $10.9 million in interest income related to TV Azteca, S.A. de C.V. (“TV Azteca”). |
• | The increase in services segment gross margin was primarily due to an increase in revenue, as described above, partially offset by an increase in direct expenses of $14.4 million. |
Year ended December 31, 2017
• | The increase in U.S. property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $13.1 million. |
• | The increase in Asia property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $163.1 million, primarily due to the Viom Acquisition. Direct expenses increased by an additional $20.0 million attributable to the impact of foreign currency translation. |
• | The increase in EMEA property segment gross margin was primarily attributable to the increase in revenue described above and a benefit of $35.1 million attributable to the impact of foreign currency translation on direct expenses, partially offset by an increase in direct expenses of $49.7 million, partially due to the FPS Acquisition. |
• | 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 $29.6 million, partially due to our acquisitions of urban telecommunications assets and fiber, in Mexico and Argentina. Direct expenses increased by an additional $18.6 million due to the impact of foreign currency translation. |
• | The increase in services segment gross margin was primarily due to an increase in site acquisition projects. |
Selling, General, Administrative and Development Expense (“SG&A”)
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Property | |||||||||||||||||
U.S. | $ | 165.2 | $ | 151.4 | $ | 147.6 | 9 | % | 3 | % | |||||||
Asia | 110.7 | 82.4 | 48.2 | 34 | 71 | ||||||||||||
EMEA | 69.1 | 67.9 | 60.9 | 2 | 11 | ||||||||||||
Latin America | 83.5 | 77.5 | 60.7 | 8 | 28 | ||||||||||||
Total property | 428.5 | 379.2 | 317.4 | 13 | 19 | ||||||||||||
Services | 14.4 | 13.7 | 12.5 | 5 | 10 | ||||||||||||
Other | 290.3 | 244.1 | 213.5 | 19 | 14 | ||||||||||||
Total selling, general, administrative and development expense | $ | 733.2 | $ | 637.0 | $ | 543.4 | 15 | % | 17 | % | |||||||
Year Ended December 31, 2018
• | The increases in each of our U.S., EMEA and Latin America property segment SG&A were primarily driven by increased personnel costs to support our business, including our acquisitions of urban telecommunications assets in our Latin America property segment. |
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• | The increase in our Asia property segment SG&A was primarily driven by an increase in bad debt expense of $25.1 million as a result of receivable reserves with certain tenants. |
• | The increase in our services segment SG&A was primarily attributable to an increase in the allocation of personnel costs to our tower services group. |
• | The increase in other SG&A was primarily attributable to an increase in stock-based compensation expense of $28.6 million, principally due to the acceleration of expense associated with amendments to existing grants, and an increase in corporate SG&A. |
Year Ended December 31, 2017
• | The increases in each of our property segments’ SG&A were primarily driven by increased personnel costs to support our business, including additional costs as a result of the Viom Acquisition in our Asia property segment and the FPS Acquisition in our EMEA property segment. The increase in our Asia property segment SG&A was partially driven by an increase in bad debt expense of $24.6 million as a result of aged receivables with certain tenants and the increase in our EMEA property segment SG&A was partially offset by the impact of foreign currency fluctuations and a reduction in bad debt expense of $3.7 million. |
• | The increase in our services segment SG&A was primarily attributable to an increase in personnel costs within our tower services group. |
• | The increase in other SG&A was primarily attributable to an increase in stock-based compensation expense of $18.1 million and an increase in corporate SG&A. |
Operating Profit
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Property | |||||||||||||||||
U.S. | $ | 2,885.9 | $ | 2,707.8 | $ | 2,489.1 | 7 | % | 9 | % | |||||||
Asia | 718.9 | 433.0 | 313.5 | 66 | 38 | ||||||||||||
EMEA | 380.1 | 320.0 | 244.9 | 19 | 31 | ||||||||||||
Latin America | 774.9 | 716.8 | 598.1 | 8 | 20 | ||||||||||||
Total property | 4,759.8 | 4,177.6 | 3,645.6 | 14 | 15 | ||||||||||||
Services | 62.8 | 50.5 | 33.1 | 24 | % | 53 | % | ||||||||||
Year Ended December 31, 2018
• | The increases in operating profit for each of our property segments, as well as our services segment, were primarily attributable to an increase in our segment gross margin, partially offset by increases in our segment SG&A. |
Year Ended December 31, 2017
• | The growth in operating profit for each of our property segments was primarily attributable to an increase in our segment gross margin, partially offset by increases in our segment SG&A. |
• | The growth in operating profit for our services segment was primarily attributable to an increase in our segment gross margin, partially offset by an increase in our segment SG&A. |
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Depreciation, Amortization and Accretion
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Depreciation, amortization and accretion | $ | 2,110.8 | $ | 1,715.9 | $ | 1,525.6 | 23 | % | 12 | % | |||||||
The increase in depreciation, amortization and accretion expense for the year ended December 31, 2018 was primarily attributable to $327.5 million of accelerated amortization of a tenant relationship intangible asset as a result of the settlement with Tata. Also contributing to the increase was the acquisition, lease or construction of new sites since the beginning of the prior-year period, which resulted in an increase in property and equipment and intangible assets subject to amortization.
The increase in depreciation, amortization and accretion expense for the year ended December 31, 2017 was primarily attributable to the acquisition, lease or construction of new sites since the beginning of the prior-year period, which resulted in an increase in property and equipment and intangible assets subject to amortization.
Other Operating Expenses
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Other operating expenses | $ | 513.3 | $ | 256.0 | $ | 73.3 | 101 | % | 249 | % | |||||||
The increase in other operating expenses for the year ended December 31, 2018 was primarily attributable to an increase in impairment charges of $182.6 million and an increase of $52.8 million in losses on sales or disposals of assets. The impairment charges included $258.3 million related to tower and network intangible assets and $107.3 million related to tenant relationships in our Asia property segment due to the settlement with Tata, Aircel’s filing for bankruptcy protection and other carrier consolidation-driven churn in India. The increase was also attributable to the nonrecurrence of a $22.2 million refund of acquisition costs recorded in the prior-year period related to an acquisition in Brazil, partially offset by $10.0 million to fund our charitable foundation in the prior-year period.
The increase in other operating expenses for the year ended December 31, 2017 was primarily attributable to an increase in impairment charges of $182.9 million. These charges included $81.0 million related to tower and network intangible assets and $100.1 million related to tenant relationships in our Asia property segment, primarily due to carrier consolidation-driven churn. The increase in other operating expenses also included an increase of $7.7 million in losses on sales or disposals of assets and $10.0 million to fund our charitable foundation. These items were partially offset by aggregate purchase price refunds of $22.2 million of acquisition costs, primarily relating to an acquisition in Brazil completed in 2014.
Total Other Expense
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Total Other expense | $ | 750.4 | $ | 742.3 | $ | 727.1 | 1 | % | 2 | % | |||||||
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 fluctuations primarily associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries’ functional currencies.
The increase in total other expense during the year ended December 31, 2018 was primarily due to additional interest expense of $75.9 million due to a $2.0 billion increase in our average debt outstanding and foreign currency losses of $4.5 million in the current period, compared to foreign currency gains of $26.4 million in the prior-year period. The increase was partially offset by (i) a decrease in loss on retirement of long-term obligations of $66.9 million due to the nonrecurrence of a loss of $70.2 million recorded in the prior-year period attributable to the redemptions of the 7.25% senior unsecured notes due 2019 (the “7.25% Notes”) and the 4.500% senior unsecured notes due 2018 (the “4.500% Notes”) and the repayment of the Secured Cellular Site Revenue Notes, Series 2012-2 Class A, Series 2012-2 Class B and Series 2012-2 Class C and Secured Cellular Site Revenue Notes, Series 2010-2, Class C and Series 2010-2, Class F (collectively, the “GTP Notes”), (ii) an increase in other income of $23.4 million partially due to the write-offs of the capital lease liability and Economic Rights Agreement and related amortization in conjunction with the note extinguishment with TV Azteca (as described in note 5 to our consolidated
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financial statements included in this Annual Report) and (iii) an additional $19.3 million in interest income, compared to the prior-year period.
