American Tower Corporation (REIT) (AMT)

AMT 
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American Tower Corporation (AMT)

Q1 2014 Earnings Conference Call

May 1, 2014 08:30 ET

Executives

Leah Stearns - Vice President, Investor Relations and Treasurer

Jim Taiclet - Chairman, President and Chief Executive Officer

Tom Bartlett - Executive Vice President and Chief Financial Officer

Analysts

Jonathan Atkin - RBC Capital

Batya Levi - UBS

Michael Bowen - Pacific Crest

Ric Prentiss - Raymond James

Richard Choe - JPMorgan

David Barden - Bank of America

Amir Rozwadowski - Barclays

Presentation

Operator

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower First Quarter 2014 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Ms. Leah Stearns, Vice President of Investor Relations and Treasurer. Please go ahead.

Leah Stearns - Vice President, Investor Relations and Treasurer

Thank you. Good morning and thank you for joining American Tower’s first quarter 2014 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 first quarter results, then Tom Bartlett, our Executive Vice President and CFO will review our financial and operational performance for the quarter, as well as our updated outlook for 2014, 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 will contain certain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2014 outlook and future operating performance, our expectation regarding future growth of our AFFO per share, industry trends 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-K for the year ended December 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 4 of the presentation which provides a summary of our first quarter 2014 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenues, which were generated primarily from leasing income producing real estate to investment grade corporate tenants. This revenue grew 23.5% to approximately $960 million from the first quarter of 2013. In addition, our adjusted EBITDA grew over 22% to approximately $640 million. Operating income increased 18% to approximately $354 million and net income attributable to American Tower Corporation was approximately $202 million or $0.51 per basic and diluted common shares.

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

Tom Bartlett - Executive Vice President and Chief Financial Officer

Thanks, Leah. Good morning everyone. As you can see from our press release, we kicked off 2014 with a very strong quarter from both the revenue growth and margin perspective. The network investment momentum that we saw built throughout 2013 in the U.S. continues and we are also seeing our customers in international markets aggressively investing in their networks. As a result, we are raising our full year 2014 outlook for all of our key metrics.

If you please turn to Slide 6, our total rental and management revenue in the quarter increased by over 23% to $960 million on a core growth basis, which we will reference throughout this presentation as reported results excluding the impacts of foreign exchange rate fluctuations, non-cash straight line lease accounting and significant one-time items, our total rental and management revenue growth was over 30%. Of our Q1 core growth, 11.5% was organic and was a result of a very strong quarter for commenced new business. In fact during the quarter, we experienced an increase of over 25% in commenced new business from the first quarter of 2013. The balance of our core growth nearly 19% was attributable to properties we have acquired since the beginning of 2013, including the GTP and NII portfolios we acquired late last year. We estimate that our top 10 global tenants will invest more than $40 billion in CapEx during 2014 into their wireless networks, which we expect will continue to drive strong new business commitments throughout the year.

Turning to Slide 7, our domestic rental and management revenue growth in the quarter was over 23% with core growth of around 26%. Domestic organic core growth was over 9%, which consisted of over 3% from escalations and more than 7% from existing site revenue growth netted just over 1% from tenant churn. This organic core growth reflects our tenants continued aggressive network investments in 4G. Overall in the U.S. roughly 60% of the commenced new business activity we saw the quarter outside of the holistic agreements was in the form of amendments compared to nearly 70% a year ago. Also our new business pipeline reflects a split of 55% amendments and 45% co-locations. This indicates to us that the shift towards densification from initial 4G coverage is well underway. Accordingly we have increased our outlook for our domestic organic core growth to over 9% for 2014, up more than 50 basis points versus our prior expectations. Domestic rental and management gross margin increased by more than 21% to over $514 million and grew by nearly 25% on a core basis.

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