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| | | | _______________
(1)Approximately 98% 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 communications sites in Australia and New Zealand, which provide recurring cash flows through tenant leasing arrangements.
(3)In January 2024, we entered into the Pending ATC TIPL Transaction (as defined and further discussed below).
As of March 31, 2024, our property portfolio included 28 operating data center facilities across ten markets in the United States that collectively comprise approximately 3.3 million net rentable square feet (“NRSF”) of data center space, as follows:
| | | | | | | | | | | | | | |
| | Number of Data Centers | | Total NRSF (1) |
| | | | (in thousands) |
| San Francisco Bay, CA | | 8 | | 939 |
| Los Angeles, CA | | 3 | | 724 |
| Northern Virginia, VA | | 5 | | 586 |
| New York, NY | | 2 | | 285 |
| Chicago, IL | | 2 | | 216 |
| Boston, MA | | 1 | | 143 |
| Orlando, FL | | 1 | | 126 |
| Miami, FL | | 2 | | 115 |
| Atlanta, GA | | 2 | | 95 |
| Denver, CO | | 2 | | 37 |
| Total | | 28 | | 3,266 | |
_______________(1)Excludes approximately 0.4 million of office and light industrial NRSF.
We operate in seven reportable segments: U.S. & Canada property, Asia-Pacific property, Africa property, Europe property, Latin America property, Data Centers and Services. In evaluating operating performance in each business segment, management uses, among other factors, segment gross margin and segment operating profit (see note 14 to our consolidated and condensed consolidated financial statements included in this Quarterly Report).
The 2023 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 2023 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 for our communications sites 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, 2024 was recurring revenue that we should continue to receive in future periods. Most of our tenant leases for our communications sites have provisions that periodically increase or “escalate” the rent due under the lease, typically based on (a) an annual fixed escalation (averaging approximately 3% in the United States), (b) an inflationary index in most of our international markets, or (c) 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.
Based upon existing customer leases and foreign currency exchange rates as of March 31, 2024, we expect to generate nearly $60 billion of non-cancellable customer lease revenue over future periods, before the impact of straight-line lease accounting.
Following the rulings by the Supreme Court of India regarding carriers’ obligations for the adjusted gross revenue fees and charges prescribed by the court, we have experienced variability and a level of uncertainty in collections in India. As further discussed in Item 1A of the 2023 Form 10-K under the caption “Risk Factors—A substantial portion of our current and projected future revenue is derived from a small number of customers, and we are sensitive to adverse changes in the creditworthiness and financial strength of our customers,” in the third quarter of 2022, one of our customers in India, Vodafone Idea Limited (“VIL”), communicated that it would make partial payments of its contractual amounts owed to us (the “VIL Shortfall”). We recorded reserves in late 2022 and the first half of 2023 for the VIL Shortfall. In the second half of 2023, VIL began making payments in full of its monthly contractual obligations owed to us.
In February 2023, and as amended in August 2023, VIL issued optionally convertible debentures (the “VIL OCDs”) to our subsidiary, ATC Telecom Infrastructure Private Limited (“ATC TIPL”), in exchange for VIL’s payment of certain amounts towards accounts receivables. The VIL OCDs are (a) to be repaid by VIL with interest or (b) convertible into equity of VIL. If converted and following registration, such equity shall be free to trade in the open market beginning on the one year anniversary of the date of issuance of the VIL OCDs. The VIL OCDs were issued for an aggregate face value of 16.0 billion Indian Rupees (“INR”) (approximately $193.2 million on the date of issuance). The fair value of the VIL OCDs at issuance was approximately $116.5 million.
On March 23, 2024, we converted an aggregate face value of 14.4 billion INR (approximately $172.7 million) of VIL OCDs into 1,440 million shares of equity of VIL (the “VIL Shares”), which were unregistered as of March 31, 2024. The fair value of the VIL Shares as of March 31, 2024 was $172.7 million. The VIL Shares were registered on April 16, 2024 and we completed the sale of the VIL Shares on April 29, 2024 for total net proceeds of approximately $216.0 million, as further discussed in note 15 to our consolidated financial statements included in this Quarterly Report.
In 2023, we initiated a strategic review of our India business, where we evaluated our exposure to the India market within our global portfolio of communications assets, and assessed opportunities to repurpose capital to drive long-term shareholder value and sustained growth. The strategic review concluded in January 2024 with our signed agreement with DIT for the Pending ATC TIPL Transaction (each as defined below). During the process, and based on information gathered therein, we updated our estimate on the fair value of the India reporting unit and determined that the carrying value exceeded fair value. As a result, we recorded a goodwill impairment charge of $322.0 million in the third quarter of 2023.