The increase in total other expense during the year ended December 31, 2017 was primarily due to a loss on retirement of long-term obligations of $70.2 million attributable to the redemptions of the 7.25% Notes and the 4.500% Notes and the repayment of the GTP Notes, compared to the year ended December 31, 2016, where we recorded a gain on retirement of long-term obligations of $1.2 million attributable to the repayment of the Secured Tower Cellular Site Revenue Notes, Series 2012-1, Class A and the Secured Cellular Site Revenue Notes, Series 2010-1, Class C. The increase was also attributable to additional interest expense of $32.5 million due to a $0.9 billion increase in our average debt outstanding. These items were partially offset by foreign currency gains of $26.4 million compared to foreign currency losses of $48.9 million in the prior-year period, as well an additional $9.8 million in interest income compared to the prior-year period.
Income Tax (Benefit) Provision
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | ||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||
Income tax (benefit) provision | $ | (110.1 | ) | $ | 30.7 | $ | 155.5 | (459 | )% | (80 | )% | |||||||
Effective tax rate | (9.5 | )% | 2.4 | % | 13.8 | % | ||||||||||||
As a 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 NOLs, subject to specified limitations. Consequently, the effective tax rate on income from continuing operations for each of the years ended December 31, 2018, 2017 and 2016 differs from the federal statutory rate.
The change in the income tax (benefit) provision for the year ended December 31, 2018 was primarily attributable to the receipt of the payment associated with the Tata settlement, offset by the deferred tax benefit of impairment charges and accelerated amortization in India. Additionally, we restructured our international operations in certain jurisdictions resulting in a current-year benefit of $85.7 million, which was offset by the nonrecurrence of prior-year benefit from a clarification in income tax law in Ghana.
The decrease in the income tax provision for the year ended December 31, 2017 was primarily attributable to lower uncertain tax position reserve recorded in 2017 than in 2016, a decrease in foreign earnings in India due to impairments, as well as changes in tax laws in certain foreign jurisdictions.
Net Income / Adjusted EBITDA and Net Income / Nareit FFO attributable to American Tower Corporation common stockholders / Consolidated AFFO / AFFO attributable to American Tower Corporation common stockholders
Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | ||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||
Net income | $ | 1,264.7 | $ | 1,225.4 | $ | 970.4 | 3 | % | 26 | % | ||||||||
Income tax (benefit) provision | (110.1 | ) | 30.7 | 155.5 | (459 | ) | (80 | ) | ||||||||||
Other (income) expense | (23.8 | ) | (31.3 | ) | 47.7 | (24 | ) | (166 | ) | |||||||||
Loss (gain) on retirement of long-term obligations | 3.3 | 70.2 | (1.2 | ) | (95 | ) | (5,950 | ) | ||||||||||
Interest expense | 825.5 | 749.6 | 717.1 | 10 | 5 | |||||||||||||
Interest income | (54.7 | ) | (35.4 | ) | (25.6 | ) | 55 | 38 | ||||||||||
Other operating expenses | 513.3 | 256.0 | 73.3 | 101 | 249 | |||||||||||||
Depreciation, amortization and accretion | 2,110.8 | 1,715.9 | 1,525.6 | 23 | 12 | |||||||||||||
Stock-based compensation expense | 137.5 | 108.5 | 89.9 | 27 | 21 | |||||||||||||
Adjusted EBITDA | $ | 4,666.5 | $ | 4,089.6 | $ | 3,552.7 | 14 | % | 15 | % | ||||||||
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Year Ended December 31, | Percent Change 2018 vs 2017 | Percent Change 2017 vs 2016 | |||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Net income | $ | 1,264.7 | $ | 1,225.4 | $ | 970.4 | 3 | % | 26 | % | |||||||
