All right. Good morning, everybody. I'm Ric Prentiss, head of Telecom Services Research at Raymond James. That includes TMT: towers, media, and telecom services. We're excited to continue the NAREIT tradition of American Tower and Raymond James. This is a dozen years we've been hosting American Tower here at their presentation slot, ever since American Tower converted to a REIT back in 2012. And actually, we were even here before then, 'cause we would do meetings on the side at the Waldorf restaurants before you converted. But it was pretty clear to us, having covered the tower space for 25 years, that towers would become REITs. And obviously become quite large market cap REITs. This year, welcoming a new person up on the stage, American Tower's still fairly new CEO, Steve Vondran. Steve, welcome.
Thanks, Ric. Thanks for having us again.
You bet. With new hands on the helm, I think a natural question... And actually, new hands on the helm of all three public tower stocks as far as who's CEO, interesting times. What's gonna change in the direction, the strategy, or execution?
Sure. Well, Ric, as you know, I've been at American Tower for almost 24 years. I've been part of the leadership team, leading the U.S. and Canada and also our CoreSite business for the last five. So I've had a lot of time working with Tom and Jim, Rod, and the executive team on developing our strategy. So, you could expect a lot of continuity in terms of how we think about the business. And so, you know, we'll continue to execute on some of the initiatives that we've already started. Having said that, I'll outline a few of the things that are kind of our near-term priorities. So for right, you know, for the next couple of years, one of our top focuses is growing the organic revenue.
That's working with our sales teams across the globe to capitalize on the demand that we're seeing for our assets as carriers roll out 5G and continue to augment 4G internationally. And so that's a top focus, is continuing to drive that organic growth as much as we can, get the right contract structures in place and the right relationships with those customers. We'll complement that with some selective investments in our internal CapEx program. We do have the ability to kind of flex our capital investments across the globe. I think it's one of the things that differentiates American Tower. So we have the opportunity to build towers in various geographies. We have the opportunity to invest in CoreSite, which is giving us, you know, really great yields in terms of the returns that we can do in the U.S.
The data center company you bought a couple years ago?
Exactly. So that, that capital investment program will give us some incremental cash flow and great returns. We'll also combine that with a focus on cost control. Margin expansion is top of mind for us right now. You've seen us focus on that the past couple of years, and actually, in 2024, at the midpoint of our guide, we're expecting our SG&A to be about $30 million less than it was in 2023, and that was already a reduction from 2022. So we'll continue to focus on that wherever we can. And I want to emphasize that we're not doing that in ways that damage the business. We're doing this in a very thoughtful way.
If you think about the last decade, as we grew so quickly and we had a lot of acquisitions and integrations, when you're growing that fast, you can't focus on operational efficiency as much as you'd like to. Now that we're a little bit more steady state for a couple of years, it gives us the chance to really look at those processes and procedures across the globe and try to take some cost out of the business. So we'll focus on that. So some top-line growth, some incremental investments that are gonna give us great yields, and then some cost controls to-
Yep
... expand the margins. Finally, the last pillar of that is really focusing on our balance sheet. We are slightly over our target leverage range, and so we've put in place a number of initiatives across the company to get down to the top end of our range, to that 5.0. We did touch that in Q1, but there are some one-time items that are pinning that, so you can expect that to pop up a little bit. We, you know, believe that we're still on track to get there in a durable fashion by the end of the year.
Yeah.
So that's where we're at, those kind of four pillars today. All that should set us up to have a lot more capital flexibility going forward, so that we can be more aggressive in the future if other opportunities arise. You know, at this point, we're not seeing a ton of M&A on the horizon that would take us off of that track. But we want to be in a position that if there are inorganic opportunities, that we're best positioned to take advantage of those.
Yep, makes sense. New or new-ish beside you up on the stage since the last NAREIT, there was the announcement in early January. You guys were out with us in Deer Valley at one of our winter summits, working on some of that, I think. You announced in early January the sale of 100% of the India business.
That's right, Ric.