On January 4, 2024, through our subsidiaries, ATC Asia Pacific Pte. Ltd. and ATC TIPL, which holds our operations in India, we entered into an agreement with Data Infrastructure Trust (“DIT”), an infrastructure investment trust sponsored by an affiliate of Brookfield Asset Management, pursuant to which DIT will acquire a 100% ownership interest in ATC TIPL (the “Pending ATC TIPL Transaction”). We will retain the full economic benefit associated with the VIL OCDs, the VIL Shares and rights to payments on certain existing customer receivables. Subject to certain pre-closing terms, total aggregate consideration would potentially represent up to approximately 210 billion Indian Rupees (“INR”) (approximately $2.5 billion), including the value of the VIL OCDs and the VIL Shares, payments on certain existing customer receivables, the repayment of existing intercompany debt and the repayment, or assumption, of our existing term loan in India, by DIT. During the three months ended March 31, 2024, ATC TIPL distributed approximately 9,603 million INR (approximately $115.1 million) to us, which will be deducted from the total aggregate consideration to be received by us at closing. The Pending ATC TIPL Transaction is expected to close in the second half of 2024, subject to customary closing conditions, including government and regulatory approval.
We will continue to 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 our discussion below under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in this Quarterly Report.
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, 2024, churn was approximately 3% of our tenant billings, primarily driven by churn in our U.S. & Canada property segment, as discussed below.
We expect that our churn rate in our U.S. & Canada property segment will remain elevated through 2025 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. entered into in September 2020.
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 and Adjusted Funds From Operations (“AFFO”) attributable to American Tower Corporation common stockholders (“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), including Goodwill impairment; 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 including adjustments and distributions for unconsolidated affiliates and noncontrolling interests. In this section, we refer to Nareit FFO attributable to American Tower Corporation common stockholders as “Nareit FFO (common stockholders).”
We define AFFO attributable to American Tower Corporation common stockholders as Nareit FFO (common stockholders) before (i) straight-line revenue and expense; (ii) stock-based compensation expense; (iii) the deferred portion of income tax and other income tax adjustments; (iv) non-real estate related depreciation, amortization and accretion; (v) amortization of deferred financing costs, debt discounts and premiums and long-term deferred interest charges; (vi) other income (expense); (vii) gain (loss) on retirement of long-term obligations; and (viii) other operating income (expense); less cash payments related to capital improvements and cash payments related to corporate capital expenditures and including adjustments and distributions for unconsolidated affiliates and noncontrolling interests, which includes the impact of noncontrolling interests on both Nareit FFO and the corresponding adjustments included in 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) 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) 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) and AFFO (common stockholders) are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for decision making purposes and for evaluating our operating segments’ performance; (2) Adjusted EBITDA is a component underlying our credit ratings; (3) Adjusted EBITDA is widely used in the telecommunications real estate sector to measure operating performance as depreciation, amortization and accretion may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (4) AFFO (common stockholders) 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) 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) and AFFO (common stockholders) to net income, the most directly comparable GAAP measure, have been included below.
Results of Operations
Three Months Ended March 31, 2024 and 2023
(in millions, except percentages)
Revenue
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Property | | | | | | | |
| U.S. & Canada | | $ | 1,310.7 | | | $ | 1,287.6 | | | 2 | % | |
| Asia-Pacific | | 326.6 | | | 251.1 | | | 30 | | |
| Africa | | 292.0 | | | 317.0 | | | (8) | | |
| Europe | | 204.5 | | | 191.7 | | | 7 | | |
| Latin America | | 445.5 | | | 464.1 | | | (4) | | |
| Data Centers | | 224.6 | | | 203.0 | | | 11 | | |
| Total property | | 2,803.9 | | | 2,714.5 | | | 3 | | |
| Services | | 30.2 | | | 52.7 | | | (43) | | |
| Total revenues | | $ | 2,834.1 | | | $ | 2,767.2 | | | 2 | % | |
Three Months Ended March 31, 2024
U.S. & Canada property segment revenue growth of $23.1 million was attributable to:
• Tenant billings growth of $52.6 million, which was driven by:
• $45.3 million due to leasing additional space on our sites (“colocations”) and amendments; and
• $10.2 million resulting from contractual escalations, net of churn;
• Partially offset by a decrease of $2.9 million from other tenant billings;
•Partially offset by a decrease of $29.5 million in other revenue, which includes a $27.9 million decrease due to straight-line accounting.
Segment revenue growth was not meaningfully impacted by foreign currency translation related to fluctuations in Canadian Dollar.
Asia-Pacific property segment revenue growth of $75.5 million was attributable to:
• An increase of $37.5 million in other revenue, primarily due to the recognition of $19.8 million of previously deferred revenue as compared to reserves taken in the prior year period related to the VIL Shortfall (as discussed above);
• An increase of $33.2 million in pass-through revenue, primarily due to the recognition of previously deferred revenue as compared to reserves taken in the prior year period related to the VIL Shortfall; and
• Tenant billings growth of $7.7 million, which was driven by:
• $7.1 million due to colocations and amendments;
• $1.2 million generated from sites acquired or constructed since the beginning of the prior-year period (“newly acquired or constructed sites”); and
• $0.9 million from other tenant billings;
• Partially offset by a decrease of $1.5 million resulting from churn in excess of contractual escalations.
Segment revenue growth was partially offset by a decrease of $2.9 million attributable to the negative impact of foreign currency translation related to fluctuations in INR.
Africa property segment revenue decrease of $25.0 million was attributable to:
• A decrease of $50.5 million attributable to the impact of foreign currency translation, which included, among others, negative impacts of $38.6 million related to fluctuations in Nigerian Naira, $6.0 million related to
fluctuations in Kenyan Shilling, $2.7 million related to fluctuations in South African Rand and $2.0 million related to fluctuations in Ugandan Shilling; and
• A decrease of $22.5 million in pass-through revenue, primarily due to a decrease in energy costs;
• Partially offset by:
• Tenant billings growth of $43.3 million, which was driven by:
• $15.4 million due to colocations and amendments;
• $14.4 million generated from newly acquired or constructed sites;
• $12.4 million resulting from contractual escalations, net of churn; and
• $1.1 million from other tenant billings; and
• An increase of $4.7 million in other revenue, primarily due to straight-line accounting.
Europe property segment revenue growth of $12.8 million was attributable to:
• Tenant billings growth of $8.8 million, which was driven by:
• $4.5 million due to colocations and amendments;
• $2.7 million resulting from contractual escalations, net of churn; and
• $1.7 million generated from newly acquired or constructed sites;
• Partially offset by a decrease of $0.1 million from other tenant billings;
• An increase of $0.7 million in pass-through revenue; and
• An increase of $0.7 million in other revenue.
Segment revenue growth included an increase of $2.6 million primarily attributable to the positive impact of foreign currency translation related to fluctuations in Euro (“EUR”).
Latin America property segment revenue decrease of $18.6 million was attributable to:
• A decrease of $53.9 million in other revenue, primarily attributable to a decrease in tenant settlements in Mexico and the sale of one of our subsidiaries in Mexico that held fiber assets (“Mexico Fiber”) in the prior year period;
• Partially offset by:
• Tenant billings growth of $8.4 million, which was driven by:
• $9.2 million due to colocations and amendments; and
• $0.5 million generated from newly acquired or constructed sites;
• Partially offset by:
◦$1.1 million from churn in excess of contractual escalations; and
◦$0.2 million from other tenant billings; and
• An increase of $3.2 million in pass-through revenue.
Segment revenue decline was partially offset by an increase of $23.7 million, attributable to the impact of foreign currency translation, which included, among others, positive impacts of $13.3 million related to fluctuations in Mexican Peso, $9.3 million related to fluctuations in Brazilian Real, $5.4 million related to fluctuations in Colombian Peso, offset by negative impacts of $4.4 million related to fluctuations in Chilean Peso.
Data Centers segment revenue growth of $21.6 million was attributable to:
•An increase of $13.6 million in rental, related and other revenue, primarily due to new lease commencements, customer expansions and rent increases upon customer renewals;
•An increase of $8.0 million in power revenue from new lease commencements, increased power consumption and pricing increases from existing customers; and
•An increase of $2.5 million in interconnection revenue, primarily due to customer interconnection net additions and set-up fees;
•Partially offset by a decrease of $2.5 million in straight-line revenue.
Services segment revenue decrease of $22.5 million was primarily attributable to a decrease in site application, zoning and permitting and structural and mount analyses services, partially offset by an increase in construction management services.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Property | | | | | | | |
| U.S. & Canada | | $ | 1,106.4 | | | $ | 1,082.3 | | | 2 | % | |
| Asia-Pacific | | 155.9 | | | 82.7 | | | 89 | | |
| Africa | | 199.3 | | | 198.5 | | | 0 | | |
| Europe | | 131.0 | | | 118.6 | | | 10 | | |
| Latin America | | 305.2 | | | 326.2 | | | (6) | | |
| Data Centers | | 131.7 | | | 119.2 | | | 10 | | |
| Total property | | 2,029.5 | | | 1,927.5 | | | 5 | | |
| Services | | 16.3 | | | 33.6 | | | (51) | % | |
Three Months Ended March 31, 2024
•The increase in U.S. & Canada property segment gross margin was primarily attributable to the increase in revenue described above and a decrease in direct expenses of $1.0 million.
•The increase in Asia-Pacific property segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $3.9 million, primarily due to an increase in costs associated with pass-through revenue, including fuel costs. Direct expenses also benefited by $1.6 million from the impact of foreign currency translation.
•The increase in Africa property segment gross margin was primarily attributable to a decrease in direct expenses of $11.1 million, primarily due to a decrease in costs associated with pass-through revenue, including fuel costs, partially offset by the decrease in revenue described above. Direct expenses also benefited by $14.7 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 and a decrease in direct expenses of $0.5 million. Direct expenses were also negatively impacted by $0.9 million from the impact of foreign currency translation.
•The decrease in Latin America property segment gross margin was primarily attributable to the decrease in revenue described, partially offset by a decrease in direct expenses of $4.8 million, primarily due to the sale of Mexico Fiber in the prior year period. Direct expenses were also negatively impacted by $7.2 million from the impact of foreign currency translation.
•The increase in Data Centers segment gross margin was primarily attributable to the increase in revenue described above, partially offset by an increase in direct expenses of $9.1 million, primarily due to an increase in costs associated with power revenue, including utility costs.
•The decrease in Services segment gross margin was primarily attributable to the decrease in revenue described above, partially offset by a decrease in direct expenses of $5.2 million.
Selling, General, Administrative and Development Expense (“SG&A”)
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Property | | | | | | | |
| U.S. & Canada | | $ | 36.6 | | | $ | 40.8 | | | (10) | % | |
| Asia-Pacific | | 12.8 | | | 8.8 | | | 45 | | |
| Africa | | 14.9 | | | 21.4 | | | (30) | | |
| Europe | | 15.8 | | | 14.6 | | | 8 | | |
| Latin America | | 27.8 | | | 29.7 | | | (6) | | |
| Data Centers | | 17.2 | | | 17.5 | | | (2) | | |
| Total property | | 125.1 | | | 132.8 | | | (6) | | |
| Services | | 4.9 | | | 5.7 | | | (14) | | |
| Other | | 127.0 | | | 125.4 | | | 1 | | |
| Total selling, general, administrative and development expense | | $ | 257.0 | | | $ | 263.9 | | | (3) | % | |
Three Months Ended March 31, 2024
•The decreases in our U.S. & Canada property segment SG&A and our Services segment SG&A were primarily driven by decreased personnel and related costs.
•The increase in our Asia-Pacific property segment SG&A was primarily driven by net recoveries of bad debt expense in the prior year period, partially offset by lower canceled construction costs. For the three months ended March 31, 2023, the impact of the VIL Shortfall was reflected in revenue reserves, as described above, as we were deferring the recognition of revenue until uncertainties were resolved.
•The decrease in our Africa property segment SG&A was primarily driven by a benefit from the impact of foreign currency translation of $4.0 million and a net decrease in bad debt expense.
•The increase in our Europe property segment SG&A was primarily driven by increased professional services costs.
•The decrease in our Latin America property segment SG&A was primarily driven by decreased professional services costs and personnel and related costs, partially offset by the negative impact of foreign currency translation and a net increase in bad debt expense.
•Our Data Centers segment SG&A did not have a meaningful change as compared to the prior-year period.
•The increase in other SG&A was primarily attributable to an increase in corporate SG&A, including an increase in personnel and related costs to support our business.
Operating Profit
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Property | | | | | | | |
| U.S. & Canada | | $ | 1,069.8 | | | $ | 1,041.5 | | | 3 | % | |
| Asia-Pacific | | 143.1 | | | 73.9 | | | 94 | | |
| Africa | | 184.4 | | | 177.1 | | | 4 | | |
| Europe | | 115.2 | | | 104.0 | | | 11 | | |
| Latin America | | 277.4 | | | 296.5 | | | (6) | | |
| Data Centers | | 114.5 | | | 101.7 | | | 13 | | |
| Total property | | 1,904.4 | | | 1,794.7 | | | 6 | | |
| Services | | 11.4 | | | 27.9 | | | (59) | % | |
•The increases in operating profit for the three months ended March 31, 2024 for our U.S. & Canada and Africa property segments and our Data Centers segment were primarily attributable to increases in our segment gross margin and decreases in our segment SG&A.
•The increases in operating profit for the three months ended March 31, 2024 for our Asia-Pacific and Europe property segments were primarily attributable to increases in our segment gross margin, partially offset by increases in our segment SG&A.
•The decreases in operating profit for the three months ended March 31, 2024 for our Latin America property segment and our Services segment were primarily attributable to decreases in our segment gross margin, partially offset by decreases in our segment SG&A.
Depreciation, Amortization and Accretion | | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Depreciation, amortization and accretion | | $ | 549.4 | | | $ | 794.1 | | | (31) | % | |
The decrease in depreciation, amortization and accretion expense for the three months ended March 31, 2024 was primarily attributable to the change in estimated useful lives of our tower assets.
During the three months ended March 31, 2024, we finalized our reviews of the estimated useful lives of our tower assets and estimated settlement dates for our asset retirement obligations. Based on information obtained, we determined that our estimated asset lives and our estimated settlement dates should be extended, which is expected to result in an estimated $730 million decrease in depreciation and amortization expense and an estimated $75 million decrease in accretion expense for the year ended December 31, 2024. For more information on the change in the estimated useful lives of our tower assets and the change in the estimated settlement dates for our asset retirement obligations, see the information under the captions “Property and Equipment” and “Asset Retirement Obligations” included in note 1 to our consolidated financial statements included in this Quarterly Report.
Other Operating Expenses
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Other operating expenses | | $ | 2.8 | | | $ | 127.5 | | | (98) | % | |
The decrease in other operating expenses during the three months ended March 31, 2024 was primarily attributable to a decrease in losses on sales or disposals of assets of $87.1 million, primarily attributable to the loss on the sale of Mexico Fiber of $80.0 million in the prior year period and a decrease in impairment charges.
Total Other Expense | | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Total other expense | | $ | 205.7 | | | $ | 407.2 | | | (49) | % | |
Total other expense consists primarily of interest expense and realized and 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, 2024 was primarily due to foreign currency gains of $127.6 million in the current period, as compared to foreign currency losses of $84.1 million in the prior-year period.
