Good morning, everyone. Thanks for joining us. I'm Nick Del Deo with MoffettNathanson, and I'm thrilled to be joined by Adam Smith, SVP, Investor Relations at American Tower.
Yeah, great to be here, Nick.
Yeah, thanks for joining us. I appreciate the support American Tower has given us for all these years. So, you know, you reported earnings a couple of weeks ago. I thought the most interesting disclosure to come out of that report was, you know, the comments around the increases in lease application volumes in the U.S. I mean, and more specifically, the comments that the increases were relatively broad-based rather than focused around a particular customer. I think, you know, most of the people in this room, and, you know, certainly I would have thought that it may have been concentrated in one particular customer, you know, that may have rolled off their MLA recently. So obviously, you can't talk specific customers that much, but can you expand a bit upon the customer needs or requirements that you're observing behind the increases?
Yep. Yeah, and I would say, Nick, when we laid out the guidance at the start of the year, you know, we took a perspective that we would anticipate seeing elevated leasing over the course of the year and kind of a gradual pickup going from Q1, Q2, and into the back half of the year. And everything we saw in Q1 supported that. And then, the way we looked at it at the start of the year, we crosschecked a few things. One, our direct conversations with the customers on the ground. There's very active dialogue with the operations teams because they want our services teams to ultimately be staffed and ready to support them.
Mm-hmm.
So we have a very good idea of what their network needs are going to be over the course of the year, and that certainly supported an expectation for a pickup in applications. We also cross-checked that up against what level of activity has been done already on our site. So, you know, we, we've talked about this externally. Probably, you know, roughly half of our sites have been upgraded, on average among the customers, and that includes one customer that's probably around 80%.
Mm-hmm.
There's one that's a little over 50%, and then there's one that's quite a bit below 50%.
Mm-hmm.
We have very good idea as to where they ultimately want to get to because we sit down for a long period of time, and we negotiate these comprehensive master lease agreements with them, where we get very good visibility into ultimately what they plan to do in terms of their overlay on their sites. So that gave us a level of confidence, together with the carrier commentary that we had on the ground, that we were going to see a pickup over the course of the year. And again, it gets back to, there's really quite a bit of work still to be done. I think what's encouraging for us, too, is we're starting to see a pickup in more of that, call it, densification type of activity as well.
Okay.
We are seeing a pickup, even putting DISH aside, who's obviously focused on more of a co-location type of deployment. We are starting to see a pickup in new site demand, which I don't want it to be thought of as the peak of densification, which we would probably anticipate, you know, a little later on in this cycle, which I'm sure we'll talk a little bit about. But I think it's a good indicator that that new sites ultimately will be required, and, you know, our largest customer is probably on roughly half of our sites, so there's a significant amount of capacity that we think our portfolio can ultimately accommodate, and I think we're starting to see that interest.
All right. Well, that's great to hear, and the new site commentary is good as well.
Yeah.
You know, as I think about the interplay between, you know, the lease applications and your holistic MLAs, is it fair to say that for the customers still under the holistic MLAs, to the extent that you see lease applications, that's unlikely to swing your leasing trajectory that much because they're covered? Or do you see that kind of falling outside of the scope of the MLAs?
I think when you look at 2024, you can probably assume it's not going to really move the needle. I think what it does give us, it does give us a high degree of confidence in our services business. We did have to pull back the services guide pretty substantially last year. I think it was probably kind of an abrupt reaction to the rate environment. I think now we've put together budgets, and the carriers have put together budgets that probably take into a little bit more consideration the environment that we're in, and, you know, what we're seeing, again, is a very broad-based pickup in activity in terms of leasing that ultimately will support a services expectation. And when you look at our services guide, it's probably weighted 40% in the front half of the year, 60% in the back half of the year.
Mm-hmm.
Usually, there's a 60 to 90-day lag, call it like, from when you get that application to when you actually execute on the services. So, you know, our Q1 application is more or less supported. Our Q4 application is more or less supported by our Q1 services volumes.
Mm-hmm, mm-hmm.
Q1 services was probably a 68%-70% pickup versus Q4. Q1 applications are probably 70% higher than Q4, so that gives us a lot of visibility into Q2. And I would tell you from where we sit here already in the second quarter, everything's playing out exactly how we would've wanted and expected, which is really positive. But I think when you kind of start talking about a business that's got $4.5 billion of tenant billings in the US, any pickup in activity here in 2024 probably isn't going to move us too materially off the 4.7%. It really takes a lot to move that needle.
Yep.
But I think longer term, the pickup in activity is really a good indicator that, look, the carriers are continuing to differentiate themselves and prioritize network differentiation as they compete. They're continuing to find a lot of value in mid-band spectrum. I think, you know, one of our customers has been very vocal in terms of the churn benefits, retention, pricing, you know, that they're already seeing in terms of monetizing. But ultimately, I mean, this is an efficiency deployment that the carriers very much need to do.
Mm-hmm.
You know, it'd be very cost-prohibitive for them to try to run the network traffic that we're seeing today and into the future on a 4G network. So, you know, I think this is a deployment that is required. We're starting to see it on the ground, but I think everything we're seeing on the ground gives us a lot of confidence, particularly when you start seeing a little bit more in terms of the new sites, which largely fall outside of these agreements.
Mm-hmm.
I think that's a really good indicator for the catalyst of growth that we're going to probably anticipate when you get more in the 2025, 2026, 2027 timeframe as well.
Okay. Terrific, terrific. Now, Adam, you kind of laid out, you know, kind of the range of sites, on your towers that have been upgraded for mid-band 5G.
Mm-hmm.
You know, call it around half on average, maybe a bit more. What's your sense as to where that ultimately goes? Is it 90%? Is it 100%? And over what sort of timeframe?
Y eah, we would expect it to be 90%-100%.
Okay.
Again, we do get good visibility into this because, again, we sit down with the customers, whether or not we're under a comprehensive agreement with everybody at the same time or not. And maybe it just makes sense to spend a minute to talk about the comprehensive agreement.
Sure.
So we're under a Master Lease Agreement with everyone. A Master Lease Agreement specifies the term, usually a 10 to 15-year non-cancellable term. It'll lay out what the escalator term is. In the U.S., typically a fixed 3%, but then it'll also lay out how are we going to price out incremental space that you're going to take on your existing sites. So say a customer is at 24,500 sq in on a site, and they need to go to 26,000, you know, site by site, we'll lay out on an a la carte basis within that Master Lease Agreement, how we're going to price out that incremental square inch.
What we could elect to do, if we find it economically attractive for American Tower, and we think it's going to give a best-in-class experience for the customers, is, for a period of time, replace that a la carte structure with what we call a comprehensive or a holistic agreement. What that allows the customers to do, it gives them a bit more of a administrative ease and speed to market advantage. They can rapidly upgrade their sites. They don't-- We don't have to kind of nickel and dime site by site, which can be administratively and operationally burdensome. But it gives the carrier a speed to market, and I'd say an operational and administrative efficiency. What it gives us is a very high degree of visibility into what our growth path is going to be over a multi-year period.
What I would very much emphasize is we will not give up economic value to get one of these deals done. We have a very good understanding of what the network needs are going to be by the carriers. We've invested very heavily in data and digital twinning and building a very comprehensive data set on each one of our sites. That gives us a lot of good information on how ultimately we would price out an a la carte basis, and we'll put that a la carte scenario up against what would ultimately be underwritten in a comprehensive, which would have fixed use fees over a multi-year period, under which the carrier would get a set of real estates, real estate, right? So it really does kind of disaggregate for the ebbs and flows of activity, we'll still commence the same value.
So getting back to your question, though, why do we have a degree of confidence in 90%-100%? 'Cause we sit down with these carriers, and we want to make sure they get economic value out of these agreements. We want to make sure we're not giving up economic value. We want a best-in-class experience for the carriers. But through that discussion and through that lens and just our historical expertise, we have a very clear level of visibility into what they ultimately need to overlay to get the economic value out of that agreement. And that really is what gives us the level of confidence in that 90%-100%, and I would probably anticipate probably over the next, call it 2-3 years, would probably make sense.
Okay, okay. That's great. And, you know, another thing that the holistic MLAs give you is, you know, more visibility into your growth over a multi-year period, and I think that's part of why you've been able to lay out your kind of 5% organic tenant billings growth expectation in the U.S. through 2027, including Sprint or closer to 6%, or I should say, better than, you know-
At least six.
At least five, at least six.
Yeah
... through 2027. So far, that's been on track, which is, which is great. You include the minimum contracted commitments from DISH-
Yeah
... in that outlook. You know, obviously, DISH has a bit of a different operational and financial profile than your other customers. You know, with the understanding that you can't discuss any particular customer in too much detail, what can you tell us about your level of confidence that the outlook is going to be affected by any sort of hiccup in terms of what may happen with DISH?
Yeah, I mean, look, DISH continues to be. You know, they continue to meet every obligation they have with American Tower, so we'll continue to not weigh in, you know, into a downside scenario for a customer-
Mm-hmm
... that's paying and meeting all their obligations. You know, I think what is appropriate for us is to continue to give investors, you know, visibility into what they represent for our business.
Sure.
I think others can do, you know, scenario testing on ultimately what various outcomes could be. I mean, they, they represent probably 1% of American Tower revenues, probably 2% of U.S. tower revenues. But they are a part of that growth algorithm going forward. If you kind of think about, maybe it's easier to kind of say, excluding Sprint and kind of focus on that at least 6% growth number. We've got a 3% escalator. I mean, DISH has an escalator, but the fact that they're 2% of our U.S. revenues-
Mm-hmm
... you know, you could kind of take them out, and it still out of that equation, and we'd still probably have a blend of 3%, so it doesn't really move the needle there, just more given the size. You know, we'll probably have 1%-2% on average turn in the U.S. That's what we've historically seen. My expectation is we'll probably be at the lower end of that over the duration of this time period, and we're probably actually under 1% absent Sprint here in 2024, and, you know, that's a function of the visibility we have into our MLAs and the fact that, you know, some of the more one-off type of events, whether that's like MetroPCS, Clearwire, Cricket, a lot of that's kind of out of the system-
Mm-hmm
... at this point. So we would expect to be at the lower end, and what that suggests is we would anticipate, call it 4%-5% contribution from co-locations and amendments. And what I would tell you is, is DISH is a contributor to that and, you know, kind of think about it maybe in and around, like, a fifth, right? So they are a contributor moving forward. What we've put into the guide does represent their contracted minimums, as you pointed out. So I think giving investors kind of the piece parts of what they represent today, how they fit into the growth algorithm moving forward.
But I think what Steve would say, Steven Vondran, if he were here, I mean, we want DISH to be successful. I think you know, if successful, they're going to have one of the lowest cost 5G networks ever created-
Yep.
... probably ever created. And I think that's a network that will have value, you know, whether, you know, depending on how DISH wants to move forward or monetize.
They also have a really attractive spectrum holding. You know, I think there, there's certain options that they have. I'll leave it to them to kind of move the path forward, and yeah, and for the time being, we're really excited to continue to support them.
Okay. Terrific. You know, on the flip side, as we think about potential drivers that might get you, you know, to the better than component of the outlooks-
Yeah.
Should we think of that as mostly relating to kind of the new site component that you alluded to before?
Yeah, it could be. I mean, if you kind of break down our guide, I don't think we've really gotten too far ahead of our skis in that 2026, 2027 timeframe.
Mm-hmm.
You know, we have laid out this expectation for at least 5% organic growth, and we're hitting that number in 2023 and 2024, while absorbing 120-130 basis points of Sprint. We're going to commence the last tranche of Sprint churn in Q4 of this year. That'll be about $70 million of annualized revenue that ultimately will come off in Q4, and then we're done with Sprint. Just given the seasonality of that, that probably will have a three-quarter impact on growth in 2025. I would tell you from where we sit here for 2025, I mean, not giving guidance, but again, it's not a year that really deviates too far from that average-
Mm-hmm
... from where we sit today. We still have a very high degree of growth that's still locked in through these comprehensive agreements. And I think there's a lot of catalysts, even on the a la carte side, that give us a degree of confidence. So but when you get to 2026 and 2027, if you kind of break down, you take Sprint out, to hit 5%, we got a 3% escalator, again, 1%-2% churn. That means we're talking about 3% co-location amendment growth contribution, which, you know, again, I think we recognize that we have less locked-in visibility and growth when we get out there, but I think we've kind of approached that long-term guide as a baseline. And if you put 3% in a historical context, we're probably looking at around 4% this year.
We were 5.2% last year. I think ever since we started giving this metric in 2016, our lowest year is 3.2%.
Yeah.
And that was in 2018, and we've averaged around 4.5%. So, you know, I think in terms of things that could move that beyond the 3%, you know, I think ongoing densification is certainly a catalyst. Those are, those are, that's a monetization event that largely resides outside of the agreements that we have in place today.
Mm-hmm.
You know, I think there's already a lot of indicators and tea leaves, not just what we're seeing on the co-location application side, but really this focus on capacity that gives us a lot of encouragement when we look into that 2026-2027 timeframe. And, you know, you've got the Biden-Harris administration doing a feasibility study on new spectrum bands. CTIA's put out a white paper calling for another 400 MHz by 2027, I think around 1,300 or 1,400 by 2033. And whether they get the spectrum or they don't get the spectrum, I think we're in a very good position to monetize, and whether that comes in the form of co-location or additional amendments, I think both could be positive catalysts for American Tower. I think we also look across the board.
I mean, everything that we're seeing in 5G up to this point has been really on track with how we underwrote that long-term expectation. But, you know, the massive amount of data that's running through these networks today, you know, we get the question a lot. Look, the growth is expected to slow down in terms of data consumption. That's always proven to be a projection that's proved to be very conservative.
Mm-hmm
... looking backwards, but we also need to keep in mind that the base on which we're growing off of today is massive.
Yes.
Yeah, we went from 7 GB per month to 26 GB per month over 10 years. Maybe that was a higher growth percentage, but now we're going from 26 to 60 over the next 5 years. We kind of look at that really as BAU. You know, 5G users are using 2-3 x more data than a 4G user. They're spending 50% more time on higher video resolution.
So, we think there's just a natural progression that gets you there, but I think when you add in things like generative AI residing within the PC or the smartphone, that's really exciting, and I think when you start moving generative AI from more the, you know, the text and the image-centric type of use cases to more the video use cases, like a Sora, like that, that's a massive amount of data that's really kind of incremental beyond where we're at today.
Mm-hmm.
I think when you start to factor in the propagation characteristics of mid-band spectrum, the massive amount of data that's running through the networks and what those incremental catalysts could ultimately represent, I think it really does get us excited when we get to the 2026-2027 timeframe as well.
That's great. You touched on two things that I want to drill down on a bit more. You know, the first, you just noted the propagation attributes of some of the bands that the carriers are using to really support 5G.
Yeah.
Call it upper mid-band rather than low band or traditional mid-band that they used historically. I guess, should we think of that as a, you know, an opportunity in more rural areas that may have historically been served by those lower bands historically, but perhaps whether due to build-out requirements or higher traffic loads, you know, should we expect to see more?
Yeah, it's a good question. I think what we've seen maybe early on is maybe a little bit more of an accelerated prioritization of those rural sites because it is an area where maybe the carriers are able to start monetizing a little bit on the FWA side.
Mm-hmm.
I wouldn't say FWA is driving incremental densification at this point in time because I, you know, I think it's pretty clear the carriers are kind of utilizing this, and it's driving a very attractive margin profile for subscribers, but it's really utilizing existing installations and capacity. I think, what could be interesting in the future is to the point where you start to see that type of data consumption eat into maybe a level of the mobile subscribers, right? And whether or not that could ultimately drive incremental densification. We're not there today, and I think the carriers have been pretty clear. They're pretty careful in terms of how they're deploying this type of technology. But I think generally speaking, you know, we've looked at mid-band spectrum as exactly as you put it.
It's the propagation characteristics are such that there will require additional densification than what we've seen in the past. And even over the last year, we've started to see announcements in terms of developers working with carriers on the development of new sites. Like I said, we're starting to have probably more productive conversations around co-location and meet maybe even the opportunity for constructing new sites in the future. Obviously, for something like that, it will come down to economics on the new build side. But I think the fact that we're having those conversations are really positive.
Again, I wouldn't, I wouldn't want to give off the impression that we feel like we're at the scaled densification phase, but I think they are green shoots that give us a degree of confidence that our thesis is correct, that we are going to move in that direction over the next several years.
Okay. And, you know, the other thing you mentioned was the spectrum outlook, you know, called for the next decade or however you want to define it. You've got some parties trying to identify bands that could move into to the wireless industry. Seems like it's going to be tougher to do so than has been the case in the past. I guess, do you feel like, you know, if more spectrum does not become available, you get more new sites? If spectrum does get available or become available, that you get more amendments?
Yeah.
So, you get paid either way. Do you feel like one of those outcomes is better for American Tower than the other?
Yeah, it's kind of hard to say. I mean, there's really only three ways to your point, that carriers can kind of solve for this capacity equation, and we do believe there's a significant capacity element that's going to very much be introduced over the next five years. One is spectral efficiency, right? And I think the carriers are obviously rapidly deploying 5G networks to realize that spectral efficiency, right? And it's... It all comes down to how do you kind of manage your cost per gigabit in line with your revenue per gigabit?
I think it does become a little bit more cost prohibitive if you have to start thinking about co-locations, not just in the near term, having to buy antennas, having to increase your OpEx, but it's also a larger footprint by which you're going to have to upgrade over the next 5, 10, 15, 20 years-
Mm-hmm
... as well, right? So, spectral efficiency is obviously the first way you get capacity. Carriers are doing that today. New spectrum bands is the other, and then, and the third is co-location. You know, we do stand to benefit either way. I think, you know, and the way we've constructed our agreements, I believe, give us a level of optionality and flexibility depending on what avenue we ultimately go in that 5 to 10-year period. And that's why our comprehensive agreements, they very much typically focus on a network need at the time, and that's why they're usually 3-5 years in duration.
Mm-hmm.
Because we don't want to give up economic value when you get to the year five through 10 period. The carriers don't want to sign up for something that ultimately, they don't have visibility into.
Sure.
So we all collectively want to make sure we're addressing a network need at the time, and I think what that does is it does give us a degree of flexibility to monetize on what that next wave of investment is ultimately going to look like. You know, historically, obviously, the record level of new business we did last year, $230 million of co-location and amendment growth, largely through the form of amendments, was by a way a record for American Tower. It's tough for me to sit here and tell you we'll replicate that. I hope we do, but, but I think in either case, we're in a good position to monetize.
Okay. Okay. Now, you mentioned before the idea of the carriers trying to optimize their cost per gigabyte. You talked about DISH having a super-efficient network. They're using an O-RAN architecture.
Yeah.
I think AT&T is pushing in that direction. You know, I've always been of the view that O-RAN wouldn't necessarily influence what's at the top of the towers, and hence, what you're really getting paid, maybe a little bit at the bottom of the tower, but it's more about kind of what's in the guts of the network. You know, one of the big carriers has suggested that over time there may be some tower top efficiencies from O-RAN, which again, it kind of caught my ear because it was different than my understanding. How are you guys thinking about O-RAN and whether that matters for your business?
Yeah, we've had a similar view to you historically. I think it still kind of remains to be seen at this point. You know, to your point, AT&T has announced a deal with Ericsson, and I think it kind of spans five years and $14 billion and gives kind of an access to Ericsson equipment and kind of a suite of 5G O-RAN solutions. I think it's a positive indicator because I think it does reinforce the commitment by a major customer in the U.S. to invest and roll out a best-in-class 5G network.
And I think, you know, depending on whatever direction this goes, having a carrier that's built out a strong 5G network and kind of whether or not they're bringing down network OpEx, which really is the goal of O-RAN, that should free up the opportunity to further invest. But also, if this gives them additional access to new monetization-
Mm-hmm
... in a 5G ecosystem, all of this collectively is a positive, I think, for the carriers, but also I think for infrastructure providers as well. So I think it's tough to say exactly what it will look like. And you know, we've always kind of thought about it a little bit more in terms of, you know, ground. Obviously, we make our money primarily on what's on the tower, but I think collectively, activity on the sites, a commitment to a 5G network, but also having a network that opens itself up to new monetization events that I think we can further support long term, I think that's a net positive for the industry.
Okay. Now, Adam, another thing that you talked about earlier was the churn outlook. You know, which, you know, it seems pretty favorable in light of a lot of the M&A that's happened historically now being a decade or more in the past. Obviously, USc ellular is in the news. I won't ask you to speculate as to what happens there, but can you give us a sense as to what sort of exposure you have to USc ellular in your base?
It's really small. And, yeah, I won't speculate on an outcome, but, yeah, I think UScellular, it's less than 1% of U.S. revenues, and it's less than half the percent of total American Tower revenues. So, it's not a meaningful contributor. We'll see ultimately where that goes strategically, but not a needle mover for us. And that's total revenue exposure, certainly not getting into an overlap analysis or anything like that.
Okay, great. I want to talk a bit about CoreSite, which has been growing pretty nicely since the acquisition. You know, on your call, Steve talked about how the broader, you know, power constraint issues industry-wide have benefited pricing for CoreSite. But, you know, power can be sort of a double-edged sword. You know, on the one hand, it can benefit pricing if it's tight. On the other hand, if you don't plan properly, it could crimp your ability to bring supply online.
Yeah.
I guess, you know, can you comment on the degree to which power constraints in key markets may or may not be influencing your longer-term supply outlook?
Yeah, I think it's certainly an issue across the whole ecosystem, I'd say. I think for CoreSite, and I think this is part of the value that American Tower and Stonepeak have given CoreSite, is a lot of flexibility in terms of proactively securing power, but also development to replenish a lot of the record leasing that we've done over the last several years.
Mm-hmm.
We probably have around 35 MW of available capacity today. We kind of look at that usually as, like, a 2-year runway of absorption. We've got another 40 MW under construction today. And all of that power is secured at this point. So, you know, you kind of think about that over a multiyear period. It does span, you know, I think, around six markets or six construction projects across, like, six, five or six markets. So we think the runway over the next several years is very secure. We've also secured a degree of power even for the, you know, headroom for construction type of projects as well. So it's something we're very keen towards.
And, and we feel we've done a very proactive job, and I think, the likes of American Tower and Stonepeak have given CoreSite a degree of flexibility to be a little bit more proactive in terms of securing that longer term. But I think it, you know, longer term, over, like, a 10- to 15-year period, I think it's certainly, certainly a, a challenge, and I think, you know, for us, we're continuing to look at alternative sources of power.
Mm-hmm.
But I think also it could further play into kind of this distributed, you know, kind of evolution of the edge ecosystem that maybe we could play a larger part in if it does become economically attractive. And that means utilizing various plots of land that's already more or less permitted for digital infrastructure, where we do have adequate space, where we might have more either power at the site, or there's, you know, additional power capacity versus, like, a Northern Virginia or Los Angeles, Silicon Valley. But being able to leverage our distributed points of presence to maybe play a larger role, and have a little bit more optionality moving forward.
Okay. Okay, that's great. You know, historically, when it was public and we could measure the returns, you know, I was of the view that CoreSite's model, being interconnection-focused, basically allowed it to generate the best returns in the industry, which is a pretty, a pretty great accomplishment for them. Yeah, do you think that, that interconnection-focused playbook in a handful of markets nationally is going to work as effectively prospectively as it has historically? And the reason I ask is because one of your big peers in the space has basically...
You know, they've evolved their views a bit to say, "You know, we think we need to play a bit more for larger deals, to kind of take advantage of AI more holistically, to be close to our key customers, to be relevant in the supply chain, and so on." So, interested in your thoughts on that front.
Yeah, I mean, I think the shorter answer is, yeah, we still think it's an adequate approach.
Mm-hmm.
I mean, that's been the bread and butter of CoreSite and why they've been able to drive, I think, to your point, best-in-class returns. And our underwriting hasn't changed. You know, CoreSite is still underwriting deals in a very consistent manner, and I think the expectation is, we would believe we can drive mid-teens to 20%, stabilized returns over the long term, and nothing's changed in that regard. I mean, we, we do a degree of hyperscale.
Mm-hmm.
But I think it's important to recognize not all hyperscale is the same. You know, we're not going to compete for, you know, cost-driven not latency-sensitive type of hyperscale deployments that ultimately doesn't add to the value of the ecosystem. We can continue to be very selective in terms of who we bring into the ecosystem and the prices that we're charging, because, again, this isn't a cost play for the customers. It's a performance play, and it's, quite honestly, a revenue play. We do see there, there's certainly an opportunity, and we'll continue to evaluate hyperscale deployments, but it's through the lens of " Can we build a campus around it?"
Mm-hmm.
And again, it comes back to the fact that not all, not all hyperscale deployments are ultimately created equal in that sense.
Yeah, absolutely. Has the mix of scale versus retail leasing remained relatively consistent since you acquired the company versus what it was?
Yeah, it's still kind of in that 60/40.
Okay.
You know, maybe there was a little bit more scale over the last couple of years as we've done record levels of leasing, but that mix hasn't changed too much. And here in Q1, we actually you know, met kind of a historic number that we achieved in Q4 of 2020 in terms of retail leasing. So it honestly is a little lumpy quarter- to- quarter, but the philosophy, I think longer term, it hasn't really changed.
Okay, terrific. Well, I want to talk about some of your overseas tower regions, you know, maybe starting with Europe. Europe's been a very nice contributor to results since you closed on the Telxius deal. And at least, you know, from the outside, it seems like that's really been underpinned by a strong contract that you had with Telefónica, which a lot of people may not have appreciated at the time of the transaction. I guess, what can you tell us about the contribution to growth in Europe from your anchor tenant, on most of those sites versus, you know, other customers?
Yeah, yeah, and you bring up a really important point. I mean, we entered Europe in 2012, right? And there's a couple thousand towers with E-Plus in Germany, and, you know, we didn't really do anything until 2017 with FPS in France. And even that is a relatively small transaction in the big scheme of things. And over that period of time, up until when we did Telxius in 2021, there were a lot of portfolios that traded hands.
Mm-hmm.
And we had to evaluate a lot of different contract structures that were introduced. And they're contract structures that might work for private capital and others, but it doesn't really work for a strategic like us. And, you know, we've evaluated things like the carrier might have the opportunity to buy back their portfolio over a period of time. If we're underwriting that type of term, first of all, strategically, it's almost impossible to kind of think about how you integrate that with the rest of your business. But there's probably a degree to which we'd have to discount the level of lease-up we'd anticipate with the other customers-
Mm-hmm
... you know, recognizing that dynamic ten years down the road. We've evaluated portfolios that have had terms that kind of restrict leasing on certain sites, you know, escalator terms that might be capped or fixed, which is certainly a learning from operating in India. So we were very keen to that term, and being able to have the type of real estate rights that allow us to continue to monetize in subsequent technologies and generations. So what you're seeing with Europe, I think, is exactly what discipline and patience in finding the right asset, you know, pays off. And we've got a Tier 1 MNO in Telefónica. We're able to continue to realize amendment monetization in a 5G cycle. But I think we also differentiate ourselves in these markets by being a true independent tower operator.
Mm-hmm.
And I think that's affording us opportunities to get really good market share with someone like 1&1. I think one of the, you know, the narratives at the time was you can't further monetize these rooftop assets. We've put in considerable effort and resources in terms of working with the regulators, working with the anchor tenant, working with landlords, to really kind of move this third-party co-location model forward in these markets. And if we even look at, y ou know, it's not an overly material number today, but if we look at, like, Q1 and what we've commenced in terms of revenue for new business within the period, you know, probably over half of our revenue or new business is co-location, and, you know, a good part of that is rooftops.
Mm-hmm.
So we're starting, we're starting to really ramp that up. When you look at our guide for 2024, our co-location and amendment new business contribution to organic tenant billings is—we've ranged at 3%-4%. That's up from the 3% last year. Q1 was 3.5%, and I would tell you, our visibility says we're going to move to the upper end of that range over the course of the year.
Mm-hmm.
And a good part of that is being able to monetize on amendments, but also be able to open up this new monetization and capability for our customers in terms of co-locating these new sites. And, you know, we're working with 1&1 to kind of ramp up that activity. We've made a lot of good progress there, but we're also seeing it among the other incumbents in the markets as well, which is really encouraging.
Okay, that's great to hear. Now, I know you've made pretty clear that, you don't think there's anything to do from an M&A perspective in Europe right now. But, you know, it remains a market that's relatively fragmented. You know, there are a bunch of semi-captive tower cos out there. I'm sure under the right circumstances, you'd be thrilled to expand your portfolio. How are you guys thinking about the long-term market structure for towers in Europe and the role that American Tower might play?
Yeah, I think there's a tremendous opportunity for the reasons you just mentioned. I mean, there's still a high degree of assets that are either owned directly or through captive tower structures affiliated with carriers. So I think there's going to be a lot of opportunity, particularly even, even on the private capital side. I mean, usually when you think about an investment horizon for private capital, there certainly could be assets that come to market over the next couple of years. You know, what I would tell you is everything for us will come down to terms and conditions, and ultimately, you know, where can we illustrate to investors that 1 + 1 = 3 value proposition?
Mm-hmm.
