American Tower Corporation
Q4 2014 Earnings Call Transcript

Published: 24 Feb 2015

[Operator:]

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower’s Fourth Quarter and Full Year 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Leah Stearns, Senior Vice President, Treasurer and Investor Relations, you may begin your conference.

[Leah Stearns:]

Great. Thank you. Good morning and thank you for joining American Tower’s fourth quarter and full year 2014 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab on our Web site. Our agenda for this morning’s call will be as follows. First, Jim Taiclet, our Chairman, President and CEO will provide opening remarks. Then, Tom Bartlett, our Executive Vice President and CFO will review our financial and operational performance for the fourth quarter and full year 2014, as well as our outlook for 2015. And after these comments, we will open up the call for your questions. Before we begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2015 outlook and future operating performance, our expectations regarding our pending acquisitions, future growth, industry trends and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in yesterday afternoon’s earnings press release, those set forth in our Form 10-Q for the year ended December 31, 2014 and in our other filings we make with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances. Please note that any reference to our international segments, organic core growth during today’s call will exclude the impact of pass-through revenues. Given our ability to now capture and report pass-through on a site level basis for the full year 2014, we will be excluding it from our reported organic core growth metrics starting in the first quarter of 2015. In addition, this morning we announced our intention to commence an offering of common stock in mandatory convertible preferred securities. Due to securities laws, we are precluded from answering any questions related to these offerings on this call and respectfully request that you focus any questions to our earnings-related material. With that, I’ll like to turn it over to Jim who will discuss our long-term strategy in more details.

[Jim Taiclet:]

