{ "docId": "019dd923-622c-750b-8b96-1aee342c3a73", "docSlug": "10dc4f9f3e31", "documentTitle": "American Tower (AMT)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2013-07-17 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 30, "pageCount": 118, "prevPage": 29, "nextPage": 31, "slideType": "research-note", "function": "analyze_data", "density": "overcrowded", "nDataPoints": 12, "notes": "The text critiques AMT's reliance on CPI-linked escalators as a substitute for currency hedging, specifically highlighting the mismatch in Brazil, South Africa, and India.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-1aee342c3a73/30", "deckHref": "/decks/019dd923-622c-750b-8b96-1aee342c3a73", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-1aee342c3a73.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-1aee342c3a73#slide-30", "components": [ { "bbox": null, "kind": "callout", "text": "This is one more reason why the perception that AMT's cash flow is stable is incorrect.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-e6ef-7018-b1f2-ec2bcf3b985a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.11 }, "kind": "paragraph", "text": "It is clear from the table above that it is expensive to hedge all the currencies in which AMT does business, except for the EUR. However, the hedging costs are functions of currency volatility. The more expensive it is to hedge a given currency, the more likely it is that currency movements will impact asset valuations. This is one more reason why the perception that AMT's cash flow is stable is incorrect.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1ef102bb-135a-42ea-8872-f47e44e69012", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.72, "x": 0.14, "y": 0.49 }, "kind": "paragraph", "text": "CPI escalators are poor substitutes for currency hedges because the movements are not highly inversely correlated. This year, Brazil's official CPI has been 6.2%. However, the Brazilian Real has weakened 9.8%. South Africa's CPI has been 5.8% YTD, yet the Rand has weakened to 16.3%. In India, the relationship has actually been more direct, with CPI at 9.3% and the Rupee only weakening 9.1% YTD.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4f82b9d6-7728-4b25-91db-661b4acf89fa", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.23 }, "kind": "paragraph", "text": "AMT has a small amount of local currency debt that is a very partial offset to its exposures. It has US$144 million in Colombia, out of US$351.8 million invested; and, US$90 million in South Africa, out of US$249.5 million invested. On July 1, 2013, AMT announced that it had entered into a multi-currency credit facility with rates linked to LIBOR rates. This facility appears not to hedge AMT's currency exposures, save for that to EUR. There are no LIBOR rates for any of AMT's other currencies (beside dollars).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5b807e4b-365c-4c5a-8da1-d73998d7ded8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.59 }, "kind": "paragraph", "text": "Currencies do not necessarily move in an inverse correlation to inflation. Currency movements are relative to one another, while CPI measures inflation in one market. (Albeit currency movements affect inflation and vice-versa.) The factors determining the relative demand for currencies are highly complex, and beyond the scope of this report. Suffice to say, AMT largely funds in US dollars, AMT's shareholders buy and sell AMT's shares in US dollars, and receive dividends from AMT in US dollars. CPI escalators overseas do not hedge these risks.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "640fa444-1580-452c-a5a7-fef50ee041ea", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.36 }, "kind": "paragraph", "text": "AMT's use of inflation-linked escalators in its overseas businesses is a poor hedge against currency fluctuations. Further, we believe that AMT's business in its largest overseas market by towers, India, operates with fixed escalators, rather than those linked to CPI. Even though market practice in Brazil is to use inflation-linked escalators, AMT's average rents have been dropping year-over-year since 2008, despite the country generally experiencing inflation approximating 6%.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9942cb18-ab36-42e2-b4e5-5af468386d31", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.72, "x": 0.14, "y": 0.72 }, "kind": "paragraph", "text": "AMT is likely not using inflation-linked escalators in India, which is its largest international market by towers and accounts for 32.9% of AMT's international tower base. According to a competitor of AMT and an India-based analyst who covers another competitor, Bharti Infratel (BHIN:IN), it would be unusual for a tower operator to have inflation-linked escalators; rather, contracts usually provide fixed escalators of approximately 3%. India's CPI rose at 8.9% and 9.3% in 2011 and 2012, respectively. To the best of these individuals' knowledge, AMT utilizes fixed escalators. Our calculations below confirm our thesis that AMT is not using inflation-linked escalators in India.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "df36d337-5bbc-4a35-9c5c-ae1d59683768", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.45, "x": 0.14, "y": 0.88 }, "kind": "source-note", "text": "59 Based on FY2012 tower numbers shown in AMT FY2012 10-K, p. 30.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "545f4e87-8eb7-4963-b6d5-64553a390e7b", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 40, "from": 21, "beatId": "7e3c52c2-f559-41d8-a93f-84ccf2558966", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Struggle", "beatSlug": "overcoming-monster-the-struggle", "evidence": "The document highlights several issues with AMT's international business practices", "position": 1, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [ { "to": 40, "from": 21, "name": "Iceberg", "slug": "10-iceberg", "bestFor": "Consulting, complex problem solving, organizational change", "matchId": "6f6b6973-bc46-4657-b055-a785308b56f3", "evidence": "The document highlights several issues with AMT's international business practices", "position": 1, "objective": "Highlighting issues with AMT's international business practices", "structure": "The Symptom (Visible) -> The System (Hidden) -> The Root Cause", "confidence": 0.8, "description": "Reveal that the visible problem is merely a symptom of a deeper root cause" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }