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33: R23 Commitments and Contingencies HTML 36K
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35: R25 Business Segments HTML 128K
36: R26 Basis of Presentation and Significant Accounting HTML 45K
Policies (Policies)
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Policies (Tables)
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49: R39 Acquisitions (Tables) HTML 61K
50: R40 Business Segments (Tables) HTML 120K
51: R41 Basis of Presentation and Significant Accounting HTML 37K
Policies (Details)
52: R42 Basis of Presentation and Significant Accounting HTML 36K
Policies - Cash and Cash Equivalents and
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53: R43 Basis of Presentation and Significant Accounting HTML 69K
Policies - Summary of Revenue Disaggregated by
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Expected Under Non-Cancellable Operating Leases
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56: R46 Leases - Schedule of Information About Other Lease HTML 34K
Related Balances (Details)
57: R47 Leases - Schedule of Weighted Average Lease Terms HTML 31K
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58: R48 Leases - Lease Costs (Details) HTML 30K
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the Carrying Value of Goodwill (Details)
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Future Amortization Expense (Details)
65: R55 Accrued Expenses (Details) HTML 48K
66: R56 Long-Term Obligations - Schedule of Long-Term HTML 155K
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67: R57 Long-Term Obligations - Current Portion of Long HTML 37K
Term Debt (Details)
68: R58 Long-Term Obligations - Insite Debt (Details) HTML 36K
69: R59 Long-Term Obligations - Offerings of Senior Notes HTML 47K
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70: R60 Long-Term Debt Obligations - Schedule of Key Terms HTML 42K
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Loans (Details)
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75: R65 Long-Term Obligations - Schedule of Lines of HTML 60K
Credit (Details)
76: R66 Long-Term Obligations - India Credit Facility HTML 31K
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Measured at Fair Value on A Recurring Basis
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78: R68 Fair Value Measurements - Narrative (Details) HTML 40K
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(Exact name of registrant as specified in its charter)
iDelaware
i65-0723837
(State
or other jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i116 Huntington Avenue
iBoston,
iMassachusettsi02116
(Address of principal executive offices)
Telephone Number (i617) i375-7500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of exchange on which registered
iCommon
Stock, $0.01 par value
iAMT
iNew York Stock Exchange
i1.375%
Senior Notes due 2025
iAMT 25A
iNew York Stock Exchange
i1.950%
Senior Notes due 2026
iAMT 26B
iNew York Stock Exchange
i0.500%
Senior Notes due 2028
iAMT 28A
iNew York Stock Exchange
i1.000%
Senior Notes due 2032
iAMT 32
iNew York Stock Exchange
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: iYes☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 Exchange Act): Yes ☐ No i☒
As of April 22, 2021, there were i444,797,395
shares of common stock outstanding.
Common stock: $ii.01/
par value; ii1,000,000/ shares authorized;
i455,708 and i455,245 shares issued; and i444,793
and i444,330 shares outstanding, respectively
i4.6
i4.6
Additional
paid-in capital
i10,474.6
i10,473.7
Distributions
in excess of earnings
(i1,251.8)
(i1,343.0)
Accumulated
other comprehensive loss
(i4,061.6)
(i3,759.4)
Treasury
stock (ii10,915/ shares at cost)
(i1,282.4)
(i1,282.4)
Total
American Tower Corporation equity
i3,883.4
i4,093.5
Noncontrolling
interests
i455.5
i474.9
Total
equity
i4,338.9
i4,568.4
TOTAL
$
i46,942.5
$
i47,233.5
See
accompanying notes to unaudited consolidated and condensed consolidated financial statements.
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
1. iBASIS
OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated and condensed consolidated financial statements have been prepared by American Tower Corporation (together with its subsidiaries, “ATC” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial information included herein is unaudited. However, the Company believes that all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of its financial position and results of operations for such periods have been included herein. The consolidated and condensed consolidated financial statements and related notes should be read in conjunction
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the entire year.
iPrinciples of Consolidation and Basis of Presentation—The accompanying
consolidated and condensed consolidated financial statements include the accounts of the Company and those entities in which it has a controlling interest. Investments in entities that the Company does not control are accounted for using the equity method or as investments in equity securities, depending upon the Company’s ability to exercise significant influence over operating and financial policies. All intercompany accounts and transactions have been eliminated. As of March 31, 2021, the Company holds (i) a i51%
controlling interest in ATC Europe B.V. (“ATC Europe”), a joint venture that primarily consists of the Company’s operations in France, Germany and Poland (PGGM holds a i49% noncontrolling interest) and (ii) a i92%
controlling interest in ATC Telecom Infrastructure Private Limited (“ATC TIPL”), formerly Viom Networks Limited (“Viom”), in India.
iReportable Segments— During the fourth quarter of 2020, as a result of the Company’s acquisition of InSite Wireless Group, LLC (“InSite,” and the acquisition, the “InSite Acquisition”), the Company updated its reportable segments
to rename U.S. property and Asia property to U.S. & Canada property and Asia-Pacific property, respectively. The Company continues to report its results in isix segments – U.S. & Canada property, Asia-Pacific property, Africa property, Europe property, Latin America property and services, which are discussed further in note 15. The change in reportable segment names is solely reflective of the inclusion of Canada and Australia in the
Company’s business operations, as a result of the InSite Acquisition, and had no impact on the Company’s consolidated financial statements or historical segment financial information for any prior periods./
Significant Accounting Policies—The Company’s significant accounting policies are described in note 1 to the Company’s consolidated financial statements included in the 2020 Form 10-K. There have been no material changes to the
Company’s significant accounting policies during the three months ended March 31, 2021.
Cash and Cash Equivalents and Restricted Cash—iThe reconciliation of cash and cash equivalents and restricted cash reported within the applicable balance sheet that sum to the total of the same such amounts shown in the statement of cash flows is as follows:
iRevenue—The
Company’s revenue is derived from leasing the right to use its communications sites and the land on which the sites are located (the “lease component”) and from the reimbursement of costs incurred by the Company in operating the communications sites and supporting the tenants’ equipment as well as other services and contractual rights (the “non-lease component”). Most of the Company’s revenue is derived from leasing arrangements and is accounted for as lease revenue unless the timing and pattern of revenue recognition of the non-lease component differs from the lease component. If the timing and pattern of the non-lease component revenue recognition differs from that of the lease component, the Company
separately determines the stand-alone selling prices and pattern of revenue recognition for each performance obligation. Revenue related to distributed antenna system (“DAS”) networks and fiber and other related assets results from agreements with tenants that are not leases.
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
Non-lease revenue—Non-lease revenue consists primarily of revenue generated from DAS networks, fiber and
other property related revenue. DAS networks and fiber arrangements require that the Company provide the tenant the right to use the applicable communications infrastructure. Performance obligations are satisfied over time for the duration of the arrangements. Other property related revenue streams, which include site inspections, are not material on either an individual or consolidated basis. There were no material changes in the receivables, contract assets and contract liabilities from contracts with tenants for the three months ended March 31, 2021.
Services
revenue—The Company offers tower-related services in the United States. These services include site application, zoning and permitting (“AZP”) and structural analysis. There is a single performance obligation related to AZP and revenue is recognized over time based on milestones achieved, which are determined based on costs expected to be incurred. Structural analysis services may have more than one performance obligation, contingent upon the number of contracted services. Revenue is recognized at the point in time the services are completed.
i
A
summary of revenue disaggregated by source and geography is as follows:
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued guidance to provide optional expedients and exceptions for applying accounting principles generally accepted in the United States to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the guidance do not apply to contract
modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. In January 2021, the FASB issued additional guidance that clarifies that certain practical expedients and exceptions for contract modifications and hedge accounting apply to derivatives that are affected by reference rate reform. As of March 31, 2021, the Company has not modified any contracts
as a result of reference rate reform and is evaluating the impact this standard may have on its financial statements.
Value
added tax and other consumption tax receivables
i58.1
i66.3
Other
miscellaneous current assets
i95.2
i79.6
Prepaid
and other current assets
$
i490.6
$
i532.6
/
3. iiiLEASES
//
The Company determines if an arrangement is a lease at the inception of the agreement. The Company considers an arrangement to be a lease if it conveys the right to control the use of the communications site or ground space underneath a communications site for a period of time in exchange for consideration. The Company is both a lessor and a lessee.
During the three
months ended March 31, 2021, the Company made no changes to the methods described in note 4 to its consolidated financial statements included in the 2020 Form 10-K. As of March 31, 2021, the Company does not have any material related party leases as either a lessor or a lessee. To the extent there are any intercompany leases, these are eliminated in consolidation.
Lessor— Historically, the Company has been able to successfully renew its ground leases as needed to ensure continuation of its tower revenue. Accordingly,
the Company assumes that it will have access to the land underneath its tower sites when calculating future minimum rental receipts. iFuture minimum rental receipts expected under non-cancellable operating lease agreements as of March 31, 2021 were as follows:
Fiscal
Year
Amount (1)
Remainder of 2021
$
i4,632.2
2022
i5,976.8
2023
i5,866.5
2024
i5,755.9
2025
i5,330.3
Thereafter
i32,576.0
Total
$
i60,137.7
_______________
(1)Balances
are translated at the applicable period-end exchange rate, which may impact comparability between periods.
Lessee—The Company assesses its right-of-use asset and other lease-related assets for impairment, as described in note 1 to the Company’s consolidated financial statements included in the 2020 Form 10-K. There were no material impairments recorded related to these assets during the three months ended March 31, 2021 and 2020.
The Company leases certain land and office space under operating leases
and land and improvements, towers and vehicles under finance leases. As of March 31, 2021, operating lease assets were included in Right-of-use asset and finance lease assets were included in Property and equipment, net in the consolidated balance sheet. During the three months ended March 31, 2021, there were no material changes in the terms and provisions of the Company’s operating leases in which the Company is a lessee. There were no material changes in finance lease assets and liabilities during the three months ended March 31, 2021.
(1)Acquired
network location intangibles are amortized over the shorter of the term of the corresponding ground lease, taking into consideration lease renewal options and residual value, generally up to i20 years, as the Company considers these intangibles to be directly related to the tower assets.
/
The acquired network location intangibles
represent the value to the Company of the incremental revenue growth that could potentially be obtained from leasing the excess capacity on acquired communications sites. The acquired tenant-
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
related intangibles typically represent the value to the
Company of tenant contracts and relationships in place at the time of an acquisition or similar transaction, including assumptions regarding estimated renewals.
The Company amortizes its acquired network location intangibles and tenant-related intangibles on a straight-line basis over their estimated useful lives. As of March 31, 2021, the remaining weighted average amortization period of the Company’s intangible assets was i15
years. Amortization of intangible assets for the three months ended March 31, 2021 and 2020 was $i253.4 million and $i217.5 million,
respectively. iBased on current exchange rates, the Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:
6. iLONG-TERM
OBLIGATIONS iOutstanding amounts under the Company’s long-term obligations, reflecting discounts, premiums, debt issuance costs and fair value adjustments due to interest rate swaps consisted of the following:
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular
amounts in millions, unless otherwise noted)
(5)Maturity date reflects the anticipated repayment date; final legal maturity is June 15, 2050.
(6)Debt entered into by certain InSite subsidiaries acquired in connection with the InSite Acquisition (the “InSite Debt”). On January 15, 2021, all amounts outstanding under the InSite Debt were repaid.
(7)Includes (a) the Colombian credit facility, which is denominated in Colombian Pesos (“COP”) and amortizes through April 24, 2021, (b) debt entered into by the
Company’s Kenyan subsidiary in connection with an acquisition of sites in Kenya, which is denominated in U.S. Dollars (“USD”) and is payable either (i) in future installments subject to the satisfaction of specified conditions or (ii) ithree years from the note origination date, and (c) U.S. subsidiary debt related to a seller-financed acquisition.
Current portion of long-term obligations—The
Company’s current portion of long-term obligations primarily includes (i) $i600.0 million aggregate principal amount of i2.250% senior unsecured notes due January
15, 2022 and (ii) $i700.0 million aggregate principal amount of i4.70% senior unsecured notes due March 15, 2022.
Securitized
Debt—Cash flows generated by the sites that secure the securitized debt of the Companyare only available for payment of such debt and are not available to pay the Company’s other obligations or the claims of its creditors. However, subject to certain restrictions, the Company holds the right to receive the excess cash flows not needed to service the securitized debt and other obligations arising out of the securitizations. The securitized debt is the obligation of the issuers thereof or borrowers thereunder, as applicable, and their subsidiaries, and
not of the Company or its other subsidiaries.
Repayment of InSite Debt—The InSite Debt included securitizations entered into by certain InSite subsidiaries. The Company acquired this debt in connection with the InSite Acquisition. The InSite Debt was recorded at fair value upon acquisition. On January 15, 2021, the Company repaid the entire amount outstanding under the InSite Debt, plus accrued and unpaid interest
up to, but excluding, January 15, 2021, for an aggregate redemption price of $i826.4 million, including $i2.3 million
in accrued and unpaid interest. The Company recorded a loss on retirement of long-term obligations of approximately $i25.7 million, which includes prepayment consideration partially offset by the unamortized fair value adjustment recorded upon acquisition. The repayment of the InSite Debt was funded with borrowings under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility (as defined below) and cash on hand.
Offerings
of Senior Notes
1.600% Senior Notes and 2.700% Senior Notes Offering—On March 29, 2021, the Company completed a registered public offering of $i700.0 million aggregate principal amount of i1.600%
senior unsecured notes due 2026 (the “i1.600% Notes”) and $i700.0 million aggregate principal amount of i2.700%
senior unsecured notes due 2031 (the “i2.700% Notes” and, together with the 1.600% Notes, the “Notes”). The net proceeds from this offering were approximately $i1,386.3 million,
after deducting commissions and estimated expenses. The Company used all of the net proceeds to repay existing indebtedness under the 2021 Multicurrency Credit Facility.
(1)Accrued and unpaid interest is payable in USD semi-annually in arrears and will be computed from the issue date on the basis of a i360-day year comprised of twelve 30-day months.