Why sell it? What lessons did you learn?
Sure. So that we did enter into that agreement in January to sell 100% of our India business to Brookfield, and that was a result of about a year-long strategic review that we undertook. And when you look at the thesis for our international business and our emerging market business, the idea behind that is that will give us a longer growth pattern, so those markets will grow faster, longer, because they're lower, you know, lower on the technology curve. And as we looked at the India business and what we thought the prospects were for that and some of the challenges we've had in that market, we thought we would be creating more shareholder value to recycle that capital and to redeploy that CapEx in other places.
So when it comes to the Indian market, I think there are a number of things that we've learned there, and we've... This isn't a recent learning. We've been learning all along and incorporating things in. So if you look at that market, when we entered kind of back, gosh, over 15 years ago now, there were over a dozen carriers in the market. The market conditions there had fixed escalators in that 2%-2.5% range, and the barriers to entry were very low. It's pretty cheap to build sites there, and there are very well-capitalized captive tower companies there. So if you look at kind of those dynamics, it just created an environment where we weren't able to drive the growth in that business that we were hoping to do.
And we've really applied those lessons to the other transactions we've done. So if you look across the globe, you know, we have, we've focused on having CPI-based and escalators, you know, pretty much everywhere. We've got a couple small exceptions, and, you know, France has a small portfolio that's not. But we've learned the lesson to have CPI-based and escalators. Two, is we really focus on the quality of our counterparties, and we want to be partnered with the top-tier, well-capitalized MNOs, and not partner with, you know, not kind of bet on consolidation in the future. We've also focused on terms and conditions a lot, making sure that we can monetize amendments with the anchor tenant, that there aren't restrictions on what you can lease and things like that.
Excuse me, could I have you talk into the microphone?
So we've learned a number of lessons that we've incorporated into the transactions, and if you look at kind of our capital deployment over the last several years, it's really been focused a little bit more on the developed markets. You know, we entered Telxius in Europe, and part of that was being really thoughtful about the terms and conditions we could get. We passed up on a number of portfolios there. The CoreSite transaction in the U.S. and inside of the U.S. So we've really focused more of our attention on that. And so if you think about our portfolio after the India sale is complete, the exposure we'll have to the emerging markets will be a little bit lower, and we think that's appropriate.
We think some measure of exposure is good and important, 'cause we do think that there's opportunity for outsized growth. We think rebalancing the portfolio online and the lessons we've learned just makes some sense.
As far as proceeds, assume it goes back to that, maybe that fourth pillar, kind of the balance sheet?
Yeah, our intent is to use the proceeds from the transaction to pay down debt. We've actually accelerated a little bit of the proceeds from that in Q1. The total proceeds we anticipate are about $2.5 billion. In Q1, we were able to dividend out about $100 million and repatriate that to the U.S., and use that to pay down cash. We also had our OCD, or optionally convertible debenture, that we had, and we liquidated that, and had net proceeds of about $216 million, and we will repatriate that and use that to pay down debt. So we've already accelerated some of that, and when we get the balance of the transaction, we'll use that to pay down debt as well.
Okay. You've touched on it a couple times with CoreSite. You bought a data center company about two and a half years ago. What trends are you seeing there? What lessons have you learned so far?
Well, we had perfect foresight of AI and the great dynamics that was gonna give. No, look, it's a great business, and it's performing really well for us. The thesis behind buying that business was that there's eventually a convergence between wireless and wireline, and we think that'll give us an advantage when Edge finally happens, whenever that is. But we underwrote the transaction just on the fundamentals of the business as it existed, and I'm happy to say that it's performing well in advance of our expectations from that. We had record years of leasing the last two years, and I don't know if we'll have another record year 'cause we have a tough comp for the last year, but sales are really strong, and it's possible.
