American Tower Management Discusses Q2 2012 Results - Earnings Call Transcript

American Tower (AMT)

Q2 2012 Earnings Call

August 01, 2012 8:30 am ET

Executives

Leah Stearns

Thomas A. Bartlett - Chief Financial Officer, Executive Vice President and Treasurer

James D. Taiclet - Executive Chairman, Chief Executive Officer and President

Analysts

Batya Levi - UBS Investment Bank, Research Division

Simon Flannery - Morgan Stanley, Research Division

Sandeep Gupta - Barclays Capital, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

George D. Auerbach - ISI Group Inc., Research Division

Kevin Smithen - Macquarie Research

Lukas Hartwich - Green Street Advisors, Inc., Research Division

Michael Rollins - Citigroup Inc, Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good morning. My name is Summer, and I'll be your conference operator today. At this time, I would like to welcome everyone to the American Tower's Second Quarter 2012 Earnings Call. [Operator Instructions] I would now like to turn the call over to Leah Stearns, Director of Investor Relations. Please go ahead.

Leah Stearns

Thank you, Summer. Good morning, and thank you for joining American Tower's Second Quarter 2012 Earnings Conference Call. We have posted a presentation which we will refer to throughout our prepared remarks under the Investors tab on our website, www.americantower.com.

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 operating performance for the quarter, as well as our updated outlook for 2012; 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 forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2012 outlook and future operating performance, our pending acquisitions and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect these 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, 2012, 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 the presentation, which provides a summary of our second quarter and year-to-date 2012 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenue, which were generated from leasing income-producing real estate, primarily to investment grade corporate tenants. This revenue grew 16.9% to nearly $682 million from the second quarter of 2011.

In addition, our adjusted EBITDA increased 19.7% to approximately $466 million. Operating income increased 19.8% to approximately $270 million, and net income attributable to American Tower Corporation was approximately $48 million or $0.12 per basic and diluted common share.

During the quarter, we recorded 2 significant items, which negatively impacted net income attributable to American Tower Corporation by approximately $128 million or $0.32 per share. These items included the unrealized noncash losses of approximately $115 million due primarily to the impact of foreign currency exchange rate fluctuations related to over $1.6 billion of intercompany loans, which are denominated in currencies other than the local currency, which we have utilized to facilitate the funding of our international expansion initiatives and general operations.

For accounting purposes, at the end of each quarter, these loans are remeasured based on the actual FX rate on the last day of the quarter and. As a result of a stronger U.S. dollar as of June 30, 2012, compared to March 31, 2012, the remeasurement of these loans generated noncash losses for accounting purposes.

In addition, during the quarter, our tax provision reflected a noncash $48 million valuation allowance on deferred tax assets, which includes amounts that were attributable to net operating losses generated by our international segment. These losses were generated primarily as a result of depreciation and interest expense deduction associated with our foreign operation.

As a result of ongoing significant noncash items reflected in our income tax provision, we have adjusted our definition of AFFO to reflect cash taxes paid. We believe that this revised methodology more accurately reflects the ongoing cash obligations of our income tax liabilities.

Turning to the results for the first half 2012. Our rental and management revenue grew 20.9% to approximately $1.366 billion for the first half of 2012. In addition, our adjusted EBITDA increased 21.1% to over $928 million. Operating income increased 22.7% to approximately $545 million, and net income attributable to American Tower Corporation was approximately $270 million or $0.68 per basic and diluted common share.

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

Thomas A. Bartlett

Thanks, Leah, and good morning, everyone. I'm pleased to report that we continue to build on our first quarter momentum and we're able to deliver another solid quarter of results. Our strong performance during the quarter was driven by continued solid leasing trends throughout our certain markets. In addition, we completed the construction or acquisition of over 2,400 communications sites globally. As a result, we have reaffirmed our outlook for total rental and management revenue, and increased our outlook for adjusted EBITDA and AFFO even as we face foreign currency headwinds. This morning, I'll begin with more detail on our second quarter financial and operational results, and conclude with a discussion of our updated expectations for the full year.

If you please turn to Slide 5 of our presentation, you will see that for the second quarter, our total rental and management revenue increased by nearly 17% to $682 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 onetime items, our consolidated rental and management revenue growth was almost 23%. Of this core growth, over 10.5% was driven by core growth from existing sites, which we refer to as core organic growth, with the balance attributable to growth from new sites. Included in this new site growth is the impact of the increase in pass-through revenues attributable to the 11,700 new sites we have constructed or acquired in our international segment since the beginning of the second quarter of 2011. During the quarter, revenue growth from our legacy properties across our global footprint reflected strong new leasing activity, with approximately 60% of consolidated signed new business attributable to new leases, and the balance coming from existing lease amendments.

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