Income Tax Provision
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Income tax provision | | $ | 109.2 | | | $ | 53.4 | | | 104 | % | |
| Effective tax rate | | 10.6 | % | | 14.5 | % | | | |
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. Consequently, the effective tax rate on income from continuing operations for the three months ended March 31, 2024 and 2023 differs from the federal statutory rate.
The increase in the income tax provision during the three months ended March 31, 2024 was primarily attributable to increased earnings in certain foreign jurisdictions, partially due to the impacts of the change in estimated useful lives on depreciation and amortization expense. For more information on the change in the estimated useful lives of our tower assets, see the information under the caption “Property and Equipment” included in note 1 to our consolidated financial statements included in this Quarterly Report.
Net Income / Adjusted EBITDA and Net Income / Nareit FFO attributable to American Tower Corporation common stockholders / AFFO attributable to American Tower Corporation common stockholders
During the three months ended March 31, 2024, we updated our presentation of Nareit FFO attributable to American Tower Corporation common stockholders and AFFO attributable to American Tower Corporation common stockholders to remove separate presentation of Consolidated AFFO. We believe this presentation better aligns our reporting with management’s current approach of allocating capital and resources, managing growth and profitability and assessing the operating performance of our business. The change in presentation has no impact on our Nareit FFO attributable to American Tower Corporation common stockholders or AFFO attributable to American Tower Corporation common stockholders for any periods. Historical financial information included below has been adjusted to reflect the change in presentation.
| | | | | | | | | | | | | | | | | | | | | |
| | | 2024 | | 2023 | |
| Net income | | $ | 921.7 | | | $ | 315.0 | | | 193 | % | |
| Income tax provision | | 109.2 | | | 53.4 | | | 104 | | |
| Other (income) expense | | (113.0) | | | 97.8 | | | (216) | | |
| | | | | | | |
| Interest expense | | 366.7 | | | 340.2 | | | 8 | | |
| Interest income | | (48.0) | | | (30.8) | | | 56 | | |
| Other operating expenses | | 2.8 | | | 127.5 | | | (98) | | |
| | | | | | | |
| Depreciation, amortization and accretion | | 549.4 | | | 794.1 | | | (31) | | |
| Stock-based compensation expense | | 64.9 | | | 65.5 | | | (1) | | |
| Adjusted EBITDA | | $ | 1,853.7 | | | $ | 1,762.7 | | | 5 | % | |
| | 118.7 | | | (99) | |
| | | | | | | |
| | (8.9) | | | (712) | |
| | | | | | | |
| | 11.7 | | | 11 | |
| | | | | | | |
| | 97.8 | | | (216) | |
| | | | | | | |
| | 4.7 | | | (111) | |
| | | | | | | |
| | | | | | | |
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|
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| Repayments of senior notes | (1,500.0) | | | (1,000.0) | |
|
| Contributions from noncontrolling interest holders | 101.4 | | | — | |
| Distributions to noncontrolling interest holders | (160.6) | | | (11.2) | |
|
| Distributions paid on common stock | (802.1) | | | (733.6) | |
Repayments of Senior Notes
Repayment of 0.600% Senior Notes—On January 12, 2024, we repaid $500.0 million aggregate principal amount of the 0.600% Notes upon their maturity. The 0.600% Notes were repaid using borrowings under the 2021 Multicurrency Credit Facility. Upon completion of the repayment, none of the 0.600% Notes remained outstanding.
Repayment of 5.00% Senior Notes—On February 14, 2024, we repaid $1.0 billion aggregate principal amount of the 5.00% Notes upon their maturity. The 5.00% Notes were repaid using borrowings under the 2021 Multicurrency Credit Facility. Upon completion of the repayment, none of the 5.00% Notes remained outstanding.
Offerings of Senior Notes
5.200% Senior Notes and 5.450% Senior Notes Offering—On March 7, 2024, we completed a registered public offering of $650.0 million aggregate principal amount of 5.200% senior unsecured notes due 2029 (the “5.200% Notes”) and $650.0 million aggregate principal amount of 5.450% senior unsecured notes due 2034 (the “5.450% Notes” and, together with the 5.200% Notes, the “Notes”). The net proceeds from this offering were approximately $1,281.3 million, after deducting commissions and estimated expenses. We used the net proceeds to repay existing indebtedness under the 2021 Multicurrency Credit Facility.
The key terms of the Notes are as follows:
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| Senior Notes | | Aggregate Principal Amount (in millions) | | Issue Date and Interest Accrual Date | | Maturity Date | | Contractual Interest Rate | | First Interest Payment | | Interest Payments Due (1) | | Par Call Date (2) |
| 5.200% Notes | | $ | 650.0 | | | March 7, 2024 | | February 15, 2029 | | 5.200% | | August 15, 2024 | | February 15 and August 15 | | January 15, 2029 |
| 5.450% Notes | | $ | 650.0 | | | March 7, 2024 | | February 15, 2034 | | 5.450% | | August 15, 2024 | | February 15 and August 15 | | November 15, 2033 |
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___________(1)Accrued and unpaid interest on U.S. Dollar (“USD”) denominated notes 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.
(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 aggregate principal amount of the Notes repurchased, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The Notes rank equally in right of payment with all of our other senior unsecured debt obligations 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 supplemental indenture.
Bank Facilities
2021 Multicurrency Credit Facility—During the three months ended March 31, 2024, we borrowed an aggregate of $2.0 billion, including 315.0 million EUR ($339.4 million as of the borrowing date) and repaid an aggregate of $1.7 billion, including 85.0 million EUR ($91.9 million as of the repayment date), of revolving indebtedness under our $6.0 billion senior unsecured multicurrency revolving credit facility, as amended and restated in December 2021, as further amended (the “2021 Multicurrency Credit Facility”). We used the borrowings to repay outstanding indebtedness, including the 0.600% Notes and the 5.00% Notes, and for general corporate purposes. We currently have $3.5 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, 2024, we borrowed an aggregate of $775.0 million and repaid an aggregate of $340.0 million of revolving indebtedness under our $4.0 billion senior unsecured revolving credit facility, as amended and restated in December 2021, as further amended (the “2021 Credit Facility”). We used the borrowings for general corporate purposes. We currently have $30.4 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.
As of March 31, 2024, the key terms under the 2021 Multicurrency Credit Facility, the 2021 Credit Facility, our $1.0 billion unsecured term loan, as amended and restated in December 2021, as further amended (the “2021 Term Loan”), and our 825.0 million EUR unsecured term loan, as amended in December 2021 (the “2021 EUR Three Year Delayed Draw Term Loan”) were as follows:
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| Bank Facility | | Outstanding Principal Balance
($ in millions) | Maturity Date | | SOFR or EURIBOR borrowing interest rate range (1) | Base rate borrowing interest rate range (1) | Current margin over SOFR or EURIBOR and the base rate, respectively |
| 2021 Multicurrency Credit Facility | (2) | $ | 1,011.6 | | July 1, 2026 | (3) | 0.875% - 1.500% | 0.000% - 0.500% | 1.125% and 0.125% |
| 2021 Credit Facility | (4) | 2,038.4 | | July 1, 2028 | (3) | 0.875% - 1.500% | 0.000% - 0.500% | 1.125% and 0.125% |
| 2021 Term Loan | (4) | 1,000.0 | | January 31, 2027 | | 0.875% - 1.750% | 0.000% - 0.750% | 1.125% and 0.125% |
| 2021 EUR Three Year Delayed Draw Term Loan | (5) | 890.2 | | May 28, 2024 | | 0.875% - 1.625% | 0.000% - 0.625% | 1.125% and 0.125% |
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(1)Represents interest rate above: (a) SOFR for SOFR based borrowings, (b) Euro Interbank Offer Rate (“EURIBOR”) for EURIBOR based borrowings and (c) the defined base rate for base rate borrowings, in each case based on our debt ratings.
(2)Currently borrowed at SOFR for USD denominated borrowings and at EURIBOR for EUR denominated borrowings.
(3)Subject to two optional renewal periods.
(4)Currently borrowed at SOFR.
(5)Currently borrowed at EURIBOR.
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 0.200% per annum, based upon our debt ratings, and is currently 0.110%.
The 2021 Multicurrency Credit Facility, the 2021 Credit Facility, the 2021 Term Loan and the 2021 EUR Three Year Delayed Draw Term Loan and the associated loan agreements (the “Bank Loan Agreements”) 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, SOFR or EURIBOR as the applicable base rate for borrowings under these bank facilities.
Each Bank Loan Agreement contains 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 these financial and operating covenants 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 under the applicable agreement, including all accrued interest and unpaid fees, becoming immediately due and payable.
India Term Loan—On February 17, 2023, we borrowed 10.0 billion INR (approximately $120.7 million at the date of borrowing) under an unsecured term loan in India with a maturity date that is one year from the date of the first draw thereunder (the “India Term Loan”). In January 2024, we amended the India Term Loan to extend the maturity date to December 31, 2024.
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, 2024, 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 and upon exercise of stock options granted under our equity incentive plan. During the three months ended March 31, 2024, we received an aggregate of $13.9 million in proceeds upon exercises of stock options.
Future Financing Transactions—We regularly consider various options to obtain financing and access the capital markets, subject to market conditions, to meet our funding needs. Such capital raising alternatives, in addition to those noted above, may include amendments and extensions of our bank facilities, entry into new bank facilities, transactions with private equity funds or partnerships, additional senior note and equity offerings and securitization transactions. No assurance can be given as to whether any such financing transactions will be completed or as to the timing or terms thereof.
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 net operating losses (“NOLs”). We have distributed an aggregate of approximately $18.3 billion to our common stockholders, including the dividend paid in April 2024, primarily classified as ordinary income that may be treated as qualified REIT dividends under Section 199A of the Code for taxable years beginning before 2026.
During the three months ended March 31, 2024, we paid $1.70 per share, or $792.7 million, to our common stockholders of record. In addition, we declared a distribution of $1.62 per share, or $756.5 million, paid on April 26, 2024 to our common stockholders of record at the close of business on April 12, 2024.
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, 2024, the amount accrued for distributions payable related to unvested restricted stock units was $15.4 million. During the three months ended March 31, 2024, we paid $9.4 million of distributions upon the vesting of restricted stock units.
Factors Affecting Sources of Liquidity
As discussed in the “Liquidity and Capital Resources” section of the 2023 Form 10-K, our liquidity depends on our ability to generate cash flow from operating activities, borrow funds under our credit facilities and maintain compliance with the contractual agreements governing our indebtedness. We believe that the debt agreements discussed below represent our material debt agreements that contain covenants, our compliance with which would be material to an investor’s understanding of our financial results and the impact of those results on our liquidity.
Restrictions Under Loan Agreements Relating to Our Credit Facilities—Each Bank Loan Agreement contains certain financial and operating covenants and other restrictions applicable to us and our subsidiaries that are not designated as unrestricted subsidiaries on a consolidated basis. These restrictions include limitations on additional debt, distributions and dividends, guaranties, sales of assets and liens. The Bank Loan Agreements also contain covenants that establish financial tests with which we and our restricted subsidiaries must comply related to total leverage and senior secured leverage, as set forth in the table below. As of March 31, 2024, we were in compliance with each of these covenants.
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| | | | Compliance Tests For The 12 Months Ended
March 31, 2024
($ 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 | | ~ 4.6 | | ~ 0.8 |
| Consolidated Senior Secured Leverage Ratio | | Senior Secured Debt to Adjusted EBITDA
≤ 3.00:1.00 | | ~ 19.4 | | ~ 6.5 |
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(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.
The Bank Loan Agreements 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 Bank Loan Agreements could not only prevent us from being able to borrow additional funds under the revolving credit facilities, but may also 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. 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 Bank Loan Agreements 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 2018 (the “2018 Securitization”) and March 2023 (the “2023 Securitization” and, together with the 2018 Securitization, the “Trust Securitizations”) (collectively, the “Securitization Loan Agreements”) 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 Securitization Loan 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 2018-1, Subclass A (the “Series 2018-1A Securities”), 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”), the Secured Tower Revenue Securities 2023-1, Subclass A (the “Series 2023-1A Securities”), the Secured Tower Revenue Securities, Series 2023-1, Subclass R (the “Series 2023-1R Securities” and, together with the Series 2023-1A Securities, the “2023 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 paying 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 these assets are released to GTP Acquisition Partners or the AMT Asset Subs, as applicable, which can then be distributed to us for use. As of March 31, 2024, $81.3 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 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.
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| Issuer or Borrower | Notes/Securities Issued | Conditions Limiting Distributions of Excess Cash | Excess Cash Distributed During the Three Months Ended March 31, 2024 | DSCR
as of March 31, 2024 | 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) | $84.0 | 19.09x | $327.4 | $330.2 |
| Trust Securitizations | AMT Asset Subs | Secured Tower Revenue Securities, Series 2023-1, Subclass A, Secured Tower Revenue Securities, Series 2023-1, Subclass R, 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) | $140.0 | 7.38x | $547.9 | $561.4 |
_____________(1)Based on the net cash flow of the applicable issuer or borrower as of March 31, 2024 and the expenses payable over the next 12 months on the Series 2015-2 Notes or the Loan, as applicable.
(2)If the DSCR were equal to or below 1.30x (the “Cash Trap DSCR”) for any quarter, 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. Once triggered, a Cash Trap DSCR condition continues to exist until the DSCR exceeds the Cash Trap DSCR for two consecutive calendar quarters.
(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 that event, additional interest will accrue on the unpaid principal balance of the applicable series, and that 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 the 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 the 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 those 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 3,340 communications sites that secure the Series 2015-2 Notes or the 5,029 broadcast and wireless communications towers and related assets that secure the Loan, respectively, in which case we could lose those sites and their associated revenue.
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 2023 Form 10-K, market volatility and disruption caused by inflation,
rising interest rates and supply chain disruptions 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 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 2023 Form 10-K, we derive a substantial portion of our revenues from a small number of customers and, consequently, a failure by a significant customer 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 8 to our consolidated financial statements included in the 2023 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, revenue recognition, rent expense, income taxes and accounting for business combinations and acquisitions of assets, as further discussed in the 2023 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, 2024. We have made no material changes to the critical accounting policies described in the 2023 Form 10-K.
In the third quarter of 2022, VIL communicated that it would make partial payments of its contractual amounts owed to us and indicated that it would continue to make partial payments for the remainder of 2022. In late 2022, VIL had communicated its intent to resume payments in full under its contractual obligations owed to us beginning on January 1, 2023. However, in early 2023, VIL communicated that it would not be able to resume payments in full of its contractual obligations owed to us, and that it would instead continue to make partial payments, for which we recorded reserves in late 2022 and the first half of 2023. In the second half of 2023, VIL began making payments in full of its monthly contractual obligations owed to us.