We had a great first quarter, and we had one of the highest quarters in terms of our retail sales that we've had in a number of years. So we're seeing a tremendous demand, and some of it's related to AI, but the majority of, the vast majority of the new business that we see in CoreSite is hybrid cloud deployments by enterprises. And so it's not really kind of the latest and greatest AI boom. It's really related to that fundamental shift in the way people do business, and we see a very, very long tail of that business coming forward. What AI has done is it's put pressure across the ecosystem on pricing, so prices have gone up, and so that's allowed us to also raise prices while still having these years of record sales. So we're excited about the business.
We are investing a little bit more CapEx in it to replenish what we've, what we've sold. So you've seen that tick up this year to about, you know, roughly $450 million at kind of the midpoint of our guidance on that, and you could see that tick up a little bit more as we continue to enjoy the kind of boom that we're having in sales. If you look at some of the metrics of that business, backlog, that's the leases that have been signed but not commenced yet. We have some record levels of backlog, which will give us some tailwinds on growth going forward on it.
For the capacity that we're building, we've got about 40 megawatts under construction, and about 40% of that's pre-leased already, and that's kind of a record level of pre-leasing for CoreSite. That de-risks the investment and also accelerates the time to your yields. So overall, that business is doing really well, and we're very happy with it.
Yeah. Obviously, not as many public data center companies in the real world anymore, 'cause you bought one, and some of them have gone private. The question still circulates out there of, you know, when? When does the edge come about? AI at data centers is still early, but people are betting on it.
Yeah.
AI at towers feels a little further away, but we're all trying to figure out, will it come, what will we see, and, and when?
You know, I'm more convinced than ever that it's gonna happen. The question is, when is it gonna happen? And so what we've seen is a lot of the companies that we're investing in edge technologies, and by let's, let me define-
Yeah
... edge a little bit, 'cause it's a buzzword today.
There's 50 people here, and they all have different definitions, so yeah.
Exactly. When we talk about the convergence with towers, it's kind of the micro edge. It's getting down to the point where you have compute on tower sites to reduce latency. There are still... Everyone who is looking at that as a project and an investment is still doing it. They have slowed down their investments a bit, just given the macroeconomic conditions that are out there. So it's probably a little bit further out than I originally thought it was gonna be. But we are doing some proofs of concepts with some partners on some kind of niche applications that are more near term, and we are still working with various partners on the ecosystem to figure out how does edge develop, how do we capitalize on it, et cetera.
So, you know, again, I would say there's nothing in our current guidance for that-
Right
... but we certainly think it's an upside for the long term on it. In the meantime, we've got an asset that's performing really, really well.
... Okay. You sold the Mexican fiber business. Give us your view on fiber small cells, kind of in general, in the U.S. and internationally, then.
Sure. So, we sold the Mexico fiber assets because, you know, as we looked at that business, our conviction is that it's better in someone else's hands because it's fundamentally a retail and enterprise business. And when we bought that business and were scaling it, we thought we would be able to skew it more toward fiber to the tower. And we think bringing fiber to our towers is a good thing because it enhances the value of the towers, the stickiness of the tenants, et cetera. But as we've operated that business for a while, it really was more enterprise and retail. Fiber is a good business, it's just not the business we're in.
You know, for us to scale up a retail enterprise sales force and do all the work it takes to make a successful fiber business just didn't make sense for us. We look at the U.S. very similarly. We always retest our thesis on whether small cells and fiber are gonna make sense, and we just haven't seen the returns be compelling for us in that space, so we've decided to sit that one out.
Yeah. It's also a pretty capital-intensive business, it seems.
It is.
So as you allocate capital as one of your pillars, it was kind of like-
Yeah, again-
Rather allocate towards data centers and-
Yeah, we've got different opportunities to put that capital somewhere else, and we just think we can earn better returns, either in data centers or in towers across the globe.
New in the last week, we had an announcement that UScellular was going to propose to sell its wireless operations and some of their spectrum to T-Mobile. We've all lived through... You've got most of the Sprint churn behind you, thankfully. But we lived through that T-Mobile buying Sprint and what it affected the tower industry, turning off ballpark, maybe 35,000 sites at Sprint. Help us frame what a T-Mobile UScellular merger would look like, if approved under the current structure, to you guys.