(2)The Company may redeem the Notes at any time, in whole or in part, at a redemption price equal to ii100/%
of the principal amount of the Notes plus a make-whole premium, together with accrued interest to the redemption date. If the Company redeems the Notes on or after the par call date, the Company will not be required to pay a make-whole premium.
If the Company undergoes a change of control and corresponding ratings decline, each as defined in the supplemental indenture for the Notes, the Company may be required to repurchase all of the Notes at a purchase
price equal to i101% of the principal amount of such Notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The Notes rank equally with all of the Company’s other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of its subsidiaries.
The
supplemental indenture contains certain covenants that restrict the Company’s ability to merge, consolidate or sell assets and its (together with its subsidiaries’) ability to incur liens. These covenants are subject to a number of
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions,
unless otherwise noted)
exceptions, including that the Company and its subsidiaries may incur certain liens on assets, mortgages or other liens securing indebtedness if the aggregate amount of indebtedness secured by such liens does not exceed i3.5x Adjusted EBITDA, as defined in the applicable supplemental indenture.
Bank
Facilities
Amendments to Bank Facilities—On February 10, 2021, the Company amended and restated its senior unsecured multicurrency revolving credit facility (as amended, the “2021 Multicurrency Credit Facility”) and its senior unsecured revolving credit facility (as amended, the “2021 Credit Facility”) and entered into an amendment agreement with respect to its $i1.0 billion
unsecured term loan, as amended and restated in December 2019 (as amended, the “2019 Term Loan”).
These amendments, among other things,
i.extend the maturity dates by one year to June 28, 2024 and January 31, 2026 for the 2021 Multicurrency Credit Facility and the 2021 Credit Facility, respectively,
ii.increase the commitments under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility to $i4.1 billion
and $i2.9 billion, respectively, of which i1.3 billion EUR borrowed under the 2021 Multicurrency Credit Facility is to be
reserved to finance the Pending Telxius Acquisition (as defined in note 14),
iii.increase the maximum Revolving Loan Commitments, after giving effect to any Incremental Commitments (each as defined in the loan agreements for each of the 2021 Multicurrency Credit Facility and the 2021 Credit Facility) to $i6.1 billion and $i4.4 billion
under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility, respectively,
iv.expand the sublimit for multicurrency borrowings under the 2021 Multicurrency Credit Facility from $i1.0 billion to $i3.0 billion
and add a EUR borrowing option for the 2021 Credit Facility with a $i1.5 billion sublimit,
v.amend the limitation of the Company’s permitted ratio of Total Debt to Adjusted EBITDA (each as defined in each of the loan agreements for each of the facilities) to be no greater than ii7.50/
to 1.00 for the four fiscal quarters following the consummation of the Pending Telxius Acquisition, stepping down to ii6.00/
to 1.00 thereafter (with a further step up to ii7.00/
to 1.00 if the Company consummates a Qualified Acquisition (as defined in each of the loan agreements for the facilities)),
vi.amend the limitation on indebtedness of, and guaranteed by, the Company’s subsidiaries to the greater of (a) $ii3.0/ billion
and (b) ii50/%
of Adjusted EBITDA (as defined in each of the loan agreements for the facilities) of the Company and its subsidiaries on a consolidated basis and
vii.increase the threshold for certain defaults with respect to judgments, attachments or acceleration of indebtedness from $i400.0 million to $i500.0 million.
2021
Multicurrency Credit Facility—During the three months ended March 31, 2021, the Company borrowed an aggregate of $i1.8 billion and repaid an aggregate of $i1.6 billion
of revolving indebtedness under the 2021 Multicurrency Credit Facility. The Company used the borrowings to repay existing indebtedness, including the InSite Debt and its $i750.0 million unsecured term loan due February 12, 2021 (the “2020 Term Loan”), and for general corporate purposes.
2021 Credit Facility—During the three months
ended March 31, 2021, the Company borrowed an aggregate of $i50.0 million and made ino
repayments of revolving indebtedness under the 2021 Credit Facility. The Company used the borrowings for general corporate purposes.
Repayment of the 2020 Term Loan—On February 5, 2021, the Company repaid all amounts outstanding under the 2020 Term Loan with borrowings from the 2021 Multicurrency Credit Facility and cash on hand.
NOTES TO CONSOLIDATED
AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
2021 Delayed Draw Term Loans—On February 10, 2021, the Company entered into (i) a i1.1 billion EUR (approximately $i1.3 billion
at the date of signing) unsecured term loan, the proceeds of which are to be used to fund the Pending Telxius Acquisition, with a maturity date that is i364 days from the date of the first draw thereunder and that bears interest at a rate based on the senior unsecured debt rating of the Company, which, based on the Company’s current debt ratings, is i1.000%
above the Euro Interbank Offered Rate (“EURIBOR”) (the “2021 i364-Day Delayed Draw Term Loan”) and (ii) an i825.0 million EUR (approximately $i1.0 billion
at the date of signing) unsecured term loan, the proceeds of which are to be used to fund the Pending Telxius Acquisition, with a maturity date that is ithree years from the date of the first draw thereunder and that bears interest at a rate based on the senior unsecured debt rating of the Company, which, based on the Company’s current debt ratings, is i1.125%
above EURIBOR (the “2021 iThree Year Delayed Draw Term Loan,” and, together with the 2021 i364-Day Delayed Draw Term Loan, the “2021 Delayed Draw Term Loans”).
The loan agreements for the 2021 Delayed Draw Term Loans contain certain reporting, information, financial and operating
covenants and other restrictions (including limitations on additional debt, guaranties, sales of assets and liens) with which the Company must comply. Failure to comply with the financial and operating covenants of the loan agreements could not only prevent the Company from being able to borrow additional funds under the revolving credit facilities, but may constitute a default, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable.
Bridge Facility—In connection with entering into the Pending Telxius Acquisition, the Company entered into a commitment
letter (the “Commitment Letter”), dated January 13, 2021, with Bank of America, N.A. and BofA Securities, Inc. (together, “BofA”) pursuant to which BofA has, with respect to bridge financing, committed to provide up to i7.5 billion EUR (approximately $i9.1 billion
at the date of signing) in bridge loans (the “Bridge Loan Commitment”) to ensure financing for the Pending Telxius Acquisition. Effective February 10, 2021, the Bridge Loan Commitment was reduced to i4.275 billion EUR (approximately $i5.2 billion
at the date of signing) as a result of an aggregate of i3.225 billion EUR (approximately $i3.9 billion
at the date of signing) of additional committed amounts under the 2021 Multicurrency Credit Facility, the 2021 Credit Facility and the 2021 Delayed Draw Term Loans, as described above.
The Commitment Letter contains, and the credit agreement in respect of the Bridge Loan Commitment, if any, will contain, certain customary conditions to funding, including, without limitation, (i) the execution and delivery of definitive financing agreements for the Bridge Loan Commitment and (ii) other customary closing conditions set forth in the Commitment Letter. The Company will pay certain customary commitment fees and, in the event it makes any borrowings in connection with the Bridge Loan Commitment, funding and other fees.
India Credit Facility—During the three months ended
March 31, 2021, the Company entered into a working capital facility in India with a borrowing capacity of i1.0 billion Indian Rupees (“INR”) (approximately $i13.7 million).
The working capital facility is subject to annual renewal and bears interest at a rate equal to the one-month India Treasury Bill rate at the time of borrowing plus a spread. As of March 31, 2021, the Company has not borrowed under this facility.
i
As of March 31, 2021, the key terms under the
2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan, the 2021 364-Day Delayed Draw Term Loan, the 2021 Three Year Delayed Draw Term Loan and the Bridge Loan Commitment were as follows:
(1)LIBOR,
which means the London Interbank Offered Rate, applies to the 2021 Multicurrency Credit Facility, the 2021 Credit Facility and the 2019 Term Loan. EURIBOR, which means the Euro Interbank Offered Rate, applies to the 2021 Delayed Draw Term Loans and the Bridge Loan Commitment.
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
(2)Fee
on undrawn portion of each credit facility.
(3)Subject to itwo optional renewal periods.
(4)The maturity dates for the 2021 364-Day Delayed Draw Term Loan and the 2021 Three Year Delayed Draw Term Loan are 364 days and three years, respectively, from the date of the first borrowing under each facility. As of March 31, 2021, no borrowings were made under these facilities,
and as such, no maturity dates have been set. The Company’s ability to borrow thereunder is subject to the occurrence of certain conditions related to the Pending Telxius Acquisition, as set forth in the agreements for the 2021 Delayed Draw Term Loans.
(5)The Bridge Loan Commitment includes subfacilities relating to the various tranches of closings under the Pending Telxius Acquisition. The maturity dates of the subfacilities are 364 days from the first closing date pursuant to such tranche. Each subfacility is subject to a duration fee that applies to the outstanding principal balance beginning 90 days after the related acquisition closing date. As of March 31, 2021, there have been no closings related to the Pending Telxius Acquisition, and as such, no maturity dates
have been set and no duration fees apply.
7. iFAIR VALUE MEASUREMENTS
The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. iBelow are the three levels of inputs that may be used to measure fair value:
Level 1
Quoted
prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Items Measured at Fair Value on a Recurring Basis—iThe fair values of the Company’s financial assets and liabilities that are required to be measured on a recurring basis at fair
value were as follows:
Fair
value of debt related to interest rate swap agreements (1)
$
i26.3
i—
i—
$
i31.4
i—
i—
_______________
(1)Included
in the carrying values of the corresponding debt obligations.
During the three months ended March 31, 2021, the Company made no changes to the methods described in note 12 to its consolidated financial statements included in the 2020 Form 10-K that it used to measure the fair value of its interest rate swap agreements.
Items Measured at Fair Value on a Nonrecurring Basis
Assets Held and Used—The Company’s long-lived assets are recorded at amortized cost and, if impaired, are adjusted to fair value using Level 3 inputs. During the three months ended March
31, 2021 and 2020, the Company recorded $i0.6 million and $i3.7
million of impairments, respectively. There were no other items measured at fair value on a nonrecurring basis during the three months ended March 31, 2021 or 2020.
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
Fair Value of Financial Instruments—The Company’s financial instruments for which the carrying
value reasonably approximates fair value at March 31, 2021 and December 31, 2020 include cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The Company’s estimates of fair value of its long-term obligations, including the current portion, are based primarily upon reported market values. For long-term debt not actively traded, fair value is estimated using either indicative price quotes or a discounted cash flow analysis using rates for debt with similar terms and maturities. As of March 31, 2021 and December 31, 2020, the carrying value of long-term obligations, including the current portion, was $ii29.3/
billion. As of March 31, 2021, the fair value of long-term obligations, including the current portion, was $i30.4 billion, of which $i24.3
billion was measured using Level 1 inputs and $i6.1 billion was measured using Level 2 inputs. As of December 31, 2020, the fair value of long-term obligations, including the current portion, was $i31.4
billion, of which $i24.0 billion was measured using Level 1 inputs and $i7.4 billion was measured using Level 2 inputs.
8. iINCOME
TAXES
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate (“ETR”) for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual ETR is determined. Under the provisions of the Internal Revenue Code of 1986, as amended, the Company may deduct amounts distributed to stockholders against the income generated by its real estate investment trust (“REIT”) operations. The Company continues to be subject to income taxes on
the income of its domestic taxable REIT subsidiaries and income taxes in foreign jurisdictions where it conducts operations. In addition, the Company is able to offset certain income by utilizing its net operating losses, subject to specified limitations.
The Company provides valuation allowances if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Management assesses the available evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.
The increase in the income tax provision during
the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily attributable to an increase in foreign earnings in the current period and higher benefits related to foreign exchange losses during the three months ended March 31, 2020.
As of March 31, 2021 and December 31, 2020, the total unrecognized tax benefits that would impact the ETR, if recognized, were approximately $i104.7
million and $i105.9 million, respectively. The amount of unrecognized tax benefits during the three months ended March 31, 2021 includes (i) reductions due to foreign currency exchange rate fluctuations of $i2.2 million,
(ii) reductions to the Company’s prior year tax positions of $i1.5 million and (iii) additions to the Company’s existing tax positions of $i1.2 million.
Unrecognized tax benefits are expected to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this time frame, as described in note 13 to the Company’s consolidated financial statements included in the 2020 Form 10-K. The impact of the amount of these changes to previously recorded uncertain tax positions could range from izero to $i34.2
million.
i
The Company recorded the following penalties and income tax-related interest expense during the three months ended March 31, 2021 and 2020:
As
of March 31, 2021 and December 31, 2020, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheets were $i37.1 million and $i34.4
million, respectively.
9. iSTOCK-BASED COMPENSATION
Summary of Stock-Based Compensation Plans—The Company maintains equity incentive plans that provide for the grant of stock-based awards
to its directors, officers and employees. The 2007 Equity Incentive Plan, as amended (the “2007 Plan”), provides for the grant of non-qualified and incentive stock options, as well as restricted stock units, restricted stock and other stock-based awards. Exercise prices for non-qualified and incentive stock options are not less than the fair value of the underlying common stock on the date of grant. Equity awards typically vest ratably, generally over ifour years for time-based restricted stock units (“RSUs”)
and stock options and ithree years for performance-based restricted stock units (“PSUs”). Stock options generally expire iten
years from the date of grant. As of March 31, 2021, the Company had the ability to grant stock-based awards with respect to an aggregate of i5.9 million shares of common
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
stock under the 2007 Plan. In addition, the Company maintains an employee stock purchase plan (the “ESPP”) pursuant to which eligible employees may purchase shares of the Company’s common stock on the last day of each bi-annual offering period at a i15% discount
from the lower of the closing market value on the first or last day of such offering period. The offering periods run from June 1 through November 30 and from December 1 through May 31 of each year.
i
During the three months ended March 31, 2021 and 2020,
the Company recorded and capitalized the following stock-based compensation expense:
(1)For
the three months ended March 31, 2021, stock-based compensation expense consisted of $i38.0 million included in selling, general, administrative and development expense.
/
(2)For the three months ended March
31, 2020, stock-based compensation expense consisted of (i) $i0.6 million included in Property costs of operations, (ii) $i0.3 million included in Services costs of operations
and (iii) $i46.8 million included in selling, general, administrative and development expense. For the three months ended March 31, 2020, stock-based compensation expense capitalized as property and equipment was $i0.5 million.
Stock Options—As of March 31, 2021, total unrecognized compensation expense related to unvested stock options was less than $i0.1 million, which is expected to be recognized over a weighted average period of less than ione
year.
i
The Company’s option activity for the three months ended March 31, 2021 was as follows (shares disclosed in full amounts):
Restricted Stock Units—As
of March 31, 2021, total unrecognized compensation expense related to unvested RSUs granted under the 2007 Plan was $i197.7 million and is expected to be recognized over a weighted average period of approximately ithree
years. Vesting of RSUs is subject generally to the employee’s continued employment or death, disability or qualified retirement (each as defined in the applicable RSU award agreement).
Performance-Based Restricted Stock Units—During the three months ended March 31, 2021, the Company’s Compensation Committee (the “Compensation Committee”) granted an aggregate of i92,312
PSUs (the “2021 PSUs”) to its executive officers and established the performance metrics for these awards. During the years ended December 31, 2020 and 2019, the Compensation Committee granted an aggregate of i110,925 PSUs (the “2020 PSUs”) and i114,823
PSUs (the “2019 PSUs”), respectively, to its executive officers and established the performance metrics for these awards. Threshold, target and maximum parameters were established for the metrics for a three-year performance period with respect to each of the 2021 PSUs, the 2020 PSUs and the 2019 PSUs and will be used to calculate the number of shares that will be issuable when each award vests, which may range from izero to i200%
of the target amounts. At the end of each three-year performance period, the number of shares that vest will depend on the degree of achievement against the pre-established performance goals. PSUs will be paid out in common stock at the end of each performance period, subject generally to the executive’s continued employment or death, disability or qualified retirement (each as defined in the applicable PSU award agreement). PSUs will accrue dividend equivalents prior to vesting, which will be paid out only in respect of shares that actually vest.
Restricted Stock Units and Performance-Based Restricted Stock Units—iThe
Company’s RSU and PSU activity for the three months ended March 31, 2021 was as follows (shares disclosed in full amounts):
(1)PSUs
consist of the target number of shares issuable at the end of the iithree-year/
performance period for the outstanding 2020 PSUs and the outstanding 2019 PSUs, or i70,739 and i86,889
shares, respectively, and the shares issuable at the end of the ithree-year performance period for the PSUs granted in 2018 (the “2018 PSUs”) based on achievement against the performance metrics for the ithree-year
performance period, or i162,882 shares.
(2)PSUs consist of the target number of shares issuable at the end of the ithree-year
performance period for the 2021 PSUs, or i92,312 shares.
(3)This includes i58,204
of previously vested and deferred RSUs. PSUs consist of shares vested pursuant to the 2018 PSUs. There are no additional shares to be earned related to the 2018 PSUs.
(4)Vested and deferred PSUs are related to deferred compensation for certain former employees.
During the three months ended March 31, 2021, the Company recorded $i1.5 million in stock-based compensation expense
for equity awards in which the performance goals have been established and were probable of being achieved. The remaining unrecognized compensation expense related to these awards at March 31, 2021 was $i20.8 million based on the Company’s current assessment of the probability of achieving the performance
goals. The weighted average period over which the cost will be recognized is approximately ithree years.
10. iREDEEMABLE
NONCONTROLLING INTERESTS
India Redeemable Noncontrolling Interests—On April 21, 2016, the Company, through its wholly owned subsidiary, ATC Asia Pacific Pte. Ltd., acquired a i51% controlling ownership interest in ATC TIPL (formerly Viom), a telecommunications infrastructure company that owns and operates wireless communications towers
and indoor DAS networks in India (the “Viom Acquisition”), which was subsequently merged with the Company’s existing India property operations.
In connection with the Viom Acquisition, the Company, through one of its subsidiaries, entered into a shareholders agreement (the “Shareholders Agreement”) with Viom and the following remaining Viom shareholders: Tata Sons Limited (“Tata Sons”), Tata Teleservices Limited (“Tata Teleservices”), IDFC Private Equity Fund III (“IDFC”), Macquarie SBI Infrastructure Investments Pte Limited and SBI Macquarie Infrastructure Trust (together, “Macquarie,” and, collectively with Tata Sons,
Tata Teleservices and IDFC, the “Remaining Shareholders”).
The Shareholders Agreement also provides the Remaining Shareholders with put options, which allow them to sell outstanding shares of ATC TIPL to the Company, and the Company with call options, which allow it to buy the noncontrolling shares of ATC TIPL. The put options, which are not under the Company’s control, cannot be separated from the noncontrolling interests. As a result, the combination of the noncontrolling interests and the redemption feature requires classification as redeemable noncontrolling interests in the consolidated balance sheet, separate from equity.
During
the three months ended March 31, 2021, the Company made no changes to the methods of determining redemption value described in note 15 to its consolidated financial statements included in the 2020 Form 10-K.
During the year ended December 31, 2020, the Company redeemed i100%
of Tata Teleservices and Tata Sons’ remaining combined holdings of ATC TIPL for total consideration of INR i24.8 billion ($i337.3
million at the date of redemption). As a result of the redemption, the Company’s controlling interest in ATC TIPL increased from i79% to i92%
and the noncontrolling interest decreased from i21% to i8%.
During
the three months ended March 31, 2021, the Company entered into an agreement with Macquarie to redeem i100% of their combined holdings in ATC TIPL at a price of INR i175
per share, subject to certain adjustments. Accordingly, the Company expects to pay an amount equivalent to INR i12.9 billion (approximately $i176.5 million)
to redeem the shares in 2021, subject to regulatory approval. After the completion of the redemption, the Company will hold a i100% ownership interest in ATC TIPL.
Other Redeemable Noncontrolling Interests—During the year ended December 31, 2020, the Company completed the acquisition
of MTN Group Limited’s noncontrolling interests in each of the Company’s joint ventures in Ghana and Uganda for total consideration of approximately $i524.4 million, including a net adjustment of $i1.4 million
made during
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
the three months ended March 31, 2020, which resulted in an increase in the Company’s controlling interests in such joint ventures from i51%
to i100%.
In 2019, the Company, through a subsidiary of ATC Europe, entered into an agreement with its local partners in France to form Eure-et-Loir Réseaux Mobiles SAS (“Eure-et-Loir”), a telecommunications infrastructure company that owned and operated wireless communications towers in France. During the three months ended March 31, 2021, the Company liquidated
its interests in Eure-et-Loir for total consideration of i2.2 million EUR (approximately $i2.5 million
at the date of redemption).
i
The changes in Redeemable noncontrolling interests were as follows:
Net
income attributable to noncontrolling interests
i2.3
i7.7
Adjustment
to noncontrolling interest redemption value
i1.2
(i6.3)
Purchase
of redeemable noncontrolling interest
(i2.5)
(i524.4)
Foreign
currency translation adjustment attributable to noncontrolling interests
(i0.2)
(i32.1)
Balance
as of March 31,
$
i212.9
$
i541.4
/
11. iEQUITY
Sales
of Equity Securities—The Company receives proceeds from sales of its equity securities pursuant to the ESPP and upon exercise of stock options granted under the 2007 Plan. During the three months ended March 31, 2021, the Company received an aggregate of $i1.9 million in proceeds upon exercises of
stock options.
2020 “At the Market” Stock Offering Program—In August 2020, the Company established an “at the market” stock offering program through which it may issue and sell shares of its common stock having an aggregate gross sales price of up to $i1.0 billion (the “2020 ATM Program”). Sales under the 2020 ATM Program may be made by means of ordinary brokers’ transactions
on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or, subject to specific instructions of the Company, at negotiated prices. The Company intends to use the net proceeds from any issuances under the 2020 ATM Program for general corporate purposes, which may include, among other things, the funding of acquisitions, additions to working capital and repayment or refinancing of existing indebtedness. As of March 31, 2021, the Company has inot
sold any shares of common stock under the 2020 ATM Program.
Stock Repurchase Programs—In March 2011, the Company’s Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to $i1.5 billion of its common stock (the “2011 Buyback”). In December
2017, the Board of Directors approved an additional stock repurchase program, pursuant to which the Company is authorized to repurchase up to $i2.0 billion of its common stock (the “2017 Buyback,” and, together with the 2011 Buyback, the “Buyback Programs”).
During the three months ended March 31, 2021, there were ino
repurchases under either of the Buyback Programs. As of March 31, 2021, the Company has repurchased a total of i14,361,283 shares of its common stock under the 2011 Buyback for an aggregate of $i1.5
billion, including commissions and fees. As of March 31, 2021, the Company has inot made any repurchases under the 2017 Buyback.
Under the Buyback Programs, the Company is authorized to purchase shares from time to time through open market purchases, in privately negotiated transactions not
to exceed market prices, and (with respect to such open market purchases) pursuant to plans adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with securities laws and other legal requirements and subject to market conditions and other factors.
The Company expects to fund any further repurchases of its common stock through a combination of cash on hand, cash generated by operations and borrowings under its credit facilities. Repurchases under the Buyback Programs are subject to, among other things, the Company having available cash to fund the repurchases.
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
Distributions—iDuring the three months ended March 31, 2021, the
Company declared or paid the following cash distributions (per share data reflects actual amounts):
(1)Does
not include amounts accrued for distributions payable related to unvested restricted stock units.
The Company accrues distributions on unvested restricted stock units, which are payable upon vesting. As of March 31, 2021, the amount accrued for distributions payable related to unvested restricted stock units was $i7.6 million. During the three months ended March 31, 2021
and 2020, the Company paid $i7.3 million and $i7.6 million of distributions upon the
vesting of restricted stock units, respectively. To maintain its qualification for taxation as a REIT, the Company expects to continue paying distributions, the amount, timing and frequency of which will be determined, and subject to adjustment, by the Company’s Board of Directors.
Dividend to noncontrolling interest— The Company’s joint ventures may, from time to time, declare dividends. During the year ended December 31, 2020, ATC Europe declared a dividend of i13.2 million
EUR (approximately $i16.2 million accrued as of December 31, 2020) payable in cash to the Company and PGGM in proportion to their respective equity interests in the joint venture. The dividend was paid on January 6, 2021.
Purchase of Interests—During the three months ended March 31,
2021, the Company purchased the remaining minority interests held in a subsidiary for an aggregate purchase price of $i6.0 million of unregistered shares of the Company’s common stock, in lieu of cash. The Company now owns i100%
of the subsidiary as a result of the purchase.
12. iEARNINGS PER COMMON SHARE
i
The
following table sets forth basic and diluted net income per common share computational data (shares in thousands, except per share data):
Net
income attributable to American Tower Corporation common stockholders
$
i645.0
$
i415.0
Basic
weighted average common shares outstanding
i444,486
i443,055
Dilutive
securities
i1,808
i2,777
Diluted
weighted average common shares outstanding
i446,294
i445,832
Basic
net income attributable to American Tower Corporation common stockholders per common share
$
i1.45
$
i0.94
Diluted
net income attributable to American Tower Corporation common stockholders per common share
$
i1.45
$
i0.93
/
Shares
Excluded From Dilutive Effect—iThe following shares were not included in the computation of diluted earnings per share because the effect would be anti-dilutive (in thousands, on a weighted average basis):
Litigation—The Company periodically becomes involved in various claims, lawsuits and proceedings that are incidental to its business. In the opinion of Company management, after consultation with counsel, there are no matters currently pending that would, in the event of an adverse outcome, materially impact the Company’s consolidated financial position, results of operations or liquidity.
Verizon Transaction—In March 2015, the Company entered into an agreement with various operating entities of Verizon Communications Inc. (“Verizon”) that currently
provides for the lease, sublease or management of approximately i11,250 wireless communications sites commencing March 27, 2015. The average term of the lease or sublease for all sites at the inception of the agreement was approximately i28
years, assuming renewals or extensions of the underlying ground leases for the sites. The Company has the option to purchase the leased sites in tranches, subject to the applicable lease, sublease or management rights upon its scheduled expiration. Each tower is assigned to an annual tranche, ranging from 2034 to 2047, which represents the outside expiration date for the sublease rights to the towers in that tranche. The purchase price for each tranche is a fixed amount stated in the lease for such tranche plus the fair market value of certain alterations made to the related towers. The aggregate purchase option price for the towers leased and subleased is approximately $i5.0
billion. Verizon will occupy the sites as a tenant for an initial term of iten years with ieight optional successive ifive-year
terms; each such term shall be governed by standard master lease agreement terms established as a part of the transaction.
AT&T Transaction—The Company has an agreement with SBC Communications Inc., a predecessor entity to AT&T Inc. (“AT&T”), that currently provides for the lease or sublease of approximately i2,100 towers commencing between December 2000 and August 2004. Substantially all of
the towers are part of the securitization transactions completed in March 2013 and March 2018. The average term of the lease or sublease for all sites at the inception of the agreement was approximately i27 years, assuming renewals or extensions of the underlying ground leases for the sites. The Company has the option to purchase the sites subject to the applicable lease or sublease upon its expiration. Each tower is assigned to an annual tranche, ranging from 2013 to 2032, which represents the outside expiration date for the sublease
rights to that tower. The purchase price for each site is a fixed amount stated in the lease for that site plus the fair market value of certain alterations made to the related tower by AT&T. As of March 31, 2021, the Company has purchased an aggregate of i331 of the subleased towers which are subject to the applicable agreement. The aggregate purchase option price for the remaining towers leased and subleased is $i997.0
million and includes per annum accretion through the applicable expiration of the lease or sublease of a site. For all such sites, AT&T has the right to continue to lease the reserved space through June 30, 2025 at the then-current monthly fee, which shall escalate in accordance with the standard master lease agreement for the remainder of AT&T’s tenancy. Thereafter, AT&T shall have the right to renew such lease for up to ifive successive ifive-year
terms.
Other Contingencies—The Company is subject to income tax and other taxes in the geographic areas where it holds assets or operates, and periodically receives notifications of audits, assessments or other actions by taxing authorities. Taxing authorities may issue notices or assessments while audits are being conducted. In certain jurisdictions, taxing authorities may issue assessments with minimal examination. These notices and assessments do not represent amounts that the Company is obligated to pay and are often not reflective of the actual tax liability for which the Company will ultimately be liable. In the process of responding to
assessments of taxes that the Company believes are not enforceable, the Company avails itself of both administrative and judicial remedies. The Company evaluates the circumstances of each notification or assessment based on the information available and, in those instances in which the Company does not anticipate a successful defense of positions taken in its tax filings, a liability is recorded in the appropriate amount based on the underlying assessment.
On December 5, 2016, the
Company received an income tax assessment of Essar Telecom Infrastructure Private Limited (“ETIPL”) from the India Income Tax Department (the “Tax Department”) for the fiscal year ending 2008 in the amount of INR i4.75 billion ($i69.8
million on the date of assessment) related to capital contributions. The Company challenged the assessment before the Office of Commissioner of Income Tax - Appeals, which ruled in the Company’s favor in January 2018. However, the Tax Department has appealed this ruling at a higher appellate authority. The Company estimates that there is a more likely than not probability that the Company’s position will be sustained upon appeal. Accordingly, no liability has been recorded. Additionally, the assessment was made with respect to transactions
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
that took place in the tax year commencing in 2007, prior to the Company’s acquisition of ETIPL. Under the Company’s definitive acquisition agreement with ETIPL, the seller is obligated to indemnify and defend the Company with respect to any tax-related liability that may arise from activities prior to March
31, 2010.
Guaranties and Indemnifications— If the Company is unable to close the Pending Telxius Acquisition, the Company would be liable under the terms of the agreements to make certain payments to Telxius (each as defined below), which could be material.
14. iACQUISITIONS
Impact of current year acquisitions—The Company typically acquires communications sites and other communications infrastructure assets from wireless carriers or other tower operators and subsequently integrates those sites and related assets into its existing portfolio of communications sites and related assets. The financial results of the Company’s acquisitions have been included in the Company’s consolidated statements of operations for the three months ended March 31, 2021 from the date of the respective acquisition. The date of acquisition, and by extension the point at which the
Company begins to recognize the results of an acquisition, may depend on, among other things, the receipt of contractual consents, the commencement and extent of leasing arrangements and the timing of the transfer of title or rights to the assets, which may be accomplished in phases. Sites acquired from communications service providers may never have been operated as a business and may instead have been utilized solely by the seller as a component of its network infrastructure. An acquisition may or may not involve the transfer of business operations or employees.
The Company evaluates each of its acquisitions under the accounting guidance framework to determine whether to treat an acquisition as an asset acquisition or a business combination. For those transactions treated as asset acquisitions, the purchase price is allocated to the
assets acquired, with no recognition of goodwill.
For those acquisitions accounted for as business combinations, the Company recognizes acquisition and merger related expenses in the period in which they are incurred and services are received; for transactions accounted for as asset acquisitions, these costs are capitalized as part of the purchase price. Acquisition and merger related costs may include finder’s fees, advisory, legal, accounting, valuation and other professional or consulting fees and general administrative costs directly related to completing the transaction. Integration costs include incremental and non-recurring costs necessary to convert data, retain employees and otherwise enable the Company to operate acquired businesses or assets
efficiently. The Company records acquisition and merger related expenses for business combinations, as well as integration costs for all acquisitions, in Other operating expenses in the consolidated statements of operations.
i
During the three months ended March 31, 2021 and 2020, the
Company recorded acquisition and merger related expenses for business combinations and non-capitalized asset acquisition costs and integration costs as follows:
During
the three months ended March 31, 2021, the Company also recorded benefits of $i4.0 million related to pre-acquisition contingencies and settlements. The increase in acquisition and merger related costs during the three months ended March 31, 2021 was primarily associated with the Pending Telxius Acquisition (as defined below).
2021
Transactions
The estimated aggregate impact of the acquisitions completed in 2021 on the Company’s revenues and gross margin for the three months ended March 31, 2021 was approximately $i0.5 million and $i0.4
million, respectively. The revenues and gross margin amounts also reflect incremental revenues from the addition of new tenants to such sites subsequent to the transaction date.
Entel Acquisition—On December 19, 2019, the Company entered into a definitive agreement to acquire approximately i3,200 communications sites in Chile and Peru from Entel PCS Telecomunicaciones S.A.
and Entel Peru S.A. for total consideration of approximately $i0.8 billion (as of the date of signing). The Company completed the acquisition of approximately i2,400
communications sites in December 2019 and an additional i530 communications sites pursuant to this agreement during the year ended December 31, 2020. During the three months ended March 31, 2021, the Company completed the acquisition of an additional i50
communications sites pursuant to this agreement for an aggregate total
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
purchase price of $i14.7 million
(as of the dates of acquisition), including value added tax, which are being accounted for as an acquisition of assets and are included in the table below. The remaining communications sites are expected to continue to close in tranches, subject to certain closing conditions.
Other Acquisitions—During the three months ended March 31, 2021, the Company acquired a total of i66 communications sites as well as other
communications infrastructure assets in the United States, Mexico and Peru, for an aggregate purchase price of $i62.5 million. Of the aggregate purchase price, $i4.0 million
is reflected as a payable in the consolidated balance sheet as of March 31, 2021. These acquisitions were accounted for as asset acquisitions.
i
The following table summarizes the allocations of the purchase prices for the fiscal year 2021 acquisitions based upon their estimated fair value at the date of acquisition:
Allocation
(1)
Current assets
$
i0.3
Property and equipment
i22.5
Intangible
assets (2):
Tenant-related intangible assets
i37.3
Network location intangible assets
i15.7
Other
intangible assets
i—
Other non-current assets
i5.8
Current
liabilities
(i1.0)
Deferred tax liability
i—
Other
non-current liabilities
(i3.4)
Net assets acquired
i77.2
Goodwill
i—
Fair value of net assets acquired
i77.2
Debt
assumed
i—
Purchase price
$
i77.2
_______________
(1)Includes
i12 sites in Peru held pursuant to long-term finance leases.
/
(2)Tenant-related intangible assets and network location intangible assets are amortized on a straight-line basis generally over a i20
year period.
Other Signed Acquisitions
Orange Acquisition—On November 28, 2019, ATC France, a majority-owned subsidiary of the Company, entered into definitive agreements with Orange S.A. for the acquisition of up to approximately i2,000 communications sites in France over a period of up to ifive
years for total consideration in the range of approximately i500.0 million EUR to i600.0 million EUR (approximately
$i550.5 million to $i660.5 million at the date of signing) to be paid over the ifive-year
term. The Company completed the acquisition of i564 of these sites during the year ended December 31, 2020. Subsequent to March 31, 2021, the Company completed the acquisition of an additional i81
communications sites. The remaining communications sites are expected to close in tranches, subject to customary closing conditions.
Pending Telxius Acquisition—On January 13, 2021, the Company entered into two agreements with Telxius Telecom, S.A. (“Telxius”), a subsidiary of Telefónica, S.A., pursuant to which the Company expects to acquire Telxius’ European and Latin American tower divisions, comprising approximately i31,000
communications sites in Argentina, Brazil, Chile, Germany, Peru and Spain, for approximately i7.7 billion EUR (approximately $i9.4 billion
at the date of signing) (the “Pending Telxius Acquisition”), subject to certain adjustments. As of April 28, 2021, the Company has received all required government and regulatory approvals in Germany and Spain and expects to close on the majority of the European sites in the second quarter of 2021, with approximately 4,000 sites in Germany expected to close in the third quarter of 2021. The Latin American sites are expected to close either late in the second quarter or in the third quarter of 2021, subject to customary closing conditions, including government and regulatory approval.
2020 Transactions
InSite Acquisition—On December 23, 2020, the
Company acquired i100% of the outstanding units of IWG Holdings, LLC, the parent company of InSite, which owned, operated and managed approximately i3,000
communications sites in
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
the U.S. and Canada. The portfolio included approximately i1,400
owned towers in the United States, over i200 owned towers in Canada and approximately i40 DAS networks in the United States. In addition, the portfolio included more than i600
land parcels under communications sites in the United States, Canada and Australia, as well as approximately i400 rooftop sites. The total consideration for the InSite Acquisition, including cash acquired, the repayment and assumption of certain debt held by InSite, was approximately $i3.5 billion,
subject to certain post-closing adjustments. The InSite Acquisition was accounted for as a business combination and is subject to post-closing adjustments. During the three months ended March 31, 2021, certain adjustments were made to reduce assets by $i3.1 million and increase liabilities by $i18.2 million
with a corresponding increase in goodwill of $i21.3 million and there were no other material post-closing adjustments. The full reconciliation and finalization of the assets acquired and liabilities assumed, including those subject to valuation, have not been completed and, as a result, there may be additional post-closing adjustments.
Pro Forma Consolidated Results (Unaudited)
i
The
following table presents the unaudited pro forma financial results as if the 2021 acquisitions had occurred on January 1, 2020 and the 2020 acquisitions had occurred on January 1, 2019. The pro forma results do not include any anticipated cost synergies, costs or other integration impacts. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the transactions been completed on the date indicated, nor are they indicative of the future operating results of the Company.
Pro
forma net income attributable to American Tower Corporation common stockholders
$
i644.9
$
i369.8
Pro
forma net income per common share amounts:
Basic net income attributable to American Tower Corporation common stockholders
$
i1.45
$
i0.83
Diluted
net income attributable to American Tower Corporation common stockholders
$
i1.45
$
i0.83
/
15. iBUSINESS
SEGMENTS
The Company’s primary business is leasing space on multitenant 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. This business is referred to as the Company’s property operations.
During the fourth quarter of 2020, as a result of the InSite Acquisition, the Company updated its reportable segments to rename U.S. property and Asia property to U.S. & Canada property and Asia-Pacific property, respectively. The
Company continues to report its results in isix segments – U.S. & Canada property, Asia-Pacific property, Africa property, Europe property, Latin America property and services. The change in reportable segment names is solely reflective of the inclusion of Canada and Australia in the Company’s business operations, as a result of the InSite Acquisition, and had no impact on the Company’s
consolidated financial statements or historical segment financial information for any prior periods.
•U.S. & Canada: property operations in Canada and the United States;
•Asia-Pacific: property operations in Australia and India;
•Africa: property operations in Burkina Faso, Ghana, Kenya, Niger, Nigeria, South Africa and Uganda;
•Europe: property operations in France, Germany and Poland; and
•Latin
America: property operations in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Paraguay and Peru.
The Company’s services segment offers tower-related services in the United States, including AZP and structural analysis, which primarily support its site leasing business, including the addition of new tenants and equipment on its sites. The services segment is a strategic business unit that offers different services from, and requires different resources, skill sets and marketing strategies than, the property operating segments.
The accounting policies applied in compiling segment information below are similar to those described in note 1 to the Company’s consolidated financial statements included in
the 2020 Form 10-K and as updated in note 1 above. Among other factors, in evaluating financial performance in each business segment, management uses segment gross margin and
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, unless otherwise noted)
segment operating profit. The Company defines segment gross margin as segment revenue less segment operating expenses excluding stock-based compensation expense
recorded in costs of operations; Depreciation, amortization and accretion; Selling, general, administrative and development expense; and Other operating expenses. The Company defines segment operating profit as segment gross margin less Selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. These measures of segment gross margin and segment operating profit are also before Interest income, Interest expense, Gain (loss) on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interests and Income tax benefit (provision). The categories of expenses indicated above, such as depreciation, have been excluded from segment operating performance as they are not considered in the review of information or the evaluation of results by management.
There are no significant revenues resulting from transactions between the Company’s operating segments. All intercompany transactions are eliminated to reconcile segment results and assets to the consolidated statements of operations and consolidated balance sheets.
i
Summarized financial information concerning the Company’s
reportable segments for the three months ended March 31, 2021 and 2020 is shown in the following tables. The “Other” column (i) represents amounts excluded from specific segments, such as business development operations, stock-based compensation expense and corporate expenses included in Selling, general, administrative and development expense; Other operating expenses; Interest income; Interest expense; Gain (loss) on retirement of long-term obligations; and Other income (expense), and (ii) reconciles segment operating profit to Income from continuing operations before income taxes.
Segment
selling, general, administrative and development expense (1)
i42.0
i32.6
i17.1
i5.5
i26.6
i123.8
i3.5
i127.3
Segment
operating profit
$
i857.9
$
i90.0
$
i130.7
$
i22.4
$
i204.9
$
i1,305.9
$
i8.8
$
i1,314.7
Stock-based
compensation expense
$
i47.7
i47.7
Other
selling, general, administrative and development expense
i43.7
i43.7
Depreciation,
amortization and accretion
i472.3
i472.3
Other
expense (2)
i311.3
i311.3
Income
from continuing operations before income taxes
$
i439.7
Total
assets
$
i22,486.9
$
i4,986.0
$
i4,510.3
$
i1,554.5
$
i6,739.0
$
ii40,276.7/
$
ii29.0/
$
ii483.4/
$
ii40,789.1/
_______________
(1)Segment
operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $i0.9 million and $i46.8 million, respectively.
(2)Primarily
includes interest expense.
27
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements relating to our goals, beliefs, plans or current expectations and other statements that are not of historical facts. For example, when we use words such
as “project,”“believe,”“anticipate,”“expect,”“forecast,”“estimate,”“intend,”“should,”“would,”“could,”“may” or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. Certain important factors may cause actual results to differ materially from those indicated by our forward-looking statements, including those set forth under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). Forward-looking statements represent management’s current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us.
The discussion and analysis of our
financial condition and results of operations that follow are based upon our consolidated and condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates and such differences could be material to the financial statements. This discussion should be read in conjunction with our consolidated and condensed consolidated financial statements herein and the accompanying notes, information set forth under the caption “Critical Accounting Policies and Estimates” in the 2020 Form 10-K, and in particular, the information set forth therein under Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
During the fourth quarter of 2020, as a result of the acquisition of InSite Wireless Group, LLC (“InSite,” and the acquisition, the “InSite Acquisition”), we updated our reportable segments to rename U.S. property and Asia property to U.S. & Canada property and Asia-Pacific property, respectively. We continue to report our results in six segments – U.S. & Canada property, Asia-Pacific property, Africa property, Europe property, Latin America property and services (see note 15 to our consolidated and condensed consolidated financial statements included in this Quarterly Report). The change in reportable segment names was solely reflective of the inclusion of Canada and Australia in our business operations, as a result of the InSite Acquisition, and had no impact on our consolidated financial statements or historical
segment financial information for any prior periods.