Thanks, Leah, and good morning to everyone on the call. 2014 was a record year at American Tower, a result of the attractive locations and characteristics of our assets, the strength of our customer contracts and relationships and solid operational execution. Our rental and management segments generated over $4 billion in revenue for the first time in our company’s history and delivered double-digit growth across all of our team metrics including organic core revenue, rental and management revenue, adjusted EBITDA and AFFO per share. The cash flow generation of our legacy assets combined with our disciplined approach to inorganic growth also enabled ATC to sustain return on invested capital at the 10% level. Last quarter, during my prepared remarks, I highlighted the industry trends that are developing across our served markets. Today, I’m going to review American Tower’s longstanding fundamental strategy and provide segment performance data that clearly demonstrates the sustainable performance being delivered by the execution of that strategy. Turning to Slide 5. When I came to American Tower nearly 14 years ago, we established a three-prong strategy for our business. Those three strategic pillars have not changed and they include, one, to focus on operational excellence. We strive to further expand our leasing revenue opportunity by understanding our tenants’ needs and satisfying them through our unique expertise in lease contracted. We then design our business processes to minimize cycle times and deliver superior capabilities in areas such as tower construction and power and fuel management to achieve a preferred supplier position with each of our customers. Two, to maximize the compounding growth and cash flow that’s generated from our existing properties while selectively growing our asset base. We focused on driving organic growth maintaining stringent cost controls and simultaneously investing in assets around the world but only those that meet our investment criteria. Three, to maintain a strong balance sheet to ensure we have the consistent access to capital markets at attractive rates in all market conditions to fuel our largest strategy. Our ability to execute our strategic goals has led to total return outperformance versus the S&P 500 in 9 of the last 10 years and accumulative total return including REIT dividends of nearly 500% to our stockholders since 2005. In that timeframe, we’ve grown the company from a primarily domestic U.S. communications real estate provider with about 22,000 towers to a global leader in the industry with nearly 100,000 sites counting our pending transactions with Verizon, Telecom Italia and Airtel. With the current enterprise value of over $51 billion today compared to $7 billion 10 years ago, we’ve not only established global scale but have also positioned American Tower as a credible and reliable partner to many of the world’s leading multinational mobile operators. As outlined on Slide 6, the bedrock of our major tenant partnerships are master lease agreements that leverage our scale to encourage additional revenue while introducing process efficiency both to our own company and to our clients. Among the most effective of these contracts are the holistic contract structures that we have with three of the national carriers in the United States, which has significantly improved our revenue growth visibility while minimizing churn. As a result of this contract structure and pro forma for our pending acquisitions, we will have nearly $34 billion of non-cancellable revenue or about 8x our 2014 revenues all on the books. We’ve also created a culture of operational excellence throughout this organization pushing cycle times lower and our customers speed to market faster, all to support an improved customer experience that we hope further drives incremental revenue. Our aim is to make the collocation and amendment process as efficient as possible by aligning our processes and procedures with those of our customers. Since 2010, for example, we’ve reduced our average cycle time for collocations for customers with holistic MLAs by 50%. In another key operational area, tower construction, we demonstrated leadership and earning build-to-suit contracts in major markets including the U.S., Brazil and India. Based on our well-established expertise and tower construction, we secured customer contracts to build over 3,000 towers in 2014. Meanwhile, in our African markets and in India, we’ve developed market leading fuel and power management solutions to improve the reliability and operating efficiency of electrical power, increasing the attractiveness of American Tower sites to both existing and prospective tenants. The combination of our asset quality, strong contracts, operational execution and investment discipline is borne out in our results in the both the U.S. and abroad. As you can see on Slide 7, since 2011 we’ve posted domestic organic core growth rates averaging more than 8%. The GTP portfolio, which generated organic core growth of 10.5% in 2014 and the Verizon towers whose revenues we expect to grow at an average annual rate of around 9% to 10% for the next five years are positioned to grow faster than the rest of our domestic base for the foreseeable future. The Verizon portfolio in particular is poised for strong growth due to the fact that the properties have not been actively marketed previously and have very limited exposure to churn from its existing tenant base. In fact, our sales teams are already receiving inquiries from our customers regarding the Verizon properties who have always wanted to collocate on them but never had the opportunity to do it. In addition, we expect to convert about 85% of incremental revenues on both these portfolios into operating profit given the minimal incremental expenses needed for collocations and amendments. The flow-through of future growth to AFFO in turn should also be very high. We expect the combination of our legacy assets in the newer GTP and Verizon portfolios to contribute meaningfully to our organic growth revenue and AFFO per share growth going forward. By combining an attractive nationwide portfolio of assets with a strong tenant base, strategic contract structures and a focus on operational excellence, we believe that we positioned our U.S. business to generate strong revenue and compounding cash flow growth for many years to come. We look forward to integrating the Verizon assets once the transaction closes similar to the way we were able to outperform our integration targets for GTP. We also expect to aggressively lease up the Verizon towers beginning shortly after the close, especially given the pent-up demand that we believe exist on these franchise locations. Turning to our international business on Slide 8, we’ve been able to deliver strong organic core growth over the last several years significantly above that of the U.S. This reflects the aggressive network deployments of large multinational customers like Telefonica, MTN, Vodafone and many others across our international footprint and has been complemented by average gross margin conversion rates excluding pass-through of about 80% since 2010. While we continue to expect solid contributions to organic growth from existing assets, we also expect that under-marketed portfolios like Airtel Nigeria when they’re closed by us will help generate very strong revenue growth going forward. The growth rates indicated on the chart for BR Towers, TIM and Airtel are the average annual revenue growth rates we expect each portfolio to generate over the next five years, as countries like Brazil and Nigeria accelerate the deployment of broadband mobile data. By diversifying our revenue stream internationally, focusing on large well-funded multinational carriers and deploying capital for high-growth assets, we believe that our international segment will further elevate and extend our growth trajectory beyond that of our core business for many years to come. Strong organic growth across our global portfolio has helped drive rising tenancy and improving NOI yields, as you can see on Slide 9. On sites that we’ve actually marketed prior to 2005, we have increased the average tenancy to 2.7 tenants resulting in $7,000 a month in revenues excluding pass-through and a gross margin percentage of approximately 89%. The combination of contractual escalators, amendment revenues and incremental collocations on these assets have led to an NOI yield of more than 25% on those properties. We’ve been able to replicate this kind of success on towers acquired and constructed between 2015 and 2010. The 2015 to 2010 vintage has an average of 2.3 tenants, over $4,000 in monthly revenues and a gross margin percentage of 85%, excluding pass-through, while generating an NOI yield of nearly 23%. Our asset additions since 2010 have primarily focused on low initial tenancy sites, which are well positioned for our teams to market for collocation. As a result, these relatively newer sites that we’ve added to the portfolio from 2011 to 2013 currently have an average of 1.5 tenants per tower and a current NOI yield of nearly 8.5% leaving plenty of room for growth. We believe that we are optimally positioned to replicate our long history of transforming low tenancy, underutilized tower portfolios into high cash flow, high margin assets with these newer sites. This also implies to our recently closed acquisition of BR Towers and our pending Verizon, TIM and Airtel tower transactions. As previously highlighted, these assets all have existing capacity for incremental tenants in markets with strong wireless industry trends. As a result, we believe we positioned ourselves to deliver a number of years of strong organic growth and the further expansion of the initial NOI yields. Underlying all this is our ability to fund our growth initiatives with efficient and liquid sources of capital. And to that end, we launched the process to finance our Verizon transaction this morning. Meanwhile, we expect to fund our other pending acquisitions with TIM and Airtel through a combination of cash on hand, borrowings under our existing credit facilities and other debt financing. Our approach is designed to preserve the strength of our balance sheet, thereby positioning the company to effectively pursue the longstanding strategy that has served us and our shareholders so well today. By funding these high growth assets in this manner, we expect to retain our investment grade rating while ending 2015 at a net leverage range in the mid-5s. In addition to collectively being accretive to AFFO per share right out of the gate, we expect these transactions and aggregate to generate substantial accretion to our AFFO per share over time. By combining our balance sheet strength with the other pillars of our corporate strategy, we have built a high quality, compounding cash flow stream with the lowest churn in the industry, a diversified customer base and exposure to the longest demand curve as a result of our high growth international business. With that, I’ll turn it over to Tom for a detailed review of our 2014 financial performance and 2015 outlook. Tom?

[Tom Bartlett:]

Thanks, Jim. Good morning, everyone. We finished 2014 with yet another strong quarter achieving solid global organic core revenue growth adding nearly 6,000 new tower assets and building on longstanding relationships with our wireless carrier customers. As Jim just highlighted, we believe that our accomplishments over the last several years, particularly from a strategic perspective, will continue this momentum and extend our runway for growth for many, many years to come. If you’ll please turn to Slide 11. We achieved strong growth in all of our key metrics in the fourth quarter. Our total rental and management revenue core growth was nearly 18, which included another solid quarter of organic core growth at nearly 10%. Our commenced new business continued to be generated by large multinational carriers such as Verizon, Telefonica, T-Mobile and AT&T. Domestic organic core growth was about 9% with Verizon emerging as our top new business customer for the quarter. Internationally, we generated organic core growth of nearly 13% with Brazil continuing to benefit from record levels of leasing demand and Ghana experiencing the highest level of organic core growth across our international markets at over 40%. We also completed the acquisition of BR Towers in Brazil in mid-November, which contributed about $11 million in revenue for the quarter. Our adjusted EBITDA core growth was 17% and was generated primarily by our rental and management segments, which continues to drive the most profitable growth within our business. We also generated strong core AFFO growth of nearly 22% in the quarter as a result of an adjusted EBITDA to AFFO conversion ratio of over 100%. Moving on to Slide 12, we’re extremely proud of the results our teams have delivered in 2014, particularly versus our initial expectations. As you can see, we have meaningfully exceeded our initial outlook for rental and management revenue, adjusted EBITDA and AFFO. While some of this outperformance was due to acquisitions, the majority of the upside was driven by better than expected growth on our existing sites. A significant driver of this overachievement was our ability to generate organic core revenue growth rates about 200 basis points higher than the midpoint of our initial outlook. And importantly, we are able to convert nearly 85% over $140 million in revenue outperformance into adjusted EBITDA and nearly 90% of that adjusted EBITDA outperformance into incremental AFFO. Turning to Slide 13 and reviewing our full year results. Our total rental and management core revenue growth was about 28% with more than 10% attributable to organic core growth. The remainder of the growth was driven by the over 21,000 new assets we’ve added since the beginning of 2013 with average tenancies of around 1.4. We commenced 30% more new business on the entire portfolio in 2014 versus 2013, reflecting the significant investments wireless carriers are making in their networks globally. Our 2014 core adjusted EBITDA grew by more than 27% with reported adjusted EBITDA growth of about 22%. Similar to the fourth quarter, substantially all of our adjusted EBITDA growth for the year was attributable to our rental and management segments. Despite the addition of the new lower initial tenancy assets I mentioned earlier, we maintained our adjusted EBITDA margin at nearly 65%. Core growth in AFFO was over 27% and almost all of that growth was attributable to our rental and management segments. Factored into that AFFO growth was an issuance of an aggregate of $1.4 billion in new senior notes and a weighted average interest rate of about 4%. We also completed a $600 million issuance of a mandatory convertible preferred stock as part of our plan to fund growth initiatives. We ended the year with over 75,000 sites in 12 markets around the globe and have nearly 23,000 additional towers that we expect to close in the first half of 2015. Our focus on building relationships with large, global tenants and carefully structuring contracts to enhance revenue visibility while maintaining upside potential resulted in another year of consistent profitable growth and positions us well for 2015. Turning to Slide 14. Our expectations for 2015 rental and management revenue growth reflect another healthy year of demand for tower space across our global footprint. At the midpoint of our outlook, we expect consolidated rental and management core revenue growth of nearly 12%, driven by organic core growth of about 8% with the balance being generated from new properties including the new sites we expect to build in 2015. We’re forecasting consolidated churn of about 1.8%, which reflects the high contract renewal rates of our tenant base and the low number of contracts coming up for renewal this year. On a reported basis, we expect consolidated rental and management revenue growth of over 7% at the midpoint including over 4% of negative impacts from foreign currency exchange rate fluctuations and a few million dollars from straight-line revenue accounting. As a reminder, none of the impacts from our pending transactions are included in these outlook numbers. In the U.S. where we expect organic core growth of about 7%, we’re forecasting commenced new business in 2015 to decline about 25% versus 2014 levels driven by a slowdown in spending at AT&T. We’ve assumed that the other major carriers will be at least as active as they were in 2014, and if there is a reacceleration of AT&T spend there could potentially be some upside later in the year. In 2014 by comparison, excluding the equipment decommissioning agreement we’ve discussed previously, our initial outlook implied an organic core growth of just around 7.8%. We ended up significantly exceeding that number by year end as a result of our ability to capitalize on higher than expected customer demand. As 4G densification initiatives continue to support rapid expansion in mobile data usage, we believe we’re well positioned to generate solid organic core growth across our portfolio. In our international markets where we expect organic core growth of about 10%, we are forecasting total new business commencements to be in line with those generated in 2014. We expect our Latin American markets to have another very strong year in 2015 as carriers like Vivo in Brazil and Avantel in Colombia aggressively rollout 3G and 4G networks. African markets also are expected to perform well as large carriers like MTN and Vodafone rollout 3G across their footprints with select 4G deployments in South Africa. Finally, we expect activity in India at roughly comparable levels to 2014 with Reliance Jio continuing to deploy 4G in urban centers and the other major carriers following suite. Turning to Slide 15. We also expect solid growth in adjusted EBITDA and AFFO in 2015. Beginning with adjusted EBITDA, we’re forecasting core growth of nearly 12% as the midpoint of our outlook with reported growth of about 8%. This growth includes the impacts of an expected decrease in services operating profit of about $12 million as compared to 2014, given the conclusion of several large services projects last year. We remain focused on property level cost controls as well as SG&A costs and expect SG&A as a percentage of revenue to be right around 9% similar to 2014. In addition, our land acquisition program continues to benefit our margins with over 2% of our U.S. land expense base eliminated through prior years land purchases. Accordingly, EBITDA margins are expected to be over 65% and as we generate incremental new business across our portfolio of properties, we would expect our margins to continue to expand. I just want to remind you that once our pending transactions close, due to their combined lower initial average tenancy of around 1.5 tenants per tower, our margins will temporarily decline. This does not change our long-term expectations of our ability to increase margins across the portfolio as we fully expect margin expansion on these assets once we begin actively marketing and leasing them up. Turning to our outlook for AFFO, we expect core growth of over 13% at the midpoint, which will be driven by the growth in adjusted EBITDA, net of interest cost associated with our 2014 acquisitions as well as slightly higher maintenance CapEx assumptions due to our larger asset portfolio. We expect all of our growth in AFFO to be generated by our rental and management segments. At the midpoint of outlook and assuming the weighted average diluted share count of just over 400 million shares, our outlook midpoint for AFFO per share will be around $4.91. Moving on to Slide 16. In 2015, consistent with the last several years, we expect our primary method of returning capital to stockholders will be through our redistribution. The amounts and timing of our dividend payments are at the discretion of our Board but our goal continues to be to deliver annual dividend growth of over 20%. We currently plan to spend between $800 million and $900 million in CapEx during the year, which includes the construction of about 3,000 sites at the midpoint including around 150 to 250 sites in the U.S. Given our pending transactions in the U.S., Brazil and Nigeria and our global construction pipeline, we anticipate having about 100,000 sites by year end. We also expect to spend about $180 million on land acquisitions while also targeting to opportunistically extend over 2,500 leases domestically. Pro forma for the Verizon transaction, we expect to have over 60% of the land under our domestic sites owned or under our control for 20 years or more. Finally, we continue to maintain an active deal pipeline and continue evaluating acquisition opportunities around the world. Our capital allocation priorities in 2015 will continue to support our corporate strategy of growing our asset base profitably while maintaining a strong balance sheet. Turning to Slide 17. We remain focused on strategically and opportunistically expanding our global business. This is reflected in the nearly 23,000 towers we expect to add to our portfolio through three transactions in the first half of this year. Our recently announced Verizon deal will enable us to add nearly 11,500 towers to our U.S. asset base while meaningfully expanding our relationship with a very high quality investment grade tenant. As Jim noted earlier, we think this is an excellent portfolio of historically under-marketed, under-leased towers that are well positioned to generate significant organic core growth for an extended period of time. We believe that this portfolio will generate compounded annual growth and revenue over the next five years between 9% and 10% and will help us extend our organic growth trajectory in the U.S. We expect to close the Verizon transaction by the end of the first quarter. We expect to close our previously announced transaction in Nigeria with Airtel in the first half of the year, which will allow us to commence operations in our newest high growth international market. By acquiring about 4,800 sites from Airtel, we will gain meaningful scale in a country, which has the largest economy in Africa with a fast growing wireless sector and an extremely young, extremely mobile population with virtually no fixed buying infrastructure in place. Similar to Ghana and Uganda, which generated organic core revenue growth of nearly 30% in 2014, we would expect these Nigerian sites to generate strong growth going forward to support our required high teen to low 20% unlevered returns. Finally, we expect to acquire about 6,500 sites in Brazil from Telecom Italia also in the first half of the year, which will bring our portfolio in the country to over 18,000 towers. Brazil has been one of our fastest growing markets over the last several years and organic core revenue growth in 2014 was over 19%. Given the current state of network infrastructure in Brazil, we believe that our customers will need to continue to make significant investments in their mobile networks. We are extremely well positioned to benefit from this given our strategically located footprint. With a 20-year anchor lease with TIM on this portfolio and significant opportunities for organic leasing growth, we expect Brazil to be a key growth driver for our business going forward. As a reminder and as I’ve said, we have not included any impacts from these pending transactions in our current outlook for 2015. On an annualized year one basis, we would expect the portfolios to collectively generate revenues of around $815 million and gross margin of about $390 million. In addition, we expect them to collectively be modestly accretive to AFFO per share in their first full year and increasingly accretive thereafter. Pro forma for these transactions, we expect to have nearly $34 billion in non-cancellable revenues representing over 8x pro forma 2014 revenue. With an average pro forma remaining lease term of nearly seven years, we have a solid foundation on which to drive incremental revenue and cash flow for many years to come. Moving on to Slide 18, our pending transactions reflect the continuation of our long history of prudent capital deployment. As you can see in these charts, from 2007 to the midpoint of the 2015 outlook we issued this morning, we will have recorded annual growth rates in rental and management revenue, adjusted EBITDA and AFFO of at least 14% with growth in AFFO per share at nearly 16%. We have also simultaneously increased our return on invested capital, attained an investment grade credit rating and have grown the company from just over 20,000 sites to a pro forma total of nearly 100,000 towers creating the most comprehensive and diversified independently operated global network of towers in the world. As a result, we believe that we have positioned the business to continue to deliver consistent, recurring cash flow base growth while generating compelling total returns for our stockholders. On Slide 19 and in conclusion, we had another strong year in 2014 with core growth in rental and management revenue, adjusted EBITDA and AFFO all over 27% and organic core growth of more than 10%. Given the ever increasing global demand for wireless services in our diverse portfolio, we expect another very solid year of profitable growth in 2015. By combining our high quality, legacy asset base with the more than 27,000 previously underutilized, under-marketed sites we will be adding through recently closed and pending transactions, we expect to extend our organic growth profile and enhance our ability to drive strong growth in AFFO per share over the long term. We believe that our continuing focus on operational excellence coupled with select strategic investments solidifies our status as a premier global owner and operator of communications real estate. Finally, as Leah mentioned right up front, I do want to remind you that we have begun our efforts to finance our Verizon transaction. Under federal securities rules, we are limited in our ability to discuss the financing on this call. We ask that you please refer to our filings we have made this morning with the SEC for additional information. With that, I’d like to open up the call for questions. Operator?

[Operator:]

[Operator Instructions]. Your first question comes from the line of Amir Rozwadowski with Barclays. Your line is open.

[Amir Rozwadowski:]

Thank you very much and good morning, folks.

[Jim Taiclet:]

Hi, Amir.

[Amir Rozwadowski:]

I was wondering if we could talk a bit more about the Verizon assets. You’ve outlined that your expectations are for this 9% to 10% growth for the assets going forward. What gives you the confidence and the ability for you folks to get sort of better than normalized organic growth out of those assets? And since you’ve announced the acquisition, what type of feedback have you received from some of your customers that sort of further solidifies that growth outlook?

[Jim Taiclet:]

First, Amir, our track record of converting nonperforming assets that are essentially single use by mobile operators into performing assets by commercially leasing them is pretty clear and we outline those in the remarks. This set of Verizon towers fits exactly into that category. It’s an asset that the previous owner had used to build its own network to try to get leadership in that space in the United States and wasn’t necessarily focused on marketing those sites to gain lease revenue from other carriers or competitors frankly. One just sort of specific item of evidence that indicates that we believe the towers are quite largely under-marketed is that unlike other companies in the mobile operator space in the U.S. Verizon never established to our knowledge an internal tower business to go out and find lessees for these sites, process applications, generate business, et cetera. Other tower portfolios that have traded in the last few years, again it’s our understanding that those organizations did exist in those companies and therefore the initial lease rates when those assets traded were significantly higher than the Verizon asset that we’ve disclosed. So we think there’s a lot of pent-up demand right off the bat to answer your question, Amir. So that’s the demand side of things. And our customers, as I said, are already making inquiries into our sales and marketing team to get on many of these sites. They weren’t necessarily in the view of those other customers available to them and Verizon frankly wasn’t set up to effectively and quickly process applications and get them up on the towers. Our tenant base knows that’s exactly our objective here, so they’ve already expressed interest. So that really fills out the demand side of the equation on these sites for us. On the supply side, as we call it, the towers have, what I call, distinctive characteristics as far as height, as far as structural integrity and our view is that this is a unique portfolio and that we expect it to have on average one available tenant structural capacity unit without any investment in redevelopment for that. So this is a very high capacity portfolio with again we think distinctively sizable ground space under the tower that will enable us to put additional equipment for other customers there without necessarily having to expand the compound and getting additional land rights and paying for those. So, both the demand side of the Verizon asset and the supply side we think are distinctively strong. And the other thing that I do want to highlight is the Verizon operations team managed these assets in a manner that we would consider quite close to the way we would manage these assets in terms of documentation, in terms of maintenance. Just as a key example, the speed of which you can – when you’re a tower company lease up sites is in large part initially dependent on the completeness of literally the file that comes with the tower, things like ground leases, environmental studies, documentation on zoning and building permits and things like that. Because when you go to lease that site to another customer, they’re going to want to have all that material. We feel that again this is a distinctive portfolio in terms of the documentation that comes right with the tower. So those are some of the demand and supply side benefits we think to this particular portfolio.

[Tom Bartlett:]

Amir, I’d like to just add a couple of things. In terms of the fit with our existing base, nearly 50% of the sites have no competing structures within a mile and they’re very well located sites for a potential public safety rollout. Many of the locations are in less urban areas. There’s no alternative structures available. And given the kind of model that we’ve laid out, we’re really only talking about adding one additional tenant per tower on average over the entire 10-year period. The other element is given their low tenancy, 1.4 tenants per tower, there’s expected to be very little churn on these. Obviously, we have the anchor tenant Verizon and the other third-party leasing activity are the other big three leasing companies. So we would expect to have very, very little churn going forward on this portfolio. So I think when you couple all of that, you conclude that the 9% to 10% is very achievable from our perspective.

[Amir Rozwadowski:]

Great. Thank you. And just one quick follow up in thinking about sort of the organic revenue growth outlook that you guys are expecting for 2015, certainly the step-down at AT&T has been well documented and discussed. But I was wondering, as they move sort of further south and into other territories, is there opportunities there for additional growth? And have you baked that into sort of your expectations for near-term organic growth?

[Tom Bartlett:]

A fair question, Amir. Yes, we are absolutely excited about the opportunity for AT&T coming into Mexico and what they’ve done over the last 90 days. And no, none of the incremental opportunity for AT&T moving into Mexico is included in our outlook. And when we have more visibility as to what AT&T’s plans are for further build out, we’ll update our outlook based upon their activity. So, right now there is nothing in our outlook relative to additional activity that we see from AT&T coming into Mexico.

[Amir Rozwadowski:]

Thank you very much for the incremental color.

[Jim Taiclet:]

Thanks, Amir.

[Operator:]

Your next question comes from the line of Ric Prentiss with Raymond James. Your line is open.

[Ric Prentiss:]

Thanks. Good morning, guys.

[Jim Taiclet:]

Hi, Ric.

[Ric Prentiss:]

Hi. A couple of questions. First, on Slide 8 of your deck, it talks about the international revenue growth. 2014 shows about 13%. Is that what Leah was talking about, about moving towards X pass-through, because I thought I remembered seeing something in the press release of about 15.5% in '14?

[Jim Taiclet:]

Ric, that’s exactly right. Now that we have the new – the ability to get the details out at the lease or at the site in '14, we’re actually enabled to look at '14 and '15 without pass-through, which we think is a better reflection of looking at real organic growth on the sites.

[Ric Prentiss:]

Okay. And then on slide – so the drop from 13% X pass-through to the 10% in 2015, I thought you mentioned that most of the international markets you expect strong LATAM, Africa well, India roughly the same. Why is it dropped then on apples-to-apples 13 to 10?

[Tom Bartlett:]

Well, a couple of things. One is the asset base is bigger, so as a result of the larger numbers you won’t get the same type of overall growth rate. And in 2014 we also had a fair amount of back billing on sites that I have not included that in outlook for 2015. And as we generate that type of back billing revenue, we’ll continually update the outlook. But that is something as a result of us going out and auditing actually all the sites. So it’s a very difficult number to predict at the beginning of the year. And as I said, we generated a fair amount of back billing in 2014 and I would hope that we would generate in 2015, but I haven’t included it in the outlook.

[Ric Prentiss:]

Okay. And this is the same way you did it in '14 guidance I think, right?

[Tom Bartlett:]

Correct.

[Ric Prentiss:]

Okay. And another question on Slide 14, the escalations show that in the '15 outlook about 3.5%. I would think over time as international becomes a larger number, like you point out, usually inflation and escalators are higher down there. Should we expect over time the inflation effect and escalators should be higher?

[Tom Bartlett:]

Yes, you should. And it’s obviously going to be a function of what the inflation is in that particular year and those particular markets, but that’s a fair assumption. And in fact in 2015, we’re looking at inflation of 4% plus, so higher than obviously the U.S. rates reflecting some of the inflation that we’re seeing in some of those markets.

[Ric Prentiss:]

Okay. And last question, I know you can’t talk much about the offerings that were announced today, so I appreciate that. But just want to understand when you mentioned AFFO per share accretive on some of the deals, how do you treat mental [ph] convert such as the May 14 convert and as you look at doing one here this month, does that reflect in debt, does that reflect in equity? Obvious it’s kind of hybrid.

[Tom Bartlett:]

Yes, I mean if you look at our P&L you’ll see at the bottom of the P&L the dividend that we actually are paying on that particular product. And so as such, it’s actually dilutive to AFFO in the numerator. And as GAAP tells us, we look at that on an as if basis where is it most dilutive, whether it should be running through the P&L or whether it should be actually in your fully diluted share count.

[Ric Prentiss:]

Great. Thanks, guys.

[Jim Taiclet:]

You bet.

[Operator:]

Your next question comes from the line of Simon Flannery with Morgan Stanley. Your line is open.

[Armintas Sinkevicius:]

Good morning. This is Armintas for Simon. I was hoping you could talk about some of the activity you’re seeing in the U.S. to get to your 7% organic growth and some of the activity you’re seeing abroad, particularly Brazil where we just had the 700 auction and the Olympics are gearing up for next year? And my last question is if you could talk about the M&A landscape for the next one to two years what you’re seeing there and if we should expect any large transactions? Thank you.