Our exposure to UScellular is pretty modest. It represents less than half of our global property revenues, less than 1% of our U.S. and Canada property revenues. So overall exposure is pretty low. And we have about two years left, on average, on the term of those, with the majority of those leases coming up for renewal in 2025 or 2026. About a quarter of them in 2025. You know, so it's too early to know how that's gonna play out and when the transaction closes, if it does, and what their integration is gonna look like. It's reasonable to assume there could be some pressure on our longer-term guide from churn that's higher than what we anticipated originally, but that would still be very modest-
Yeah
... because our overall exposure is very modest. So, you know, a little bit of exposure there, but nothing to worry about.
The playbook for T-Mobile is typically, they'll say three-four years, they might do it in one-two, but it is a process to try and... You got to move all the customers over from a UScellular network over to a T-Mobile network. You don't want the customer experience to be bad at the carrier.
Yeah. We'll, we'll defer to them on how they're gonna do it.
Yeah.
But until we know exactly how they plan to do it, we can't really predict what it's gonna mean.
Right.
But we, you know, happy to highlight that the exposure is-
Sure
... pretty minimal.
Right. Good.
No matter what happens.
Good. Certainly much less than what Sprint was.
Uh, yes.
Yeah. Yeah. On your earnings calls over the last couple of quarters even, you've suggested that you're seeing some green shoots, that the services business should ramp up possibly in the second half of the year. Services is not the leasing part, it's the other things that happen at a tower. Help us understand what you're seeing and why you're seeing it.
Sure. So I'll start out by just differentiating that our property revenue is largely insulated from the ups and downs of the carrier deployment cycle because of our comprehensive agreements, and we do have those in place with two of the big three and DISH. So really, the best analog for activity that you see is our services guidance. And just to reiterate, we at the beginning of the year, we projected our services coming in higher than last year at about $195 million this year, at the midpoint. And that was based on conversations that our teams have with kind of boots on the ground on deployment. Those aren't C-suite, you know, conversations.
Right.
It's not Rod and me kind of setting a target. It's really what we're hearing from the field. And, and we're still hearing that same kind of, cadence from folks that they expect it to ramp up. In fact, in Q1, and we highlighted this on the last earnings call, that we had about, a 70% increase in applications from Q4. Now, that was a low-
Yeah
... a low mark, but that's still a pretty good sign. And March was our best year
Best quarter, yeah.
... in about 12 years.
Yeah.
Or twelve years, 12 months. Sorry, not twelve years, twelve months. So we're seeing those green shoots from the carriers, and again, when we're having those conversations, with the boots on the ground, we still see that. We also think it's consistent with what we're hearing from the carriers say publicly. You know, their CapEx guidance for the year is in that kind of $35 billion-$36 billion range. And while that's a little bit off the $42 billion high we saw a few years ago, that's still about $5 billion more than we saw on average during 4G. In a couple of their statements, I think one of our customers said that the savings they're getting in CapEx is coming predominantly from core and fiber, and their C-band deployments are continuing at pace.
And, another one has announced a network change going to one OEM.
Yeah.
So both of those imply a pretty high level of activity. And again, that's consistent with what we're hearing from the boots on the ground and what we're seeing in our pipeline.
A lot of discussion over the 25 years I've been following towers, I always call it the left field technology question.
Yeah.
Like, what's gonna make towers go away? The laws of physics kind of suggest maybe nothing, but the most recent one is satellite-to-smartphone, sometimes called direct-to-device.
Yep.
... Talk a little bit about what you see that's solving for. You have an investment in ASTS as well, which is one of the companies trying to do some of that.
