Hey, good morning still, everybody. We'll be going into good afternoon soon. I'm Ric Prentiss, Head of Telecom Services Research for Raymond James. We'll keep Nareit on schedule, although the elevator bank is way better here than the Waldorf, for those of us that have been around a long time, so we appreciate this venue.
You're showing your age.
We are, and we're happy to be hosting, and welcome Tom Bartlett, CEO of American Tower, back to REITweek. Was reminiscing, we would come to REITweek even before you were a REIT.
Yeah, going back to, I think you dragged me to 2010, or we had a little table, right? Outside of the conference room.
Yeah.
because we couldn't get in.
Right, we were, we weren't in the club. But now we are.
Now we're in the club, right.
Obviously, Crown Castle, American Tower, SBA Communications, very large market caps, within the REIT space, and kind of, the tech play on.
Right
on real estate out there.
We changed the mix a bit.
Yep. I wanna start, 'cause if we think from REITweek 2022 to REITweek 2023, obviously, one of the big changes is interest rates.
Mm
... much higher, faster to fight inflation. Walk us through, you know, bank collapses, recession worries. There's a lot of stuff going on out there macro-wise. As we think about the tower business and the data center business, how is that affecting your AFFO per share, but also your fundamentals?
You know, Ric, I have to say that from a fundamental perspective, our business has never been as strong. It's not to say that we're not affected by interest rates and those types of things, but the drivers for our business are much different than traditional real estate, as you well know. It's a function, really, of how much our customers are spending on a global basis. That's been very consistent over the years. I mean, our customers, both the data center platform, but broadly speaking, the tower platform, are going to be spending probably $60 billion on their networks across our 25 different markets. The demand that they are being driven by, again, are kind of outside of the influence of some of the macro events that have gone on.
If you take a look at, you know, our tower platform, which is I refer to it as, in the United States, for example, our customers will spend well over $30 billion on their network. They probably spend close to $40 billion. But with 5G, you know, every G, you know, there's an incremental $5 billion or $10 billion that are being spent, and we're still in the very early innings of 5G. But our four major customers in the United States have been spending to really generate coverage in the marketplace, and which is typical in 1G, 2G, 3G, as you well know. You've got the same background I do from a AT&T perspective. They're initially driving coverage, and that's what they've been going through.
Probably, on average, half of our sites in the U.S., we have about 42,000-43,000 of them, have some form of 5G on them, radios, indoor antennas. The carriers have yet to go through this kind of major densification stage. As I've talked to in the past, the way our carriers build is really in the form of sine waves. You know, heavy build, they groom, then heavy build, then groom, depending upon where usage is. What we've tried to build in our business is a level of predictability. We think that's very important from a real estate investor perspective. You know, every customer builds in a different sine wave.
If you superimpose all these sine waves, not just in the United States, but then also on a global basis, 'cause they all invest differently, you'll get a straight line. That's what we've really been able to.
Up, up into the right.
Up, up and way up and to the right.
Okay.
That's what we've really been able to drive historically, is that kind of predictability and growth. You know, we do certain things externally to try to even underwrite and mitigate some of the exposure and some of the risk relative to escalators and some of those types of things. Even within the United States, we've also tried to protect ourselves against kind of the major troughs that our carriers are executing with their build program, with levels of pricing and committed levels of pricing, consistent levels of pricing. That has really been able to mitigate, you know, slowdowns, you know, even in their builds. That's also in an attempt to provide the consistency and the predictability in the business. Our business has not been strong.
I mean, if you take a look at our colo and amendment activity, an amendment is when our customers will come in and add something to an existing lease. A colocation is when they'll actually enter into a brand-new lease on a tower. That colo and amendment activity, we're setting a record level for ourselves in 2023, we see a significant demand for our sites. As such, as I said, kind of the fundamentals are very strong. Similarly, on the data center platform side of the business, as you well know, a couple of years ago, we acquired CoreSite. I was on the board at another data center company and became kind of enthralled with kind of the model that they had built in their business.
Where in the tower business, we have a strong barrier to entry from a competitive perspective, which is our exclusive ownership of the real estate itself and control of that real estate, which really gives us a competitive position in the market versus anyone else. On the data center side, we have really what I call a barrier to exit, because on the data center side, the way that CoreSite approaches the market, and that really got me kind of energized about that model, is that it's not just a colocation business. It's really, I call them interconnection hubs. You know, a certain piece of that particular data center will be leased to enterprise accounts, a certain piece will be service providers, and then a certain piece will be a cloud player.
