Q2 2022 American Tower Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to the American Tower's second quarter 2022 earnings Conference call. As a reminder, today's conference call is being recorded following the prepared remarks, we will open the call for questions. If you'd like to ask a question. Please press one zero on your telephone keypad I would now like to turn the call.
<unk> over to your host Adam Smith Senior Vice President of Investor Relations. Please go ahead, Sir good morning. Thank you for joining American Tower's second quarter 2022 earnings Conference call.
We have posted a presentation, which we'll refer to throughout our prepared remarks under the Investor Relations tab of our website Www Dot American tower Dot com.
On this morning's call Tom Bartlett, our president and CEO will provide an update on our international business and then Rod Smith, our executive Vice President CFO and Treasurer will discuss our Q2 2022 results and revised full year outlook.
After these comments, we'll open up the call for your questions.
Before we begin I'll remind you that our comments will contain forward looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our 2022 outlook capital allocation and future operating performance.
Our expectations regarding our financing plan for the core site acquisition, including the closing of our stone peak minority investment in our U S data Center business.
Our expectations regarding the impacts of COVID-19.
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 this morning's earnings press release.
Those set forth in our Form 10-K for the year ended December 31, 2021 and in 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 with that I'll turn the call over to Tom.
Thanks, Adam and good morning, everyone.
In line with our historical practice for our second quarter earnings call. My comments today will be focused on American tower's international business.
Before diving into the trends that we see driving a long runway of growth in our international segment I'd like to take a moment to review the principles that have underpinned our international expansion strategy over the last two decades.
Since we first started expanding outside of the United States entering Mexico, and Brazil in 1999, and 2000, respectively. We've been guided by the belief that the secular demand trends and fundamentals of the tower business model that would drive tremendous value in the U S over a multi decade period.
Would be replicated internationally.
Control to this thesis was that the anticipated proliferation of wireless networks, and resulting rapid growth in mobile data demand would necessitate neutral host shared wireless infrastructure across the globe.
We also believe that by leveraging our core capabilities developed here in the United States, We could position American tower as a premier global provider of communications real estate and a prime beneficiary of these trends.
Further given our relative lack of fixed line infrastructure accelerating population growth and earlier stages of network technology evolution in many parts of the world. We believed we could both augment and extend our overall comp.
Validated growth trajectory.
So we set out to construct a geographically diverse platform of communication assets in the world's largest democratic economies, while establishing relationships with the leading global wireless carriers.
<unk>, primarily through the acquisition of high quality portfolios with compelling underlying organic growth and risk adjusted return profiles.
We then start to leverage our scale customer relationships and capabilities to execute on high return new build opportunities and innovative solutions like power as a service. It has strengthened our competitive positioning and supported our customers in meeting their network needs, all while driving increasing share.
Our holder value.
As a result of these efforts today, our global platform includes an international portfolio that fits at over 178000 sites and contributes approximately 45% of our property revenues and approximately 36% of our property segment operating profit.
Focusing at our international Newbuild program for a moment, we've constructed approximately 40000 sites since launching our international operations over two decades ago with just over 22000 of those sites being built since the start of 2018 alone we credit this recent acceleration.
Two our enhanced market positioning ahead of major network deployments demonstrated operational capabilities and strong cross national <unk> partnerships, all afforded through previous strategic M&A expansion initiatives.
In total these 40000 American tower build sites are driving an attractive NOI yield of 25%.
Owing to the strong demand we've seen for our infrastructure and the operating leverage inherent to the shared tower model across the globe.
As Scott looking forward, we'll continue driving toward our ambition to add another 40 to 50000 sites to our international portfolio over the next several years.
With that let's take a few minutes to discuss each.
Our international regions and the key trend developing across our footprint.
First I'll touch on Europe , we have a portfolio of over 30000 sites and strong scaled positions in Germany, and Spain, which are benefiting from many of the same trends driving strong growth in the United States, including the early stage of <unk>, Rollouts and a new entry.
As many of you know we've taken a consistently measured approach to achieving scale on the continent. We started through a modest acquisition in Germany in 2012.
We then spent the better part of the following decade evaluating various opportunities through our disciplined approach to capital allocation, which led to our entry into France in 2017, and later a small scale entry to Poland. However.
However, it wasn't until the <unk> transaction in 2021, and we found an opportunity to add significant scale to our portfolio and met the standards of our global underwriting framework. These.
These characteristics include high quality strategically located assets that stand to benefit from continued network investments in attractive contractual terms and conditions, such as CPI based escalators, which act as a natural hedge against local inflation, along with a low churn profile, which taken together drive compare.
Selling the risk adjusted returns for American tower, and our shareholders.
From a timing perspective, we couldnt be happier with our acquisition of the <unk> tower portfolio across Germany, and Spain, we've seen several quarters of accelerating activity as carriers begin lighting up low and mid band spectrum with new <unk> equipment, while continuing to invest to support growth data consumption on their existing <unk>.
<unk> networks at.
At the same time in Germany, New entrant <unk> hundred one is rolling out a greenfield <unk> network and we believe our portfolio of nearly 15000 sites primarily located in urban centers across the country is in a strong position to support their network build.
Earlier this year, we signed a framework agreement with 101 through which we can provide value to the carrier while benefiting from incremental growth associated with the relationship for many years to come.
As a result of these factors, we're seeing strong leasing activity on our assets as well as demand for new builds, particularly in white and gray spot areas, where carriers are working to meet coverage requirements and provide critical connectivity in areas that have historically been underserved.
In 2022, we plan to double our previous record and build approximately 400 sites across Europe , and we expect this trend of elevated new build activities continue thanks to the demand driven by such initiatives and pipeline secured through the <unk> transaction and our position as a leading <unk>.
Independent tower, operator on the continent with a global reputation for operational excellence.
With that let's turn to our regions that are in relatively earlier stages of network technology.
And where we see an opportunity to capitalize on our strong persistent demand environment for an extended period.
Probably no region, where the benefits of local scale and the operational expertise gained as a premier independent operator are more pronounced than in Africa, where we're seeing these benefits play out across essentially every facet of the business.
In recent years, we've seen the proliferation of affordable smart devices and consumer uptake of mobile application use cases drive outsized growth in mobile data usage in our multinational carrier customers across the region have been working to rollout and enhance their <unk> networks in response for.
