Q2 2023 American Tower Corp Earnings 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 then zero on your device I would now like to turn the call over to your host Adam Smith Senior Vice President of Investor Relations. Please go ahead, Sir good morning, and thank you for joining American tower.

Second quarter 2000 twenty-three earnings conference call, we have posted a presentation, which were referred to the router prepared remarks under the Investor Relations tab up our website Www Dot Americans how're Dot com.

On this morning's called Tom Bartlett, our president and CEO will provide an update on our international business and then Rod Smith, our executive Vice President's you iPhone Treasurer will discuss R. Q2, 2023 results and revise for your outlook.

After these comments, we will 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 20th twenty-three outlook capital allocation and future operating performance are.

Recollections expectations associated with Vodafone idea in India.

And any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future it could cause actual results to differ materially from those expressive. These forward looking statements.

Such factors include the risk factors set forth in this morning's earnings press release.

Those set forth in a Form 10-K for the year ended December 31st 2022.

As updated in our upcoming form tend to for the six months ended June 30th 2023, and another finally as we make with the S. E C y.

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 Thanks to everyone for joining this morning's call.

Consistent with our past practice my comments today will focus on our international segment, which consists of a well diversify high growth portfolio of assets across T developed and emerging geography's outside of the United States.

Diving into our international operations.

In light of the recent excitement surrounding the potential arising from AI workers I'd like to spend a moment highlighting the demand we're seeing in our core site datacenter business, where we've seen 9% year over year growth both revenue and operating profit through the first six months of the year.

Following record levels of side, new business in 2022, and Q1 of 23, we continue to see demand for data centers outstripping supply and our initial underwriting expectations elevated preleasing in a pipeline that points to an extended opportunity for increasingly profitable growth.

Each of these factors as contributing to strong pricing trends and the ability to be selective in terms of shiny new logos and expansions of existing customers and cheering accretion to the value of the interconnection ecosystem and overall F. F O growth, particularly once we begin commencing the remainder of the record new.

Business, we sign over the last year and a half.

This is all before factoring in expectations for elevated demand for me I use cases.

While much of the immediate demand the market today's coming from Hyperscale requirements the longer term opportunity for interconnection by poor site is just as significant and is arising from several key demand drivers.

First we've already seen an acceleration and outsourcing decor side as hybrid iced tea and Multicloud access are becoming more relevant will continue digital transformation across all workloads is.

Enterprises increasingly leverage new generative AI models for business and customer applications they'll need to deploy servers that require more power and cooling then on premises datacenters can typically handle.

At the same time, we expect existing enterprise customers, who are building AI into their products and operating miles will expand their power in space reforms foresight with its flexible and scalable auto and speed to market benefits is already well position support these expected use cases today.

Second we're seeing today's cloud enabled large language models requiring connections to proprietary distributed datasets used for training, which course I as an interconnection ecosystem. It's a nationwide distribution of cloud on Rams is well situated to serve.

And finally, we see a significant incremental opportunity arising from the use of hybrid and custom large language models for training in infancy.

Low latency high power density and distributed high performance Confute is expected to result in elevated activity across our existing course I'd campus footprint.

Over time, we see a potential for these dynamic requirements to push demand for a more distributed compute infrastructure for which are of course I'd portfolio and ultimately are distributed footprint of land parcels on the tower sites may be ideal locations over the long term.

Simply put the ongoing demand trends in the data center space and the emergence of generative AI use cases are providing American tower coresite, an opportunity to play a central role as an infrastructure provider against a backdrop of technology evolution, that's expected to drive a step up function inquiry.

Used in computing power demand.

As a result, we see a compelling opportunity to continue delivering the industry, leading yields Uninvested capital core site has historically achieved which rod will touch on more later.

With that let's turn to our international challenges, where our objectives have remained clear since we began expansion over two decades ago leverage our proven capabilities and expertise to selectively invest in the world's largest free market democracies with regulatory structures that are supportive of the neutral.

Host How're model healthy competitive wireless industries, and high quality assets and Counterparties.