Because I think at this point, portfolio is very much... You're not really pulling the wool over anyone's eyes in terms of the value of these assets, in terms of what you give the seller. What we pay very close attention to is, you know, what's the incremental value that we think we can generate in a market or a region beyond what I'm giving the seller? And that comes in the form of development capabilities. It comes in the form of master lease agreements. It comes in the form of being able to think of new type of monetization events, whether that ends up being the edge or if it ends up being power as a service, build-to-suit opportunities. And that's been something that's been very critical for us when we've evaluated markets like Nigeria.
There's obviously a lot of risk in a place like Nigeria. That's why we have a very high hurdle rate for a place like Nigeria. But when we entered Nigeria in 2015, we looked at it through the lens of, all right, this is the value I'm giving the seller, but what's the site density? And, you know, we, we acquired around 4,000 sites upfront, but we've also built around 3,000 since then. We've implemented a power-as-a-service model. So I think when you, when you look at Europe, I think there's going to be a lot of assets that could be attractive.
Mm-hmm.
But we do have good scale across our footprint. We have probably 15,000 sites in Germany, and we have 12,000 sites in Spain. We're probably honestly maybe a little subscale in France. We have a little over 4,000. We have to ask ourselves: Do we have scale? Do we have market relevance? And what would be that incremental value proposition that I'd be able to communicate to investors by doing this deal? Because right now, we continue to see a disconnect in terms of the valuations of private versus public. We are continuing to focus on strengthening our balance sheet, so doing a deal, you know, you can look at it one of two ways: either you finance it in a leverage-neutral manner, and you're using our public equity as a currency-
Mm-hmm
... which we don't find attractive right now. Or two, I'd rather just buy back our own stock. You know, that's really the focus today. I think for us to do a deal, we'd have to be able to very clearly articulate to our investors what's the incremental value creation, and what is the incremental scale that we're creating generate in terms of value.
Okay. I want to get back to repurchases in a bit, but a couple other regional questions for you.
Mm-hmm.
You know, Latin America, it's your first overseas region. You've done very well there. But, you know, growth has slowed, and I think part of it is due to churn.
Yeah.
I think, you know, it seems like the market structure in Mexico maybe changed over the past couple of years. What's the path to a recovery and growth in that region? Is it just the passage of time and churn going away, or are there other things that we should be thinking about?
Yeah, I think we are looking at, and we've tried to be pretty clear with investors, I think it is a multiyear, call it repair and reset-
Mm-hmm
... of kind of a carrier landscape. Over the last couple of years, we've obviously navigated through Nextel in Brazil. We've wrapped up more or less the Telefónica becoming an MVNO on AT&T's network in Mexico. I think what we have visibility into today, that probably takes us over the next couple of years, to be honest, Nick, is Oi in Brazil, and-
Mm-hmm
... there's obviously also, you know, various proceedings with WOM in Chile and, and Colombia, albeit a relatively small customer. There's really two parts, I'd say, to the Oi component. There's a wireless element that ultimately got divvied up among the, the three incumbents in Brazil. We would ultimately expect that churn over the next couple of years. It's part of our 2024 guide. It's probably our expectation, something that represents in terms of churn, around $40 million.
Mm-hmm.
If you think about our guide for Latin America this year, we have 5% churn. It's a billion-dollar business, so more or less represents $50 million, and probably half of that is Oi. So the bulk of that is Oi Wireless. So I would kind of guide investors to think about the residual amount over probably a 2025, maybe into 2026 timeframe. The other big part is the Oi Wireline business, and that represents probably $35 million-$40 million, annually.
Mm-hmm.
They actually just went through a judicial review, where together with other creditors and vendors, we've come up with a plan moving forward. That contract will terminate in 2027. We are giving a discount of around 20% over the next couple of years. That's in our guide for this year. But we've also secured other assets that we think has value. We will take ownership of around 550-600 multi-tenant towers.
Mm-hmm.
Not just towers that have Oi as an anchor tenant, but multi-tenant. We've taken ownership of, or we will take ownership of certain land parcels. So we've tried to do our best in terms of, you know, how do we position Brazil moving forward? But I think it is important for investors to kind of think about those events over the next couple of years, as probably being a challenge to growth in the region. I think ultimately, this is good long term.
You know, I think when you get to a good three-player market in a place like Brazil, where we have over 20,000 towers, we have a leading position. I think ultimately it is a, it is a positive, and with any type of situation like this, even with Sprint, I think folks are really starting to see the value of having three well-capitalized players that can adequately invest. And you have T-Mobile, that's-
Mm-hmm
... kind of like a pace car today, right?
Mm-hmm.
I think there's always upfront challenges in terms of churn, but I think over the long run, this is a process of reset and repair among the carrier landscape, and our expectation would still be over time, it's a positive.
Okay. That's a great color. Thanks for sharing that. Let's get back to the repurchase question. You know, you, you talked about how you want to get, y ou're focused on balance sheet improvements now. I think Rod and Steve have talked about wanting to get to... call it 5x or so by the end of the year-
Yeah
... plus or minus. I guess, you know, barring a shift in the M&A environment and barring some reason to want to take your leverage down even further, is it fair to say that we should see you guys pivot towards, you know, more noticeable share repurchases in the coming years?
