Before we begin, disclosures are available at the registration desk. For those of you that I have not yet met, I'm Mike Rollins, and I cover communication services and infrastructure for Citi. We're pleased to welcome Rod Smith, chief financial officer of American Tower. Rod, thank you so much for being with us today.
Hey, welcome. Nice being with you, Michael, and thanks everyone for attending.
Great to see you. Maybe just to get us started, what are the initiatives that are most critical for American Tower to enhance financial performance and shareholder value? Not just for the remaining few months of this year, but as you're just looking out over the next couple of years.
Yeah, it's a great place to start. Certainly, American Tower is a leasing business, a run rate business, so in the near term, we're in really good shape to hit our outlook for 2026, certainly. We always constantly think longer term than that. Being a leasing contracting business, contracts are very important, so we take our time with contracts. We make sure we get those right.
They are not necessarily a here and now type of decision. It is about what is happening with the networks in one year, two year, three years down the road. Even longer term, we have a great set of tower assets in the U.S. and Europe, complemented by some emerging market assets, high quality assets in the right locations that are critical to the future networks, wireless networks, really broadband networks around the world. So protecting that value in the contracting is certainly very important. We do see a few catalysts when you look out over the next few years. You heard Steve talk about those on the call recently.
The 5G networks in the U.S. have been deployed. We enjoyed the amendment cycle through that, and now most the carriers are 90%, 95% coverage with the 5G networks. As applications become available and bandwidth goes up, they will come in and densify those networks. They will be adding capacity to their existing cell sites, those will be amendment cycles for us, by and large. They also will likely turn to densifying the network, which is adding co-locations into their network, so new antenna arrays on towers that they are not currently on. Which should be a revenue enhancement, a revenue cycle for us as well.
We do see evidence that build-to-suits in the U.S. are going to be going up. They are going to need to build new towers in the U.S. so that they can use the higher band spectrum across the U.S., filling in places where the high band spectrum today does not reach. That could be an amendment cycle, or a revenue cycle for us over time. So, being well-positioned to make sure we can execute and be in a good position to monetize some of those activities is certainly critical. Another catalyst, we see new spectrum coming down the pike over the next few years on a pretty well-set schedule, almost 800 megahertz of spectrum. As that spectrum gets acquired by the carriers and deployed, those are amendment cycles for us certainly.
6G is, I want to say it's right around the corner. It'll be coming later in this decade. But the one thing that never sleeps, never slows down, never stops, is technology development. It will be coming on different spectrum with different types of equipment and we're in a really good position with the assets we have around the world to monetize that. And the fourth catalyst that I would highlight here is AI. Not only is it going to change the way we all live and work and communicate and play and entertain ourselves and each other, it fundamentally will change the way the wireless networks work. It'll require the asymmetry that's built into the networks today, which favors downlink. In an AI world, the machines will be sending us data through the uplink-
more so than any other technology in the past. That'll be a fundamental shift in the networks that'll have to be built into the networks, which again, should be amendment cycles for us over time. So we think there's a lot of demand yet to come for our business. We are really well-positioned to execute on that, not only in the U.S., but in Europe and other parts of the world.
And we have the data center business, which is a highly interconnected cloud on-ramp centric network dense set of assets that also benefits from these new technologies. And the fact that humans will be consuming more and more bandwidth over time. That is another constant on the planet, which is, people just consume more and more bandwidth. And with our CoreSite assets, the really well-positioned, high quality tower assets, we are in great position to execute on that. And with all that said, I would say, we do see 2026 as a trough year in terms of organic tenant billings growth on the tower side, as well as-
Global?
Yes. Not individually, but in total.
You add it all up, we see that inflecting up in future years. One of the reasons is primarily the absence of the Dish churn going forward. Not only the absence of the Dish churn, but consolidation has happened a lot around the world, and we think churn. On average, over time, the consolidation of our global portfolio is coming down. That means organic tenant billings growth is going up. That's a really important fact for us going forward. Not only do we have these four major catalysts that complement our high-quality tower assets, we know we're going to have less churn across the globe. Again, not in every single region, but when you put it all together, when you have the absence of the reoccurrence of Dish churn and the healing that is happening in Latin America, we're seeing churn elevated this year and last year.
That's going to improve, in our view, as we head into next year. The contracts we have in Europe really are churn-light on a contracted basis. So there's stability there when you think about the churn. In Africa, the primary revenue we have, 90% of it comes from the two big carriers across Africa. They're building a lot. They need to cover more ground, not less. Churn is unlikely to materially change from where it is. Could we have some of the smaller customers here and there go away? But when you add it all up, the reduction of churn in the U.S., the stability when it comes to churn in Europe, and the reduction of churn in Latin America, that is a really good backdrop. Then we have the CoreSite business that's growing double digits. We're investing more capital into it.
You put all that together, and we are really well-positioned globally to have 2026 be a trough year and accelerate into 2027. I would say, when you think about the changes in the world in these networks, that's a pretty good start to the next several years. So we feel pretty good about the future.
That should trickle down to AFFO per share growth that can also accelerate?
Yeah, it absolutely should trickle down, and in some cases, even be enhanced.
When you think of the revenue growth expanding, because of the lack of churn and the stability in the new business, much of that will automatically, through high conversion rates, expand margins.
We are also actively looking at operating expenses and controlling those, reducing those. I think most people will know we have a new position in our company of Chief Operating Officer globally, really looking after the way we care for our sites, the way we deploy our sites, the way we run our business, even the way we contract and process leasing around the globe to make it more efficient and to add basis points.
to our margins, to unify supply chain, and to be smarter about the way we procure things globally to get the best deal. There is room there to reduce expenses. At the same time, we are adding high conversion rate revenue. We are looking at 200 basis points- 300 basis points of margin expansion in the tower business over the next couple of years.
When you look at the big markets that you operate within globally, you mentioned how consolidation has kind of played out quite a bit.
Yep.
Are there any risks left that there could be more consolidation of your carrier customers in certain markets that maybe we are just not anticipating today, whether it is in Europe? U.S., I think, as you described, has played out. But markets that some of us may be less familiar with, Africa or different markets that you operate within in Latin America. As you survey your markets, is there anything significant that we should be mindful of as we look out over the next few years?
Specific to consolidation, I would say no. That is the U.S. is pretty stable.
Three primary carriers, unlikely to really change from that perspective. In Europe, there will be carrier consolidation, without a doubt. We are somewhat exempt from that, immune to that, because our revenue is primarily contracted with Telefónica. We have very little exposure to FSR in Europe and others. We think that when you look at the tower companies in Europe, we are more protected from a consolidation perspective than most others, certainly. When you look at Latin America has gone through a lot of consolidation. In the big areas in Mexico and Brazil, that has happened.
Could there be some small stuff happening in our other markets? There certainly could be. It would not rise to the level of being material to the overall footprint of our company. Brazil has gotten itself down to three carriers. We think that there is healing there that has happened and will benefit from in the future. Mexico is in a similar space. The one risk that I would highlight there is the arbitration with AT&T Mexico and us ongoing. I think people are familiar with that. That arbitration is in process. We may have decisions there the end of this year, maybe even into next year. That really was a dispute around the way the parties calculated rent increases. We will just see what happens there.
When you are in an arbitration, getting through the end of that, seeing what the result of that is, having that behind us will be a good thing. In the meantime, we do not know what the arbitrator will decide, and when it is decided, we will implement it. I will tell you, they are paying us directly most of the revenue. There is a holdback that they are putting in escrow.
It is like 20%.
They are reserving about $8 million a quarter, $40 million this year, $30 million last year. So we have $70 million already reserved. To the extent that that reserve is needed post-arbitration, that will be a benefit to us. Then we will see where the arbitration comes out, if there are any changes to the way you calculate rent increases through the contracts. We feel good about it. We do not think we should lose that by any stretch of the means, but just to size up kind of the relative potential impacts there of what we are talking about.
As the buy side looks to 2027 and just thinking about setting expectations for 2027, until you have resolution, is that $40 million just drawing it straight across into 2027 and future years as good of any assumption until you have a finality?
Yeah, I think so. Until there is resolution. We will give guidance for 2027 out in February. By then, we hope to know and build everything into guidance. Outside of us providing guidance, outside of completion and resolution of the arbitration, I think what we are doing today is what we would expect to continue to do. If there is any change in that, we would update people, and you would all know what we are thinking.
Just one last thing on this, because this has been something I have been wrestling with, and I know it is not a huge amount of total revenue for you that is being reserved, but because it is just a formula issue, is there a much wider set of outcomes, or are outcomes more narrow because it is just definition versus the actual integrity of the lease?
You may be asking the wrong person, because I'm not one of the people presiding over the arbitration. They get to decide.
Okay.
We have the obligation to show up and make our case. If you ask me, I think the outcomes are very narrow and in our favor. The contracts are clear. When you're in an arbitration process in Mexico, they'll decide, we won't. We'll have to just wait and see what they decide, but I think they should be a narrow set of outcomes.
Super helpful. So maybe backing up now to leasing. You talked about the opportunity for the organic tenant billings growth rate to improve.
Yep.
I think the question that we get is the conviction that leasing continues at a solid pace going forward as investors are contemplating the maturation of networks, the software upgrade ability of networks. You shared some of the reasons why you believe leasing continues at a solid pace. Can you help unpack that a little more at a high level, and then we'll drill, of course, down into the U.S. and maybe some of the other markets?
When you think about our organic tenant billings growth outside of the Dish churn number, it is really made up of two components. It is the annual escalator in the U.S. that is fixed at 3%.
Yep.
Outside the U.S., we are inflation protected, by and large, across the portfolio, with very few exceptions. Then it is the new business activity. That new business activity is underpinned really by the carrier investments. They are making those investments because of the growth in mobile data consumption and their desire to keep their subscribers and even add to them. So there is that network quality and competition that is happening. The carriers invest $30 billion- $35 billion a year into the network. They do not disclose, but a fair amount of that goes to the wireless networks, and a fair amount of that ends up at the tower sites, and a lot of it is up in the towers. So that is a function of keeping up with the growth in mobile data consumption.
I think we probably all agree that growth in mobile data consumption is going to continue. That is what we believe the carriers will continue to invest in it. They are going to be putting more things on the towers in the form of additional antennas, additional radios, and more cables. Sometimes that will be in support of new spectrum, sometimes it will be reusing existing spectrum more frequently, and they will have to densify the network. So that all underpins 2.5% contribution from new business into our organic tenant billings growth is what we are seeing this year. It is what we saw last year, if you exclude Dish completely. So their contribution is excluded. The other guys were 2.5%. We expect that to continue.
The investments in the growth in mobile data require the investments, and that really underpins that 2.5%. That is 2.5% plus the 3% escalator in the U.S. puts you at 5.5%. Absent Dish, we are running about 1% churn. Our target is 1%- 2%. So 5.5 less 1% churn, you drop into 4.5% organic tenant billings growth. That is a number that we think mobile data consumption growth in the U.S. requires that is somewhat consistent. Then some of those catalysts we talked about a few minutes ago could be incremental over time.
Those are-
Upside
Spectrum
It's new spectrum.
Yep.
It's wholesale densification of the network.
Certainly, AI workloads finding their way into the mobile devices, which I believe will happen. Sometimes we won't even know it's happening. It will be happening behind the scenes where you may have connected glasses uplinking to the networks constantly, with massive amounts of data. That is potentially over and above kind of this 2.5%. If we drive a mid-single digit organic tenant billings growth in the U.S., we know CoreSite is going to be growing much faster, double digits.
Not only that, it will be probably expanding the percentage of contribution it makes to our attributable AFFO. So it will be getting bigger. Europe grows faster than the U.S., just given our portfolio there and the cycle we're in. Europe, Africa is growing high single digit, double digits. It won't always do that. Sometimes there will be a problem, but in general, it will grow faster than the U.S. Latam is recovering. We're working on operating expenses, and our revenue is at a high conversion rate. We should be able to grow AFFO per share at that mid to upper mid-single digit rate over time on average. The wild cards there, what's happening with FX?
What's happening with interest rate headwinds. If you exclude those two things, should our AFFO growth be up in the upper single digits? Absolutely. If we include those things and we're working through a cycle where we're still growing into the higher interest rate environment, that's 100 basis points of headwind, typically. FX is typically some devaluation, maybe another 100 basis points. Do you end up in the mid-single digits, higher than 4.5%? Maybe, on an AFFO per share basis. That's where we say AFFO per share mid to high single digits is achievable to us before FX and interest rates.
There will be a time when interest rates won't be a problem like it will be. That will make us more likely to be in the upper single digits consistently. There will be times like this year where FX is a tailwind not a headwind. That will accelerate us into the upper single digits. When FX and interest rates are a headwind, we probably dip back into the mid-single digits. That's the way to think about it.
Is there a scenario that you could foresee where you could get back to double digits?
We consistently say mid to upper mid single digits, and I would leave it there.
Okay. Of that 2.5% of activity in the U.S., in the past, you have talked about, early on, when you, a few years ago, set out this multi-year outlook.
Yep
There was more of it that was committed through comprehensive agreements.
Yep.
Over time, that comes down. So implicitly, your customers are electing to spend more with you on an annual basis if that percentage is coming down. Where does that sit today, and does that also foreshadow new comprehensive opportunities with your carrier customers?
Yeah, I would say at the outset that we are agnostic about the types of contracts that we actually enter into.
Just to level set, we have master agreements that govern terms and conditions across our portfolio with most of our big customers. Then we execute individual site licenses on a site-by-site basis. Sometimes that is priced off a price sheet that has the ability to change rapidly. The alternative is we have the holistic agreements we refer to, and where that eliminates the need to negotiate a site license one at a time. They have access to our portfolio in the U.S. to use the sites the way they intend to. We grant them certain use rights that are specific, and they pay us certain fees, and we can average that out over time. We have had more of those in the past. Some people have come out of those. They may go back in, and they may not. We do not mind either way.
The real benefit to the holistic deal is it accelerates the speed of deployment for the carriers. It makes the process more administratively efficient. When they are not in a holistic deal, they have to go site by site. It takes a little bit longer. The economics should not be materially different. They can change a little bit quarter-to-quarter and even year-to-year because we can smooth things out. But we grant them use rights. Those use rights are specific. They are priced up against the price sheet, and that is what they pay us, and we average it over time. So either way, it should have the same economic outcome. The holistic agreement gives us more stability-
in terms of that period. They are contracted. We know what it will be, and it is what it is. On a la carte, that could go up and down a little bit depending on their actual deployment cycle quarter to quarter and even year to year, which can change from time to time. Over the long term, there probably is no impact from a timing perspective because growth in mobile data consumption does not ebb and flow the way the carrier's bill plan might. As long as that is continuing to grow, over time, they have got to make the investments. They could do it this quarter, or they could pause, and they could do more next quarter, or they pause this year, and they do more next year. Over time, it all works itself out. We are agnostic in which deal we get.
I would point you back to those catalysts. Those catalysts will come. It does not matter if we are under a holistic agreement or not. We will monetize much of that.
In terms of the lease applications and activity that sits behind all of this.
Yep
Is that also supportive of the trends that you are discussing?
Yeah. I would say, we've seen with the deployment of the 5G cycles, we had a peak in application volume a couple of years ago. That has come down a little bit. So application volume is down a little bit. Our services business this year will be lower than it was last year.
That's evidence that the application volume has come down a little bit. Then I would say the catalysts that we're talking about are multi-year catalysts. We don't necessarily see that activity in our pipeline today in terms of applications, but we expect we will over time.
Just one more thing, because I know people focus on this. When you say come down, is that come down year-over-year or come down from the peak?
It has certainly come down from the peak, and depending on which year you talk about, by definition, it's come down year-over-year. But we do think this year with application volume, services revenue, and that $245 million of revenue down from $345 million. That's a lower application volume than we saw in the prior year.
When you take a step back on the spectrum catalyst, one of the questions that comes up is the upper C-band auction next year.
Yep.
At least as it exists today, you can deploy equipment whenever you want, but a lot of it won't be able to be used till the end of 2030 and the end of 2031. From the work that you're doing and your customers are doing, do you see any evidence that that could be pulled forward and see that maybe sooner?
We're not planning that that'll be moved up, pulled forward, deployed sooner. It doesn't mean it can't be.
Really, we're not involved in the clearing of the spectrum and making it available for the carriers. That'll happen when it happens. What I would say is that broadly will fit into their $30 billion- $35 billion a year investment cycle. They'll continue to deploy that level of capital, whether that spectrum is accelerated or not. There's plenty to do within the networks. And I would say that the network operators are very methodical, and they plan well in advance, so they have their build plans for this year, next year. They tweak them, and they change them, and priorities may shift a little bit. But they all know they're going to be improving the networks. They're going to be adding capacity into the networks. They're going to be densifying.
They will be doing that regardless of the new spectrum being accelerated in terms of available or sticking to the schedule that happens today. They will adjust that. That is one of the things that is noticeable, is the carrier CapEx investment is traditionally pretty consistent. Then with new technologies, it steps up. It does not go down. It steps up. In the very early stages of new technology development, you could have a bump up. Then it pulls back. It pulls back to a higher consistent level than the prior technology required consistently. That is what we see, and that is what we are seeing now. So whether that spectrum is accelerated in terms of its availability or not, we are comfortable that mobile data consumption goes up, carrier investments stay fairly consistent, our growth rates continue to chug along.
Do you ever see a pause? So with a potentially significantly sized auction coming up, carriers not knowing what they are going to spend on that, do you ever see them pause ahead of the auction or after the auction? Anything that we should be mindful of that could just add a little opportunity or friction to the cadence?
Yeah. There certainly can be a little bit of that. When you think of the carrier activity, it really is for them to outline. But the way they interact with us, it is not consistent quarter-over-quarter, every quarter, year- after- year.
Yeah.
They do have the ability to plan and move things around. Over a multi-year period, things become much smoother, certainly. Yeah, and I would say today we are at a post 5G deployment. You could look at that and say part of that is maybe a little bit of a pause ahead of some of the new push of investments to get the networks to support the uplink capacity required to fix that asymmetry in terms of the uplink, downlink, as well as just getting ready for that demand that is coming across the networks.
Maybe talk a moment about satellite, and just a preview, we will also try to hit capital allocation and talk maybe a little data centers. Satellite, how do you see the risk of LEOs and Starlink displacing the need for carriers to have certain locations, particularly in rural areas, relative to the opportunity of seeing LEOs as potential customers?
I see the risk of displacing towers as immaterial. It is not something we worry about. We certainly spend time evaluating satellites, the engineering, and how it impacts things. We have a seat on AST SpaceMobile satellite company. We had for years. We are an investor in that company. This goes way back, but we used to own satellites. I do not know if you recall that. 25 years ago, American Tower had satellites in the sky. We know the business well. It is a good technology. It is getting better, certainly. And it is important, and it is complementary to the-
terrestrial networks, not just in the U.S., but really around the globe. There are capacity limitations. It is more expensive than terrestrial networks. The latency is not there the way it is in terms of the terrestrial networks. It is great to extend coverage to rural areas. We are not concerned with that from a tower perspective. I think that is actually a productive thing for the industry and for tower companies, not building assets in rural areas that have different return profiles than other assets. We have lots of assets in suburban areas, and approaching the urban areas. With the co-location cycle, the network densification, new towers being built, we would rather build them there than in rural areas.
If there are some rural sites, which there may be some that the carriers over time do not renew because it can be satisfied, and their customers are not upset if they are not there, that is better for everyone, including us. We will take those towers down if and when that comes. It will be an immaterial impact to our business, and it probably will be positive, not negative, because you get out from under carrying costs, leases, and other things for sites that really are not that important in the wireless network in general. We can recycle that capital into suburban areas and more urban areas where you get multiple tenants and more growth, more revenue for the carriers. They are willing to pay a lot more for the leasing fee. I think it is a good thing, kind of across the board.
In satellite broadband delivery, we just do not see it as a threat to the tower business at all, and we see it as a complementary business to the wireless carriers in general.
A few more things to hit, actually. Maybe we will do a little bit of a speed round. Litigation, anything new on the process with Dish Network? How much are you seeking, and when do you think that could be resolved?
Our process is ongoing. We want it all. We'll just work through the litigation. Much of the milestones, the formal results from that, even the steps along the way, will be public. People can go out and search on that. We are not going to talk about things that are not public when it comes to litigation. But that litigation is ongoing. The key for us is that everyone knows we have de-risked our business when it comes to Dish Network. We have zero revenue and profit in our 2026 outlook from Dish Network. It is hurting our growth rates this year. You all see that. It will be non-recurring next year. Our balance sheet is de-risked. We are not planning to collect anything from a balance sheet forecasting perspective.
Anything we get from Dish Network, which we do think we will get a settlement there, we are certainly entitled to it, and we will see what the litigation decides, will be additive to the balance sheet. We may be able to pay down some more debt than we are planning to today. We might have less interest expense next year because of a settlement that we are not planning for in the balance sheet. We have completely de-risked our business for Dish Network, and there is only upside remaining.
Is there a number publicly in the bankruptcy filings that kind of puts a number on the amount you are seeking from them?
No. You can think about it as they owe us between $1 billion-$2 billion in terms of a net present value of the future leasing. When you think of the escrow agreement that was forced, our portion of a recovery there might be $500 million or $600 million, in that range. Those are two different aspects.
Would they want to pay more than what's in the? Probably. Less than what's in the escrow? They probably would. We want what's in the escrow that should belong to us, but we also want a lot more than that. We want it all.
Yeah.
Those are the numbers I think people can think about, right? $1 billion-$2 billion is
what they owe us. From an escrow perspective, it's much less than that. Maybe $500 million roughly, just roughly speaking. Is there wrangling in the lawsuit for them to even pay us less than that? There absolutely is. That's kind of just ballparking and giving people some way to conceptualize the array of potential outcomes.
Cap structure and then data centers. Cap structure, your leverage is significantly lower than your two competitors.
Yep.
You've hit your under 5x target. What's the opportunity to use this additional financial capacity to buy back shares, to think about opportunistic M&A? Or do you think AMT will stay at this lower level for longer?
I would say from a balance sheet strength, the size of our company, the momentum, the critical positioning that we've put ourselves in, we view ourselves as a leader, not a follower. We're not looking to follow other people on a balance sheet management perspective to increase leverage. We say 3x-5x because that's what we believe that's our comfort level.
Being in the upper 4s is where we really sit. Being below 5, but higher than 4.75, that's a comfortable zone. That zone gives us a BBB+ credit rating. And we want to be the leader. We're not looking to be the follower.
Got you.
We've said that being below 5x returns full financial flexibility to us. That means we can buy back shares, and you've seen us do that over time, and you'll likely see us do it again if the shares are in a place where we think using that capacity then and there makes sense. M&A, we look at M&A all the time. Yes, we can do M&A. If we do M&A, in the past, we've gone above our target range in terms of leverage to execute the M&A, relying more on lower cost debt than higher priced equity, and then we de-lever. So being below 5x is not a long-term handcuff that doesn't prevent us from doing things. It actually, in a very disciplined way, preserves capacity that we can flex up, and then committing to de-lever.
It makes it really important that what we decide to flex our muscles on actually works out really well because we can flex up. But we have to also de-lever because we want to be the leader when it comes to the business quality, the balance sheet quality, the credit rating, the size of the company that we're building. We don't want to overload the balance sheet with risk. That's why we're also focused not just on balance sheet quality. We're very focused on earnings quality. We want a higher percentage of our earnings coming from the highest quality economies underpinned by the highest quality, credit quality customers. That means we want the riskier parts of our business to contribute less to the earnings, so earnings quality goes up. Balance sheet quality goes up.
We lead from both of those perspective, and we have the ability to flex our muscle when and where we find the right opportunities with a commitment to relax and to de-lever, which we always do.
Rod, that brings us to time. It's great to see you. Thanks for spending time with us today. Thank you.
Nice seeing you. Thanks, everyone.