At the same time, we focused on investing in markets that are in various stages of network technology development, and where we see a path to establishing nationwide scale by.

By bringing these factors together, we believed we could both augment and extend our growth trajectory leverage our platform and expertise to create incremental value in selected markets and add to an already compelling total return profile for American tower shareholders is.

As a critical component of this portfolio management and capital allocation program, we measure and analyze our assets on an ongoing basis to ensure the marriage identified in our initial investment underwriting remain consistent today.

As you've seen recently such evaluation his lead to select divestitures, including our Mexico fiber business and operations in Poland, and a strategic review of our India business.

Take away from these analyses together with are on the ground experiences across our global business continue to shape. It of all of our approach to capital allocation and the criteria, we use to support ongoing capital investment in the setting of appropriate risk adjusted rates of return.

Today, we have a leading international portfolio of nearly 183000 sites that are contributing approximately 45% and 36% towards consolidated property revenues and operating profit, respectively and are expected to deliver more than 8.5% in total tenant billings growth, including greater than.

Is 6.5% organic growth in 2023.

The secular demand trends driving our international growth remain consistent.

Similar to the U S industry estimates forecast roughly $35 billion and carrier capex across our non U S markets in 2023 and forecast suggests mobile data consumption is set to grow in the 20% to 30% range on average in these markets over the next several years.

Which would mark a continuation of the trans we've seen over the better part of the last two decades.

Globally.

Our portfolio in key markets, which are in varying stages of network development relative to that of the U S where some level of five G coverage deployed over a combination of low and mid band spectrum has reached approximately 95% of the population.

In Europe that number is closer to 60% while Africa Latin America are closer to 7% to 8%, suggesting a long tail of five G and other next generation technology investments requiring significant incremental network density and sell side points of presence.

Critical to our expansion strategy has been our discipline in establishing appropriate contract structures with the leading in the nose and each geography.

Although we've experience certain consolidation driven churn events across our international portfolios over the past several years, we believe that through our proactive steps to increase exposure, leading multi-national counterparties, we used strategically reset our international customer base enhancing the quality of earnings and predictability of <unk>.

Rose.

In fact in Africa, approximately 90% of our queue to property revenues are derived by market leaders Airtel M. T N, Vodafone and orange as compared to roughly 80% five years ago.

In Europe , we similarly see over 80% or property revenue supported by Telefonica, Orange, Vodafone and Deutsche Telekom versus less than 60% at the same time in 2018.

Latin America, which has a more fragmented customer base given our operations across eight markets were still generating approximately 75% of our property revenues from Telefonica AT&T America mobile and Tim.

From a little over 60% over the same time period.

In addition to focusing on partnerships with market leaders, we've underwritten attracted leasing terms real estate rights and C. P. I linked escalators and a vast majority of our contracts outside of India.

This disciplined approach to securing grow critical contract terms is evident when our results in queue too with a combination of gross organic new business and our escalator generated just under 13.5% growth in aggregate for Latin America, Europe , and Africa, roughly 300 basis points over hours.

Trailing five year average.

This reflects our ability to complement new site leasing with attractive amendment growth across our international operations as we've done in the U S. Historically.

In fact, looking again at Latin America, Europe , and Africa of the roughly $100 million, we've generated through co location, an amendment growth over the past 12 months around half bowls and each region and in the aggregate has come in the form of amendments illustrating our ability to monetize various stages of network investments.

Nichols and our success in franchising are proven U S tower model throughout our global operations.

There is perhaps no better example of the benefits of remaining disciplined in terms of contract structure.

Europe , we're over the last several quarters CPI linked escalators in Germany, Spain had provided a boost to organic growth profile and where again roughly half of our new business growth has been driven by five G related amendment activity on existing sites.

And 20 twenty-three these factors as well as a healthy leasing environment are coming together derive an expectation or approximately 8% organic tenant billings growth in Europe , including an expectation for an acceleration and growth from co locations as we exit the year.

Is the five G investment cycle continues our contract structures, along with our work to develop leading operating capabilities in the region and an ongoing expectation for low churn should allow us to deliver solid organic growth in the region for the foreseeable future.

Furthermore, the importance of scare we built as a distinct competitive advantage has never been clear.

To our global diversified presence in decades long track record of operational Excellence, we've established American tower as a trusted strategic partner for our customers.

This is exemplified by our Nubile program, where we've partnered with meeting carriers to rapidly deploy new sites, which is driven some of our highest returns on invested capital.

In fact, since we began expanding internationally rebuilt over 45000 international sites, which are cheating in N y yield of approximately 25%.

And approximately 65% of these sites have been built since the start of 2017 alone. Shortly after we crossed 100000 international site Mark.

Nearly 8000 of these sites have been built in Africa, where are scaled presence and strategic relationships with key wireless operators have afforded us the opportunity to build several thousand new sites in recent years. It typically deliver mid-teen yields on day one.

As we continue to augment our scale and T markets across the region four G investments, which are very much in the middle innings today are driving compelling organic kind of billings grows in her existing assets, including an expectation for greater than 11% growth in 2023 of which approximately 7% it's coming from <unk>.

[noise] locations and amendments the highest of any region and.

And as the four G cycle rounds out over the next few years and we move toward five G and the densification requirements that come with it we expect capacity utilization across the acids rebuilt over the last several years to result in ongoing compelling growth.

Meanwhile, a regional scale of leading capabilities have resulted in the opportunity to invest in accretive platform extensions stretches our powers of service program in Africa.

As you'll see in our recently published sustainability report drew 20 twenty-two we've invested approximately $345 million in this program, primarily in solar arrays and lithium ion battery solutions.

As a result, we decreased annual diesel consumption in our sights in the region by an estimated 43 and a half million liters when compared to business as usual operations and we've reduced our greenhouse gas emissions intensity per tower by 21% against our 2019 baseline.

Based on the demand to extend this program. It seems clear that the solution provides compelling differentiated value to our customers.

At the same time the program advances our progress toward meeting are science based targets and supports our customers network sustainability goals.

Meanwhile, similar to our new build programs. These investments had been among the highest return opportunities we've seen.

And is more power intensive five G begins to be deployed at scale more broadly we believe will be well positioned to continue extending the reach of this high return program to new geographies overtime.

Finally, we're more focused than ever on leveraging the benefits of our scale to maximize the margin profiled the business.

For examples who are global business services organization, we've invested in standardization across lease management and other transactional processes, it's driving both significant increase in productivity and run rates savings on an annual basis.

Through our procurement organization or beginning to truly leverage our scale as a buyer to reduce input costs and or build to suit programs drive cost optimization. When it comes to power and energy opponents and work with other critical vendors in our supply chain to realise incremental efficiencies.

And while we're beginning to see the benefits of these and many other initiatives and our operations today. We believe we have a significant opportunity to transform our organization into one that is truly global incapable of maximizing the operating leverage inherent to the business to expand on already attractive margin profile.

In summary, we believe our global platform of assets is exceptionally position to benefit from what we expect to be a massive wave of incremental infrastructure demand required to support the technological advancements in network capabilities will be getting to see in the market today.

By complimenting R. U S platform with a continued disciplined approach to international growth and a focus on leveraging our scale capabilities and learning from over two decades of international U S. Operation, we can provide compelling growth and margin expansion and augmented return opportunity for investors and a differentiated value.

<unk> for our customers and many years to come.

With that I'll turn the call over to Rod to go through the quarterly results and updated outlook.

Thanks, Tom Good morning, and thank you for joining today's call as you saw in our press release wait a strong second quarter, reflecting a continuation of resilient demand for our diversified global portfolio and solid operational execution across our organization.

Before I walk through the details of our acute your results and revised full year outlook I'll start with highlighting a few items from the quarter.

First we continued to strengthen our balance sheet raising approximately $2.7 billion in fixed rate debt through a combination of euro and U S. Dollar denominated senior notes at a weighted average cost of 4.9%.

As a result, we decrease our exposure to floating raped at two approximately $6 billion or less than 15% of our total outstanding debt as of the end of the second quarter next the momentum experienced across our global business in Q1 continued into the second quarter without performance across new business <unk>.

