Well, good morning, everyone. Thanks for joining us at MoffettNathanson Inaugural TMT Conference. I'm Nick Del Deo, and I'm thrilled to be joined by Adam Smith, SVP of Investor Relations at American Tower. Thanks so much for joining us, Adam.
Yeah, no, great to be here. Thanks.
You know, for those of you in the audience, if you wanna submit a question, there's a QR code on the screen, it'll pop up on this iPad, I'll try to work a few in if I can. Yeah, Adam, I thought, I thought we'd start with the U.S. business, obviously your biggest, your biggest segment. The biggest, you know, source of questions we've been getting recently relate to Dish. Obviously a nice driver, of course, for the industry in recent years. There's some questions around their liquidity, their ability to prosecute their plan to deploy their network in the coming years.
I know that you're limited in terms of what you can share in terms of any particular, you know, the specifics around any particular customer, but, you know, have you seen anything from Dish that would lead you to question their commitment to deploying the network the way that they've articulated?
No, no, we really haven't. I mean, to date, Nick, they've been a great customer, we struck a comprehensive MOA agreement with Dish back in early 2021, which really kind of established a kind of a set baseline of growth for us, under which Dish gets a set of real estate rights to support their network build. I would say to date, all the activity really supports what they've put out there in terms of their public statements and their targets and meeting those targets. Obviously the first one's coming up here in a few months.
You know, I obviously spend a lot of time listening to their public statements and, you know, by all accounts, both internally and what they're saying externally, I think it aligns and, you know, certainly supportive of what they're, what they're targeting to do.
Okay. you know, you've laid out targets of, you know, 5% net growth through 2027 in the U.S., I think 6% excluding Sprint. Is it fair to say that Dish is a meaningful contributor to that growth?
Yeah, they're certainly a good contributor to the growth. The way I would kind of frame Dish, I mean, as of today, I mean, certainly they started from basically zero a couple years ago, right? The way we structured that deal, we didn't commence lease payments until 2022. Very much kind of a pay-as-you-grow type of arrangement.
Which we thought was very mutually beneficial. As of today, since you're starting from zero, they more or less make up less than 1% of our overall American Tower revenue. It's still a pretty small customer in the overall scheme of things, and that's probably less than 2% of our U.S. tower revenues. Our property revenues. You know, starting from a relatively low base, but I'd say if you kind of unpack our growth target and just to make sure everybody here understands what that is, we've said at least 5% organic tenant billings growth from 2023 through 2027 on average. When you take out the contracted Sprint churn, that's at least 6%, which is pretty reflective of, you know, the really strong growth that we experienced.
In the U.S. business from, you know, the peaks of the 4G cycle. If you kind of peel that back a little bit, you know we have a 3% escalator. Just given the sheer size of the U.S. business, it's about a four and a half billion dollars, $4.6 billion tenant billings business. To move the needle in terms of that escalator, it's really driven by the big three, you know, the folks with the billion-dollar annual revenue streams.
Dish does have an escalator that's supportive of that target, but it really doesn't move the needle. You know we have a 1% to 2% churn profile absent Sprint. What that really kinda suggests is that the co-locations and amendments growth needs to be kind of in that 4% to 5% range, which again, if you look at where we were over the past several years, that really does suggest a sustained level of acceleration beyond where we were the past several years. Obviously here in 2023, we're looking at record levels of growth contribution from co-locations and amendments. I'd really kinda look at that 4% to 5% for co-los and amendments as being where Dish is making a contribution.
It's also contributed through the likes of T-Mobile and AT&T and Verizon, and then some of the national carriers like U.S. Cellular, government agencies, different verticals. You know, they're certainly a good contributor to growth. I would remind everyone what we've put into this growth target.
Is the contracted minimums that Dish is going to owe us regardless of activity. We feel pretty good about the risk profile of this growth target. I would remind everyone that our growth is really, you know, probably 75% locked in over that, over that profile. Here in 2023, we're probably over 90%, maybe over 95% locked in on that growth target at this point. Through these comprehensive MOA structures, we have it with AT&T, we have it with Verizon, we have it with T-Mobile, and now we have it with Dish. These really establish a baseline level of growth that we're gonna realize regardless of activity.
Under which the carrier's got a level of real estate rights. You know, we do look at it as a baseline and Dish fits right into that. You know, just to summarize, Dish is not a meaningful customer in terms of revenue contribution today, but they do fit into that longer-term growth algorithm, but it's really supported by a baseline level of activity that's contractually driven.
Okay. Okay, that's great to hear. Now, you alluded to this a moment ago, you know, in saying that you pay attention to their comments. Obviously, over the past couple weeks, you know, some Dish executives have noted that they expect their CapEx to, you know, pause a little bit after they hit their requirements in a month. What do you make of those statements?
Yeah, I mean, I think there's obviously really smart people over there at Dish that obviously know what they want to accomplish and the right timeline to achieve those milestones. I know their next milestone, I think, is several years out from now. I would just kinda remind everyone, it really doesn't impact us in terms of the volumes because, again, what we've underwritten in that growth target is very much contractually driven i rrespective of activity. With that said, I think there's probably a level of incentive to continue activity on our sites because it's a, you know, you don't use it, you lose it type of arrangement.
Yep.
I anticipate, and I think they've also made statements that suggest, look, there's gonna be ongoing investments. You know, maybe it's not so much focused on new markets, but I think there's gonna be ongoing densification that's gonna be required. I think we stand to position pretty well from it. At the same time, we've got a lot of contractual downside protection.
Got it. You know, obviously I won't ask you to speculate on the twists and turns of what might happen with Dish in the coming years. Like I said, they're an important customer. You're rooting for them to be successful. You know, but there are a variety of outcomes as to what might happen with Dish's spectrum over the coming years, you know, via a variety of mechanisms. I guess at a high level, you know, what might it mean for American Tower if portions or all of Dish's spectrum were to change ownership?
Yeah. You were right in the opening remarks, Nick. We certainly don't wanna weigh in too much on different scenarios for Dish. They're a great customer, they're a paying customer, and we look forward to growing with them and supporting them in terms of meeting their objectives. You know, I don't wanna weigh in too much specifically on a Dish scenario. What it would tell you, though, I mean, just generally speaking.
You know, these spectrum assets and what Dish has is extremely valuable. You know, what we've seen globally, it very much is dependent on where the spectrum could go. Again, not commenting on Dish, but, you know, whether or not it's a new entrant, whether or not it's a new MNO or an existing MNO, cloud, it's really every situation could be a little bit different in terms of what their network needs are gonna be, and ultimately what that ultimately requires in terms of infrastructure needs on our sites. It is very dependent on what any certain scenario could look like. I would tell you right now, Steve Vondran and the team, we're focused on supporting Dish, and they've met their obligations, and we're eager to continue to support.
Yeah. I think, you know, at least the way I look at it is, you know, that spectrum in some shape, manner or form is gonna be deployed.
Yeah.
it's gonna be on your sites, and you're gonna get paid for it.
Yeah. I mean, whoever owns the spectrum, there's a major incentive to monetize it, right? It doesn't behoove anybody to sit on it. I think we feel really good. I mean, typically, you know, where you have the spectrum and whose hands that's in, ultimately it translates into good activity on our sides.
Okay. Okay. Let's talk about the U.S. leasing outlook kind of more generally. You know, you obviously highlighted the share of your outlook that's locked in under these holistic MLAs. How should we think about the sort of activity levels that would be required to push the growth you see above the minimums that you've laid out, you know, the at least 5%. What needs to get you above 5%?
Yeah. Yeah. I mean, I would remind everyone with their U.S. business is pretty large at this point, right? We're talking about a four and a half billion dollar annual tow-tenant billing stream. It is tough to move the needle, and you do very much get into the law of big numbers after a while. I think if you go back to 2016, right after we did the Verizon transaction in 2015, we've probably grown that tenant billings base by about 50%.
At the same time, we've only grown the asset base by about 7%. We've really accumulated a lot of solid organic growth on that portfolio to the point where, you know, it is tough to move the needle substantially, you know, from one period to the next. We get the question, you know, could our 2023 guide get to 6%? it's like, well, you know, you're looking at about $50 million of in-year revenue contribution to do it. With that said, I mean, look, our guide, we're 75% locked in just through the contracted minimums that are going to come to us from the big three plus Dish.
Just because that's 75% of the growth, not 75% of the revenue at the end state.
Yeah.
Okay.
The growth. You know, and here in 2023, we're probably, like I said, 90%-95% locked in. What that does suggest is kind of an ongoing tapering down, which isn't a bad thing. You know, one opportunity for outperformance is potentially striking incremental deals that represent the infrastructure needs at the time.
You know, if you kinda think about what we're trying to accomplish with these comprehensive MLAs when we strike them, it's usually through the lens of what does American Tower know about the infrastructure needs over a determined period of time, and what do the carriers know about their infrastructure needs over a period of time? Usually you have like a good three or five-year view of what that is, and you really don't wanna jump to anything too much beyond that.
Right? I mean, these use fees will begin to taper off. But again, it's not a bad thing whether it goes to a la carte or we find another mutually beneficial type of arrangement. That could certainly be upside to our plan. We also believe densification is gonna be a pretty critical driver to outperformance in our plan as well. With the exception of Dish, largely co-location and activity resides outside of these agreements. Again, it kinda gets back to what do the carriers wanna strike when they have visibility into their network needs.
They probably don't necessarily wanna jump into anything that holds them to a co-location need until they see the densification need pick up over time. We certainly look at that as an opportunity. That's really gonna be driven by ongoing demand that we certainly anticipate happening over the next several years. I think you're starting to see some tangible evidence of what densification needs might look like. I think fixed wireless is really interesting. It's not really moving the needle in terms of densification, I think today, 'cause the carriers are, I think, very much using FWA where they have some spectral capacity. I think cable and different type of enterprises that might need ongoing and evolving wireless needs could certainly be interesting for a tower company, but we haven't built any of that into our long-term plan. I certainly look at cable.
I think Steve Vondran would echo, you know, looking at cable as a potential need, especially as you start to see the MNO and cable competitive landscape kind of merge or get a little bit more gray. I certainly think an ongoing level of densification and just ongoing upgrades could certainly push that target a little further.
You know, when the C-band spectrum was auctioned, you know, there were a lot of, you know, I'd say a view among a lot of folks that over time there would be a real densification need, given the propagation attributes of the spectrum and the need to build out into the different license areas. Are you getting signals from your customers that that's on the horizon, or is that more of a longer-term opportunity for you?
Yeah, when I kind of look at our longer-term guide. We're already seeing a level of densification.
Okay.
Nothing that I would really kinda call out relative to the amendment activity. Obviously, again, Dish is a different animal. We very much think that's gonna be a good catalyst for growth when we get to the, probably the back half of our, of our longer-term guide.
Okay.
I'd say probably looking at the 2025-2027 timeframe.
Okay.
We're already seeing a little evidence of that. I think you're seeing some recognition of that externally among the MNOs as well and some of the deals that they're striking. I think we feel really good. When you look at our portfolio, we've got over 43,000 sites in the U.S. Our largest customer is on roughly half. When you kind of look at all of the big 3, they're on roughly half of those sites. When you start to hear talk of the need for new sites, build agreements, I mean, we really think that's a positive because we have half of our portfolio that we believe is still extremely well positioned to capitalize on a lot of co-location activity.
I think certainly 5G fits right into that. I think when you look at the propagation characteristics of mid-band spectrum, the physics of it, don't ask me to get into it, but the physics of it certainly would suggest a level of densification that we think is certainly on the horizon.
Okay. I think you've indicated that roughly half of the sites on your towers have been upgraded-
Yeah.
to support mid-band 5G.
Yeah.
Where do you think that percentage ultimately goes, and over what sort of timeframe?
Yeah, it's tough to say exactly where it'll go, but I think the vast majority of our sites. I think what gives us comfort in that is, again, these comprehensive master lease agreements that there's an underwriting process that we take with the carrier to get comfortable with the pricing that's ultimately put into these master lease agreements, right? If the carrier thinks they're only gonna do 50% of the sites, but we're gonna charge something meaningfully more, like, the math just doesn't really work out.
I would tell you, based on our basic, obviously our view of what we underwrote in these master lease agreements, conversations we've had with the carriers, and really just the general acknowledgement that the carriers wanna monetize on the spectrum that they've invested a significant amount of money for, we think certainly the vast majority of the sites will ultimately get upgraded, and I think that's probably over the next couple years.
Okay. Now from a churn perspective in the coming years, again, you know, we'll set Sprint aside 'cause that's its own...
Yeah.
-sort of separate bucket. Should we think your churn is trending, you know, towards the upper end of your 2% range or towards the lower end?
Yeah. I think it's probably reasonable, especially given the fact that we're under these master lease agreements and have very good visibility into that permitted churn. I think it's probably reasonable to think it should trend a little bit more to the lower end. I mean, here in 2023, we have a couple of discrete events. We're guiding to about 3% in terms of churn, and Sprint's probably 130, 140 basis points of that. You kind of take the residual, and it's probably more 1.6%, 1.7%. I think there's certainly an opportunity to see that probably trend down over time.
Okay. As it relates to the Sprint churn, should we expect to see some tower decommissionings in the coming years? You know, single-tenant sites that you can take down, save some ground rent, or is that not really gonna be that meaningful?
I don't, I don't think it'll be too meaningful. I think when you look at a lot of our exposure on the Sprint churn, a lot of it's overlap sites, so it's not necessarily leaving behind a cold steel towe necessarily that we would look to to decommission. I think, you know, generally speaking, we've obviously worked through consolidation events globally. You know, we'll typically go through a lengthy assessment to just make sure that the marketability of these sites gives us comfort that it is in our best economic interest to decommission. I think, you know, just in the context of Sprint, probably not a huge meaningful driver. You know, historically, we've probably decommissioned on average about 100 sites annually in the U.S.
You're putting that up against a base of 43,000 sites. I don't think there's anything, regardless, that you'll probably pick up too materially in terms of the like an inflection or a major decrease. It's an ongoing assessment that obviously Steve Vondran and Bud Knoll and his team, you know, do on an ongoing basis to, you know, evaluate the ongoing marketability of site, near neighbor analysis, and ultimately what these sites could present in terms of opportunity in a 5G cycle. If we determine that it's better to take them down, we will. You know, on average, in the U.S., it hasn't been a meaningful driver.
Okay. Okay. You touched on potential, you know, new tenants a few minutes ago. You talked about cable potentially being out there or big tech. I've heard people argue that satellite broadband providers might wanna supplement their service with terrestrial offerings and whatnot. I guess, you know, can you expand on that a little bit and talk about, you know, anything you might be seeing or hearing from those, you know, new potential categories and if there's, you know, any that you think might contribute a meaningful amount in the coming years?
Yeah. Again, it's tough to really pinpoint one of them that's gonna really release visibility to move the needle. It's a very big business, absent one particular player building out a nationwide ubiquitous network. It's probably tough to isolate one, but I think in aggregate, there certainly could be some interesting trends there. You know, we're obviously a small investor in AST SpaceMobile which is a satellite provider. you know, the lens there is, again, one, trying to understand what this technology looks like.
We don't believe it's certainly a competitor to typical terrestrial networks. There's other carriers that are invested or affiliated that, it's interesting how to get their understanding of how they're viewing the technology and their network needs. to get to your point, we also believe there could be an opportunity to support their offering through our infrastructure on the ground as well.
You know, we certainly as part of our innovation and platform extension program, seek to find opportunities to better position ourselves to monetize on those type of events and looking at it from a five, 10, 20-year time horizon. There's also, we believe the opportunity for, you know, whether it's cable, whether it's cloud, you know, we've obviously, and I'm sure we'll talk about it on the CoreSite side, made an investment to better position our option at the edge and monetize our sites at the edge.
I think there's certainly a collection of opportunities, some certainly more capital intensive than others. Obviously, when you look at like a cable or you look at a SpaceMobile, it's probably a more traditional type of leasing arrangement. When you look at the mobile edge, you know, we're still evaluating what that ultimately could look like in terms of our position to win, what those partners might look like, but also the economic profile of an investment like that. It will come down to economics. You know, I think for us, there's certainly a lot of infrastructure in a 5G world that we acknowledge is important, but it doesn't make economic sense for us.
Mobile edge could certainly fall into that category. But we feel certainly with CoreSite, we have a much better seat at the table to kind of evaluate that.
Well, I definitely wanna come back to CoreSite. Let's turn to some of your other businesses. India's top of mind for a lot of folks. You know, obviously, you've been clear that you're looking to sell part or all of that business. It's, you know, been a challenging market over time. You said you'll update us when there's an update, I won't press you on that. You know, I guess, you know, I don't wanna dwell on it and obviously hindsight is 20/20, but, you know, what can you share about the decision to offload that business now?
You know, after you've absorbed so much of the pain and so much of the churn, you know, in an environment where buyers might be, you know, worried about what the outlook is and what they're willing to pay for it versus having done something sooner.
Yeah. Yeah. Obviously very top of mind. We have laid out externally that we are assessing strategic options with our India business. I think our investors have been very patient with the India story, and I think for us, we would've anticipated a level of stability following, you know, probably a three or four-year cycle of consolidation-driven churn. While I'd say the steps that the Indian government has taken over the last probably 18 months is we certainly view as positive. Giving a moratorium on spectrum dues and AGR fees, the Indian government taking on an equity interest in Vodafone Idea, we think that's all essential important. The fact is we are still experiencing a high degree of volatility and just like everybody in the room as they manage their portfolios.
I think from a management perspective, when you have a business that represents a small single-digit percentage of your overall enterprise value, but quite honestly probably represents a disproportionate amount of volatility from one period to the next. I think certainly in this model from a management perspective, we have to decide, is that the right level of investment for that level of volatility?
That's the assessment that's going on now. I think one of the good things for American Tower is we do operate in 25 other markets, and there's a lot of really positive trends also in India. The, you know, the tenant billings profile is improving, but you certainly have to get paid for it. But there's a lot of positive trends across the globe, and we talked about the U.S. We are constructing, you know, over around 4,000 towers a year across the globe, and we did probably close to 7,000 last year. The CoreSite business performing extremely well. So there's a lot of positive stories and there's a lot of opportunities for us to recycle that capital towards other investments. That's part of this ongoing assessment.
I would tell you there's a price at which the opportunity cost or what you're giving up in terms of an IRR might not make NPV or mathematical sense to where you think you can redeploy it. That's part of the assessment and I think we owe it to the investor base to, you know, certainly kind of evaluate the positioning of the India business overall. I think there's a pathway to constructive growth in the India market. We've been able to achieve good gross growth combined with a new build profile. I would tell you the risks have certainly exceeded the initial underwriting and I think, you know, there's a good assessment that we need to work through right now.
Okay. You know, as we look perspectively, you know, are there learnings or takeaways from, you know, from your, from your ventures in India that you've incorporated into your investment process more generally to kind of improve going forward?
Yeah. Yeah. I mean, we do operate a global portfolio, right? We have deployed a lot of capital over the last decade plus, and, you know, certain investments will perform better than other investments. You know, I would certainly tell you that what we've seen in India from an underwriting perspective has underperformed relative to what we initially thought. I think some of it is certainly unique to India. You kind of do the case study on Rakuten and, you know, the greenfield build, giving data for free, the AGR liability. There's certainly some unique elements, but I think there's also elements that, you know, we continue to evolve our underwriting thinking and whether it's an assessment of counterparty or certainly escalator terms. Y ou know, Nick, we've been very keen on making sure we get, inflation-based escalators. That's what we were able to achieve with Telxius.
I would tell you know, our hurdle rates that we establish on a market basis, a counterparty basis, that's always evolving. It evolves with the rate environment, but it also evolves with our evolving view of the risk profile in any given market. What you're seeing today, and really over the last 18 months, is an acknowledgment, I think, from American Tower and our management that based on our perception of risk and our hurdle rates globally, we're not really seeing much in terms of what's attractive in the private market to do incremental deals. That's just part of the evolving, you know, perspective of inorganic opportunities for American Tower. You know, there's certainly learnings that we apply and looking at the counterparty, looking at the market.
We're always evaluating and evolving what those hurdle rates are. What that means over the last 18 months is we're much more comfortable paying down debt, strengthening our balance sheet, where we have capacity to do some buybacks like we did back in the fourth quarter of 2022. We'll do a little bit here and there. You know, there's certainly gonna be a mix of performance in a portfolio, and I think certainly we acknowledge a level of underperformance in this investment. We're running through the process now to evaluate how best to position the portfolio going forward.
Okay. I wanna return to some of those topics you hit on in more detail shortly. Maybe one last on India. You know, as I think about some of the deals you've done in that market in the past, it seems to be a fairly slow market in terms of time from deal signing to actually getting the approvals and closing.
Yeah.
Maybe too soon to tell, but if you kinda had to bracket, you know, what the duration of time would be between a deal, if you were to announce one and when it were to close, is there any sort of timeframe you could share?
It's tough, and it's tough to predict, and it'll depend on the counterparty. It'll depend on a lot of different factors. You know, even us doing some of the put options that we've done over the last five years, those took a better part of a year. Maybe more. I think from the outside looking in, that would have looked pretty straightforward. It's probably tough to predict, Nick, and obviously we don't have a deal to announce, so that makes it even more difficult to predict.
Yeah. Okay. We'll leave it at that then. Let's turn to Europe, you know, which has been a success story in recent years. You certainly scaled that business with Telxius. You know, as you just alluded to a moment ago, you don't see a whole lot from an M&A perspective that looks appealing today. But you've also said over time, you think that's a market where you'd like to put capital to work if you could. Kinda big picture, if you look out over the coming years, how do you see the tower industry structure evolving in that region? I guess, you know, as a component of that, I'm interested in your thoughts on how the captive or semi-captive tower co dynamic that's been popular there kind of plays out.
Yeah. Yeah, I mean, we believe, and you've probably heard Tom and Rod say this, that we certainly believe where the towers are today might not be the final resting spot, right? You've seen a lot of private capital. You still see a lot of captive tower businesses that exist today. You know, ultimately, we certainly believe those will be monetized in time. We believe from an MNO perspective, similar to what we've seen across the globe, there'll probably be some level of attraction to monetize those assets and put towards other core investments. Now, with all that said, I would tell you we're very happy with the scale we have today in Europe.
I think it's certainly a business where scale and relevance really unlocks a lot of incremental opportunities, whether it's build to suit, power as a service, you know, mutually beneficial comprehensive MLAs or just typical MLA structures. I think we've achieved a level of scale, certainly in Germany and Spain, that we're really happy with. I'd also remind everyone, even though there might be opportunities to evaluate portfolios, it doesn't mean we're gonna look to execute on it.
We could certainly evaluate it. You know, we entered Europe, I think, 2012 in Germany, a pretty modest sized portfolio. It wasn't really till Telxius that we found a portfolio that had the terms and conditions that we believe as a true independent tower operator that were sufficient for us to strategically operate the asset. We've evaluated capped escalators. We've evaluated portfolios where the carrier could actually buy back the portfolio after a set number of years, a level of exclusivity on sites. What we got with Telxius was really, you know, some of those more typical true owner economic type of terms. Even though portfolios could come to the market, it doesn't necessarily mean that we're gonna jump on them. It does have to have those same type of terms and conditions.
Ultimately, it needs to be a return profile that we find more compelling to the likes of buying back stock as well. Even though things might come to market, and we do believe there might be some opportunities, we'll probably, you know, certainly always evaluate them. It's gonna have to be a pretty compelling opportunity for us to look to execute, as has always been the case. In terms of how the captive tower market, we believe could ultimately evolve, you know, I think, like I said earlier, we do believe that there's probably gonna be some monetization at some point.
For American Tower, we very much believe that our position as a true independent in these markets does give us a compelling opportunity to differentiate ourselves, whether it's through our capabilities, being a true independent, and having a set of assets that we're freely able to monetize and market. You know, one of the IPs of American Tower is being able to leverage and franchise this model that we've developed globally over the last 20-plus years and a level of expertise, whether it's on the legal side, the operations side, the sales side, and deploy that to different parts of the globe I think when you're able to demonstrate something like that in a new market, whether it's Spain or, you know, significantly build scale in a place like Germany, that's really compelling to a set of MNOs that are operating in a rather nascent independent tower market, but also need to rapidly deploy 5G networks. It adds a different type of co-competitive dynamic for sure. One we're familiar with, and I think one where a true independent can really kind of flourish.
Yeah. I mean, you know, just looking elsewhere, it seems like the trend over a long period of time is towards true independence, so-
Yeah.
-we'll see how that plays out. You know, you've talked a bit, you know, in Europe about the success you've had with, you know, upstarts like 1&1, you know, that you expect to contribute to growth. What do you see more generally from other incumbents after you've purchased the Telxius portfolio and their interest in those assets?
Yeah, I mean, not too dissimilar, I guess, from what you see in other parts of the globe. We're still very early in the 5G cycle. In a lot of ways, it's not that different from the U.S. You have a new entrant that's doing a greenfield build. I think our portfolio is gonna be really compelling, and I think we've made a lot of progress from an operational perspective to move forward the ability to improve that colocation model. It is a, again, a very nascent third-party tower market when you look at a place like Germany.
There is a lot of regulatory challenges in terms of, you know, the process, the permitting process, the EMF process that do add a level of complexities, but we also see that as an opportunity. You know, and we very much assume that in our underwriting as well. I think we're very well positioned to support 1&1 in their build. We did strike kind of that framework agreement with them last year that gives them access to our sites. I think when you look at the incumbents, it's not too dissimilar to what you see here in the U.S. I mean, initially they're gonna focus on upgrading their sites.
There's also a level of regulatory requirements for carriers to focus on, you know, call it like white space or gray areas where there's a level of underserved connectivity. I think the early part has been very much upgrade-focused and regulatory-focused, not too dissimilar here to the U.S. I certainly think over time, we're gonna see a good opportunity from a colocation perspective.
Okay. Terrific. Let's talk about CoreSite a bit, your data center platform. It's been posting pretty healthy growth as of late. It's also been absorbing substantial capital to support that growth. We've seen that, you know, with peers like Equinix. You know, I believe that one of the motivations behind the deal was that, you know, you guys, by virtue of your scale and access to capital, could help to better support CoreSite's capital needs. Are we seeing that aspect of the thesis play out, you know, with your capital availability accelerating growth? I guess more generally, how would you characterize the sales funnel?
Yeah.
-at CoreSite?
I think it's playing out exactly. I would tell you I think our guide here in 2023 is about $360 million of development CapEx spend. It's probably a little higher, quite honestly, than we had originally anticipated for 2023. It's really success-based driven. CoreSite did sell probably, certainly a record level of activity in terms of leasing in 2022, and Q1 of 2023 is another record. It really is success based and making sure that we have adequate capacity on an ongoing basis to meet their typical levels of absorption. It's largely being supported by their own internally generated cash flow. That's kinda more the level of flexibility.
I think we're giving them is, you know, more looking at CoreSite as a standalone business. It rolls up to Juan Font, who spent a lot of time with the CoreSite business and up through Steve Vondran. Really giving them a level of independence and allowing them more in a self-sufficient manner to reinvest their cash flows into development. I think it's working extremely well. The ongoing long-term view hasn't changed. We very much look at CoreSite as a unique opportunity and a very differentiated type of asset with an extremely healthy interconnection business that we think is gonna be critical as we evaluate the edge, however the edge might play out. I think this very much gives us a significantly better seat to evaluate. We have Tom Bartlett and Steve Vondran now with direct commercial relationships with the CSPs, which we didn't have before.
Maybe it does ultimately require us to consider new partnerships. I think our position in any partnership is meaningfully more enhanced as a result of this versus just having a land on the tower side. It could also ultimately, through this evaluation, lead to us saying it doesn't make economic sense either, and that's fine as well. I think at the end of the day, we've underwritten CoreSite on a standalone basis through the merits of their growth profile. You know, at the end of the day, if the edge doesn't materialize the way we thought, we have a great business in CoreSite as well. In terms of the activity today, like I said, we had a record level of leasing in 2022. It exceeded our expectations.
Another record in Q1 of 2023, and the line of sight is still very healthy. I think it's also what's exciting is The type of leasing and the type of enterprises that are contributing as well. It's digital platforms that are looking to improve compute and latency, which I think is an interesting leading indicator for maybe evolving edge needs. Hybrid IT solutions, enterprise digital transformation. The good thing for CoreSite and their differentiated ecosystem and kinda just the nature of the data center business right now, where supply is certainly, you know, or demand is certainly outstripping supply, we can be very selective in terms of who we wanna bring into the ecosystem. That's a great position for CoreSite to be in as well.
You know, I think, you know, CoreSite historically generated, you know, best in class returns at least as I measured them, which I think is part of what made the business so appealing. Are you getting returns and pricing consistent with what pre-deal CoreSite achieved with the business you've been underwriting since?
Yeah. Yeah, for sure. I think again, we can be very, very selective in terms of where we put the leasing as well, just given the dynamics in the market. I think our mark-to-market as well is exceeding kind of that historical range. We've always kinda said from a ground up build, the target for CoreSite would be kind of a U.S. yield of 12%-16%. I don't think that's changed.
Okay. You know, you talked about having CoreSite gives you a much better seat, gives you relationships with some of the folks that might actually eventually wanna deploy edge compute. I guess, can you drill down a little bit? Is there anything, you know, more specific or tangible that you've learned about the opportunity by virtue of having those relationships, or any, you know, kinda green shoots that you can point to that strike you as encouraging?
Yeah, probably nothing overly tangible at this point, Nick. We are doing a deployment, kind of a pilot deployment of a aggregation edge data center that you've probably heard Tom talk about on the call. That very much leverages the capabilities of CoreSite and also o ur U.S. operations team. You can imagine we're in constant discussions with the cloud service providers and other enterprises on what that ultimately could look like.
I think in terms of really tangible evidence that this could lead to X% of revenue, I think it's probably too early to tell, and I would just reiterate to everybody, we're gonna be very disciplined in terms of thinking about how much capital we wanna put towards this. You know, if you do start to think about each incremental deployment, I mean, it is capital intensive, and ultimately it could require new partners, both strategic or financial.
It's gonna certainly be economic driven. I think right now the best thing for CoreSite and for American Tower is, you know, the likes of Tom and the likes of Steve being able to have that direct conversation, and especially when we start looking at a speed to market type of aggregation edge deployment, that's very critical as well. We already have access to the land. We already have power. We already have fiber. There's a very much a speed to market value proposition that we're able to give as part of these deployments. I think right now we're ultimately still evaluating what that model will look like and is it something we can scale, and is it something that ultimately yields more attractive returns than other areas that we could put capital in the business?
Okay. Okay. Now I wanna ask a question about Mexico, which is a pretty interesting market. It was your first international market. You've had a lot of success there over the years. It also feels like the market has changed a bit over the last several years. You know, Telefónica went to a model where it's migrated to AT&T's network. América Móvil works with its, you know, again, sort of captive tower co. You've got Red Compartida, the wholesale network, you know, which went through a reorganization. Its viability is sort of questionable, I guess. You know, in light of those factors, how do you feel about the underlying leasing potential in that market? You know, has it really changed much? Do you think it's gonna be as healthy as what you see in some other regions?
Yeah, no, it's a good question. What we're working through right now in 2023 and what we worked through a bit in 2022 is a level of consolidation-driven churn. You know, if you kinda take a look at LatAm in general, I think our guide, we're looking at greater than 2% growth, and a lot of that is influenced by a level of elevated churn in the market. At a LatAm level, we're probably greater than 8% churn. We do view it as peak churn, 2023.
You know, probably 2.5% of that is Oi in Brazil, and I'd say a pretty good amount of the remainder is Telefónica in Mexico becoming an MVNO on AT&T's network A level of decommissioning on the Telefónica side, for which we get a level of settlement revenue, one-time settlement revenue that represents their, kind of a present value of their future obligations that they have with us.
You know, probably over the last five years, I would say leasing has been really solid in a place like Mexico, and it's come through the Altán wholesale network, a level of leasing by Telefónica. Obviously AT&T coming in and taking over the Nextel assets in the market. We have had a period of, I would say, pretty strong growth, and I'd certainly say it's going through an evolution now. 5G has been a little slow to come to the Mexico market. It's not there yet.
You do have AT&T integrating the Telefónica network. You do have Altán that's emerging out of the kind of the equivalent of a Chapter 11. I think we certainly need to see how those play out in terms of giving more of a concrete view. I think we're, you know, from an American Tower perspective, I think we're probably in the later innings in terms of the consolidation churn. I think once we get past 2023, we'll start to see that subside in a place like Mexico. There certainly is a level of subdued growth, I would say, from a colocation amendment perspective today. I think it's gonna be certainly dependent on the longer-term strategies for some of our carriers, obviously. I think right now, we'll work through the churn.
We do have CPI-linked escalators that give us a level of economic protection in a market like Mexico. And we'll work very closely with the likes of AT&T and, obviously, Altán, who, you know, has successfully come out of their process and, you know, was paying throughout the process. You know, I think there's certainly a lot of momentum and support for that to be a successful investment from a government perspective. We're there to support them.
Okay. Now I wanna touch on capital allocation and something you alluded to before. You know, you wanna get your leverage down to, you know, at least five turns or so.
Yeah.
That's your number one priority right now. You've said the M&A market doesn't look terribly attractive. Barring a shift in the M&A environment, does that mean we should expect a meaningful uptick in repurchase activity once you get to your target leverage ratio?
Very well could. The way we're viewing this, just to reiterate, we are very much focused on deleveraging down to the sub 5 x over the next, call it, 24 months. That's not just something we hold to from a financial policy internally, but something we've committed to to the rating agencies when we did the Telxius and CoreSite transactions. We're laser focused on meeting that. It doesn't necessarily mean we have to get to 5 x before we can evaluate share repurchases.
To the extent we feel comfortably beyond that trajectory, we could certainly deploy it opportunistically, and we did that to a pretty modest level in Q4 of 2022. I wouldn't point you to probably, like, a multi-billion dollar program, but probably a little bit more opportunistic between now and then. Ultimately, when it comes to $1 of debt repayments or share buybacks, it's where do we think we can get the best yield. I would also tell you it very much depends on where do we think we're optimizing our weighted average cost of capital.
We're doing an ongoing assessment of what's the most appropriate targeted net leverage. What could that mean from a ratings agency perspective or a ratings perspective? What could that mean in terms of better cost of capital? Trying to put that puzzle together to say, where are we optimizing our WACC which ultimately supports where we're optimizing our value, right?
You know, I think it's kinda tough to say exactly once we get to that 24-month period or, you know, couple-year period, what that math will look like, but that's just how we're constantly evaluating, you know, looking to accelerate the deleveraging path or whether or not we find share buybacks more attractive. I think what I would very much emphasize to the group is what Tom and Rod have stated as well, we see far more value in our equity than anything that's crossed our desks from a private deal perspective externally.
You know, we kinda joke internally, if a deal kinda crossed our desk that had all the characteristics of American Tower and leading U.S. position and global diversification and a differentiated data center platform, and it traded at this multiple, that'd certainly be the best deal that would cross our desk. You know, whether you kinda look at it up through the lens of using our equity as a currency to buy a more subscale type of portfolio or, you know, through the lens of, you know, we would just much rather buy back stock. Either way, the opportunity cost for our equity right now just doesn't make financial sense.
Yeah. Got it. We've got a couple questions from the audience that they kinda fit together that I wanna ask you. I'll kinda preface it, you know, by observing that in the U.S. market over time, I think as people have figured out towers are a good business, and the carriers have figured that out too, you've seen developers willing to construct at lower yields. You've seen sellers expect higher multiples. You've seen more investors willing to bid up for it. It's made, you know, it's generally made M&A more challenging. It's made new development more challenging, at least to achieve the sorts of returns that you guys target. One question asks about, you know, the gap between what you see in public and private markets in the U.S. today.
The other is, you know, sort of a new development where one of your large private competitors or sort of private peers, you know, struck an interesting deal with Verizon, you know, a week or so ago, where there's sort of a profit-sharing component to new developments. Maybe talk about how you guys kinda reacted to that and if you think it affects you at all?
Maybe to the earlier one in terms of the public-private. We still see a pretty substantial gap. Like, every deal is gonna be a little bit different. You know, I think for AMT, we have a leading U.S. presence. We have over 43,000 sites. I think there comes a point where if you look at 100 sites, does it meaningfully change your relevance in the market, your scale in the market? Probably not, right? I think that's for us to really kinda evaluate something at a premium multiple, it would have to meaningfully augment our positioning in the marketplace.
I think as you guys have seen, our positioning has very much afforded us the opportunity to execute on comprehensive MLAs. It's a very critical network or distributed portfolio for the big three plus Dish. I think we've proven that with what we've done and the growth that we have communicated externally. We think it'll be critical as we evaluate the mobile edge as well. I think from a scale perspective, we feel extremely good about our U.S. business. It would have to be a very compelling strategic opportunity for us to probably justify, you know, leveraging our equity to do a deal. I would just very much reiterate we don't see that right now.
In terms of the deal that you talked about, I'd certainly leave it to Verizon and the peer to talk more about it. I think this isn't anything new. We've always seen the carriers diversify their vendor relationships on the new build side. It's not something we feel we have to do. And I don't know the terms and conditions that they have, so I'm certainly not gonna weigh in there. I think at the end of the day, it's a good demonstration or illustration of the need for new cell sites in a 5G world.
I think there's certainly a positive to take out of it. I think the carriers are evaluating, and it kind of fits right into the thesis that we've talked about, that there will need to be new cell sites. There is gonna have to be new colocation. You know, I don't think they put a volume target on there, so it's tough to say exactly what magnitude this will all kind of look like. I think it's another good piece of evidence that, you know, densification is gonna be critical in a 5G world.
Working with different type of developers, I mean, we've seen it through the last five to ten years. I think everybody knows in the U.S., we don't really construct a lot of sites. It's like 25 a year. This doesn't eat into a 2,000 build program that we otherwise would have thought we'd had.
Got it. Listen, we're just about out of time. Are there any, you know, closing thoughts or messages you wanted to share with the group?
No, no. I certainly appreciate everybody's support. I think, you know, we're really excited about the growth that we're seeing across the business. Record levels of growth contributions in the U.S. from colocations and amendments. You know, ongoing ability to execute on a very accretive and solid global or international new build program. Record levels of leasing that we've experienced since really closing the CoreSite deal. You know, I think our focus at this point is to operate those assets, focus very much on the cost side. We didn't get into the cost side too much, Nick, but I think everybody is...
I've been with the company for 13 years, this is, I think Q1 is probably the first quarter I can remember where we didn't really have a lot of M&A that kind of in the prior period, in the current period, that, you know, skewed margins and growth profiles. I think everybody sees we're absent M&A, we're now we're, we've always been focused on cost, but it's very much becoming apparent. When you look at our guide for 2023, it's flat SG&A. I would tell you Tom Bartlett is very much holding us, as he always had, to a very disciplined and critical cost structure, and I think that's gonna continue.
What it results in is 100% conversion rates of our top line growth like we had in Q1, really healthy margin expansion, and it's really demonstrating those inherent best benefits of the operating leverage in a tower business. You know, we're very excited internally, and just given the leasing growth that we have across multiple portfolios and really driving that down to the AFFO level.
Great. Well, thank you, Adam.
Yeah, thanks, Nick.
Appreciate you joining us.