Our enterprise customers have this incredible interconnection system within those businesses. As a matter of fact, over 80% of our revenue that we generate within our data center business, those customers have at least 5 connections within that. It makes it very difficult then, once an enterprise account has that kind of access to suppliers, to other customers, obviously has cloud access, it might be multi-cloud access, if we have Microsoft and Amazon, for example, in there, it becomes very difficult for them to leave. That's what got me so excited about that particular model in and of itself. We had, you know, 10% growth in the first quarter.
We're setting records in terms of sales activity, the pipeline is very, very strong, and we have good development plans in place in the United States, because they're exclusively within the United States for further build. The fundamentals that we have going on in the business, again, are different than perhaps most real estate investments. Having said all that, interest rates have affected us, okay? You know, we had a fair amount of floating rate debt at the end of last year, which we brought down. It was roughly 22% of our debt. We brought it down where we just did an offering in the last couple of weeks, and we're standing probably right now at about 15%.
continue to look at ways of maybe even taking that down a little bit further. We've monetized a couple of things in our business. We sold some fiber assets in Mexico. We just exited Poland. You didn't cover that.
Nope.
We just exited Poland. We had a very small business there, and so we've used some of those proceeds also to take down some of our floating rate debt. There's no, you know, no question, if you take a look at our AFFO per share growth expectations in terms of what our guide is, it's being impacted by that. Hopefully, we'll get that behind us, you know, in 2023, because the fundamentals of the business are growing you know, high single digit. Organically, we're growing, you know, 5+% in the United States. In markets like, regions like, Africa, we're growing upwards of 9%. Europe, we're growing at high single digit kind of growth rates.
Again, we have those fundamental elements of our business, which are really doing quite well, and I'm really excited about it. I do think that they're kind of multiyear types of expectations.
Yep. You hit that very well. I'm reminded of literally that first REITweek we went to. On the side meetings, a REIT investor asked you: What would cause your revenues to go down? You were answering the question of, "Well, my growth rate could go down," in REIT world, your revenues can go down in other sectors. It was really refreshing-
Right.
-to hear that, you know, if you worry about recessions, you worry about any kind of economic issues, the towers, it's literally, guys, we're just looking about, we've got a band of growth, and we're gonna grow
Yeah.
because it's really not tied to economy.
Well, you know, a lot of people ask, Well, what's the impact of inflation?
Right.
You know, in our international markets, really absent India, you know, our escalators are all based upon CPI, that really protects us well from an inflationary perspective. We're also triple net, you know, in a lot of cases, right? You know, 87%, 80% of our direct costs are passed through, fuel being the most significant one. But also land costs, even in Latin America, are passed through. We've tried to underwrite and mitigate a lot of the risk, to try to ensure that that revenue doesn't go down, and that we continue to generate solid organic growth rates.
As we think about reinvestors looking at the stock, dividends are a large part of the story as well.
Mm-hmm.
How do you think about the ability to grow long-term AFFO per share, free cash flow per share, and then dividend per share?
Well, it's a balance, right? It's living within our means. You know, we don't want to extend ourselves in a situation where we're borrowing to pay a dividend. Our dividend is largely tied to our AFFO, being a REIT. You know, we've enjoyed kind of 20% growth for much of the last decade. In this decade, you know, we've been growing at kind of the 12. This year, I think we're growing at 10%, you know, subject to the board.
Sure.
Growing at that, kind of that 10% level. My sense is that over time, that's gonna grow really at kind of the AFFO per share kind of growth rate, which will probably be high single-digit in terms of at least how I'm thinking about it. And, you know, we balance that because I think it is a strong piece of our, of our total shareholder return. Then we're balancing it with, okay, what are those best capital ideas that we can invest in? This year, we have a CapEx program of $1.7 billion or $1.8 billion. And we're investing in the highest growth opportunities possible, which is leading with our build-to-suit program. We'll build roughly 4,000 towers in the markets that we operate.
We've probably built 20, 25 thousand over the last several years. You know, we're generating double-digit types of returns on that build. We don't build on spec. We get a carrier on as an anchor, and we're building in areas where we believe we'll be able to get that second tenant on. You know, we're really pleased with the kind of results. That also gets us closer and closer to our customers, because as they're densifying their networks, they're looking for, you know, competent players out there that are gonna be able to deliver on what they say and when they say it. That's been a really steady growth for us going forward. The second piece of the capital is back into our data center platform.
You know, when we underwrote the CoreSite acquisition, they were a REIT. They were paying a dividend of $200+ million. The way we underwrote that transaction was, okay, we're gonna feed that $200 million bucks back into the business for growth. This year, we're probably up in the $350 range, but they have a fair amount under development up in San Francisco, New York, Miami, Denver, Virginia to be able to meet kind of that pent-up demand that's going on in the business. You know, that's also kind of a double-digit type of return on investment. We think that that capital going into those two broad areas, it will prove out to drive really good long-term kinds of return opportunities.
It's a balance in terms of looking at the dividend, looking at the cash flow that the business is generating, you know, which we would expect to continue to grow, you know, given the kind of the things you were just referring to. We'll look at those sweet spots.
Okay.
for us to find those best possible return opportunities to invest in.
Great. Consistent growth, predictable, good visibility. Towers, we call it the best business ever in my world, 'cause, having been an M&A guy at BellSouth, it really is a great, attractive business model. It's real estate, it really is single-use real estate, right? That you're not gonna convert an office into, you know, migrant hotel. You're not gonna do anything else with this real estate. It really is single use. From a REIT investor standpoint, they're not following as closely as we do, and you do probably. How is the health of then the wireless businesses? If you look at the U.S. and other markets to say, you're really relying on the ability of your customers to keep spending CapEx, to keep buying spectrum and deploy it on your tower.
How do you view that health of those different carriers in the different segments you operate in?
It comes down to looking at your own underlying use of wireless technology.
Right, yeah.
That's kind of the easiest way for me to explain it. You know, I look back and, on the history of the wireless industry in terms of how it's developed and our utilization of devices, all kinds of devices in all kinds of different ways. That's driving demand on our customers' networks, then that's driving their willingness to spend heavily into their networks. I would say that the wireless industry is in a really strong position, largely because the demand is there. Is there competition? Sure. You know, we say that on global. Is there consolidation? Yeah. You know, we've had markets in India, for example, when we were initially got into the market, there were 15 different carriers, and we knew that wasn't sustainable.
By the way, if you look back on the U.S. market, back in the early days of wireless, there were probably at least 10 carriers.
We had our all eight table. Here's the eight carriers that could offer service-
Yeah.
Sprint had, how many affiliates did Sprint have?
That obviously worked its way down into four carriers in the market. Many of the markets that we're in are kind of two to three, probably, a carrier mix. That seems to be kind of a consistent market dynamic. You know, each of them are investing, all of them are investing heavily into their networks, and we are all willing to spend for that particular coverage. More in some countries than others. You know, the range is pretty incredible in terms of when you take a look at the average revenue per user, or device or however you want to think about it. There's a lot of variability from that perspective, but the market is really strong. You take a look at all the new applications.
I mean, if I had a nickel for every time I heard AI over the last 2 days, you know, I wouldn't need to work.
It's the new drinking game.
But if you think of the impact of AI, not just in our data center platform, but also from a wireless perspective, again, it's just another application that's gonna drive us to utilize wireless devices and wireless technology even more. I would say it's the wireless industry, and our customers are very strong. They're in really good positions. They're investing heavily into their networks. In many cases, they paid a lot for spectrum, so they want to put it to good use. But they're really smart. I was 25 years at Verizon, I know how they kinda think, and you were on the BellSouth side, you know, they're very intentional about how they spend capital and how they manage that.
I think overall, the industry is in really good shape.
Good. When you think about the international operations, you're in some emerging markets also. Walk us through how you get comfortable that you're gonna earn your risk-adjusted return there, and then touch on maybe India a little bit from a standpoint of, you've had some discussions lately, what you're gonna do there.
Sure. You know, we've been in markets like Mexico and Brazil for, now over 20 years. The reason that we ventured into international markets are a couplefold. One is, first, the technology is the same, right? The manufacturers are broadly the same. The sites look the same. It's not like we were taking a new business or into a market and changing the business. We were able to be very consistent in terms of how we thought about the growth. The drivers are the same. You know, our, the types of customers that we have in those markets are broadly the same, large wireless carriers. What's different is that in most of the, all of the emerging markets that we're in, there's very little wireline presence.
Mm-hmm.
Our customers in those markets are throwing everything that they can at their wireless businesses. Typically, there are 1 to 2 technologies behind. You know, as we've developed 4G, you know, they were still on kind of 2G, 3G. As we're on 5G, you know, many of the markets are still deploying 4G. We felt that as a result of being and having a certain presence in many of these emerging markets, we were gonna be able to generate higher rates of growth, as well as extend it, because those technologies were 1 to 2 cycles behind. That's what we've been able to do. You know, if you take, go back, look at the last 20 years, the growth rates in our international markets have been a couple hundred basis points faster than our, even our U.S. market.
They are this year. You know, you look at market like Africa, it's high single-digit. Europe, it's high single-digit kind of growth rates. The thesis is proved to work. When we go into a market, you know, we're very intentional about, you know, ensuring that there's rule of law. They're very intentional about looking at the competitive framework within the market. We're very intentional about, okay, what is the way to get into the market? Is it a build-to-suit program, or is it actually M&A? There is a checklist that we have, if you will, in terms of making sure that the markets that we're getting into, make sense. Now, we look at our portfolio.
We're in roughly 25 different markets, you know, roughly a third of our business are in some of the emerging markets. We look at our portfolio as good allocators of capital would do, to where we can drive the best rates of return. You know, we're constantly looking at the various markets because we've initiated the investment, we're, you know, committing ongoing levels of capital into those markets. We want to make sure that we're being smart and don't have our head in the sand in terms of where we're investing it. We look at the construct of the market.
You know, when I kind of look at India, which is kind of the second part of your question, you know, entered into India back in 2007, 2008, and saw over a period of 10 years, really solid rates of growth. There have been certain things that have happened in the market that have changed that. Rapid consolidation as a result of one player coming in and offering very low pricing. In some cases, it was free for a while. We've seen some government activity from a legislative perspective that's impacted the ability for certain customers to grow. We've seen a lot of consolidation going on in the markets, and some of those, some of those mergers have gone better than others, you know?
I look at the construct of the marketplace. I look at the market terms of the master lease agreements and our ability to change them. Where we once thought we might be able to change some of them, we haven't had that kind of success.
Yeah.
As I said, as opposed to keeping our head in the sand, we're looking back and say: Okay, are there better uses of some of the capital that we might be able to monetize from those particular investments? That's the process that we're going through right now. You know, we're looking at, okay, what are those possible outcomes, and where can we best, you know, generate the best rate of return for our investors? I don't know what that outcome is going to look like. I want us to come to a conclusion quickly because that has an impact on people, on the market, and those types of things. We want to get through this process as quickly as we can, but we want to do it intelligently and thoughtfully.
It's taking a little bit of time, but hopefully we'll have that behind us, and we'll see what that structure would look like at the end of the day. To the extent that then there's available capital, you know, what we would do it. I mean, our goal right now is delevering. You know, our floating is at 15%. I wouldn't mind taking that down a little bit.
Right.
Our overall, you know, leverage ratios are north of five times. I think we kind of maximize the value of the firm when we're below five times. That's really our goal at this point in time. It's not M&A. To the extent that we're monetizing certain assets, we have the ability to allocate right back to our balance sheet to strengthen it.
Yep. One of the other questions, again, we're deep in the weeds a lot of times on the technology and the customers. REIT investors sometimes aren't as day-to-day involved in it. The left field technology question, as I call it, every 5 or 10 years, something new pops up, and somebody goes: Oh, is this gonna make towers and wireless go away? One of the more recent ones is the satellite to smartphone-
Right
connectivity direct to device.
Right.
Update us on what do you see? You actually are a small investor in one of those satellite companies. Talk a little bit about that direct-to-device, but also what concerns you about. Is there a left field technology coming that people should be watching or aware of?
You know, we watch that every day. The answer is no. The headline is, satellites is not gonna affect the macro environment. I think it's gonna supplement it.
Yeah.
The most efficient way for our customers to propagate a signal, to get that signal out to a device of ours, is through that 150-foot tower. It's just more efficient. It cuts down on interference. They're building on a system that's already been built. You know, I often equate, if a customer was going to be taking down their sites, it's kind of like a deck of cards. You know, the cards we used to build, you know?
Mm-hmm.
When you take one out, kind of the whole, the whole thing starts to fall apart. The most efficient and effective and cost-effective way for customers to deliver a service is through that, you know, 150-foot site. Now, we don't have those terrestrial networks everywhere, right? There are certain parts of the world, by the way, there are certain parts of the United States, that may be best served from a different type of technology, from a satellite technology. I think one of the breakthroughs, and one of the things that's really interested us in AST, which is one of those, is the fact that, you know, I don't need to go out and buy a different handset. You know, I can utilize my existing handset.
By the way, we're still working through and testing and those types of things, but still, you know, able to use my existing handsets as opposed to going out and getting a sat phone.
Right.
That has always been kind of the historic way of reaching a sat. You know, the satellite, in terms of speeds, interference, you know, a number of different technical ways, is still not gonna be able to replicate the kind of experience that we enjoy using a handset being delivered over a terrestrial 150-foot tower. There are absolutely parts of the world that they have a lot of white space, if you will, and don't have that kind of coverage. I do think that that's gonna be a really interesting technology for those particular areas. Over half the world still doesn't have cellular technology, which is pretty incredible.
Yeah.
...there's a lot of areas out there where I think technologies like that can be very useful.
We've talked about towers, U.S. towers, international data centers somewhat as well, since you guys have gotten involved there. The one thing I will, we'll kind of wrap here with maybe is small cells. It's a different technology. It plays into the wireless kit bag. Justification will occur. You guys haven't done that really in the U.S., and you're exiting the Mexican fiber business. Walk us through a little bit about your logic on small cells, how you think about it and where you've come out on that.
You know, we've always thought that, you know, small cells and fiber are clearly gonna be part, I mean, they have from day 1, right? You know, even smaller sites, however you wanna think about them, but they've always been part of the toolkit that our customers have used to be able to get the best possible service out to the customers. As I said up front, we look for barriers to entry, and we've never seen that barrier to entry on the small cell side or on the fiber side that we would be able to create. As a result, you're always gonna be subject to volatility on from a return perspective, very capital intensive, lots of competition, lots of different players who are providing those types of services.
We're trying to stick back to those kind of fundamentals and in areas where we think that there are strong barriers, and we do have that really strong, you know, market fabric, if you will. Candidly, you know, small cells and fiber just don't fit that mold. We are in building, you know, we do have a pretty sizable in building, so we're in a lot of casinos and sports venues and things like that. Again, the barrier to entry is the relationship that we have with the landlord, and that we then have the exclusive rights to that particular in building or that building to be able to provide the network. That gives us that barrier to entry.
When you're outside of that and building the kind of small cells and fiber that you're talking about, you lose that ability to really compete effectively. We've chosen, and we have other options available to us, that will drive, I think, a more sustainable rate of return than those two particular product sets.
Yeah. What I'm hearing is predictable, consistent growth, good visibility, a competitive moat.
Right.
What else would you want to tell the investors in the room here or online in our last minute of, you know, what else should they know about American Tower that they maybe aren't aware of, or that they should be thinking of to invest in you?
Well, you know, I think you picked up on the two critical ones. I think the demand, you know, drives the predictability. You know, we've tried to supplement that with certain pricing modes and methodologies to, again, bring that kind of predictability. We've tried to diversify the portfolio to be able to drive that, and to, again, to get that solid kind of rate of growth. I think we're good allocators of capital.
Mm-hmm.
We're very patient. You know, we don't invest for a quarter. We invest for the long periods of time. I'll look at AI as an example. Given the fact that we've talked about AI for so much. You know, the first call that we're gonna get for demand from AI is gonna be the cloud. You know, they're gonna be the ones to try to position themselves such that they have significant amounts of capacity for us going forward. Where our balance is, yeah, the cloud is definitely a part of that solution, but it's also having the enterprise accounts and the service providers all part of that community to be able to drive the highest possible yield.
It's with that kind of intentionality and thoughtfulness, I think that really our driver or really demonstrate kind of the way we think about allocating capital going forward.
Great. Right at mark.
Okay.
I see the red light just turned on. Appreciate your time today. Welcome back to Nareit.
Thanks.
Good to see you again. Good to see you.
Thank you.