Escalations and churn, resulting in another quarter of over 6% organic tenant billings growth, allowing us to raise our full year expectations across our Latin America, Europe and Africa segments. We.

We also had another strong quarter at Coresite were elevated leasing volumes since our acquisition continued into Q2 and we're further supported by solid pricing trends, hi, renewal rates and interconnection growth of approximately 10%, which together with our tower business drove property revenue growth of over four person.

Sent in the quarter.

Complimenting top line growth and as I highlighted last quarter, we are maintaining a strong focus on cost management once again and Q2, despite an elevated inflationary environment, we kept cash SG&A roughly flat year over year, helping to support and adjusted EBITDA margin expansion of approximately 60 basis points.

His 63.1% or over 100 basis points when normalizing for Vil reserves.

Finally, we continue to engage in active discussions with a focus group of investors around the potential sale of a majority equity interest in our India business as we assess strategic options in the market and exercise we anticipate completing in the second half of the year <unk>.

As always we will remain disciplined impatient with the goal of achieving the best outcome for American tower and its shareholders.

With that please turn to slide six and I'll review, our property revenue and organic tenant billings growth for the quarter.

As you can see Q2 consolidated year over year property revenue growth was over 4% or over 6% on an FX neutral basis. This included U S and Canada property revenue growth of over 5% international growth of nearly 3% or 7%, excluding the impacts of currency fluctuations and over seven per.

Percent growth in our U S data center business.

And the quarter, we recognized approximately $35 million in revenue reserves associated [noise] with Vil short payments as collection patterns and Q2 were relatively consistent with that of Q1.

Moving to the right side of the slide we achieved another strong quarter of organic tenant billings growth, which stood at 6.2% on a consolidated basis.

R U S and Canada segment organic tenant billings growth was 5.1% in approximately 6.5% absent sprint related churn, including another quarter of elevated Colocation, an amendment growth contributions of nearly $60 million or international segments saw outperformance across nearly all reported segments primarily.

The due to a combination of higher than anticipated Colocation, an amendment growth and continued churn delays, resulting in organic Kenneth billings growth of 7.9% up from 7.5% in Q1.

At a segment level.

Africa Europe in APAC produce growth of 12.9%, 8.3% and 5.6%, respectively, each and acceleration off of Q1 with Africa, representing a record for the region APAC delivering its highest quarter since Q3 of 2017 in Europe demonstrating growth of over 575 basis point.

Above it's pre calcium average and.

In Latin America, we did see a modest deceleration a 5.4% as expected.

Consistent with last quarter, we continue to realize benefits associated with CPI linked to escalate as across the vast majority of our international markets. While it continued delay and anticipated consolidation driven churn in Latin America has kept reported chirp favorable to our initial expectations through the first half of the year.

Finally, strong leasing trends across our international business has driven an acceleration and co location an amendment gross contributions across nearly all of our segments, resulting in in approximately 40 basis point improvement sequentially at a consolidated international level.

Organic tenant feelings growth was further complemented by the construction of more than 565 sites with virtually all of the step down relative to Q1 associated with India volumes as we continue to Prioritise capital deployment across our footprint to projects that demonstrate the most attractive risk adjusted rates of return.

Darn.

Turning to five seven adjusted EBITDA grew nearly 5% to over $1.7 billion or approximately 6% on an FX neutral basis for the quarter.

As I mentioned adjusted EBITDA margin expanded to 63.1% driven by elevated organic growth combined with prudent cost controls throughout the business, which allowed for conversion of over 85% of revenue to adjusted EBITDA growth again on a normalized vil basis cash SG&A as a percent of total proper.

Revenue was around 6.8% and over 20 basis point improvement compared to prior year move.

Moving to the right side of the slide attributable a F F O and attributable F. F L per share decreased by less than 1% and approximately 2% respectively. This decline includes financing cost headwinds of approximately 7% and 9% against attributable I F F O and attributable F F all per share growth.

Respectively, driven by the rise in interest rates over the past year.

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 as mentioned earlier wait a solid second quarter and the core performance of the business continues to remain strong supporting an increase to our expectations for property revenue adjusted EBITDA attributable F F O.

Oh and attributable after four per share <unk>.

Next consistent with our prior outlook, we have maintained our vil revenue reserve assumption of $75 million for the year as I noted we.

We saw similar collection trends in the second quarter as compared to Q1, bringing our year to date reserves associated with vil to approximately $70 million <unk>.

Subsequent to the quarter N V. I L made a full payment for July billings and has committed to paying at least 100 per cent of billings moving forward.

In this case, we could potentially see some upside to our outlook assumption. However, we believe it is prudent to leave the full year assumption unchanged at this time.

Additionally, we have assumed lower U S services volumes through the balance of the year, resulting in in approximately 40 million dollar reduction of gross margin as compared to our prior outlook while.

While the recent pullback was more abrupt and our initial expectations moderation in carrier span. Following the recent historic levels of activity. We've seen in the industry isn't unexpected and is consistent with past network generation investment cycles. Despite this reduction we're still seeing healthy levels of activity on our sites, which we expect to can.

<unk> in our guides still assumes over $40 million in services gross margin contribution in the back half of the year, which on an annualized basis is still in excess of any year throughout the four G cycle.

It is also important to note that although our services businesses Nonrun right more susceptible to N period carrier activity and cyclical in nature are comprehensive mla's continue to provide us with a high degree of visibility and contractual protection against activity variability in our 2000 twenty-three property revenue and organic tenant bill.

Sky as well as the growth we've assumed in our long term U S and Canada organic tenant billings growth target.

Finally on the macro side, we have revised our ethics and interest assumptions starting with F. X R. Revised outlook includes the negative impact associated with the recent devaluation in the Nigerian naira with impacts partially mitigated through the Ust denomination of roughly half of our tenant revenues in the market.

This is further offset by the strengthening of other currencies in our portfolio, resulting in minimal FX impacts versus our prior outlook on the interest side or guidance reflects a modest increase to interest expense based on the updated foreword curve estimates of sulfur partially offset by interest income.

With that let's dive into the numbers.

Turning to fight eight we are increasing our expectations for property revenue by approximately $125 million as compared to our prior outlook outperformance was driven by approximately $65 million Incor property revenue supported by increases to the U S and Canada segment, which includes the benefits of several non-recurring one time items.

Along with our U S data center and international segments Complementing our core upside. We're also increasing our outlook by another $60 million, primarily associated with straight line and pass through revenue.

Moving to slide nine we are increasing our expectations for organic tenant billings growth and a consolidated and international level in the U S and Canada, we are maintaining our guidance of approximately 5% or over 6%, excluding sprint churn with an expectation for at least $220 million and cold.

Location, an amendment growth contributions and Latin America, we have increased our outlook from greater than 2% to approximately 4% largely driven by continued delays and anticipated consolidation related churn in Europe , we are raising our guidance to approximately 8% up from 7% to 8% pre.

Obviously supported by modest improvements in our escalator contributions together with an expectation for Colocation, an amendment gross to be closer to the upper end of our initial 2% to 3% assumption as we continue to make operational progress in Germany on leasing up our rooftop assets.

Next we're increasing our Africa outlook from approximately 9% to greater than 11%, primarily due to a continuation of solid new business demand.

Although we are pleased with the acceleration in organic tenant billings growth in APAC in queue to we are maintaining our prior outlook of approximately 4% at this time.

Moving on to Slide 10, we are raising our adjusted EBITDA outlook by $75 million. This reflects the strong conversion of the incremental property revenue I just mentioned facilitated through prudent cost controls, resulting in an incremental $75 million in cash property gross margin along with an additional $40 million.

Primarily due to straight line.

This growth was partially offset by a reduction of $40 million associated with R. U S services business.

Turning to slide 11, we are raising our expectations for a F. F O attributable to common stock holders by $25 million at the midpoint, representing approximately five cents on a per share basis, moving the mid point to $9.70 per share.

Dates to our expectations include the cash adjusted EBITDA increase of $35 million, partially offset by approximately $10 million and other items, including the impacts of interest expense and also a slightly higher minority interests, which is the product of outperformance in R. U S data center business.

Moving on to slide 12, while our capital allocation plans remain consistent relative to our prior outlook, primarily consisting of $3 billion in common stock dividends subject to board approval and $1.7 billion in capital expenditures I'd like to spend a moment to review our approach to ensure adequate capacity for our coresite busy.

This as we support unallocated backlog and expectations for continued future demand.

On the left side of the slide you see our plans continue to assume approximately $360 million in discretionary spend allocated to R. U S data center business in 2000 twenty-three. This level of spend supports a high watermark of cash backlog driven by the record levels of leasing since closing our acquisition at the end of.

2021, similarly, or retail and scale backlog. Excluding hyperscale is also at record levels, demonstrating the strength of the core business and diversification of new leasing.

Which we expect to drive incremental ecosystem value and a continuation of the industry leading returns Coresite has produced historically.

The differentiated nature of the Coresite assets, representing a network cloud in digital platform rich interconnection hub, which in conjunction with large scale purpose built adjacent capacity uniquely positions coresite to support the high performance workloads of today and in the future, including expected incremental eh.

Capacity needs come.

Bind with the favorable supply and demand dynamics were seen across the data center industry. We have a high degree of confidence in our ability to drive double digit stabilized yields on our development investments largely supported by the reinvestment of course sites own cash flows with further support from American tower, and our partners Dopey and.

Fact, our preleasing at the end of the quarter was approximately 36%, which further derisks R capital investments and illustrates the robust demand we're seeing across the space.

While such demand drives the need for incremental investment, we're eager to support the business and realize the attractive rates of return Coresite has historically proven while remaining selective and disciplined and current and future development priorities and decisions.

Moving to the right side of the slide and as I mentioned earlier, we continued to execute on our financing initiatives in the quarter raising $2.7 billion in fixed rate debt extending our average maturity to over six years, while reducing our floating rate that balance to below 15%. We also closed the quarter with net leverage of a <unk>.

Proximately five three times ahead of our own deleveraging path towards our targeted range of three to five times moving forward will remain opportunistic and potentially further accessing the debt capital markets to appropriately manage our investment grade balance sheet.

Turning to slide 13, and in summary, our business continues to demonstrate resiliency and benefit from ongoing demand across our operations, while effectively mitigating certain risks and variability through the strength of our customer agreements.

Supported by a continuation and positive growth trends in queue too we were able to increase the full year outlook midpoints across the majority of our key metrics largely supported by core property outperformance across our tower and data centers segments. We believe our global portfolio strong balance sheet best in class operating capabilities.

Disciplined approach to capital allocation and keen focus to drive long term efficiencies across our organization has American tower, well positioned to deliver strong sustained growth and shareholder returns as we close 2000 twenty-three and over the long term with that operator, we can open up the line for questions.

Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question you May press. One then zero on your telephone keypad.

And our first question is from Eric <unk> with Wells Fargo. Please go ahead.

Hi, good morning, Thanks for taking the question. So I wanted to touch on the the U S. Domestic we've seen environment. We heard from one of your peers that carrier activity had slowed substantially during Q too it looks like you're seeing a little bit of that and your service revenues, but I wanted to talk more about your organic pendant billings growth, obviously reiterated the.

<unk> this year, but as we look beyond 2023, I know you have I think 75 per cent locked in into your longterm guide, but could have sustained slowdown and carrier activity. You know put that five per cent number of potentially arrest beyond twenties twenty-three maybe you could just walk through some of the puts and takes their.

<unk> thanks for the call.

Thanks for joining involved so as the.

The power companies are experiencing a slowdown with the carrier spend we're seeing that is while you rightly point out you see it mostly in the services revenue.

He noticed we took our guy down from.

From over 200 million out about 175 uhm in that process. We also were able to increase our margins and kind of mitigate some of that some of that softness the thing that I would point out there as it relates to services is the level of activity, we see continuing into the back half of the year uhm, even through the slowdown it.

Level of activity, we experienced throughout the four G cycle. So we still view the services business and activity levels is pretty healthy and this is not inconsistent with what we've seen in other technology upgrades with a carries have an initial burst of spending they get their network upgraded on the new technology than U C. S. A P.

Pull back in Capex and that sustained level of new capex under the cycle is typically higher than the last cycle and that's what we're seeing that's what we that's what we expect in terms of the longer term guide unlimited you'd think the way that our comprehensive agreements or setup. We really are in in in very good shape, we think from now up to 2002.

One seven so I'll just remind you in terms of what our longterm Guy was we are scheme.

Average of about 5% organic tenet billings growth in the U S from now till 2027, and that's slowdown does not change our view there because the vast majority of that is <unk>.

That includes the incremental impacts of spring churned without that we'd be at about 6% and again, we don't see that changing because it's pullback or slowdown.

As described errors because of the way that our holistic our comprehensive agreements work. So that's kind of that's the the the the strong nature of those comprehensive agreement that we haven't really does.

Kept us from these fluctuations and spend from quarter to quarter or even ear to ear and within that guide. We do have four to five per cent of of of activity based new business kind of coming through so I think from that perspective, we're in pretty good shape.

Great. Thanks, Rod in just one follow up I wanted to touch on the data Center business, maybe you could give a little more color on the strength you've seen there.

Coming from warrior the traditional retail co location requirements are you starting to see you know increase demand for larger footprint deals, perhaps tied to some of the AI demand we've heard about the market with the cloud service providers and I got given you know the.

The demand Backdropped do you think that maybe capex needs in that business might need to go up in future years or did you feel kind of comfortable with where you're at in terms of <unk> capital intensity with core site.

Alright, Yeah, Eric maybe I'll, maybe I'll I'll start this one and then ride can finish on you know I think the mix of customers. It it's actually been pretty consistent across the cloud enterprise and the network.

Rod mentioned in his prepared remarks, we see I kind of record levels of cash backlog. That's contracted revenue that's gonna hit a balance of this year and into 24, and a little bit and twenty-five yeah. We see a pipeline that's up roughly 70 per cent, we see pricing.

Up 15% on a year over year basis.

Even the renewal rate M O R. A renewal rate is up at the seven per cent level. So there is a significant demand for this assets we have a significant about.

There are under development.

I understand you forget about it in the pipeline so.

We're we're really outpacing the way we even under <unk> wrote the transaction to begin with so really pleased with with what we're seeing cross the data center platform.

Yeah, maybe I would add just a couple of other comments.

<unk> answered there <unk> the overall growth that we're seeing in core site is really healthy you know we saw 10 per cent overall revenue growth in Q1 worsening high single digit growth in queue to so you put that together for the first half and the revenue was up high single digits, which is really robust we continue to see healthy.

Escalators at that business the cash Mark to market is still up in a range of high end of a range even beyond the three per cent on my end of the rain.

The churn as well controlled and within a range of 6% to 8% interconnection growth, we've always targeted 6% to 8%, we're seeing a higher level of growth and that today after that that ecosystem that we have kind of at work producing what we hope to produce and then hitting the capex part of your question you know <unk>, we've got $360 million this year capex.

At about $300 million last year, and we do think that that that's a good run rate uhm it'll fluctuate from time to time, but that's the purpose for our Capex programme of course, I, just really to make sure that we have the adequate capacity available to satisfy the new business in the demand and the backlog. So you can see from the chart, we have an average backlog of it.

$53 million.

Dollars, which will be deployed over the next 18 to 24 months or so uhm. So we're ensuring that we have that capacity available. So.

So that's $360 million really is going into the 28 locations, we have the campuses either adding buildings into those campuses or adding condition space within existing buildings to make sure that we're keeping pace with the demand that we see and the demand is robot so certainly those opportunities to deploy even a little bit more <unk>.