Real estate related depreciation, amortization and accretion | 1,915.2 | 1,516.9 | 1,358.9 | 26 | 12 | ||||||||||||
Losses from sale or disposal of real estate and real estate related impairment charges (1) | 479.7 | 244.4 | 54.5 | 96 | 348 | ||||||||||||
Dividends on preferred stock | (9.4 | ) | (87.4 | ) | (107.1 | ) | (89 | ) | (18 | ) | |||||||
Dividend to noncontrolling interest | (13.8 | ) | (13.2 | ) | — | 5 | 100 | ||||||||||
Adjustments for unconsolidated affiliates and noncontrolling interests | (427.4 | ) | (189.1 | ) | (88.2 | ) | 126 | 114 | |||||||||
Nareit FFO attributable to American Tower Corporation common stockholders | $ | 3,209.0 | $ | 2,697.0 | $ | 2,188.5 | 19 | 23 | |||||||||
Straight-line revenue | (87.6 | ) | (194.4 | ) | (131.7 | ) | (55 | ) | 48 | ||||||||
Straight-line expense | 57.9 | 62.3 | 67.8 | (7 | ) | (8 | ) | ||||||||||
Stock-based compensation expense | 137.5 | 108.5 | 89.9 | 27 | 21 | ||||||||||||
Deferred portion of income tax (2) | (274.0 | ) | (105.8 | ) | 59.2 | 159 | (279 | ) | |||||||||
Non-real estate related depreciation, amortization and accretion | 195.6 | 199.0 | 166.7 | (2 | ) | 19 | |||||||||||
Amortization of deferred financing costs, capitalized interest, debt discounts and premiums and long-term deferred interest charges | 19.0 | 26.8 | 23.1 | (29 | ) | 16 | |||||||||||
Other (income) expense (3) | (23.8 | ) | (31.3 | ) | 47.7 | (24 | ) | (166 | ) | ||||||||
Loss (gain) on retirement of long-term obligations | 3.3 | 70.2 | (1.2 | ) | (95 | ) | (5,950 | ) | |||||||||
Other operating expenses (4) | 33.6 | 11.6 | 18.8 | 190 | (38 | ) | |||||||||||
Capital improvement capital expenditures | (149.5 | ) | (114.2 | ) | (110.2 | ) | 31 | 4 | |||||||||
Corporate capital expenditures | (9.2 | ) | (17.0 | ) | (16.4 | ) | (46 | ) | 4 | ||||||||
Adjustments for unconsolidated affiliates and noncontrolling interests | 427.4 | 189.1 | 88.2 | 126 | 114 | ||||||||||||
Consolidated AFFO | $ | 3,539.2 | $ | 2,901.8 | $ | 2,490.4 | 22 | % | 17 | % | |||||||
Adjustments for unconsolidated affiliates and noncontrolling interests (5) | (348.7 | ) | (147.0 | ) | (90.2 | ) | 137 | % | 63 | % | |||||||
AFFO attributable to American Tower Corporation common stockholders | $ | 3,190.5 | $ | 2,754.8 | $ | 2,400.2 | 16 | % | 15 | % | |||||||
_______________
(1) | Included in these amounts are impairment charges of $394.0 million, $211.4 million and $28.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. |
(2) | For the year ended December 31, 2018, amount includes a tax benefit primarily attributable to the tax effect of an increase in impairment charges and a one-time benefit for restructuring-related activity in foreign jurisdictions offset by the nonrecurrence of prior-year benefit from a clarification in income tax law in Ghana. |
(3) | Includes losses (gains) on foreign currency exchange rate fluctuations of $4.5 million, ($26.4 million) and $48.9 million, respectively. |
(4) | Primarily includes acquisition-related costs and integration costs. For the year ended December 31, 2017, amount also includes refunds for acquisition costs and a charitable contribution. |
(5) | Includes adjustments for the impact on both Nareit FFO attributable to American Tower Corporation common stockholders as well as the other line items included in the calculation of Consolidated AFFO. |
Year Ended December 31, 2018
The increase in net income was primarily due to an increase in our operating profit, the change in the income tax (benefit) provision and the nonrecurrence of a loss on retirement of long-term obligations of $70.2 million recorded in the prior-year period, partially offset by an increase in other operating expenses, primarily related to an increase in impairment charges of $182.6 million, and increases in depreciation, amortization and accretion expense and interest expense.