[Jim Taiclet:]

Sure. So let’s start with the U.S. Our largest volume of signed business right now in the U.S. is actually coming from Verizon. And that’s an important point that I want to also highlight that the non-Verizon towers in the American Tower portfolio non-Verizon transaction towers is 75% of our U.S. portfolio roughly. So of the 40,000 plus sites, only 11,500 are the Verizon towers pro forma, so there’s plenty of places for Verizon to grow into with us. Just a further fact on that, the Verizon revenue that are on legacy ATC non-Verizon transaction towers is about 60%. So 60% of Verizon’s pro forma revenue with us is going to continue to come on non-deal towers, therefore, there’s going to be nice amendment opportunity over half that revenue base. So Verizon investing aggressively in its network going forward is going to actually be very helpful to our growth rate and could contribute to that 7% number that you pointed out there, Armintas. AT&T is still going to be active but is a comparison to last year. 2014 was the most active year that we have seen from our perspective with AT&T since I’ve been at the company. It was an outsized, probably a record year for them for mobile spending. And this year 2015 is the more normalized year for AT&T and also still robust. So we expect new business from them as well. But we also see the number two application flow coming after Verizon from T-Mobile. So T-Mobile is actually increasing in our view its activity level in the network based on some projects that it has going. And then Sprint is continuing to work through 2.5 gigahertz of some of other projects it has. So that’s sort of the batting order for U.S. application flow right now is Verizon, T-Mobile, AT&T and Sprint. Then turning to the international market, Brazil, which is our most significant pro forma international market in terms of revenue. We’re expecting 19% core organic growth or we just reported it in 2014, we could say that now. So really high growth market for this asset base. One of the things that encouraged us to add to the asset base going forward, which we’ve done with BRT and now TIM. As far as Brazil goes, you pointed out two of the most important factors I think. One is the run up to the Olympics and secondly is the 700 megahertz 4G auction and rollout that’s going on. But I also wanted to cross-connect it from the opposite direction all of Latin America by customers. So Telefonica, we expect to be extremely active in Brazil as well as Mexico. Its investing across Latin America in 3G deployment. It is a corporation I think Telefonica wants to increase its competitiveness throughout Latin America in mobile data and Brazil and Mexico are two biggest target markets simply based on their size for that, but it’s going to be elsewhere. Also, the run up to the Olympics is going to be demanding investments by all four carriers. I think TIM is included in that as well as Claro, which is the MX [ph] subsidiary. So we really feel that Brazil is going to continue to be a high growth market for us. Of course, that contributed to our decision to invest and upsize our scale to about 18,000 sites pro forma for the deal. And finally on the M&A front, we don’t speculate on potential deals. It’s always fluid but we are still in the market and we’re going to continue to apply our disciplined investment approach to fill in, especially in existing countries we have or with the existing customers we have opportunities that may come available, but we don’t have anything specific to point to at the moment.

[Armintas Sinkevicius:]

Got it. Thank you so much.

[Operator:]

Your next question comes from the line of Jonathan Schildkraut with Evercore. Your line is open.

[Jonathan Schildkraut:]

Great. Can you guys hear me?

[Jim Taiclet:]

We can, Jonathan. Good morning.

[Jonathan Schildkraut:]

Good morning. Thank you for taking the questions. I guess I have just a few, most of them have been hit. First, in terms of the acquisition of TIM in Brazil, it seems like you guys have started to look at that in real basis as opposed to a dollar basis. Was there a caller on that deal or you guys benefiting from the increased strength of the U.S. dollar?

[Jim Taiclet:]

We are benefiting from the strength of the U.S. dollar.

[Jonathan Schildkraut:]

All right, great. I was interested, if I could dive a little deeper into the AT&T spend in the U.S. I think that you said Tom that you were looking for a decrease in new business of 20% or 25% in the U.S. on the back, primarily of AT&T slower spending. Their spending is dropping about 10%. And so I’m just trying to understand the translation of wireless spending going down at 10% at AT&T and you’re seeing 20% or 25% less incremental revenue in the U.S.? Is there something about the nature of the spend that’s also changing an impact around you?

[Tom Bartlett:]

No, I wouldn’t suspect so, Jonathan. When you’re looking at the overall wireless spend, it’s very difficult to look at the overall spend and bring that down to what they’re doing on an onsite basis. And also I would take a look at – what we’re really referring to is kind of the in-year impact of timing of activity. So, again, I think it’s very difficult to come up with an apples-to-apples comparison. The overall rate of new commenced business that we’re looking at in 2015 for our U.S. domestic business are really equivalent to what we generated in 2013, which was a terrific year and as Jim talked about 2014 just being kind of outstanding year in terms of the LTE and 4G deployments, we’re expecting 2015 to come back to really what we expected or did generate back in '13.

[Jim Taiclet:]

Jonathan, just an operational element to all this. We build out guidance and our budget from the ground up operationally meaning application flows that we see late in the prior year and very early in the new year in 2015 in this example are what we use to build up our budget. So, we’re reflecting what we’re currently seeing in the application pipeline for our major customers. If that was to move up during the course of the year, we’ll adjust our guidance but we don’t do it until we see it, and it’s too early in this particular case for AT&T to see it. So we’re not making any prediction of a ramp up that might be more in sync with the numbers that you laid out.

[Tom Bartlett:]

I think also just to add on it, AT&T was really active in second half of 2013 and the first half of 2014, so that also had an impact in terms of the volumes that we actually generated from a new business perspective in 2015. So going back over the last 18 months has an impact in terms of what the new commenced business would be that we would be generating from AT&T and that’s what we see as being 25% below 2014 levels.

[Jonathan Schildkraut:]

That makes sense, the timing frontend loaded in '14. Just one final question, if I may. As we look at the sort of normalized organic core AFFO growth, so I think 13.4% at the midpoint of the guidance. Obviously, this is a year where there’s a big impact from foreign exchange movements, but as we look out over a longer period of time, what should our guidepost sort of be for sort of expectations of targets on the AFFO per share growth? Thanks.

[Tom Bartlett:]

Jim and I have been laying this out over a number of years and looking at the mid-teen core AFFO per share growth, and that’s our objective, that’s our goal. It’d be largely driven obviously from growth and EBITDA and increased margin expansion and things that I referred to as well as honing in on all of the other elements of our business including all of the financing costs as well as CapEx related items. But that’s the underlying objective that we have within the business.

[Jonathan Schildkraut:]

Thanks again for taking the questions.

[Jim Taiclet:]

You bet.

[Operator:]

Your last question comes from the line of Michael Bowen with Pacific Crest. Your line is open.

[Michael Bowen:]

Thank you very much for squeezing me in. A couple of questions, if I may. You had mentioned that the lease-up opportunity for the Verizon towers, I think you said 1.4 tenants, obviously a lot of upside there but also a lot of pent-up demand in those areas. Can you give us a feel for what some of the customers are saying currently with regard to where these customers might have gone had this transaction not been transacted? And then related to that, just wanted to touch on Slide 9. I don’t think I’ve seen this slide before, I apologize if you have done it, but for Verizon projected NOI yield for year one and year five, can you just walk us through, it would seem given the upside for the Verizon towers the 7% in year five might be a little bit light. But can you kind of walk us through your assumptions and help us understand that? Thanks.

[Jim Taiclet:]

From kind of a growth perspective, it’s pretty consistent throughout the entire 10-year period, so while we expect kind of initially to be able to get these towers in leasing and marketing them this year, we actually expect the growth to be pretty ratable over the entire 10-year period. So, I think that’s really reflective of kind of the 7% NOI yield going forward. And as Jim identified before, we build our growth profile for all of our transactions from the ground up and our sales teams within the United States are incredibly excited about this opportunity. We get search rings in from all of our carriers every day who are identifying areas where in fact they need RF coverage. And so that gives us the comfort and the credibility we believe of the pent-up demand and the growth that we expect to see in this portfolio.

[Tom Bartlett:]

The alternatives that any carrier has when there’s a site in the search ring that it doesn’t think it can get timely access to are simply to build their own tower. We had 600 built-to-suites plus last year in the United States. Our guidance – this is just a reference point, it’s not directly related to any customer but as a reference point in our guidance, we have about 150 this year. So, there was a lot of building last year specifically in this market. Hopefully, we can channel some of that to Verizon towers in the future because they’ll now be available on our process and on our contract. So, that’s one way. The other way is you just don’t put the sell-side out there or you put it in a suboptimal location. And all of those are poor engineering decisions or financial decisions than collocating on an extremely well positioned tower with good capacity and ground space, which is what we’re going to be offering.

[Michael Bowen:]

Yes. So would it be fair to say that the Verizon NOI yields really don’t reflect that benefit of the reduction in the build-to-suites? So actually if we wanted to apply that the numbers would look even better because this tower portfolio is now becoming part of the grander scheme of assets?

[Jim Taiclet:]

So let me just sort of answer by repeating the baseline that Tom laid out. With the demand and supply side benefits of this portfolio, our investment process in the U.S. if it can be justified, we tend to use one tenant over a 10-year period of time additional leasing. The entire company in the domestic business here is going to be striving to do way better than that. But our model doesn’t yet reflect it because we haven’t accomplished it and therefore what you see on Page 9 reflects our deal model and not any kind of expectations of prior outperformance and other portfolios that will be brought in or synergies that are assumed on a revenue basis or anything like that. This is a very clean model base projection as our BR, TIM and Airtel frankly, and the company is motivated and incented, I’d say, throughout the organization to outperform these things.

[Michael Bowen:]

Okay. Thanks. One last quick thing I just wanted to ask with Iusacell and AT&T. Have you had any preliminary discussions about any potential upside there?

[Jim Taiclet:]

All I can say about that is you should assume that we have close and strong and senior relationships with all of our major tenants, and that this will be an obvious topic at that level. So we don’t get into specific meetings or conversations with specific customers.

[Michael Bowen:]

Okay. Thanks, guys.

[Tom Bartlett:]

Great. Thanks.

[Jim Taiclet:]

Okay, operator. I just want to thank everybody for being on the call this morning spending time with us and I appreciate your attention. Have a great day. Thank you.

[Tom Bartlett:]

Thanks, everybody.

[Operator:]

This concludes today’s conference call. You may now disconnect.