Yeah, I mean, I think part of the attraction to accelerating this pathway to financial flexibility, which I would define as 5x net leverage, is we want to be able to deploy capital towards different tools, right? And, you know, everything we've done over the last couple of years, if you go back a couple of years ago, our CapEx program was around $2 billion. We brought it down to about $1.8 billion last year. It's the guide this year is $1.6 billion. The tough decision to keep the dividend relatively flat from 2023 through 2024, you know, the ongoing approach and challenging of our operating structure and taking costs out of the business, that's just something we want to do anyway in terms of amplifying our margin profile.
But it's all through the lens of: How do we get to 5x net leverage, and ultimately, by definition, financial flexibility as quickly as we can? That could mean a couple of different things. It could mean share buybacks are now on the table.
Mm-hmm.
We also want to get our balance sheet and our equity in as good of a spot as we can in terms of whether or not there could be M&A in the future, that ultimately, we do believe could be significant value creators. And again, I don't see it today, and there's nothing tangible today, but we want to be prepared when and if that opportunity comes. But yeah, I would tell you, we, we would like to be able to buy back our stock to a higher degree, or any degree. We did a small bit a couple of years ago, but, you know, part of that is getting to 5x, and, I think that is an incremental tool. But I think we're, we're obviously at 5x here in Q1.
From an LQA perspective, that really has taken a lot of the benefits of the India reserve reversals.
Mm-hmm.
So I think on a sustained level, we want to get to 5x comfortably by the end of the year, and I think at that point, we'll assess the market. Is there more stability in the rate environment? You know, should we, should we think about taking it a little bit further down? Are we comfortable with it? Do we see a lot of value in our equity, which we'd like to do today, but can't? You know, those will be the decisions, but I think everything you're seeing us do in terms of accelerating that pathway is through the lens of opening up those type of opportunities.
Okay. You know, we've got about a minute left. Obviously, you think the stock is appealing here. You made that clear. I would tend to agree. Obviously, it's been difficult for AMT and other towers in light of the rate environment and a couple of other factors, I guess, but what excites you most about, you know, the outlook for AMT's equity over the coming years? And what do you think the market is most missing?
Yeah, I mean, I can tell you internally, and you've heard Steve Vondran, who's been with the company for 20 years, say he's more excited about the future today than he has been throughout his past at American Tower, which I think is extremely telling. I look at Steve, I'd challenge anybody to know. I challenge anybody that can extract value out of a tower better than Steve Vondran. And I think he is the IP. He's like the illustration of IP at American Tower. And, you know, I think there's a couple of different things. I think the demand is underappreciated moving forward. I think the fact that you go from 26 GB to 60 GB over the next several years, even kind of putting aside the idea of maybe AI now moving directly to the smartphone-
Mm-hmm
... or the PC and unlocking kind of that incremental type of, you know, moving from a text and an image-centric type of use case to a video use case and have that actually be within the smartphone device and communicate it back to the cloud and communicating to, you know, edge elements. I mean, that's all extremely exciting. That's an incremental use case above and beyond what we think to be just kind of that normal run rate that ultimately is going to require a level of densification. I think we've also carefully constructed over the last decade plus with the right contract structures to monetize on those events over the next 5, 10, 15, 20 years. We can do a lot of short-term wins in terms of how we construct these contracts.
We take a very long-term view, and I think that plays out when you look at our new business on a per site basis. I know you do that math, and I've read it in your analysis. I feel if you kind of look at us, we do believe we're best in class and best in industry, and that's a function. I can't speak to other companies, but we take a very long-term view. And the fact that we've come out of a comprehensive agreement with a customer, and whether or not we go à la carte or do another type of agreement, it's all through the lens of not just, "How am I hitting my numbers in 2024 and 2025?
Mm-hmm.
Am I going to be able to monetize in 6G, 7G, 8G?" So I think we're very well-positioned. There's a massive data element that I think is underappreciated. But I think American Tower, specifically with a leading U.S. portfolio, I believe best-in-class capabilities, both operationally and contractually. We've invested heavily in digital twins. We've invested heavily in these massive comprehensive data sets that I think is also providing a best-in-class experience for the customer. We have global scale, and we're now with an asset and CoreSite. I think we're more convinced now than ever that the edge will proliferate, and I think we have the type of assets and land and capabilities that can even play a larger role moving forward.
And it's all supported by an investment-grade balance sheet and access to diverse sources of capital that I would say will be far more important over the next 5-10 years than it's even been over the last 10 years. You know, even augmenting that, there's a keen focus to cost management, right? And we've grown pretty substantially over the last 10-15 years, I'd say, in a largely decentralized model. I think there's a lot that we're looking to do. We took probably around $30 million out of the business here in 2024, but there's a lot in terms of globalization that I think we're going to continue to focus on, that's going to further amplify the inherent margin benefits that we already see in the tower model that I think we're really excited about as well.
Okay. Well, that's great.
Awesome.
Appreciate the discussion, Adam.
All right. Thanks, everyone.