Overview
We are one of the largest global real estate investment trusts and a leading independent owner, operator and developer of multitenant communications real estate. Our primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold other telecommunications infrastructure, fiber and property interests that we lease primarily to communications service providers and
third-party tower operators. We refer to the business encompassing the above as our property operations, which accounted for 99% of our total revenues for the three months ended March 31, 2021 and includes our U.S. & Canada property, Asia-Pacific property, Africa property, Europe property and Latin America property segments.
We also offer tower-related services in the United States, including site application, zoning and permitting and structural analysis, which primarily support our site leasing business, including the addition of new tenants and equipment on our sites.
28
The following table details the number of communications sites, excluding managed sites, that we owned
or operated as of March 31, 2021:
Number of Owned Towers
Number of Operated Towers (1)
Number of Owned DAS Sites
U.S.
& Canada:
Canada
211
—
—
United States
27,140
15,430
441
U.S.
& Canada total
27,351
15,430
441
Asia-Pacific: (2)
India
75,258
—
1,018
Asia-Pacific
total
75,258
—
1,018
Africa:
Burkina Faso
707
—
—
Ghana
3,323
663
28
Kenya
2,590
—
9
Niger
719
—
—
Nigeria
6,030
—
—
South
Africa
2,837
—
—
Uganda
3,454
—
12
Africa total
19,660
663
49
Europe:
France
2,776
309
9
Germany
2,221
—
—
Poland
27
—
—
Europe
total
5,024
309
9
Latin America:
Argentina
125
—
10
Brazil
16,793
2,167
104
Chile
3,054
—
23
Colombia
4,986
—
4
Costa
Rica
669
—
2
Mexico
9,535
186
92
Paraguay
1,431
—
—
Peru
1,943
441
—
Latin
America total
38,536
2,794
235
_______________
(1)Approximately 95% of the operated towers are held pursuant to long-term finance leases, including those subject to purchase options.
(2)We also control land under carrier or other third-party communication sites in Australia,
which provides recurring cash flow through tenant leasing arrangements.
On January 13, 2021, we entered into two agreements with Telxius Telecom, S.A. (“Telxius”), a subsidiary of Telefónica, S.A., pursuant to which we expect to acquire approximately 31,000 communications sites in Argentina, Brazil, Chile, Germany, Peru and Spain, for approximately 7.7 billion Euros (“EUR”) (approximately $9.4 billion at the time of signing) (the “Pending Telxius Acquisition”) at closing, subject to certain conditions and limited adjustments. As of April 28, 2021, we have received all required government and regulatory approvals in Germany and Spain and expect to close on the majority of the European sites in the second quarter of 2021, with approximately 4,000 sites in Germany expected to close in the third quarter of 2021.
The Latin American sites are expected to close either late in the second quarter or in the third quarter of 2021, subject to customary closing conditions, including government and regulatory approval. The impact of the Pending Telxius Acquisition on our 2021 results of operations will be dependent on a number of factors, including the timing of any closings.
29
We operate in six reportable segments: U.S. & Canada property, Asia-Pacific property, Africa property, Europe property, Latin America property and services. In evaluating operating performance in each business segment, management uses, among other factors, segment gross margin and segment operating profit (see note 15 to our consolidated and condensed consolidated financial statements included in this Quarterly
Report).
The 2020 Form 10-K contains information regarding management’s expectations of long-term drivers of demand for our communications sites, as well as key trends, which management believes provide valuable insight into our operating and financial resource allocation decisions. The discussion below should be read in conjunction with the 2020 Form 10-K and, in particular, the information set forth therein under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.”
In most of our markets, our tenant leases with wireless carriers generally have initial non-cancellable terms of five to ten years with multiple renewal terms. Accordingly, the vast majority of the revenue generated by our property operations during the three months ended March 31, 2021 was recurring
revenue that we should continue to receive in future periods. Based upon existing tenant leases and foreign currency exchange rates as of March 31, 2021, we expect to generate over $60 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 most of our international markets, or a combination of both. In addition, certain of our tenant leases provide for additional revenue primarily to cover costs (pass-through revenue), such as ground rent or power and fuel costs.
The revenues generated by our property operations may be affected by cancellations of existing tenant leases. As discussed above,
most of our tenant leases with wireless carriers and broadcasters are multiyear contracts, which typically are non-cancellable; however, in some instances, a lease may be cancelled upon the payment of a termination fee. Revenue lost from either tenant lease cancellations or the non-renewal of leases or rent renegotiations, which we refer to as churn, has historically not had a material adverse effect on the revenues generated by our consolidated property operations. During the three months ended March 31, 2021, churn was approximately 3% of our tenant billings.
Beginning in late 2017, we experienced an increase in revenue lost from cancellations or non-renewals primarily due to carrier consolidation-driven churn in India, which compressed our gross margin and operating profit, particularly
in our Asia-Pacific property segment, although this impact was partially offset by lower expenses due to reduced tenancy on existing sites and the decommissioning of certain sites. For the three months ended March 31, 2021, aggregate carrier consolidation in India did not have a material impact on our consolidated property revenue, gross margin or operating profit, although overall churn rates in India remained elevated relative to historical levels.
We anticipate that our churn rate in India will moderate over time and result in reduced impacts on our property revenue, gross margin and operating profit. In the immediate term, we believe that our churn rate may remain elevated as our tenants in India evaluate how to best comply with rulings by the Indian Supreme Court and determine their obligations under payment plans for the adjusted gross revenue (“AGR”) fees and charges
prescribed by such court, as set forth in Item 1A of the 2020 Form 10-K, under the caption “Risk Factors—Our business, and that of our tenants, is subject to laws, regulations and administrative and judicial decisions, and changes thereto, that could restrict our ability to operate our business as we currently do or impact our competitive landscape.” We expect to periodically evaluate the carrying value of our Indian assets, which may result in the realization of additional impairment expense or other similar charges. For more information, please see Item 7 of the 2020 Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”
Additionally, we expect that our churn rate in our U.S. & Canada property segment will be elevated for a period of several years due to contractual lease cancellations and non-renewals
by T-Mobile, including legacy Sprint Corporation leases, pursuant to the terms of our master lease agreement with T-Mobile US, Inc. (the “T-Mobile MLA”) entered into in September 2020.
30
As further set forth under the caption “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K, the ongoing coronavirus (“COVID-19”) pandemic, as well as the response to mitigate its spread and effects, may adversely impact us and our tenants and the demand for our communications sites in the United States and globally. We have taken a variety of actions to ensure the continued availability of our communications sites, while ensuring the safety and security of our employees, tenants, vendors and surrounding communities. These measures include providing support for our
tenants remotely, requiring continued work-from-home arrangements and restricting travel for our employees where practicable and other modifications to our business practices. We will continue to actively monitor the situation and may take further actions as may be required by governmental authorities or that we determine are in the best interests of our employees, tenants and business partners.
In 2020, as a result of the impact of COVID-19 on global financial markets, we experienced volatility in foreign currency exchange rates in many of the markets in which we operate, although we do not expect significant impacts from exchange rate fluctuations in 2021. If exchange rates become significantly more unfavorable, the impact to our revenue and other future operating results could be material. Additionally, the impact of COVID-19 on our operational results in subsequent periods will largely depend on future developments, which are highly
uncertain and cannot be accurately predicted at this time. These developments may include, but are not limited to, new information concerning the severity and duration of the COVID-19 pandemic, the degree of success of actions taken to contain or treat COVID-19, including the availability and effectiveness of vaccines and treatments, and the reactions by consumers, companies, governmental entities and capital markets to such actions.
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
31
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.
U.S. & Canada property segment revenue growth of $141.4 million was attributable to:
• Tenant billings growth of $78.5
million, which was driven by:
• $42.6 million generated from sites acquired or constructed since the beginning of the prior-year period (“newly acquired or constructed sites”), primarily related to the InSite Acquisition;
• $27.9 million due to leasing additional space on our sites (“colocations”) and amendments; and
• $10.2 million from contractual escalations, net of churn (as discussed above, we expect that our churn rate will be elevated for a period of several years due to the terms of the T-Mobile MLA);
•Partially offset by a decrease of $2.2 million from other tenant billings; and
• An increase of $62.9 million
in other revenue, which includes a $61.3 million increase due to straight-line accounting, primarily due to the impact of the T-Mobile MLA.
Segment revenue growth was not meaningfully impacted by foreign currency translation related to fluctuations in the Canadian Dollar. During the three months ended March 31, 2021, the assets acquired pursuant to the InSite Acquisition generated approximately $40.0 million in property revenue.
Asia-Pacific property segment revenue decrease of $5.2 million was attributable to:
• A decrease of $6.5 million in other revenue;
• Partially offset by an increase of $1.6 million in pass-through revenue and an increase of $3.1 million in tenant billings, which was driven by:
• $12.9
million due to colocations and amendments; and
• $5.6 million generated from newly acquired or constructed sites;
• Partially offset by:
▪A decrease of $15.1 million resulting from churn in excess of contractual escalations; and
▪A decrease of $0.3 million from other tenant billings.
Segment revenue decline included a decrease of $3.4 million attributable to the negative impact of foreign currency translation related to fluctuations in Indian Rupee (“INR”).
Africa property segment revenue growth of $10.2 million was attributable to:
• Tenant
billings growth of $18.1 million, which was driven by:
• $9.4 million due to colocations and amendments;
• $6.2 million generated from newly acquired or constructed sites;
• $1.7 million from contractual escalations, net of churn; and
• $0.8 million from other tenant billings;
• Partially offset by:
• A decrease of $4.1 million in other revenue, primarily due to a decrease in tenant settlement payments received attributable to prior tenant cancellations; and
33
• A
decrease of $0.2 million in pass-through revenue.
Segment revenue growth included a decrease of $3.6 million attributable to the impact of foreign currency translation, which included, among others, negative impacts of $2.5 million related to fluctuations in Nigerian Naira, $2.1 million related to fluctuations in Kenyan Schilling and $1.8 million related to fluctuations in Ghanaian Cedi, partially offset by positive impacts related to fluctuations in the currencies of our other African markets.
Europe property segment revenue growth of $10.1 million was attributable to:
• Tenant billings growth of $3.3 million, which was driven by:
• $2.3 million generated from newly acquired or constructed sites, primarily attributable
to our agreements with Orange S.A.;
• $1.3 million due to colocations and amendments; and
• $0.1 million from other tenant billings;
• Partially offset by a decrease of $0.4 million resulting from churn in excess of contractual escalations; and
• An increase of $2.9 million in other revenue.
Segment revenue growth included an increase of $3.9 million attributable to the positive impact of foreign currency translation related to fluctuations in EUR.
Latin America property segment revenue remained consistent as compared to the prior-year period, which was attributable to:
• An
increase of $21.2 million in tenant billings, which was driven by:
• $8.5 million from contractual escalations, net of churn;
• $8.3 million due to colocations and amendments;
• $3.2 million generated from newly acquired or constructed sites; and
• $1.2 million from other tenant billings;
• An increase of $8.0 million in pass-through revenue; and
• An increase of $4.3 million in other revenue.
Segment revenue included a decrease of $33.5 million attributable to the negative impact of foreign currency translation, which
included, among others, $30.6 million related to fluctuations in Brazilian Real and $3.5 million related to fluctuations in Mexican Peso.
The increase in services segment revenue of $8.9 million was primarily attributable to an increase in site application, zoning and permitting services.
•The increase in U.S. & Canada property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $7.9 million.
•The decrease in Asia-Pacific property segment gross margin was primarily attributable to an increase in direct expenses of $13.6 million, primarily due to a combination of (i) an increase in costs associated with pass-
34
through revenue, including fuel costs, and (ii) an increase in property taxes, and the decrease in revenue described above. Direct expenses
also benefited by $2.1 million from the impact of foreign currency translation.
•The increase in Africa property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $5.3 million. Direct expenses also benefited by $2.1 million from the impact of foreign currency translation.
•The increase in Europe property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $0.6 million. Direct expenses were also negatively impacted by $0.6 million from the impact of foreign currency translation.
•The increase in Latin America property segment gross margin was primarily attributable to a $10.0 million
benefit to direct expenses attributable to the impact of foreign currency translation, partially offset by an increase in direct expenses of $6.0 million.
•The increase in services segment gross margin was primarily due to the increase in revenue described above, partially offset by an increase in direct expenses of $3.4 million.
Selling, General, Administrative and Development Expense (“SG&A”)
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Property
U.S.
& Canada
$
39.3
$
42.0
(6)
%
Asia-Pacific
7.1
32.6
(78)
Africa
18.9
17.1
11
Europe
5.6
5.5
2
Latin
America
23.3
26.6
(12)
Total property
94.2
123.8
(24)
Services
4.2
3.5
20
Other
84.2
90.5
(7)
Total selling, general, administrative and development expense
•The decrease in our U.S. & Canada property segment SG&A was primarily driven by decreased personnel costs and lower canceled construction costs as well as lower travel and discretionary spending as a result of the COVID-19 pandemic and stay-at-home orders.
•The decrease in our Asia-Pacific property segment SG&A was primarily driven by a decrease in bad debt expense of $24.8 million due to collections from a tenant.
•The increase in our Africa property segment SG&A was primarily driven by increased personnel costs to support our business and an increase in bad debt expense of $1.1 million as a result of receivable reserves with certain tenants.
•Europe
property segment SG&A was relatively consistent as compared to the prior-year period.
•The decrease in our Latin America property segment SG&A was primarily driven by (i) decreased personnel costs, (ii) lower travel and discretionary spending as a result of the COVID-19 pandemic and stay-at-home orders and (iii) the benefit of foreign currency translation on SG&A.
•The increase in our services segment SG&A was primarily driven by an increase in personnel costs, partially offset by lower travel and discretionary spending as a result of the COVID-19 pandemic and stay-at-home orders.