For ATC Africa. This has resulted in average organic tenant billings growth in the high single digit range over the last several years, coupled with five consecutive years of record new build activity.
This trend has continued unabated into 2022 and as a result, we built over 1000 sites across Africa, and the first half alone up over 30% compared to the first half of 2021 and nearly doubled the volumes achieved in the same period in 2020.
These sites continued to demonstrate very attractive average day, one NOI yields with our year to date builds producing more than 13%.
We expect to continue to execute on opportunities to add critical scale and earn strong returns in key markets throughout the region over the next several years.
While the trends supporting a strong growth environment in the region are expected to persist.
Our operational challenges to create unique opportunities in the African market, particularly in the context of the global supply chain disruptions power grid availability and reliability and ongoing macro volatility.
It is here that the scale of our African business. The shared learnings of our global organization and an entrenched culture of innovation have resulted in a resilient differentiated business across the region for.
For example, we've been able to leverage global supply chain learnings from the peak of the pandemic as well as the resources afforded by our investment grade balance sheet and strong international cash flows to produce materials for our Newbuild program several quarters in advance.
Not only did this result in cost savings in an inflationary environment, but it also de risked operational challenges and a core sector of high yield growth for American tower, while bolstering our reputation as a preferred partner who is capable of delivering new sites. When we say we're going to.
These forward thinking approach to the procurement of critical resources has also been applied to an area of our Africa business that we're perhaps most proud of our power program, where we've accelerated our innovated efforts across the region in recent years to date, we've deployed roughly $300 million in the region.
Equip nearly 16000 sites with the capability to source power renewables and more energy efficient resources, including lithium ion batteries and solar arrays, and our new build program, where we're working towards making the majority of our newly constructed towers operationally zero or.
Near zero greenhouse gas emission sites.
In fact as of the end of the second quarter, we've installed lithium ion batteries and solar panels at nearly 70% and over 40% of our sites in the region, respectively, which has driven a reduction in our reliance on fossil fuel power generators accommodated our potential to increasingly rely on intermediate re.
<unk> sources and supported our progress toward meeting our ghd emission reduction targets.
More recently, we've been able to leverage our position in the region to form a strategic partnership with the vendor and our energy supply chain. This alliance brings product assembly to the region as we look to augment our delivery of environmentally and economically sustainable power solutions at our sites, where power availability and access to efficient and really.
Liable sources can often be a challenge.
And this local partnership will facilitate the acceleration of our progress towards meeting our emission targets, reducing our supply chain risk lowering the overall carbon footprint and cost of our procurement process and supporting the local economy and the communities, we serve which we are particularly proud of.
Now, let's turn to Latin America, which was our first region of international expansion and where we've seen upper single digit average organic tenant billings growth over the last several years.
On a consolidated basis, our nearly 49000 sites, earning a double digit NOI yields in our earlier vintage in the region, which consists of assets built or acquired prior to 2010 were seeing a U S dollar yield of over 40%.
Today <unk> is in the region are in advanced stages of <unk> and in the early innings of <unk> network deployments to driving a significant need for additional cell sites.
As a result, we continue to see solid activity on our existing sites as well as growth through new infrastructure to improve both coverage and capacity.
Although we expect to see the ongoing effects of industry restructuring impact net organic growth in the mid term. We believe the portfolio we've developed across the continent over the last two decades will be critical for our customers as they continue to invest in their networks.
Looking at Brazil, specifically, our largest market in the region in terms of site count revenue.
We're seeing the final stages of a consolidation process that has resulted in the transfer of network network assets into the hands of large multinational operators with the capabilities and financial firepower to build out enhanced next generation networks on a nationwide basis.
Further with the <unk> auction now complete our local scale positions American tower as a strategic partner to our customers as they transform their networks, while allowing us to maximize the opportunities provided by consolidation and increased carrier investment obligations.
Although we are at the very early stages of a network upgrade investment cycle, we're already seeing incremental demand for our infrastructure, capturing a large share of the initial urban amendment cycle.
We expect this amendment cycle to be followed by a period of new site deployments aimed at improving capacity and performance similar to the cadence we anticipate in the U S. Over the course of the next decade, which should translate to solid growth for American tower in the region over a multi year period.
Finally, let's turn to Asia Pacific.
Our portfolio in the region predominantly consists of our scaled footprint across India as well as our more recently established presence in the Philippines in Bangladesh, where we've leveraged our management and site deployment expertise to.
Prudently evaluate opportunities in the region through high yield build programs, resulting in over 400 sites being constructed across the two markets combined year to date.
In India, we continue to be encouraged by the improvements in market structure carrier health and government reforms aimed at easing the near term financial burden of operators and ensuring a multiplayer competitive ecosystem.
All of which is driving incrementally constructive trends across the communications infrastructure landscape.
And with the carrier consolidation cycle and associated elevated churn largely complete our full year outlook includes an expectation for positive organic tenant billings growth in the region for the first time in several years.
While challenges certainly remain in the market.
And we could see some variability in growth from period to period, our optimism around the longer term opportunity presented in India remains.
With an attractive backdrop of a growing population of over one 4 billion people, that's driving accelerated mobile data usage and the government, it's demonstrating our commitment to a digital transformation of the economy, we see a need for thousands of new cell sites to serve <unk> and eventually future <unk>.
Networks.
We expect these catalysts to drive a period of sustained attractive Roes growth as well as a continued acceleration of our Newbuild program, where we're seeing low to mid double digit day, one NOI yields on average.
And taken together with a moderating churn environment, we remain optimistic in India, and the Asia Pacific region can be a solid contributor towards achieving our longer term growth targets on a consolidated basis.
In summary, we're encouraged by the trends, we're seeing across our international footprint with an acceleration in mobile data consumption driving sustained customer investments on current and next generation networks globally over.
Over the past two decades, we followed a consistent and disciplined approach to market and asset selection demonstrated a consistent track record of operational excellence and developed a scaled presence and strong customer partnerships across our geographically diverse and globally distributed footprint, which we believe places.
Is it a distinct competitive advantage in a <unk> world and beyond.
While we will continue to evaluate opportunities to further enhance our scale through the same disciplined lens, we remain focused on leveraging our position and capabilities to drive incremental value across our served markets.
We believe our well balanced international platform combined with our highly complementary foundational U S business provides American tower with an unmatched global portfolio that is optimally positioned to benefit from multiple network technology evolutions and digital transformation opportunities.
For many years to come.
With that I'll turn it over to Rod to take you through our latest quarterly results and updated outlook Rod.
Thanks, Tom Good morning, and thank you to everyone for joining today's call as you saw in today's press release, we delivered another quarter of strong performance across our global business before walking through the details of our Q2 results and revised outlook I'll touch on a few highlights from the quarter along with the financing initiatives, we've executed over the last several months first.
We've announced and partially closed our plans to raise approximately $4 8 billion and equity financing in support of our core site acquisition, beginning with our common equity issuance in early June and later through our announced agreement with stone peak in our U S data Center business.
With these two transactions not only have we addressed our equity financing requirement for core site, but we've accomplished it in a manner that maximizes shareholder value and supports our investment grade credit ratings further through our partnership with stone peak, who brings tremendous expertise of communications infrastructure and if they like.
Minded long term investment philosophy, we've created a platform to further evaluate and finance growth opportunities across our U S data center business as the <unk> ecosystem further develops. Moreover, we believe stone peaks investment represents a full valuation relative to what we have invested in our U S.
Data center portfolio today, and allows American tower to retain operational control as well as the flexibility to execute on our mobile edge strategy.
Ill discuss this transaction in more detail later.
We also continue to strengthen our balance sheet by leveraging the debt capital markets raising $1 $3 billion in senior unsecured notes at attractive terms as a result of our Q2 financing activities and pro forma for our private capital proceeds, which we expect to use to pay down short term floating rate debt, we will increase our percentage of fixed.
Debt to nearly 80% up from 66% as of the end of Q1 and bring pro forma net leverage down to approximately five five times with our core site financing now largely complete we remain committed to organically delevering back below five times over the next couple of years.
Third we see strong secular trends driving increased network coverage and densification initiatives, among our customers continuing to translate into solid gross new business globally, including the need for more cell sites internationally as Tom just highlighted evidenced by the success of our Newbuild program, we constructed over.
1500 sites in Q2, representing the 12 quarter of over 1000, new builds since the start of 2019, a demonstration of the success of our capabilities and expertise scaled market positions and strong customer relationships. Additionally, demand remains robust for our differentiated.
Interconnection Rich U S data center campuses as customers leverage the dynamically scalable solutions and interoperability provided by core sites national ecosystem, leading to another strong quarter of new and expansion leasing.
And finally, our first half performance and confidence in our full year outlook and long term targets amid heightened market volatility rising inflation and operational challenges is a testament to the resiliency of our business and the stability of the earnings we consistently generate this is made possible through operational excellence and service dependability.
Our investment grade balance sheet, the strength of our underlying contracts, including international revenues supported by CPI linked escalators the ability to pass through a substantial portion of our direct costs across our international regions and the matching of escalator terms in the U S between customer and land.
Leases and more importantly, the mobile data trends driving unabated demand for our communications assets.
With that please turn to slide six and I'll review, our Q2 property revenue and organic tenant billings growth as you can see our Q2 consolidated property revenue of $2 6 billion.
Grew by over 17% and nearly 19% on an FX neutral basis over the prior year period.
In the U S and Canada property revenue was roughly flat due to the continued effects of sprint churn, while international growth stood at roughly 19% or nearly 23% excluding the impacts of currency fluctuations and includes about 12% contributed by the <unk> assets. In addition, our U S data center business.
Contributed nearly $190 million of growth in the quarter. These.
These growth rates are indicative of the strong secular demand drivers that underpin the growth on our communications infrastructure assets across the globe as <unk> and <unk> deployments continue.
Moving to the right side of the slide you can see we achieved consolidated organic tenant billings growth of two 6% for the quarter.
In the U S and Canada as expected organic growth was slightly negative at two 4%, including a sequential step down in gross organic new business on a dollar basis associated with the timing of certain MLA use fee commencements in 2021, which.
Which we guided to during our Q1 call.
We continue to expect a reacceleration in gross new business in the back half of the year.
Escalators were two 8%, which as we also highlighted last quarter, we were impacted by certain timing mechanics within our MLR.
So for the full year, we expect escalators to come in right around 3% consistent with historical trends. This growth was offset by the impacts of sprint churn, which continues to drive over 4% of negative headwind year over year.
On the international side organic growth was seven 8% starting with Europe , we saw growth of 11, 2%, which remains elevated given contributions from the <unk> portfolio, which were only partially included in our Q2 2021 base.
Absent <unk>, our legacy European business grew roughly 6% an expansion of approximately 160 basis points as compared to our Q2 2021 growth rates.
In Africa, we generated organic tenant billings growth of 9%, which includes 8% in gross organic new business contributions our highest quarter on record.
The continued strength in new leasing activity in the region was complemented by the construction of just over 400 sites in the quarter.
As we see <unk> coverage and Densification initiatives continue to drive strong topline growth and returns across the region.
Moving to Latin America.
Organic growth was eight 3%, which includes approximately eight 7% from escalations consistent gross organic leasing growth was offset by expected elevated churn primarily associated with certain decommissioning agreements as highlighted on previous earnings calls for both Africa, and Latin America as we look to the second half of the year.
We expect a step down relative to the first half of net organic growth rates due to anticipated consolidation driven churn, which remains consistent with our prior outlook assumptions in APAC, we saw organic growth of three 9% in line with our expectations and representing our fourth consecutive quarter of positive growth which comes along.
Im excited a continuation of solid newbuild activity with nearly 1000 sites constructed during the quarter it.
It is important to note that although we remain encouraged by the positive trends, we're seeing in our APAC growth rates, we do anticipate a modest sequential step down in Q3 to the low single digit range before recovering in Q4 to near that upper end of our 2% to 3% full year guide, which remains unchanged.
<unk>.
Turning to slide seven our second quarter adjusted EBITDA grew just over 13% or over 14% on an FX neutral basis to approximately $1 7 billion.
Adjusted EBITDA margin was 62, 5% down 170 basis points over the prior year driven by the lower margin profile of newly acquired assets. The conversion impacts have commenced sprint churn along with higher pass through revenue, resulting from rising fuel costs.
Moving to the right side of the slide attributable <unk> and attributable <unk> per share grew by seven and 5% respectively.
Growth was meaningfully impacted by sprint churn and the timing of cash taxes, which together provided a negative headwind of nearly 7%.
Let's now turn to our revised full year outlook, where I'll start by reviewing a few of the key high level drivers first our core operating performance remained strong across our business, allowing us to raise our <unk> per share guidance for the year and increase our expectations on an FX neutral basis for property revenue and adjusted EBITDA.
Second we have revised our FX assumptions using our standard methodology, which has resulted in outlook to outlook headwinds of approximately $100 million nearly $50 million $40 million and roughly <unk> <unk> for property revenue adjusted EBITDA consolidated <unk> and <unk> per share respectively.
Finally, we have updated our core site financing assumptions to reflect our completed common equity issuance and our anticipated close of private capital funding.
This update has resulted in a reduction in our total equity requirement balanced with the incremental debt and associated interest costs. Additionally, we have contemplated the minority interest impacts related to the stone peak partnership and updated closing assumptions all of which I will address in more detail in a moment.
With that let's discuss the details of our revised full year expectations. As you can see on slide eight we are continuing to project consolidated year over year property revenue growth of nearly 14% at the midpoint.
The $15 million decrease relative to prior guidance is driven by the FX headwinds I previously mentioned, which were partially offset by over $40 million in core property revenue outperformance, taking the benefits of CPI and our international escalators in accelerated decommissioning related settlements together with upside in our U S and Canada.
And data center segments and over $40 million in other outperformance, primarily driven by higher international pass through revenue due to elevated fuel costs.
Moving to slide nine you will see our organic tenant billings growth projections, which had been slightly revised since our last earnings call.
While our expectations remained consistent in the U S and Canada International and on a consolidated basis, we have made some adjustments within our specific international segments in Europe , we have adjusted our growth back to approximately 9%, reflecting our expectations for a temporary shift in new business commencement timing from.
The back half of 2022 into 2023 demand remains very solid in the region setting us up well as we exit 2022.
You will also see that we have modestly raised the guidance for Latin America to approximately 7% in Africa to approximately six 5% both up from previous expectations of greater than 6%, reflecting a continuation of escalation benefits from CPI.
Moving to slide 10, we are lowering our adjusted EBITDA outlook by $20 million as compared to our prior outlook driven again by negative FX impacts with expected growth of approximately 10% year over year.
While we are seeing a strong conversion of core property revenue upside to cash margin outperformance, we have taken a revised view on SG&A, notably on bad debt reversal expectations for the year.
Although collection trends were solid in Q2, we have pushed out some of our assumptions related to the incremental collections associated with previously reserve balances that we continue to expect to collect in time.
Turning to slide 11, we are raising our attributable <unk> per share guidance to $9 74.
Up from $9 72.
Despite absorbing the negative effects from FX and a continued rise in interest rates.
To better understand the components in our revised outlook bridge I'd like to spend a moment to walk through the moving pieces of the guidance associated with our updated equity plan and the mechanics of our stone peak partnership which consists of $175 billion in common equity and $750 million in mandatory convertible preferred equity.
For a total ownership interest of 29% on a fully convertible basis and our U S data center business.
First as I mentioned, we were able to reduce our total equity requirement from approximately $5 5 billion to $4 8 billion, including.
Including $2 3 billion of common equity proceeds, which meaningfully reduced our share issuance to approximately $9 2 million shares the.
The reduction in equity resulted in an increase to our debt balances, which together with the revised timing of the equity raise along with the elevated interest rates has driven an increase to our interest expense outlook, which largely makes up the over 50 million dollar other reduction to <unk> as.
Third to our prior outlook.
Next regarding our <unk> partnership the financial impacts for the minority investment will appear in two places first the coupon of $750 million of Mandatorily convertible preferred equity with a cost in the mid single digit percent range will be recognized as a deduction to the <unk> generated by our data centers.
Segment and reflected in our consolidated <unk>, which represents approximately $14 million and our 2022 guide as shown on the slide.
Until conversion of their preferred equity, which is expected to occur for years from the date of closing stone peaks initial common equity stake in our data center business will stand at 23%, which contemplates approximately $2 billion of net debt on the U S data center business and will be considered as they may not.
The interest deduction for attributable <unk> purposes, equating to approximately $20 million and our 2022 outlook.
Please note we have also reduced the European minority interest assumption from $160 million previously to $150 million largely due to FX together, we are now guiding to a minority interest adjustment of $170 million in 2022.
Finally, as I mentioned earlier, our updated outlook also takes into consideration updated equity closing assumptions.
We previously assumed a may closing for our common equity issuance, which actually occurred in early June . We also assumed our private capital will close in mid Q3 with planned proceeds to be used to pay down short term floating rate debt.
Taken altogether, our revised core side financing plan drove approximately <unk> <unk> of incremental accretion relative to our prior attributable <unk> per share outlook, which includes a negative hit of roughly <unk> <unk> driven by higher interest rates on our debt financing relative to our previous assumptions.
Moving to slide 12, let's look at our capital deployment expectations for 2022, which are updated compared to our prior outlook, while continuing to reflect our focus on driving strong sustainable <unk> per share growth.
First we now expect to dedicate approximately $2 7 billion.
Subject to board approval towards our 2022 dividends.
This is down slightly from our previous guidance of $2 8 billion, which is simply a function of our reduced common equity issuance and continues to represent approximately 12, 5% and year over year growth on a per share basis.
In regards to Capex, we are decreasing our outlook midpoint by $60 million in total with development, capex, increasing $15 million and with redevelopment capital and land acquisition spend decreasing $25 million and $50 million respectively.
Our development plan continues to assume the construction of approximately 6500, new sites globally at attractive returns in fact on the nearly 3000 sites constructed in the first half of 2022, we saw a day one NOI yield of roughly 14% Lastly, we continue to.
To direct roughly $300 million towards our U S data center business largely associated with development spend.
Now turning to slide 13, and with our core side financing plan largely complete I will briefly touch on the strength of our investment grade balance sheet, which is fundamental to the execution of our stand and deliver strategy.
Our long standing financial policies, including establishing optimal levels of leverage in an appropriate mix of debt instruments guide the management of our capital structure, which together with our strong business fundamentals provide American tower with continued access to capital markets at attractive terms.
As you recall, the American tower proactively access to debt capital markets in 2021, taking advantage of historically low pricing raising roughly $3 billion in senior unsecured notes in the second half of the year and a blended cost of approximately one 6%.
With our fixed debt percentage at the time rising to over 85%. This effectively allowed us to lock in low rate debt for future strategic initiatives, including the <unk> acquisition, which in turn reduced our dependency on the debt markets in 2022 as part of our final financing plan.
We believe this strategic and efficient management of our balance sheet puts us in a strong position as we close out 2022 and look beyond as of the end of the second quarter and pro forma for the close of the <unk> investment in our U S data center business, our average cost of debt stands at about two 6% with an average remain.
The tenor of over six years.
Since 2010, we have reduced our average cost of debt by approximately 250 basis points and increased our average debt tenor by about one year by accessing the long part of the yield curve proactively refinancing our debt and capitalizing on low rate environments. In addition, and more recently we.
Also focused on diversifying and expanding our capital sources and structure by issuing euro denominated debt, establishing our ATM program.
And efficiently executing on public equity raises and partnership agreements with leading global private investors.
With a strong liquidity position of approximately $6 $7 billion on a pro forma basis inclusive of stone peak proceeds and other financing activities subsequent to the quarter end and a staggered maturity profile, we feel well positioned moving forward as we focus on organically deleveraging back to within our normal.
Net leverage range over the next couple of years.
Altogether, we see the strength of our financial position as a competitive advantage for American tower, whether executing on our growth strategy navigating economic downturns or volatility in the financial markets and we remain focused on and committed to our thoughtfully established financial policies that have guided our financial strategy for the <unk>.
Last decade.
Finally on slide 14, and in summary, Q2 was another solid quarter supported by leasing demand across our global portfolio of communications assets strong execution of capital markets initiatives, including financing for the core site acquisition and meaningful high yielding new asset development activity.
Our high quality set of assets and established market positions continue to benefit from secular demand trends driving <unk> and <unk> initiatives across our global footprint, while the strength of our balance sheet and cash flows.
As is well positioned to manage and grow the business through potential market volatility and uncertainty.
As we look to the back half of the year. We are excited about our growth trajectory and remain focused on executing on our strategic initiatives, which support our long term double digit <unk> growth aspirations.
With that I'll turn the call back over to the operator for Q&A.
Thank you and ladies and gentlemen, if you do wish to ask a question. Please press one of them zero on your telephone keypad.
You can withdraw your question at any time by repeating the one zero command and if youre using a speakerphone. Please pick up the handset before pressing those numbers.
One moment here.
Well go to Michael Rollins with Citi. Please go ahead.
Thanks, and good morning, two topics if I could first on the U S. I'm curious if you can give a further update on the U S leasing environment and specifically provide.
Provide an update on how American tower is tracking again the previously provided.
Growth target of at least 5% organic growth beginning next year and then also sorry, just one other.
Part of this is just are you seeing any change in the environment.
AT&T announcing the acceleration of the C band deployment.
And then.
Just a second topic on India, if I could.
Okay, Hey, Michael I can start and Rob can join and we're right on track with our previously planned growth rates going forward we would.
Expect kind of an acceleration in the back half of 'twenty two.
And then even a further acceleration into 'twenty three so we have so much visibility with regards to Mlps I think we're in a really good position to be able to track what that growth looks like but everything is right on track as we've laid out and with regards to AT&T nothing outside of the ordinary I mean, all the carriers.
Our building at a.
A great pace and as I said very consistent with how we've seen in the market and how we see it developing over the next several years.
Yeah, and Tom maybe I'll just add in there in terms of.
Further this definitely on track comment.
Guided to approximately 2%.
At least an app for 'twenty, one and 'twenty two and as you can see it's numbers Michael right on track.
With that hit about two points.
With that last year in your view.
So it.
It will hit 1% this year.
That puts us right back to that 2% I will remind you that there is a pretty big headwind from the sprint churn that expected growth rate in that.
Equal about 4% headwind going into this year, so that 1% would have been a lot close to 5%.
That's great.
And then the further down from 23 to one.
23 out to 'twenty seven is the.
Yes.
Is around 5% on a reported basis was about.
Adjusted for the for the sprint churn kind of coming out of that.
Well on track for that we've got about two thirds of that revenue revenue growth already committed within the framework of our holistic agreement.
We're also seeing that.
Colocation and amendment contributions from new Biz.
The U S. So we are on track with that metric for this year that is growth over last year, we do expect Q3 and Q4 to be at higher levels than what we had in.
Q1, so that's the acceleration we're seeing through.
Levels as the net.
Next year based on the way that our holistic deals are struck.
Different of dish as well as the acceleration in spend from the carriers.
Sure.
Thanks, and just one question on India I was just perusing over the supplemental one and on page 12, the historical tower count it.
It shows in the APAC region, presumably India.
That the that there's been this negative adjustments in sales or just shutdowns of towers, that's been running at an annualized rate of 3% to 5% and just curious.
When this optimization could substantially slow down or.
And if that then release is a headwind on the growth of this segment.
Yes.
Good morning.
Sure.
Okay.
Just a quick one more sorry.
Alright, Mike I had a little computer difficulty here I just had two.
To address yes, and when it comes to the to the endear.
We commissioned it really is associated with the consolidation that we've seen in the India market with the churn that we've had over the last several years.
As you are well aware of with that when we have single tenant towers, but we don't see additional lease possibilities in the near term. We did end up taking those down to kind of rationalize.
The operating expense.
Aspects of kind of what we're what we're doing in India. So as you see churn in India continue to moderate which we've seen to a great extent over the last couple of years U S. Decommissioning activity in the tower reduction slowed down as well and there is usually a lag between when you see the churn come through our revenue numbers.
And then when you see the towers, some towers actually come out of the tower counts.
Thanks very much.
And next we'll go to Simon Flannery with Morgan Stanley . Please go ahead.
Thank you very much good morning.
I was wondering if you could talk a little bit about the.
The data center portfolio I think you referenced in the slides.
Performance, where it looked like the sequential numbers were good what are you seeing in terms of bookings trends backlog things like that industry pricing and then I think on the European guidance, you talked about pushing some activity from late 'twenty two into 'twenty three I think one of the other tower companies in Europe had mentioned something similar can you just expand on that a little better.
What gives you confidence that it's just a.
Matter of months some are there other things given the kind of recession concern some.
The impact on power prices might be having there. Thanks.
Hey, Tom maybe I'll take on the datacenter side I mean, we had another really strong quarter.
With that with all of our data center business, we have largely completed the integration of our legacy centered and of course right.
<unk> sales strong backlog.
Really positive cash MDM.
Churn is right on track. So we're really pleased they're outpacing as Rod mentioned, we've actually upgraded our our guidance relative to the activity.
That we've seen within within core site.
Really strong top line growth.
New and expanded sales activity.
All very very good mix with new logos with our network new business as well as with Hyperscale, So really balance strong growth in interconnection.
As well, which I think is critical to this.
The competitive advantage that.
We are seeing in the business and fully expect it so couldnt be more pleased with the with.
What the business has been able to generate out of the gate.
Yes.
Just add to that but that's good confidence to undertake a couple of development projects on the data center side. So we have a few of them two of them going on that's driving slightly elevated capex investments in the data Center business. I think you are seeing in our numbers we've got upper.
<unk> 300, $320 million of Capex, which is a little heavier than what we would normally expect to see but we do have a couple of facilities, where the demand is so strong we've undertaken some additional development opportunities within the campuses that we operate.
And then too.
To address your question on Europe , we are seeing a little bit of a moderation in terms of the growth in <unk>.
In Europe , our previous guidance was to have organic tenant billings growth for the full year to be greater than nine and we've taken that back attached to approximately 9% and that's primarily driven because we do see some leasing activity that we expected in the second half of 2022 to be pushed into 2023. So we do see a very strong.
<unk> market in Europe , particularly in Germany with the addition of one on one coming in and the <unk>. The initial deployments of <unk> networks and the way that the organic tenant billings growth will exit this year is going to be approaching 7% sort of ethylene exit run rate, which was a really strong number for us.
Couldnt be more happy with the timing of what we're seeing in Europe , and China the demand for our assets through the healthiest portfolio. We've picked up a lot of really good urban assets, including a lot of rooftops and we're finding that the very desirable in terms of carrier activity going forward and that's what's really driving the growth rates. There. So it's really just.
The timing.
In Europe , but the growth rates are released.
Great and on the data center tone or any updated thoughts on the edge opportunity now that you've owned it for six plus months.
Yeah.
Yeah, Yes, there is I mean, we've actually.
Created internally and edge Advisory board were setting up an edge lab.
We scan our sites and have done really the full evaluation of our site that can support our megawatt and two megawatts of activity. We're.
We're looking by the end of the year to actually <unk>.
Establishing and start to build out.
Few of these megawatt facilities.
And we're in discussions with all of the potential participants looking to take advantage of the opportunity. So it's still early days.
As you recall that the reason for this particular transaction.
Underlying business itself.
Suffocation of our existing business into the broader digital infrastructure industry, and then the potential for being a major player in terms of developing what that edge would looks like and so we'll have more about this on our third quarter call when we talked more about technology.
Thank you.
And next we go to line of Eric look out with Wells Fargo. Please go ahead.
Great. Thanks for taking the question.
First I wanted to touch on you mentioned some of the churn in Latin America, and maybe you could just expand on that whether that specific to the oi restructuring in Brazil.
How do you expect that to flow versus some of the churn you've had in Mexico, and how you see that trending.
Into next year and then.
Rob I'm curious on the bad debt Reserve you mentioned any color you can provide in terms of region that you are closely monitoring in terms of collections or payments activity that would be helpful. Thank you.
Yes, good morning, Erik Thanks for joining so the terminal, which is Latin America is primarily.
Telephonics extra.
So in Nextel.
And in the Brazil market, we have had to be done.
Two experienced the Oi churn.
<unk> has consolidated.
At regions.
The contract that we have with OE actually has enough.
Remaining on average across those there on about 7500.
Sites or so.
It makes up about 1% of our global rich.
We've got quite a long time here, if you kind of work through the churn trends.
Okay.
The only restriction that's happening there that's something that you'll see through the next several years maybe longer than we're certainly in discussions.
With the categories. So we're picking up those assets.
Just talk about maybe restructuring those contracts figuring out.
On the churn count, but we are in a pretty good position with already because they do.
Averaged over six.
Over six years left on the.
On the contract there.
And then in terms of the bad debt in terms of where we're seeing the.
Bad actor.
Activity.
Really in India, and a little bit in that but that's been recently here as we've actually reduced our reserves by about $8 million or so in Q2, and we have a plan and the outlook to further reduce that asked for a total of about $20 million of flexion.
Q2 were really quite strong for us around the globe.
In India.
We're happy to see that and based on all the discussions that we have had indeed.
We need to have with our customers, we expect lapses in India will remain the same.
With those expectations that are in our outlook, which would allow us to the full year reversed about $20 million of prior bad debt reserve.
We did reduce that youll see it in the presentation by about $10 million in assets.
Of reversing some of those reserves that they'd have moderated after that.
But it's still good news for that for the year.
Great. Thanks.
And we can go now to Ric Prentiss with Raymond James. Please go ahead.
Good morning, everyone.
Good morning, Rick Okay, a couple of questions.
First obviously I think its important you guys are focusing on attributable <unk>.
Help us understand what a full year impact of the new <unk>.
It could be as far as demand or convert 14 in the current year and the $20 million minority interests.
And then I've got two hours quickie ones.
Yeah sure. So the way that we are in.
And the way that we've got the Mackay to check that.
Hum.
Next year, we are actually in Q4 of this year full year kind of utilized Roderick.
About $200 million.
$50 million of that is really concentrated.
And the data center business that.
So that's kind of the exit run rate and the balance roughly the $150 million is what we have in Europe .
So that's kind of what you can think of.
From.
The minority interest piece of our <unk> going into next year $200 million 150 in Europe and about $50 million.
On the datacenter side, and that's been mandatory youre going to see that through as a deduct to two.
<unk> the mandatory that $7 2 million at single digit interest rate you just calculate the math and that's what you'll see in terms of the.
<unk>, if I may ask that flow from that.
Okay.
One is you guys, obviously know I really focus on removing amortization of prepaid rent from valuation of noncash item interestingly a number smaller than crown Crown did put a table out there talking about what they see as far as the amortization of prepaid rent going forward is that something you guys would consider you know I've got one other quick one.
I don't know Rick if we would put out a table, but I can tell you. This year for the full year, we're looking at about $110 million or so and amortized revenue coming through our numbers that's about a little bit from last year last year. We're about 140 I think from a go forward run rate basis, you can think of that line item Dan.
Around $25 million to $30 million on a quarterly basis, that's what we see with <unk>.
Don't get a whole pretty consistent.
As we go forward with it.
Talk about art amortized revenue line.
25, and 30 complained per quarter and it's about 100 ambition.
Makes sense and last one for me is we're getting a lot of questions from investors on data centers, we talked about the growth capital opportunity there core site.
What do you think maintenance Capex is in the data center business and one I think unusual question you've got but it came up is what would cause data centers to become obsolete or individual data centers become obsolete.
Yes, maybe I'll take the first one Tom and then.
Sure.
You can handle the second one so that the maintenance Capex is about $20 million. This year for us in our data Center business Records FEMSA roundabout, three maybe 4% of the data center revenue.
We don't see that changing at all.
I, just think about the maintenance capex for the business.
And Rick you know relative to your second question I mean, it all comes down to really barriers to entry.
And if you think of the asset that we have with core side. The barriers to entry are incredibly strong with the interconnection capability with the cloud on ramps.
And so it's hard to think about.
World and which.
Our customers are not going to be still looking at kind of this hybrid environment to be able to connect with the cloud to be able to really use data centers as a sales channel for themselves as their interconnection within the business.
So.
We don't anticipate.
Any any of that kind of activity you said, but I must say that I think this particular asset.
Within core site and that we're building out really continues to build up those barriers to entry and and that's going to be critical it's much like the tower business. We built up a strong barrier to entry with exclusive pieces of real estate. We have that is our strategy to find those assets that have those strong barriers that we can continue to develop.
Second.
That makes sense, thanks, guys I love hearing barriers to entry.
Okay. Thank you Ed.
They will.
And next we'll go to David Barden with Bank of America.
Hey, guys. Thanks, so much for taking the questions.
First.
I guess maybe rod.
You in your script when you were talking about the partnership with Stone peak mentioned something to the effect that you are creating a platform for data center investment given the stone peaks experienced in the comm infrastructure space.
I think one of the.
Concerns some people have.
About American tower's foray into data centers is that it's going to be a big call on capital at the margin and we just don't know how big it's going to be so if you could kind of clear up a little bit about how you think this platform.
You know it might be looking at acquisitions and investment in calls on capital and then second maybe Tom I don't know if you have a view on this but.
With respect to American tower, and not having a holistic.
Melee with Verizon at this stage.
Do you feel that A&P contributing factor to e&ps kind of domestic.
Same store sales growth performance this year it might be that the Verizon this allocating.
Business to its other tower partners in the early stages of its C band build in and that we need to wait for them to come around to be common E&P customer. Thanks.
Alright, David let me take that one.
And then I'll, let rod and then I'll come back in.
Add onto that the first one relative to how Verizon is building out their C band, it's really hard to tell.
In terms of.
Weather.
It's happening with other carriers who have.
More holistic type of an MLA versus ourselves I don't think so candidly I think Verizon is being very as they always are.
Measured in terms of how they're rolling out C band.
And I would expect candidly over the next half of the year and clearly into 'twenty three.
Some real investments that they're gonna be making it to the sides, we represent a significant piece of their portfolio.
And strategic strategically located in some critical markets.
That.
That I know Verizon is going to want to drop in C band on the on their side they have to.
And I would expect that to see in the second half relative to the timing in terms of us not having that.
It's really difficult to say, whether there has been a timing difference in terms of when we're going to see that type of activity as I said I don't think so.
But more importantly, I would expect to see significant activity really ramping up in the second happened at the end of 'twenty, three which is the more important element.
Yeah, and David with regards to your question on the on the data Center spend this year, we do have capex in the plan of about $300 million, maybe a touch over a couple of development projects that really will not be recurring.
So we're looking at about $200 million.
The historical annual investment for development projects, and total capex, including maintenance Capex, and that's where we expect to stay going forward that would allow us to keep ahead of kind of the net absorption forward looking two years, they need to make sure that each of our facilities has available megawatt capacity in order to do that.
We expect to reinvest about that $200 million give or take which is what <unk>.
Our site had been doing historically, maybe hours will be a touch higher maybe they were closer to 150 <unk> between $1 50, and 200 will probably be closer to the 200 or maybe a touch.
Not to over so we're not looking to compete on a national scale and the data center business, we really.
<unk> core type because of that.
Cloud centric network dense nature, the nature of these assets and kind of the geographical spread throughout the U S.
And really good proximity to our tower sites, where the facilities and.
In L. A silicon Valley, Chicago, Dallas, Denver, Boston, New York, Northern Virginia.
So we've got a nice spread of these assets.
The high quality nature of that is what's giving us the.
Nice growth rates for us.
Mentioned earlier up in that up in the 10% range, which is well above our underwriting expectations of 6% to 8%.
See really strong demand for these.
High quality and we're looking to really take these assets and potentially in the future connect them to ourselves kind of cloud on ramps and interconnection facilities at.
At the tower site, that's the real significant upside with that said, we'll be reinvesting the core side cash flow back in to keep ahead of that two years of net absorption on the megawatt capacity and then you may see it at a data center here or air throughout the last.
But not a major change in capital allocation certainly.
That's super helpful guys. Thank you so much.
And well go to Matt <unk> with Deutsche Bank. Please go ahead.
Thanks for taking the questions.
Just maybe to follow up on the prior one around.
Expanding the platform I guess more broadly.
Beyond data centers, just thinking about the broader comm infrastructure portfolio are you seeing incremental opportunities internationally.
That may not have been as present a year ago.
And then secondly, as it relates to India.
4% organic growth.
This quarter, we noticed a pretty big step down in churn I'm just wondering if.
If theres any additional color you could share there and whether thats. Maybe this quarter is maybe a better run rate to think about from a churn perspective in India on a go forward basis. Thanks.
Yeah, Matt I'll take I'll take the first one rod can take the second one you know we're very focused on the U S. As we said yeah. There are a lot of opportunities outside of the United States and as a result of the positioning that we have of course, we get approached by.
I have many many different players develop but we're very focused on the U S and as Rod said to the extent that there is outsized capex, we're going to be incredibly measured about how we spend that but it will be at the tower sites.
Remember the edge is all about the opportunity.
<unk> itself.
And we've identified.
The over 1000 sites that with power and interconnection could support upwards at least a megawatt of capacity and so we're gonna be looking at that where we can take it to a megawatt where we can take it to where we could take it to three and to the extent that we're able to develop the demand from a customer perspective, we will look at building.
That kind of capacity out, but it'll be very measured it'll be based upon demand.
And it will largely be in the United States.
And Matt Good morning, Thanks for joining the call. So regarding India, we are guiding to 2% to 3% organic tenant billings growth in India for the second quarter, we did see.
A higher number than that close to 4%, which was nice to see that was driven by consistent record of stable organic new business, we have a 2% escalator of course.
And then we did see.
A reduction in churn in Q2 from from Q1, and certainly a further reduction from the prior year quarter.
Quarter, but so when we go forward one thing that I will highlight is in Q3, we do see.
A higher level of churn happening in Q3 compared to Q2, so don't be surprised if you see that organic tenant billings not pull back a little bit.
The 4% that probably below 2%, maybe 1% that will be temporary and youll see it come back up in Q4 up in the 3% range. So I think for now we are constantly optimistic about India. There are still some churn event that we're working through.
And we feel good about a 2% to 3% number for this year and certainly as we go forward, we hope to see and expect to see continued moderation on the churn line solid new business activity that allow us to.
To grow from that 2% to 3% organic tenant billings growth, but of course, we'll address that.
And next February when we give guidance for 2023.
That's great. Thank you both.
And actually you can go to Phil Cusick with J P. Morgan. Please go ahead.
Hi, This is Richard for Phil just wanted to follow up on the international Tolerability of 40 to 50000 over the next few years I wanted to get a sense of how much of that is contracted versus we have good line of sight into.
Okay.
Yeah, I would say.
We have a good line of sight into those I'm. Currently there are elements of that that are contracted.
Healthiest transaction.
That we did over in.
In Europe . There are about 3000 sites that will build for Telefonica overtime is also building for orange over time that are contracted I don't want to put too firm numbers on there in terms of Orange piece when it comes to India Africa, and Latin America, it's more opportunistic, but we do have a really good run rate in terms of building sites. This year.
We'll build around 6500.
Towers, that's a little bit above where we were in.
In the prior year, and we see that run rate as being sustainable.
Going forward and as of course, you know we will highlight this often those build to suits. There is some of our most attractive capital deployment opportunities and we're seeing double digit NOI yields day, one from those.
We constructed sites around the globe. So we have a high level of confidence in that 40 to $50000 number some of its contract some of its more opportunistic but the pipeline is robust.
Great and the follow up on the yields are higher on day, one, but what kind of co location I guess expectations do you have on those builds overtime and can you give us any color around that.
Yes, I think we would we would view them to be very similar to the rest of our towers and be comparable to the market that they're in certainly the towers, we build we like to see that they are multi and it is of course, and we know that the growth in mobile data consumption around the globe continues to it.
Two are running at a really solid clip in that 30% range or even higher in some markets.
So certainly getting additional tenants on those sites as something that's really important to reduce have a line of sight to see.
And we think with these new builds we do see them.
In the north of 20% of NOI.
Yields on most of these most move that so.
Time will tell but given the demand for our.
Critical nature of these power assets globally, and the fact that a lot of these emerging markets as well as Europe .
It's a new technologies, either either building out <unk> networks or in the case of Europe transition now to <unk>, there's a need and a demand for more and more time. So that gives us the confidence that we will be able to attract additional tenants on the site.
Yes.
The last follow up for me on the data center side just to clarify there is no additional capital coming in from stone peak with either the new builds but there might be if there was an acquisition a small one or whatnot.
Yes, I think that's right away and we announced the $2 $5 billion investment, which will give them a minority stake that'll be when theyre preferred.
Investment is fully burdened there'll be at 29% owner of the data center business and certainly if there's any capital requirements needed to fund our data center business that would be a capital call. So all investors.
And that's.
On a pro rata share.
Sure.
And then certainly if there's M&A opportunities that require capital calls of course again it'll be the same situation will be.
Funding that.
Together.
Alright, thank you.
And we have time for one last question, we'll go to line of title IV with UBS. Please go ahead.
Great. Thank you in the U S can you provide a little bit more color on the activity you're seeing from dish and a question on capital allocation.
You typically bring back shot share buybacks. After an issuance are ahead of like mandatory conversion going forward can we expect you to balance maybe debt reduction versus opportunistic buybacks.
Thank you.
Sure I'll do the first one on dish, they're right, where we thought they would be I mean, they've been very measured in terms of their deployment they have been very active.
Got a couple of critical markets that they are bringing up.
And we have a comprehensive MLA with them and that we're seeing good activity across across the country.
Yeah, and then relative to the capital allocation question, you've heard us say it many times, but the first priority of course is funding our our dividend not only funding for growing the dividend for this year will have a double digit 12, 5% growth rate on the dividend.
And in this in the current environment that we're in we certainly will be focused on delevering.
No surprise to anyone on the call I'm sure that we are outside a little high of our of our target range of around 5% below 5%.
We ended the quarter at about five eight that's about $5 five as new pro forma the investments on <unk>.
So we still have some delevering work to do which we will be focused on so we will be focused on organic growth will be focused on driving 10% per.
Their growth will be focused on delevering.
We'll be focused on our capex plans around the globe funding the build to suits that we see.
Very good returns on across all the markets that we're currently in.
Then.
To the extent that there are opportunities to buy back shares at attractive prices from time to time or fund additional M&A from time to time, that's accretive and fits within our disciplined approach will balance those two.
<unk> opportunities and make the choice.
Shareholders and drives the most ethical for clear growth.
Great. Thank you.
Okay.
And speakers I'll hand, the call back to you.
Thank you everyone for joining today's call. Please feel free to reach out to the Investor relations team with any questions. Thank you everyone.
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