The increase in Adjusted EBITDA was primarily attributable to the increase in our gross margin and was partially offset by an increase in SG&A of $67.6 million, excluding the impact of stock-based compensation expense.
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The growth in Consolidated AFFO and AFFO attributable to American Tower Corporation common stockholders was primarily attributable to the increase in our operating profit, a decrease in dividends on preferred stock and a decrease in the adjustment for straight-line revenue, partially offset by increases in cash paid for interest, capital improvement capital expenditures and corporate SG&A.
Year Ended December 31, 2017
The increase in net income was primarily due to an increase in our operating profit, decreases in our income tax provision and foreign currency losses included in other expense, partially offset by an increase in depreciation, amortization and accretion expense, and increases in other operating expenses, interest expense and a loss on retirement of long-term obligations of $70.2 million.
The increase in Adjusted EBITDA was primarily attributable to the increase in our gross margin and was partially offset by an increase in SG&A of $75.5 million, excluding the impact of stock-based compensation expense.
The growth in Consolidated AFFO and AFFO attributable to American Tower Corporation common stockholders was primarily attributable to the increase in our operating profit and a decrease in dividends on preferred stock, partially offset by increases in straight-line revenue, cash paid for interest and income taxes and corporate SG&A and capital improvement expenditures.
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Liquidity and Capital Resources
Overview
During the year ended December 31, 2018, we increased our financial flexibility and our ability to grow our business while maintaining our long-term financial policies. Our significant 2018 financing transactions included:
• | A registered public offering of an aggregate of 500.0 million EUR ($589.0 million at the date of issuance) of 1.950% senior unsecured notes due 2026 (the “1.950% Notes”). |
• | Senior unsecured $1.5 billion term loan (the “2018 Term Loan”). |
• | Securitization transactions, including the repayment of the $500.0 million aggregate principal amount outstanding under the Secured Tower Revenue Securities, Series 2013-1A (the “Series 2013-1A Securities”) and the issuance of $500.0 million aggregate principal amount of Secured Tower Revenue Securities, Series 2018-1, Subclass A (the “Series 2018-1A Securities”). |
• | Amendments to our multicurrency senior unsecured revolving credit facility entered into in June 2013, as amended (the “2013 Credit Facility”), our senior unsecured revolving credit facility entered into in January 2012, as amended and restated in September 2014, as further amended (the “2014 Credit Facility”) and our unsecured term loan entered into in October 2013, as amended (the “2013 Term Loan”) to, among other things, extend each of the maturity dates by one year, increase commitments under each of the 2013 Credit Facility and the 2014 Credit Facility by $100.0 million and reduce the Applicable Margins under the 2014 Credit Facility and the 2013 Term Loan (as defined in each of the applicable loan agreements) to conform to the 2013 Credit Facility. |
As a holding company, our cash flows are derived primarily from the operations of, and distributions from, our operating subsidiaries or funds raised through borrowings under our credit facilities and debt or equity offerings.
The following table summarizes our liquidity as of December 31, 2018 (in millions):
Available under the 2013 Credit Facility | $ | 975.0 | |
Available under the 2014 Credit Facility | 2,100.0 | ||
Letters of credit | (10.0 | ) | |
Total available under credit facilities, net | 3,065.0 | ||
Cash and cash equivalents | 1,208.7 | ||
Total liquidity | $ | 4,273.7 | |
Subsequent to December 31, 2018, we borrowed an additional $570.0 million under the 2013 Credit Facility and $605.0 million under the 2014 Credit Facility, which were primarily used to repay indebtedness, including the 3.40% notes due 2019, and for general corporate purposes.
