American Tower Corporation (REIT) (AMT)

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American Tower (AMT)

Q2 2013 Earnings Call

July 31, 2013 8:30 a.m. ET

Executives

James Taiclet - Chairman, President and CEO

Tom Bartlett - EVP and CFO

Leah Stearns - VP, Investor Relations & Capital Markets

Analysts

Brett Feldman - Deutsche Bank

Rick Prentiss - Raymond James

Michael Rollins - Citi Investment Research

Tim Horan - Oppenheimer

David Barden - Bank of America Merrill Lynch

Batya Levi - UBS

Jonathan Schildkraut - Evercore

Colby Synesael - Cowen & Company

Imari Love - Morningstar

Jonathan Atkin - RBC Capital Markets

Presentation

Operator

At this time, I would like to welcome everyone to the American Tower second quarter 2013 Earnings Call. [Operator instructions.] I would now like to pass this call over to your host, Ms. Leah Stearns, vice president of investor relations and capital markets. Ma’am, you may begin your conference.

Leah Stearns

Thank you. Good morning, and thank you for joining American Tower's second quarter 2013 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks, under the Investor Relations tab on our website.

Our agenda for this morning's call will be as follows. First, I will provide a brief overview of our second quarter and year to date results, then Tom Bartlett, our executive vice president, chief financial officer and treasurer, will review our financial and operational performance for the quarter as well as our updated outlook for 2013. And finally, Jim Taiclet, our chairman, president and CEO will provide closing remarks. After these comments, we will open up the call for your questions.

Before I begin, I would like to remind you that this call contains forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2013 outlook and future operating performance, and any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release, those set forth in our Form 10-Q for the quarter ended March 31, 2013, and in our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances.

And with that, please turn to slide four of the presentation, which provides a summary of our second quarter and year to date 2013 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenues, which were generated from leasing income producing real estate, primarily to investment grade corporate tenants.

This revenue grew 15.7% to nearly $789 million from the second quarter of 2012. In addition, our adjusted EBITDA increased 12.5% to approximately $524 million.

Operating income increased 15.6% to approximately $313 million, and net income attributable to American Tower Corporation was approximately $100 million, or $0.25 per basic and diluted common share.

During the quarter, we recorded unrealized net credit losses, which negatively impacted net income attributable to American Tower Corporation of approximately $114 million, or $0.28, which is due primarily to the translational impact of foreign currency exchange rate fluctuations related to approximately $1.1 billion of intercompany loans, which are denominated in currencies other than local currency.

We have utilized these loans to facilitate the funding of our international expansion initiative general operations. For accounting purposes, at the end of each quarter these loans are remeasured based on the actual foreign currency rate on the last day of the quarter end. As a result of a stronger U.S. dollar, as of June 30, 2013, relative to March 31, 2013, the remeasurement of these loans generated noncash losses for accounting purposes.

Turning to our results for the first half of 2013, our rental and management revenue grew 14.7% to approximately $1.57 billion from the first half of 2012. In addition, our adjusted EBITDA increased 12.9% to approximately $1.05 billion. Operating income increased 12.4% to approximately $612 million and net income attributable to American Tower Corporation was approximately $271 million, or $0.69 per basic and $0.68 per diluted common share.

And with that, I would like to turn the call over to Tom, who will discussion our results in more detail.

Tom Bartlett

Thanks, Leah. Good morning everyone. As you can see from the results we released this morning, we had another solid quarter, with our core business once again outperforming internal expectations as our global customer base continues to rapidly invest in their networks. Over the last few quarters, we have seen the initial shift towards sales splitting take shape and new leasing activity in the U.S. is picking up.

Meanwhile, our international portfolio continues to see colocation activity in the form of new leasing as our customers seek to expand their network coverage and increase network capacity by utilizing our towers.

From a financing perspective, during the quarter we refinanced our 2011 revolving credit facility, reducing the draw and borrowing costs by over 40 basis points, extending the maturity date by two years, increasing our credit available under the facility to $1.5 billion, while also providing us with the ability to draw in certain foreign currencies.

Towards the end of the quarter, the translation of our international segment’s performance was impacted by the strengthening of the U.S. dollar against many of our international market currencies. This resulted in a headwind in the second quarter 2013 international rental and management revenue of approximately $7 million and adjusted EBITDA of approximately $3 million versus the rates assumed in our previously issued outlook.

We view the recent movements in foreign currency exchange rates as noncash translational impacts to our results, as the cash flows we are generating offshore are substantially being reinvested into our markets to add additional scale to our existing portfolios. As a result of these foreign currency exchange rate movements, we have adjusted the assumptions implicit in our outlook for the remainder of the year.

Despite these headwinds, which for the full year we expect will be roughly $40 million to revenue, $20 million to adjusted EBITDA, and $15 million to AFFO, we are reiterating the midpoint of our 2013 outlook for our total rental and management segment revenue and raising the midpoint of our outlook for adjusted EBITDA and AFFO. This is an indication of the strength we see in our underlying organic business and our confidence in the secular demand trends we are seeing throughout our global footprint.

If you please turn to slide six, you’ll see that for the second quarter our total rental and management revenue increased by nearly 16% to $789 million. On a core basis, which we will reference throughout this presentation as reported results, excluding the impacts of foreign currency exchange rate fluctuations, noncash straight line lease accounting, and significant one-time items, our consolidated rental and management revenue growth was over 18%.

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