35
•The decrease
in other SG&A was primarily attributable to a decrease in stock-based compensation expense of $8.8 million, partially offset by an increase in corporate SG&A.
Operating Profit
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Property
U.S.
& Canada
$
994.1
$
857.9
16
%
Asia-Pacific
98.8
90.0
10
Africa
135.9
130.7
4
Europe
31.2
22.4
39
Latin
America
212.2
204.9
4
Total property
1,472.2
1,305.9
13
Services
13.6
8.8
55
%
•The
increases in operating profit for the three months ended March 31, 2021 for our U.S. & Canada and Latin America property segments were primarily attributable to increases in our segment gross margin and decreases in our segment SG&A.
•The increase in operating profit for the three months ended March 31, 2021 for our Asia-Pacific property segment was primarily attributable a decrease in our segment SG&A, partially offset by the decrease in our segment gross margin.
•The increases in operating profit for the three months ended March 31, 2021 for our Africa and Europe property segments and our services segment were primarily attributable to increases in our segment gross margin,
partially offset by increases in our segment SG&A.
Depreciation, Amortization and Accretion
Three Months Ended March 31,
Percent
Increase (Decrease)
2021
2020
Depreciation, amortization and accretion
$
522.5
$
472.3
11
%
The
increase in depreciation, amortization and accretion expense for the three months ended March 31, 2021 was primarily attributable to the acquisition, lease or construction of new sites since the beginning of the prior-year period, which resulted in increases in property and equipment and intangible assets subject to amortization, partially offset by foreign currency exchange rate fluctuations.
Other Operating Expenses
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Other operating expenses
$
50.4
$
14.2
255
%
The
increase in other operating expenses during the three months ended March 31, 2021 was primarily attributable to an increase in acquisition related costs, including pre-acquisition contingencies and settlements of $33.0 million, primarily associated with the Pending Telxius Acquisition.
Total Other Expense
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Total other expense
$
126.1
$
297.1
(58)
%
36
Total
other expense consists primarily of interest expense and realized and unrealized foreign currency gains and losses. We record unrealized foreign currency gains or losses as a result of foreign currency exchange rate fluctuations primarily associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries’ functional currencies.
The decrease in total other expense during the three months ended March 31, 2021 was primarily due to foreign currency gains of $94.7 million in the current period, as compared to foreign currency losses of $65.5 million in the prior-year period. The decrease also includes a lower loss on retirement of long-term obligations in the current period, attributable to the repayment of all amounts outstanding
under the securitizations assumed in connection with the InSite Acquisition (the “InSite Debt”), as compared to the loss on the retirement of long-term obligations in the prior-year period, attributable to the retirement of the 5.900% senior unsecured notes due 2021.
Income Tax Provision
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Income tax provision
$
50.3
$
21.1
138
%
Effective
tax rate
7.2
%
4.8
%
As a real estate investment trust for U.S. federal income tax purposes (“REIT”), we may deduct earnings distributed to stockholders against the income generated by our REIT operations. In addition, we are able to offset certain income by utilizing our net operating losses (“NOLs”), subject to specified limitations. Consequently, the effective tax rate on income from continuing operations for the
three months ended March 31, 2021 and 2020 differs from the federal statutory rate.
The increase in the income tax provision during the three months ended March 31, 2021 was primarily attributable to an increase in foreign earnings in the current period and higher benefits related to foreign exchange losses during the three months ended March 31, 2020.
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
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Net income
$
652.3
$
418.6
56
%
Income
tax provision
50.3
21.1
138
Other (income) expense
(95.2)
63.8
(249)
Loss
on retirement of long-term obligations
25.7
34.6
(26)
Interest expense
207.0
208.8
(1)
Interest
income
(11.4)
(10.1)
13
Other operating expenses
50.4
14.2
255
Depreciation,
amortization and accretion
522.5
472.3
11
Stock-based compensation expense
38.0
47.7
(20)
Adjusted
EBITDA
$
1,439.6
$
1,271.0
13
%
37
Three
Months Ended March 31,
Percent Increase (Decrease)
2021
2020
Net income
$
652.3
$
418.6
56
%
Real
estate related depreciation, amortization and accretion
467.0
419.5
11
Losses from sale or disposal of real estate and real estate related impairment charges (1)
6.2
7.5
(17)
Adjustments
for unconsolidated affiliates and noncontrolling interests
(20.1)
(26.4)
(24)
Nareit FFO attributable to American Tower Corporation common stockholders
$
1,105.4
$
819.2
35
%
Straight-line
revenue
(119.9)
(56.2)
113
Straight-line expense
15.0
12.7
18
Stock-based
compensation expense
38.0
47.7
(20)
Deferred portion of income tax
44.5
(14.0)
(418)
Non-real
estate related depreciation, amortization and accretion
55.5
52.8
5
Amortization of deferred financing costs, capitalized interest, debt discounts and premiums and long-term deferred interest charges
8.6
7.9
9
Payment
of shareholder loan interest (2)
—
(63.3)
(100)
Other (income) expense (3)
(95.2)
63.8
(249)
Loss
on retirement of long-term obligations
25.7
34.6
(26)
Other operating expense (4)
44.2
6.7
560
Capital
improvement capital expenditures
(18.4)
(30.3)
(39)
Corporate capital expenditures
(0.9)
(1.4)
(36)
Adjustments
for unconsolidated affiliates and noncontrolling interests
20.1
26.4
(24)
Consolidated AFFO
$
1,122.6
$
906.6
24
%
Adjustments
for unconsolidated affiliates and noncontrolling interests (5)
(22.8)
38.8
(159)
%
AFFO attributable to American Tower Corporation common stockholders
$
1,099.8
$
945.4
16
%
_______________
(1)Included
in these amounts are impairment charges of $0.6 million and $3.7 million, respectively.
(2)For the three months ended March 31, 2020, relates to the payment of capitalized interest associated with the acquisition of MTN Group Limited’s (“MTN”) redeemable noncontrolling interests in each of our joint ventures in Ghana and Uganda (see note 10 to our consolidated and condensed consolidated financial statements included in this Quarterly Report). This long-term deferred interest payment was previously expensed but excluded from Consolidated AFFO.
(3)Includes gains (losses) on foreign currency exchange rate fluctuations of $94.7 million and ($65.5 million), respectively.
(4)Primarily includes acquisition-related
costs and integration costs.
(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.
The increase in net income for the three months ended March 31, 2021 was primarily due to (i) an increase in our operating profit, (ii) a decrease in other expenses and (iii) a decrease in loss on retirement of long-term obligations, partially offset by (i) an increase in depreciation, amortization and accretion expense, (ii) an increase in other operating expense, primarily attributable to acquisition related costs associated with the Pending Telxius Acquisition and (iii) an increase in the income tax provision.
The
increase in Adjusted EBITDA for the three months ended March 31, 2021 was primarily attributable to the increase in our gross margin and the decrease in SG&A, excluding the impact of stock-based compensation expense of $26.4 million.
The growth in Consolidated AFFO and AFFO attributable to American Tower Corporation common stockholders for the three months ended March 31, 2021 was primarily attributable to (i) the increase in our operating profit, excluding the impact of straight-line accounting, (ii) decreases in cash paid for interest and cash paid for taxes and (iii) a decrease in capital improvement capital expenditures. The growth in Consolidated AFFO also benefited from the non-recurrence of previously deferred interest associated with the shareholder loan recognized during the three months ended March
31, 2020. The growth in AFFO attributable to American Tower Corporation common stockholders was also impacted by changes in noncontrolling interests held in India and Africa since the beginning of the prior-year period.
38
Liquidity and Capital Resources
The information in this section updates as of March 31, 2021 the “Liquidity and Capital Resources” section of the 2020 Form 10-K and should be read in conjunction with that report.
Overview
During the three months
ended March 31, 2021, we increased our financial flexibility and our ability to grow our business while maintaining our long-term financial policies. During the three months ended March 31, 2021, our significant financing transactions included:
•Entry into the 2021 Delayed Draw Term Loans and the Bridge Loan Commitment (each as defined below).
•Registered public offerings in an aggregate amount of $1.4 billion of senior unsecured notes with maturities of 2026 and 2031.
•Increase of our commitments under (i) our senior unsecured multicurrency revolving credit facility to $4.1 billion (as amended and restated as further described below, the “2021 Multicurrency Credit
Facility”) and (ii) our senior unsecured revolving credit facility to $2.9 billion (as amended and restated as further described below, the “2021 Credit Facility”).
•Repayment of all amounts outstanding under our $750.0 million unsecured term loan due February 12, 2021 (the “2020 Term Loan”).
•Repayment of all amounts outstanding under the InSite Debt.
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 the significant components of our liquidity (in millions):
Available under the 2021 Multicurrency Credit Facility
$
3,830.0
Available under the 2021 Credit Facility
555.0
Letters of credit
(4.6)
Total
available under credit facilities, net
$
4,380.4
Cash and cash equivalents
1,913.6
Total liquidity (1)
$
6,294.0
_______________
(1)Excludes an aggregate of approximately $7.3 billion available under the 2021 Delayed Draw Term Loans and the Bridge Loan Commitment for use to finance the Pending Telxius Acquisition.
Subsequent to March 31, 2021, we made an additional
net repayment of $80.0 million under the 2021 Multicurrency Credit Facility and an additional borrowing of $550.0 million under the 2021 Credit Facility.
Summary cash flow information is set forth below (in millions):
Net
effect of changes in foreign currency exchange rates on cash and cash equivalents, and restricted cash
(42.1)
(118.3)
Net increase in cash and cash equivalents, and restricted cash
$
131.9
$
(177.7)
We use our cash flows to fund our operations and investments in our business, including tower maintenance and improvements, communications site construction, 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 Internal Revenue Code of 1986, as amended (the “Code”). We may also repay or repurchase our existing indebtedness or equity from time to time. We typically fund our
39
international expansion efforts primarily through a combination of cash on hand, intercompany debt and equity contributions.
In February 2021, we entered into an agreement with Macquarie SBI Infrastructure Investments Pte Limited and SBI Macquarie Infrastructure Trust, our remaining minority holders in ATC Telecom Infrastructure Private Limited (“ATC TIPL”), to redeem 100% of their combined holdings
in ATC TIPL (see note 10 to our consolidated and condensed consolidated financial statements included in this Quarterly Report) at a price of INR 175 per share, subject to certain adjustments. Accordingly, we expect to pay an amount equivalent to INR 12.9 billion (approximately $176.5 million) to redeem the shares in 2021, subject to regulatory approval. After the completion of the redemption, we will hold a 100% ownership interest in ATC TIPL.
As of March 31, 2021, we had total outstanding indebtedness of $29.5 billion, with a current portion of $1.3 billion. During the three months ended March 31, 2021, we generated sufficient cash flow from operations, together with borrowings under our credit facilities and cash on hand, 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, 2021, together with our increased borrowing capacity under our credit facilities, the recently executed 2021 Delayed Draw Term Loans and Bridge Loan Commitment, will be sufficient to fund our required distributions, capital expenditures, debt service obligations (interest and principal repayments) and signed acquisitions. There were no material changes to the Material Cash Requirements section of the 2020 Form 10-K.
As of March 31, 2021, we had $1.5 billion of cash and cash equivalents held by our foreign subsidiaries, of which $611.8 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
The increase in cash provided by operating activities for the three months ended March 31, 2021 was primarily attributable to a decrease in cash required for working capital, primarily as a result of accounts receivable collections, and an increase in the operating profit of our property segments.
Cash Flows from Investing Activities
Our
significant investing activities during the three months ended March 31, 2021 are highlighted below:
•We spent $114.8 million for acquisitions.
•We spent $334.5 million for capital expenditures, as follows (in millions):
Discretionary capital projects (1)
$
175.7
Ground lease purchases (2)
48.8
Capital
improvements and corporate expenditures (3)
19.3
Redevelopment
41.3
Start-up capital projects
49.4
Total capital expenditures (4)
$
334.5
_______________
(1)Includes the construction of 1,971 communications sites globally.
(2)Includes $9.3 million of perpetual land easement payments
reported in Deferred financing costs and other financing activities in the cash flows from financing activities in our condensed consolidated statements of cash flows.
(3)Includes $1.6 million of finance lease payments reported in Repayments of notes payable, credit facilities, senior notes, secured debt, term loan and finance leases in the cash flows from financing activities in our condensed consolidated statements of cash flows.
(4)Net of purchase credits of $1.2 million on certain assets, which are recorded in investing activities in our condensed consolidated statements of cash flows.
We plan to continue to allocate our available capital, after satisfying our distribution requirements, among investment alternatives that meet our return on investment criteria, while maintaining our commitment
to our long-term financial policies. Accordingly, we expect to continue to deploy capital through our annual capital expenditure program, including land purchases and new site construction, and through acquisitions. We also regularly review our tower portfolios as to capital expenditures required to upgrade our towers to our structural standards or address capacity, structural or permitting issues.
40
We expect that our 2021 total capital expenditures will be as follows (in millions):
Discretionary
capital projects (1)
$
475
to
$
505
Ground lease purchases
$
245
to
$
265
Capital improvements and corporate expenditures
$
165
to
$
175
Redevelopment
$
290
to
$
310
Start-up
capital projects
$
200
to
$
220
Total capital expenditures
$
1,375
to
$
1,475
_______________
(1)Includes the construction of approximately 6,000 to 7,000 communications sites globally.
Cash
Flows from Financing Activities
Our significant financing activities were as follows (in millions):
Distributions to noncontrolling interest holders, net
(8.1)
(13.5)
Purchase of redeemable noncontrolling interest (2)
(2.5)
(524.4)
Distributions
paid on common stock
(544.9)
(454.9)
Purchases of common stock
—
(39.7)
___________
(1)As of December 31, 2020, the InSite Debt included $763.5 million aggregate principal amount and a fair value adjustment of $36.5 million. During the three months ended March 31, 2021, we repaid all amounts outstanding under the InSite Debt.
(2)During
the three months ended March 31, 2021, we liquidated our interests in a company held in France for total consideration of 2.2 million EUR (approximately $2.5 million at the date of redemption). During the three months ended March 31, 2020, we completed the acquisition of MTN’s 49% redeemable noncontrolling interests in each of the our joint ventures in Ghana and Uganda for total consideration of approximately $524.4 million, including an adjustment of $1.4 million.