Summary cash flow information is set forth below for the years ended December 31, (in millions):
2018 | 2017 | 2016 | |||||||||
Net cash provided by (used for): | |||||||||||
Operating activities | $ | 3,748.3 | $ | 2,925.6 | $ | 2,701.7 | |||||
Investing activities | (2,749.5 | ) | (2,800.9 | ) | (2,102.3 | ) | |||||
Financing activities | (607.7 | ) | (113.0 | ) | (99.3 | ) | |||||
Net effect of changes in foreign currency exchange rates on cash and cash equivalents, and restricted cash | (41.1 | ) | 6.7 | (26.5 | ) | ||||||
Net increase in cash and cash equivalents, and restricted cash | $ | 350.0 | $ | 18.4 | $ | 473.6 | |||||
We use our cash flows to fund our operations and investments in our business, including tower maintenance and improvements, communications site construction and managed network installations and tower and land acquisitions. Additionally, we use our cash flows to make distributions, including distributions of our REIT taxable income to maintain our qualification for taxation as a REIT under the Code. We may also repay or repurchase our existing indebtedness or equity from time to time. We typically fund our international expansion efforts primarily through a combination of cash on hand, intercompany debt and equity contributions. In the fourth quarter of 2018, two of our minority holders in India exercised their put options with respect to certain shares in our Indian subsidiary, ATC TIPL in accordance with the provisions in the
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shareholder agreement (see note 14 to our consolidated financial statements included in this Annual Report). Accordingly, we expect to pay 29.4 billion INR (approximately $420.0 million) to redeem the put shares in the first half of 2019.
As of December 31, 2018, we had total outstanding indebtedness of $21.3 billion, with a current portion of $2.8 billion. During the year ended December 31, 2018, we generated sufficient cash flow from operations to fund our capital expenditures and debt service obligations, as well as our required distributions. We believe the cash generated by operating activities during the year ending December 31, 2019, together with our borrowing capacity under our credit facilities, will be sufficient to fund our required distributions, capital expenditures, debt service obligations (interest and principal repayments) and signed acquisitions. As of December 31, 2018, we had $1.1 billion of cash and cash equivalents held by our foreign subsidiaries, of which $711.6 million was held by our joint ventures. While certain subsidiaries may pay us interest or principal on intercompany debt, it has not been our practice to repatriate earnings from our foreign subsidiaries primarily due to our ongoing expansion efforts and related capital needs. However, in the event that we do repatriate any funds, we may be required to accrue and pay certain taxes.
Cash Flows from Operating Activities
For the year ended December 31, 2018, cash provided by operating activities increased $822.7 million as compared to the year ended December 31, 2017. The primary factors that impacted cash provided by operating activities as compared to the year ended December 31, 2017, include:
• | An increase in our operating profit of $594.5 million; |
• | An increase of approximately $77.6 million in cash paid for interest; |
• | A decrease in cash required for working capital, primarily as a result of accounts receivable collection; and |
• | An increase of approximately $27.4 million in cash paid for taxes. |
For the year ended December 31, 2017, cash provided by operating activities increased $223.9 million as compared to the year ended December 31, 2016. The primary factors that impacted cash provided by operating activities as compared to the year ended December 31, 2016, include:
• | An increase in our operating profit of $549.4 million; |
• | An increase of approximately $67.0 million in cash paid for interest; |
• | An increase of approximately $62.7 million in straight-line revenue; and |
• | An increase of approximately $40.3 million in cash paid for taxes. |
Cash Flows from Investing Activities
Our significant investing activities during the year ended December 31, 2018 are highlighted below:
• | We spent approximately $1.9 billion for acquisitions, primarily related to the funding of the Idea and Vodafone acquisitions, as well as asset acquisitions in the United States, Kenya and Brazil. |
• | We spent $937.1 million for capital expenditures, as follows (in millions): |
Discretionary capital projects (1) | $ | 254.7 | |
Ground lease purchases | 162.7 | ||
Capital improvements and corporate expenditures (2) | 158.7 | ||
Redevelopment | |||