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 customers in India could have further negative effects on previously recorded tangible and intangible assets, including amounts originally recorded as tenant-related intangible assets, resulting in additional impairments. Events that could negatively affect our India reporting unit’s financial results include increased tenant attrition exceeding our forecast, additional VIL payment shortfalls, carrier tenant bankruptcies and other factors set forth in Item 1A of the 2023 Form 10-K under the caption “Risk Factors.”
The carrying value of tenant-related intangible assets in India was $0.3 billion as of March 31, 2024, which represents 3% of our consolidated balance of $11.9 billion. Additionally, a significant reduction in customer related cash flows in India could also impact our tower portfolio and network location intangible assets. The carrying values of our tower portfolio and network location intangibles in India were $0.9 billion and $0.2 billion, respectively, as of March 31, 2024, which represent 10% and 8% of our consolidated balances of $9.2 billion and $3.1 billion, respectively. The carrying value of goodwill in India was $0.6 billion as of March 31, 2024, which represents 4% of our consolidated balance of $12.6 billion.
During the three months ended March 31, 2024, 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
Changes in interest rates can cause interest charges to fluctuate on our variable rate debt. Variable rate debt as of March 31, 2024 consisted of $1.0 billion under the 2021 Multicurrency Credit Facility, $2.0 billion under the 2021 Credit Facility, $1.0 billion under the 2021 Term Loan, $890.2 million under the 2021 EUR Three Year Delayed Draw Term Loan, and $6.8 million under the Nigeria letters of credit. A 10% increase in current interest rates would result in an additional $7.6 million of interest expense for the three months ended March 31, 2024.
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, 2024, 43% of our revenues and 50% of our total operating expenses were denominated in foreign currencies.
As of March 31, 2024, 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 $100.8 million of unrealized losses that would be included in Other income (expense) in our consolidated statements of operations for the three months ended March 31, 2024. As of March 31, 2024, we have 7.8 billion EUR (approximately $8.4 billion) denominated debt outstanding. An adverse change of 10% in the underlying exchange rates of our outstanding EUR debt would result in $0.9 billion of foreign currency losses that would be included in Other expense in our consolidated statements of operations for the three months ended March 31, 2024.
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| 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 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, 2024 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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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.
There were no material changes to the risk factors disclosed in Item 1A of the 2023 Form 10-K.
(c) and Policies
, our , entered into a pre-arranged stock trading plan on . Mr. Vondran’s plan provides for the potential exercise of vested stock options and the associated sale of up to shares of our common stock between June 5, 2024 and March 10, 2025.
Such trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1 under the Exchange Act and our policies regarding transactions in our securities. Generally, such trading plan pre-establishes the amounts, prices and dates of future purchases or sales of our stock, including shares issued upon the exercise or vesting of equity awards. Under such trading plan, the individual officer relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under such plan may occur at any time, including possibly before, simultaneously with, or immediately after, significant Company events.
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| | | | Incorporated By Reference | |
| Exhibit No. | | Description of Document | | Form | | File No. | | Date of Filing | Exhibit No. | |
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| 3.1 | | | | 8-K | | 001-14195 | | January 3, 2012 | 3.1 | |
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| 3.2 | | | | 8-K | | 001-14195 | | January 3, 2012 | 3.2 | |
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| 3.3 | | | | 8-K | | 001-14195 | | December 14, 2023 | 3.1 | |
| |
| | | | | | | | |
| 4.1 | | | | 8-K | | 001-14195 | | March 7, 2024 | 4.1 | |
| | | | | | | | | | |
| 10.1 | | | | 10-K | | 001-14195 | | February 27, 2024 | 10.28 | |
| | | | | | | | | | |
| 10.2 | | | | 10-K | | 001-14195 | | February 27, 2024 | 10.29 | |
| | | | | | | | | | |
| 10.3 | | | | 10-K | | 001-14195 | | February 27, 2024 | 10.31 | |
| | | | | | | | | | |
| 10.4 | | | | 8-K | | 001-14195 | | March 14, 2024 | 10.1 | |
| | | | | | | | | | |
| 10.5 | | | | 8-K | | 001-14195 | | March 14, 2024 | 10.2 | |
| | | | | | | | | | |
| 31.1 | | | | Filed herewith as Exhibit 31.1 | | — | | — | — | |
| | | | | | | | | |
| 31.2 | | | | Filed herewith as Exhibit 31.2 | | — | | — | — | |
| | | | | | | | | |
| 32 | | | | Filed herewith as Exhibit 32 | | — | | — | — | |
| | | | | | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | — | | — | — | |
| | | | | | | | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated By Reference | |
| Exhibit No. | | Description of Document | | Form | | File No. | | Date of Filing | Exhibit No. | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | |
| | | | | | | | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
| | | | | | | | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition | | Filed herewith as Exhibit 101 | | | | | | |
| | | | | | | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | — | | — | | — | — | |
| | | | | | | | | | |
| | | | | | | | | | |
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.
| | | | | | | | | | | | | | |
| AMERICAN TOWER CORPORATION |
| | | |
| | Date: April 30, 2024 | By: | /S/ RODNEY M. SMITH |
| | | | Rodney M. Smith
Executive Vice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) |
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