Offerings of Senior Notes
1.600% Senior Notes and 2.700% Senior Notes Offering—On March 29, 2021, we completed a registered public offering of $700.0 million aggregate principal amount of 1.600% senior unsecured notes due 2026 (the “1.600% Notes”)
and $700.0 million aggregate principal amount of 2.700% senior unsecured notes due 2031 (the “2.700% Notes” and, together with the 1.600% Notes, the “Notes”). The net proceeds from this offering were approximately $1,386.3 million, after deducting commissions and estimated expenses. We used all of the net proceeds to repay existing indebtedness under the 2021 Multicurrency Credit Facility.
(1)Accrued
and unpaid interest is payable in USD semi-annually in arrears and will be computed from the issue date on the basis of a 360-day year comprised of twelve 30-day months.
41
(2)We may redeem the Notes at any time, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes plus a make-whole premium, together with accrued interest to the redemption date. If we redeem the Notes on or after the par call date, we will not be required to pay a make-whole premium.
If we undergo a change of control and corresponding ratings decline, each as defined in the supplemental indenture
for the Notes, we may be required to repurchase all of the Notes at a purchase price equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The Notes rank equally with all of our other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of our subsidiaries.
The supplemental indenture contains certain covenants that restrict our ability to merge, consolidate or sell assets and our (together with our subsidiaries’) ability to incur liens. These covenants are subject to a number
of exceptions, including that we and our subsidiaries may incur certain liens on assets, mortgages or other liens securing indebtedness if the aggregate amount of indebtedness secured by such liens does not exceed 3.5x Adjusted EBITDA, as defined in the applicable supplemental indenture.
Repayment of InSite Debt—The InSite Debt included securitizations entered into by certain InSite subsidiaries. The InSite Debt was recorded at fair value upon acquisition. On January 15, 2021, we repaid the entire amount outstanding under the InSite Debt, plus accrued and unpaid interest up to, but
excluding, January 15, 2021, for an aggregate redemption price of $826.4 million, including $2.3 million in accrued and unpaid interest. We recorded a loss on retirement of long-term obligations of approximately $25.7 million, which includes prepayment consideration partially offset by the unamortized fair value adjustment recorded upon acquisition. The repayment of the InSite Debt was funded with borrowings under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility, and cash on hand.
Bank Facilities
Amendments to Bank Facilities—On February 10, 2021, we amended and restated the 2021 Multicurrency Credit Facility and the 2021 Credit Facility and entered into an amendment agreement with respect to our $1.0 billion unsecured term loan, as amended
and restated in December 2019 (as amended, the “2019 Term Loan”).
These amendments, among other things,
i.extend the maturity dates by one year to June 28, 2024 and January 31, 2026 for the 2021 Multicurrency Credit Facility and the 2021 Credit Facility, respectively,
ii.increase the commitments under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility to $4.1 billion and $2.9 billion, respectively, of which 1.3 billion EUR borrowed under the 2021 Multicurrency Credit Facility is to be reserved to finance the Pending Telxius Acquisition,
iii.increase the maximum Revolving Loan Commitments, after giving
effect to any Incremental Commitments (each as defined in the loan agreements for each of the 2021 Multicurrency Credit Facility and the 2021 Credit Facility) to $6.1 billion and $4.4 billion under the 2021 Multicurrency Credit Facility and the 2021 Credit Facility, respectively,
iv.expand the sublimit for multicurrency borrowings under the 2021 Multicurrency Credit Facility from $1.0 billion to $3.0 billion and add a EUR borrowing option for the 2021 Credit Facility with a $1.5 billion sublimit,
v.amend the limitation of the our permitted ratio of Total Debt to Adjusted EBITDA (each as defined in each of the loan agreements for each of the facilities) to be no greater than 7.50 to 1.00 for the four fiscal quarters following the consummation of the Pending Telxius Acquisition, stepping down to 6.00 to 1.00 thereafter (with a further
step up to 7.00 to 1.00 if we consummate a Qualified Acquisition (as defined in each of the loan agreements for the facilities)),
vi.amend the limitation on indebtedness of, and guaranteed by, our subsidiaries to the greater of (a) $3.0 billion and (b) 50% of Adjusted EBITDA (as defined in each of the loan agreements for the facilities) of us and our subsidiaries on a consolidated basis and
vii.increase the threshold for certain defaults with respect to judgments, attachments or acceleration of indebtedness from $400.0 million to $500.0 million.
42
2021
Multicurrency Credit Facility—During the three months ended March 31, 2021, we borrowed an aggregate of $1.8 billion and repaid an aggregate of $1.6 billion of revolving indebtedness under the 2021 Multicurrency Credit Facility. We used the borrowings to repay existing indebtedness, including the InSite Debt and the 2020 Term Loan, and for general corporate purposes. We currently have $3.8 million of undrawn letters of credit and maintain the ability to draw down and repay amounts under the 2021 Multicurrency Credit Facility in the ordinary course.
2021 Credit Facility—During the three months ended March 31, 2021, we borrowed an aggregate of $50.0 million and made no repayments of revolving indebtedness under the 2021 Credit Facility. We used the borrowings
for general corporate purposes. We currently have $0.8 million of undrawn letters of credit and maintain the ability to draw down and repay amounts under the 2021 Credit Facility in the ordinary course.
Repayment of the 2020 Term Loan—On February 5, 2021, we repaid all amounts outstanding under the 2020 Term Loan with borrowings from the 2021 Multicurrency Credit Facility and cash on hand.
2021 Delayed Draw Term Loans—On February 10, 2021, we entered into (i) a 1.1 billion EUR (approximately $1.3 billion at the date of signing) unsecured term loan, the proceeds of which are to be used to fund the Pending Telxius Acquisition, with a maturity date that is 364 days from the date of the first draw thereunder and bears interest at a rate based
on our senior unsecured debt rating, which, based on our current debt ratings, is 1.000% above the Euro Interbank Offered Rate (“EURIBOR”) (the “2021 364-Day Delayed Draw Term Loan”) and (ii) an 825.0 million EUR (approximately $1.0 billion at the date of signing) unsecured term loan, the proceeds of which are to be used to fund the Pending Telxius Acquisition, with a maturity date that is three years from the date of the first draw thereunder and that bears interest at a rate based on our senior unsecured debt rating, which, based on our current debt ratings, is 1.125% above EURIBOR (the “2021 Three Year Delayed Draw Term Loan,” and, together with the 2021 364-Day Delayed Draw Term Loan, the “2021 Delayed Draw Term Loans”).
Bridge Facility—In connection with entering into the Pending Telxius Acquisition, we entered into a commitment letter (the “Commitment Letter”),
dated January 13, 2021, with Bank of America, N.A. and BofA Securities, Inc. (together, “BofA”) pursuant to which BofA has, with respect to bridge financing, committed to provide up to 7.5 billion EUR (approximately $9.1 billion at the date of signing) in bridge loans (the “Bridge Loan Commitment”) to ensure financing for the Pending Telxius Acquisition. Effective February 10, 2021, the Bridge Loan Commitment was reduced to 4.275 billion EUR (approximately $5.2 billion at the date of signing) as a result of an aggregate of 3.225 billion EUR (approximately $3.9 billion at the date of signing) of additional committed amounts under the 2021 Multicurrency Credit Facility, the 2021 Credit Facility and the 2021 Delayed Draw Term Loans, as described above.
The Commitment Letter contains, and the credit agreement in respect of the
Bridge Loan Commitment, if any, will contain, certain customary conditions to funding, including, without limitation, (i) the execution and delivery of definitive financing agreements for the Bridge Loan Commitment and (ii) other customary closing conditions set forth in the Commitment Letter. We will pay certain customary commitment fees and, in the event we make any borrowings in connection with the Bridge Loan Commitment, funding and other fees.
As of March 31, 2021, the key terms under the 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan, the 2021 Delayed Draw Term Loans and the Bridge Loan Commitment were as follows:
Bank
Facility
Outstanding Principal Balance ($ in millions)
Maturity Date
LIBOR or EURIBOR borrowing interest rate range (3)
Base rate borrowing interest rate range (3)
Current margin over LIBOR or EURIBOR and the base rate, respectively
(1)Currently
borrowed at the London Interbank Offered Rate (“LIBOR”).
(2)Any amounts borrowed will be borrowed at EURIBOR.
(3)Represents interest rate above LIBOR for LIBOR based borrowings, interest rate above EURIBOR for EURIBOR based borrowings, and the interest rate above the defined base rate for base rate borrowings, in each case based on our debt ratings.
(4)Subject to two optional renewal periods.
(5)The maturity dates for the 2021 364-Day Delayed Draw Term Loan and the 2021 Three Year Delayed Draw Term Loan are 364 days and three years, respectively, from the date of the first borrowing under each facility. As of March 31, 2021, no borrowings
were made under these facilities, and as such, no maturity dates have been set. Our ability to borrow thereunder is subject to the occurrence of certain conditions related to the Pending Telxius Acquisition, as set forth in the agreements for the 2021 Delayed Draw Term Loans.
(6)The Bridge Loan Commitment includes subfacilities relating to the various tranches of closings under the Pending Telxius Acquisition. The maturity dates of the subfacilities are 364 days from the first closing date pursuant to such tranche. Each subfacility is subject to a duration fee that applies to the outstanding principal balance beginning 90 days after the related acquisition closing date. As of March 31, 2021, there have been no closings related to the Pending Telxius Acquisition, and as such, no maturity dates have been set and no duration fees apply.
We
must pay a quarterly commitment fee on the undrawn portion of each of the 2021 Multicurrency Credit Facility and the 2021 Credit Facility. The commitment fee for the 2021 Multicurrency Credit Facility and the 2021 Credit Facility ranges from 0.080% to 0.300% per annum, based upon our debt ratings, and is currently 0.110%.
The 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan and the 2021 Delayed Draw Term Loans do not require amortization of principal and may be paid prior to maturity in whole or in part at our option without penalty or premium. We have the option of choosing either a defined base rate or LIBOR or EURIBOR as the applicable base rate for borrowings under these bank facilities.
The loan agreements for each of the 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan and the 2021 Delayed Draw Term Loans contain
certain reporting, information, financial and operating covenants and other restrictions (including limitations on additional debt, guaranties, sales of assets and liens) with which we must comply. Failure to comply with the financial and operating covenants of the loan agreements could not only prevent us from being able to borrow additional funds under the revolving credit facilities, but may constitute a default, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable.
India Credit Facility—During the three months ended March 31, 2021, we entered into a working capital facility in India with a borrowing capacity of INR 1.0 billion (approximately $13.7 million). The working capital facility is subject to annual renewal and bears interest at a rate equal
to the one-month India Treasury Bill rate at the time of borrowing plus a spread. As of March 31, 2021, we have not borrowed under this facility.
Stock Repurchase Programs—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 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 March 31, 2021, there were no repurchases under either of the Buyback Programs.
We
expect to continue managing the pacing of the remaining approximately $2.0 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. Repurchases under the Buyback Programs are subject to, among other things, us having available cash to fund the repurchases.
Sales of Equity Securities—We receive proceeds from sales of our equity securities pursuant to our employee stock purchase plan (the “ESPP”) and upon exercise of stock options granted under our equity incentive plan. During the three months ended March 31, 2021, we received an aggregate of $1.9 million in proceeds upon exercises of stock options.
2020
“At the Market” Stock Offering Program—In August 2020, we established an “at the market” stock offering program through which we may issue and sell shares of our common stock having an aggregate gross sales price of up to $1.0 billion (the “2020 ATM Program”). Sales under the 2020 ATM Program may be made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or, subject to our specific instructions, at negotiated prices. We intend to use the net proceeds from any issuances under the 2020 ATM Program for general corporate purposes, which may include, among other things, the funding of acquisitions, additions to working capital and repayment or refinancing of existing indebtedness. As of March 31, 2021, we have not sold any shares of common stock under
the 2020 ATM Program.
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Distributions—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 NOLs. We have distributed an aggregate of approximately $10.0 billion to our common stockholders, including the dividend paid in April 2021, primarily classified as ordinary income that may be treated as qualified REIT dividends under Section 199A of the Code for taxable years ending before 2026.
During
the three months ended March 31, 2021, we paid $1.21 per share, or $537.6 million, to common stockholders of record. In addition, we declared a distribution of $1.24 per share, or $551.5 million, paid on April 29, 2021 to our common stockholders of record at the close of business on April 13, 2021.
The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will depend on 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 taxable REIT subsidiaries and other factors that our Board of Directors may deem relevant.
We accrue distributions on unvested restricted stock units, which are payable upon vesting. As of March 31, 2021, the amount accrued for distributions payable related to unvested restricted stock units was $7.6 million. During the three months ended March 31, 2021, we paid $7.3 million of distributions upon the vesting of restricted stock units.
Factors Affecting Sources of Liquidity
As
discussed in the “Liquidity and Capital Resources” section of the 2020 Form 10-K, our liquidity depends on our ability to generate cash flow from operating activities, borrow funds under our credit facilities and maintain compliance with the contractual agreements governing our indebtedness. We believe that the debt agreements discussed below represent our material debt agreements that contain covenants, our compliance with which would be material to an investor’s understanding of our financial results and the impact of those results on our liquidity.
Restrictions Under Loan Agreements Relating to Our Credit Facilities—The loan agreements for the 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan and the 2021 Delayed Draw Term Loans contain certain financial and operating covenants and other restrictions applicable to us and our subsidiaries
that are not designated as unrestricted subsidiaries on a consolidated basis. These restrictions include limitations on additional debt, distributions and dividends, guaranties, sales of assets and liens. The loan agreements also contain covenants that establish financial tests with which we and our restricted subsidiaries must comply related to total leverage and senior secured leverage, as set forth in the table below. As of March 31, 2021, we were in compliance with each of these covenants.
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Compliance
Tests For The 12 Months Ended March 31, 2021 ($ in billions)
Ratio (1)
Additional Debt Capacity Under Covenants (2)
Capacity for Adjusted EBITDA Decrease Under Covenants (3)
Consolidated Total Leverage Ratio
Total Debt to Adjusted EBITDA ≤ 6.00:1.00
~ $3.5
~ $0.6
Consolidated
Senior Secured Leverage Ratio
Senior Secured Debt to Adjusted EBITDA ≤ 3.00:1.00
~ $13.9 (4)
~ $4.6
_______________
(1)Each component of the ratio as defined in the applicable loan agreement.
(2)Assumes no change to Adjusted EBITDA.
(3)Assumes no change
to our debt levels.
(4)Effectively, however, additional Senior Secured Debt under this ratio would be limited to the capacity under the Consolidated Total Leverage Ratio.
Under the terms of the agreements for the 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2019 Term Loan and the 2021 Delayed Draw Term Loans, the Pending Telxius Acquisition is designated as a Qualified Acquisition, whereby our Total Debt to Adjusted EBITDA ratio is adjusted to not exceed 7.50 to 1.00 for four fiscal quarters following consummation of the Pending Telxius Acquisition. The loan agreements for our credit facilities also contain reporting and information covenants that require us to provide financial and operating information to the lenders 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.
Failure to comply with the financial maintenance tests and certain other covenants of the loan agreements for our credit facilities could not only prevent us from being able to borrow additional funds under these credit facilities, but may also constitute a default under these credit facilities, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable. If this were to occur, we may not have sufficient cash on hand to repay such indebtedness. The key factors affecting our ability to comply with the debt covenants described above are our financial performance relative to the financial maintenance tests defined in the loan agreements for these credit facilities and our ability to fund our debt service obligations. Based upon our current expectations, we believe our operating
results during the next 12 months will be sufficient to comply with these covenants.
Restrictions Under Agreements Relating to the 2015 Securitization and the Trust Securitizations—The indenture and related supplemental indenture governing the American Tower Secured Revenue Notes, Series 2015-2, Class A (the “Series 2015-2 Notes”) issued by GTP Acquisition Partners I, LLC (“GTP Acquisition Partners”) in a private securitization transaction in May 2015 (the “2015 Securitization”) and the loan agreement related to the securitization transactions completed in March 2013 (the “2013 Securitization”) and March 2018 (the “2018 Securitization” and, together with the 2013 Securitization, the “Trust
Securitizations”) include certain financial ratios and operating covenants and other restrictions customary for transactions subject to rated securitizations. Among other things, GTP Acquisition Partners and American Tower Asset Sub, LLC and American Tower Asset Sub II, LLC (together, the “AMT Asset Subs”) are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets, subject to customary carve-outs for ordinary course trade payables and permitted encumbrances (as defined in the applicable agreements).
Under the agreements, amounts due will be paid from the cash flows generated by the assets securing the Series 2015-2 Notes or the assets securing the nonrecourse loan that secures the Secured Tower Revenue Securities, Series 2013-2A (the “Series 2013-2A Securities”), Secured Tower Revenue Securities, Series 2018-1, Subclass A (the “Series 2018-1A Securities”),
and the Secured Tower Revenue Securities, Series 2018-1, Subclass R (the “Series 2018-1R Securities” and, together with the Series 2018-1A Securities, the “2018 Securities”) issued in the Trust Securitizations (the “Loan”), as applicable, which must be deposited into certain reserve accounts, and thereafter distributed, solely pursuant to the terms of the applicable agreement. On a monthly basis, after payment of all required amounts under the applicable agreement, subject to the conditions described in the table below, the excess cash flows generated from the operation of such assets are released to GTP Acquisition Partners or the AMT Asset Subs, as applicable, which can then be distributed to, and used by, us. As of March 31, 2021, $57.6 million held in such reserve accounts was classified as restricted cash.
Certain information with respect to the 2015
Securitization and the Trust Securitizations is set forth below. The debt service coverage ratio (“DSCR”) is generally calculated as the ratio of the net cash flow (as defined in the applicable agreement) to the amount of interest, servicing fees and trustee fees required to be paid over the succeeding 12 months
46
on the principal amount of the Series 2015-2 Notes or the Loan, as applicable, that will be outstanding on the payment date following such date of determination.
Issuer
or Borrower
Notes/Securities Issued
Conditions Limiting Distributions of Excess Cash
Excess Cash Distributed During the Three Months Ended March, 31, 2021
Capacity for Decrease in Net Cash Flow Before Triggering Cash Trap DSCR (1)
Capacity for Decrease in Net Cash Flow Before Triggering Minimum DSCR (1)
Cash Trap DSCR
Amortization Period
(in
millions)
(in millions)
(in millions)
2015 Securitization
GTP Acquisition Partners
American Tower Secured Revenue Notes, Series 2015-2
1.30x, Tested Quarterly (2)
(3)(4)
$74.0
16.70x
$283.4
$286.2
Trust Securitizations
AMT Asset Subs
Secured
Tower Revenue Securities, Series 2013-2A, Secured Tower Revenue Securities, Series 2018-1, Subclass A and Secured Tower Revenue Securities, Series 2018-1, Subclass R
1.30x, Tested Quarterly (2)
(3)(5)
$107.6
10.85x
$570.9
$579.8
_______________
(1)Based on the net cash flow of the applicable issuer or borrower as of March 31, 2021 and the expenses payable over the next 12 months on the Series 2015-2 Notes or the Loan, as applicable.
(2)Once
triggered, a Cash Trap DSCR condition continues to exist until the DSCR exceeds the Cash Trap DSCR for two consecutive calendar quarters. During a Cash Trap DSCR condition, all cash flow in excess of amounts required to make debt service payments, fund required reserves, pay management fees and budgeted operating expenses and make other payments required under the applicable transaction documents, referred to as excess cash flow, will be deposited into a reserve account (the “Cash Trap Reserve Account”) instead of being released to the applicable issuer or borrower.
(3)An amortization period commences if the DSCR is equal to or below 1.15x (the “Minimum DSCR”) at the end of any calendar quarter and continues to exist until the DSCR exceeds the Minimum DSCR for two consecutive calendar quarters.
(4)No amortization period
is triggered if the outstanding principal amount of a series has not been repaid in full on the applicable anticipated repayment date. However, in such event, additional interest will accrue on the unpaid principal balance of the applicable series, and such series will begin to amortize on a monthly basis from excess cash flow.
(5)An amortization period exists if the outstanding principal amount has not been paid in full on the applicable anticipated repayment date and continues to exist until such principal has been repaid in full.
A failure to meet the noted DSCR tests could prevent GTP Acquisition Partners or the AMT Asset Subs from distributing excess cash flow to us, which could affect our ability to fund our capital expenditures, including tower construction and acquisitions, and to meet REIT distribution requirements. During
an “amortization period,” all excess cash flow and any amounts then in the applicable Cash Trap Reserve Account would be applied to pay principal of the Series 2015-2 Notes or the Loan, as applicable, on each monthly payment date, and so would not be available for distribution to us. Further, additional interest will begin to accrue with respect to the Series 2015-2 Notes or subclass of the Loan from and after the anticipated repayment date at a per annum rate determined in accordance with the applicable agreement. With respect to the Series 2015-2 Notes, upon the occurrence of, and during, an event of default, the applicable trustee may, in its discretion or at the direction of holders of more than 50% of the aggregate outstanding principal of the Series 2015-2 Notes, declare the Series 2015-2 Notes immediately due and payable, in which case any excess cash flow would need to be used to pay holders of such notes. Furthermore, if GTP Acquisition Partners or the
AMT Asset Subs were to default on the Series 2015-2 Notes or the Loan, the applicable trustee may seek to foreclose upon or otherwise convert the ownership of all or any portion of the 3,537 communications sites that secure the Series 2015-2 Notes or the 5,113 broadcast and wireless communications towers and related assets that secure the Loan, respectively, in which case we could lose such sites and the revenue associated with those assets.
As discussed above, we use our available liquidity and seek new sources of liquidity to fund capital expenditures, future growth and expansion initiatives, satisfy our distribution requirements and repay or repurchase our debt. If we determine that it is desirable or necessary to raise additional capital, we may be unable to do so, or such additional financing may be prohibitively expensive or restricted by the terms of our outstanding indebtedness. Additionally, as further discussed under
the caption “Risk Factors” in Item 1A of the 2020 Form 10-K, extreme market volatility and disruption caused by the COVID-19 pandemic may impact our ability to raise additional capital through debt financing activities or our ability to repay or refinance maturing liabilities, or impact the terms of any new obligations. If we are unable to raise capital
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when our needs arise, we may not be able to fund capital expenditures, future growth and expansion initiatives, satisfy our REIT distribution requirements and debt service obligations, or refinance our existing indebtedness.
In addition, our liquidity depends on our ability to generate cash flow from operating activities. As set forth under the caption “Risk Factors”
in Item 1A of the 2020 Form 10-K, we derive a substantial portion of our revenues from a small number of tenants and, consequently, a failure by a significant tenant to perform its contractual obligations to us could adversely affect our cash flow and liquidity.
For more information regarding the terms of our outstanding indebtedness, please see note 9 to our consolidated financial statements included in the 2020 Form 10-K.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated and condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our policies and estimates on an ongoing basis, including those related to impairment of long-lived assets, asset retirement obligations, revenue recognition, rent expense, income taxes and accounting for business combinations and acquisitions of assets, which we discussed in the 2020 Form 10-K. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We have reviewed our policies and estimates
to determine our critical accounting policies for the three months ended March 31, 2021. We have made no material changes to the critical accounting policies described in the 2020 Form 10-K.
In October 2019, the Indian Supreme Court issued a ruling regarding the definition of AGR and associated fees and charges, which was reaffirmed in March 2020, that may have a material financial impact on certain of our tenants which could affect their ability to perform their obligations under agreements with us. In September 2020, the Indian Supreme Court defined the expected timeline of ten years for payments owed under the ruling. We will continue to monitor the status of these developments, as it is possible that the estimated future cash flows may differ from current estimates and changes in estimated cash flows from tenants in India could have an impact on previously recorded tangible
and intangible assets, including amounts originally recorded as tenant-related intangibles. The carrying value of tenant-related intangibles in India was $1.0 billion as of March 31, 2021, which represents 10% of our consolidated balance of $9.8 billion. Additionally, a significant reduction in tenant related cash flows in India could also impact our tower portfolio and network location intangibles. The carrying values of our tower portfolio and network location intangibles in India were $1.0 billion and $403.4 million, respectively, as of March 31, 2021, which represent 13% and 11% of our consolidated balances of $7.9 billion and $3.6 billion, respectively.
During the three months ended March 31, 2021, no potential goodwill impairment was identified as the fair value of each
of our reporting units was in excess of its carrying amount.
Accounting Standards Update
For a discussion of recent accounting standards updates, see note 1 to our consolidated and condensed consolidated financial statements included in this Quarterly Report.
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ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of March 31, 2021, we have one interest rate swap agreement related to debt in Colombia. This swap has been designated as a cash flow hedge, has a notional amount of $4.0 million, has an interest rate of 5.37% and expires in April 2021. We also have three interest rate swap agreements related to the 2.250% senior unsecured notes due 2022 (the “2.250% Notes”). These swaps have been designated as fair value hedges, have an aggregate notional amount of $600.0 million, have an interest rate of one-month LIBOR plus applicable spreads and expire in January 2022. In addition, we have three interest rate swap agreements related to a portion of the 3.000% senior unsecured notes due 2023 (the “3.000% Notes”). These swaps have been designated
as fair value hedges, have an aggregate notional amount of $500.0 million and an interest rate of one-month LIBOR plus applicable spreads and expire in June 2023.
Changes in interest rates can cause interest charges to fluctuate on our variable rate debt. Variable rate debt as of March 31, 2021 consisted of $270.0 million under the 2021 Multicurrency Credit Facility, $1.0 billion under the 2019 Term Loan, $2.3 billion under the 2021 Credit Facility, $600.0 million under the interest rate swap agreements related to the 2.250% Notes, $500.0 million under the interest rate swap agreements related to the 3.000% Notes and $1.4 million under the Colombian credit facility after giving effect to our interest rate swap agreements. A 10% increase in current interest rates would result in an additional $1.4 million of interest expense for the three months ended March
31, 2021.
Foreign Currency Risk
We are exposed to market risk from changes in foreign currency exchange rates primarily in connection with our foreign subsidiaries and joint ventures internationally. Any transaction denominated in a currency other than the U.S. Dollar is reported in U.S. Dollars at the applicable exchange rate. All assets and liabilities are translated into U.S. Dollars at exchange rates in effect at the end of the applicable fiscal reporting period and all revenues and expenses are translated at average rates for the period. The cumulative translation effect is included in equity as a component of Accumulated other comprehensive loss. We may enter into additional foreign currency financial instruments in anticipation of future transactions to minimize the impact of foreign
currency exchange rate fluctuations. For the three months ended March 31, 2021, 41% of our revenues and 49% of our total operating expenses were denominated in foreign currencies.
As of March 31, 2021, we have incurred intercompany debt that is not considered to be permanently reinvested and similar unaffiliated balances that were denominated in a currency other than the functional currency of the subsidiary in which it is recorded. As this debt had not been designated as being a long-term investment in nature, any changes in the foreign currency exchange rates will result in unrealized gains or losses, which will be included in our determination of net income. An adverse change of 10% in the underlying exchange rates of our unsettled intercompany debt and similar unaffiliated balances would result in $71.1 million of unrealized
losses that would be included in Other expense in our consolidated statements of operations for the three months ended March 31, 2021.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that material information relating to us,
including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of March 31, 2021 and designed to ensure that the information
required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2021 that have materially affected, or are reasonably likely to
49
materially
affect, our internal control over financial reporting. As permitted by the rules and regulations of the Securities and Exchange Commission, we excluded from our assessment the internal control over financial reporting at InSite which we acquired on December 23, 2020, for the year ended December 31, 2020. We consider InSite material to our results of operations, financial position and cash flows, and we are in the process of integrating the internal control procedures of InSite into our internal control structure.
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PART
II. OTHER INFORMATION
ITEM 1.
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 1A.
RISK
FACTORS
There were no material changes to the risk factors disclosed in Item 1A of the 2020 Form 10-K.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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—
—
—
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.