Yeah, well, one of the reasons we made the investment was to have a seat at the table to make sure that as we're, you know, looking at our business, that we understand if there are any threats to it, and we don't see any threats at all. It's complementary technology. Again, it comes back to the physics of spectrum and how many, you know, gigabytes of throughput you can get per megahertz, and you just can't serve the wider population from a satellite, even the low Earth orbit. So we think it'll be complementary. It'll work in places we don't have towers and don't plan to build towers, and places where we can't get fiber. So we think overall it'll be good for our customers and good for the consumer.
And it's not a negative for towers, it just helps build the ecosystem. And so we remain convicted that there's really nothing that's gonna make it a better deployment option than macro towers. It's still the cheapest, most effective way to provide gigabytes of data to the consuming public.
So, I think I was the one that coined the phrase, "Best business ever," the U.S. tower business, decades ago, and. But they've not been the best stocks ever. You've been through a rough patch. Interest rates clearly are affecting your stock. Interest rates have been stubbornly higher for longer. Help us understand how you navigate that, but also, should the market be as highly inverse correlated your stock to interest rates?
Well, that last opinion, clearly, I don't think so. But in terms of how we're navigating the potential higher for a longer rate environment, again, that's part of our focus on bringing our leverage down and then bringing our overall debt levels down. You've also seen us be more proactive managing our balance sheet to make sure that we're de-risking it in any way that we can. So we've been very actively terming out our debt, so our average tenor is about six years now. We have taken our floating rate debt percentage down from about 20% to the low teens at this point. And all that's been in response to making sure that we're sensitive to what that interest rate environment's gonna be and taking risk out of the business.
And so you'll see us continue to watch and figure out, you know, exactly what the right mix there is. Again, we've messaged that we're gonna pay down debt with the India proceeds. And so for us, it's just making sure that we have that fortress balance sheet, that we retain our investment-grade status, 'cause we think that's probably even more important for the next decade than it was the last decade. And so we'll continue to navigate the environment, and interest rates will do what they do, and we'll operate the business, create a lot of cash flow and a lot of value for our shareholders.
One of the interesting, I'll call it an anomaly, which we use in satellite land all the time, but one of the interesting anomalies to me, it seems, is in this interest rate environment, private multiples are staying well above public multiples. Are you seeing that? And if so, why is that happening?
Look, what we've said is we don't see anything compelling on the M&A front right now, and part of that is price, and part of it's terms and conditions, and part of it is, you know, there's just nothing that's out there that is attractive enough to take us off our delevering path. Look, I think what the private market multiples are reflecting is that towers are the best business ever, and that there are good long-term returns to be made, and there's value to be created in the business. So I think that when you see that dislocation of multiples, it's probably folks who have a longer term perspective on the business, and they've identified that, you know, we've been able to create a lot of value over time.
So it feels like maybe more public multiples can come up towards private, as opposed to privates having to come down, or maybe-
Uh, maybe-
Meet in the middle somewhere?
There's a little convergence-
Yeah
... convergence there, but certainly I think that you could see appreciation in public multiples as interest rates moderate.
Yeah. Yeah. Dividends, very important to a lot of investors here and listening on the webcast. Talk to us a little bit about the dividend policy at American Tower and where you see it going forward.
Sure. So, you know, we made the difficult decision this year to hold the dividend relatively flat, and that was part of a package of a number of things that we were doing, including reducing our internal CapEx program, you know, focusing on margin expansion to get our debt ratio down to that five times. You know, we do expect it to start growing again next year, subject to board discretion. Over the longer term, yeah, we're committed to paying out 100% of our REIT taxable income, and over the long term, that should approximate the growth in our AFFO over time. Now, there are some, you know, near-term things that might dislocate that a bit. So, for example, we're selling the India business.
That will be dilutive to AFFO per share, but it may not necessarily affect taxable income, so it's not completely correlated, but over the long term, it should be roughly correlated to our AFFO growth. So you should expect to see the dividend grow roughly in line with that AFFO over time.
Okay. The other markets out there, so if we think of international markets, obviously India had way too many carriers, and it consolidated pretty quick. The health of the carrier is so important to make the towers the best business ever. Your tenants have to be healthy. A lot of people look at Nigeria and go, "Wow, there's some stuff going on there." Help us understand what you're seeing in Nigeria. How do you navigate that? How do your customers navigate that?
You know, the factors that are a challenge in Nigeria are really macroeconomic factors. It's the currency devaluation that we saw earlier this year and higher interest expense for our customers. Having said that, they are committed to building out their networks, and we've seen really great uptick in co-locations and amendment revenue throughout the whole cycle. So despite what's kind of going on with the economy and with some of the balance sheets, the health of the business is good in terms of the new leasing revenue coming in. And if you think about how dependent those economies are on their mobile services, we don't see that changing. I mean, that's the you know, underpinning a lot of their banking is online-
Correct.
A lot, you know, even their healthcare is a lot of times being done over mobile devices. So we see the continued demand from the consumer to skyrocket there, like it is everywhere across the globe, and we're seeing the carriers continue to invest. Now, they do have some challenges with their balance sheets right now, and, but they're navigating that pretty well. So for us, it's really just focusing on what we can control, which is our lease-up, our operational effectiveness, and, and letting some of the macroeconomic factors kinda do what they're gonna do, while we're just trying to operate the business the best we can and maximize that cash flow.
Okay. In Brazil, we've had carrier consolidation there as well, going from four operators to three operators, which seems like kind of ideal, three plus maybe. Where are we at as far as the churn with Oi getting kinda split up, and what does that do to the leasing activity of the other three?
Sure. So we've got the Oi churn came a little bit later than we thought. We thought we'd see more of it last year, and now it looks to be spread a little bit more over 2024 and 2025. There's two components to it. There's the wireless component-
Mm-hmm.
Where they sold their wireless networks to the three operators, and they're absorbing that. So it takes a little bit of time for them to integrate the assets and that churn to come through. And we'd expect, you know, to see, you know, a percentage of churn from that, but not all of it. And on the wireline side, they recently were in a judicial process where there's been a settlement there in terms of what that means. So we'll see the majority of that churn over the next, two to three years. The other dynamic that's happening there that you highlight is those carriers are in the midst of integrating assets they bought.
Right.
That has slowed down their activity a little bit. So we're seeing that our sales pipeline's a little bit lower than historically has been true there. So, you know, our Latin American business will have kind of low single-digit growth for the next few years because of the dynamics that are happening there. Having said that, to your point, you're gonna have healthier carriers coming out of it, and as we've seen in every other geography, when you have the consolidation, once you get through the churn and the integrations, they tend to invest more because they're healthier. So we do see, you know, a bright future for that market once we get through all these kind of near-term headwinds. We think it'll return to healthy growth levels like we've seen in the past.
Yeah, I mean, I think one of the nice things about the tower business tied to the health of wireless is its secular growth. People are consuming on these devices that we find so critical. They're not really cyclical.
Yeah. I mean, we're, you know, in the U.S., we're still expecting 20%-30% growth in mobile data usage annually. While that's a little bit lower than 30%-40% we saw in 4G, the base is exponentially larger. So if you just think about the gigabytes of data that have to be produced, it's exponentially larger in 5G. That's the U.S. We're seeing similar usage trends across the globe. So again, as long as the consumer's using that phone more and more, there's a demand for more network, a demand for more towers.
This is your first May REIT. What closing message would you want to tell REIT investors that are in the room and listening remotely about you as the new CEO of American Tower?
Look, I'm excited. I'm excited for the, for the next decade, and the demand for the goods and services we sell has never been more certain than it is today. When I started 24 years ago, cell phones were still a little bit of a luxury. We didn't know what that business was gonna be like. Even in early stages of 4G, you know, there were a lot of predictions about when demand would stop and when the cycle would stop. What I'm seeing today is this continued hockey-stick-up in usage, and, you know, we're gonna continue to see the carriers deploying 5G. Someday, 6G will be here. So this is a good business, not just historically, but today and going forward.
Great. We'll wrap it there. Thanks so much.
All right. Thanks, Ric.