Capital will continue to evaluate the returns and the growth rate from those sorts of things, but all in were exceptionally pleased with the way the data center businesses performing and we do thanks, staying in that free between 300 and 360 in and around that area is is the right place in terms of ensuring we.

Have the capacity available can be the demand in our current facilities.

Great. Thank you for the questions.

Next we moved to Simon Flannery with Morgan Stanley . Please go ahead.

Thank you very much good morning.

I wanted to come back to the balance sheet, if we could.

Updates on the floating right.

The leverage you set in there you want to continue to Delever them I guess.

It also brings in Tom you haven't done a lot of deals since the court type deal and I know you've been in this kind of focus on the balance sheet kinda period. So perhaps you just talk about what what does.

Do you want to get to him on the leverage side of things are you starting to think about more operating on more opportunistic on me in the next five minutes.

Any commentary on the bid offer spreads.

Already talked about.

Right.

You see the opportunity to find things that are reasonable.

Cetera. Thank you.

Yeah. Good morning, Simon Thanks for joining call. Thanks for the questions. So.

Delevering is a priority for us we've talked about that for quite a while it comes in a couple of forms outright and reducing overall that we're focused on on that as well or target range is between three and five times you saw that we ended cute.

Q2 at just over that at about 5.3 times, so a little outside that window, we Wanna get down below five times and that's what we're really focused on going forward.

With that said when we look at our capital programs.

Our our overall priorities haven't changed we still prioritize the dividend and dividend growth. So that that's key we see very good day, one NOI heels and returns in the new build programme. So this year, what deploying about $1.7 billion in capital. We think that's a very good use of capital and resources for our.

Shareholders and then beyond that when you look at M&A as Thomas talked about in the past in our pipeline today, we just don't see anything compelling uhm, that's a combination of.

It's a combination of terms and conditions and markets, where they're available in different different criteria. So we'd look globally. We look at the pipeline. We continue to to to have a pipeline that we review, but again nothing is compelling so with that said and in the in in the specific.

Environment, where the right the Gulf War would interest rate is still uncertain, we think it very prudent to prioritize delevering and debt reduction. We think it is very prudent to to reduce the amount of floating rate that so we lock in our interest rates on a larger portion of our debt. So going forward you know our target range is about 20%.

Went for floating right that we've got that down to around 15% and I think in Q3, you'll see us continue to be offer Netflix depending on where the rates are in the U S. In a way the tenure as in the U S and the benchmark over in Europe , you could see it back in the capital markets to reduce our exposure to floating rate that even below the the 15th person.

And you'll see us going forward this year and well into next prioritizing delevering and trying to get down below five times.

Yeah. So I mean, I think I would just underscore I I think it comes back to rot, saying is if there's nothing strategic out there there's nothing compelling we find it much more advantageous to invest in our own business.

Next week deleveraging that to investing through our capital that <unk>, you know buying back to Ya.

<unk>, we're trading so we find it much more valuable to to allocate our capital that way at this point in time.

Than anything we see out in the market.

Great. Thank you very much.

Hmm.

And our next question is from Matt nickname with Deutsche Bank. Please go ahead.

Hey, Thanks for taking the question just to an international I guess first on the current expectations I think Rod you would alluded to maybe some reduced expectations for sure that we spicier in <unk> I'm. Just wondering if you can give us any updates in terms of the outlook both for that am in Africa, and whether the ultimate sort of churned it.

Since I've been reduced or this is more of a deferral did anything else and then secondarily just on India. If you could maybe.

Give us any additional color in terms of updates on discussions you mentioned that the second half in terms of when you'd like to have the process completed so any additional color would be great. Sir thanks.

<unk>. Thanks for the questions. So regarding the that you know the simple answer here is the some of the increases in our organic Kenneth billings for the balance of the year is really a delay and churn not a not a not an expectation that turn is gonna be materially lower over the long term. So it's primarily in Latin America.

Erica driven by the oil churn, which is the late so we do anticipate that the pick up later in the year in Q3, and four and that oil churn is about 2% of our overall within our organic Kenneth billings grow up it's 200 basis points in that in that revised kind of view of that that approximately four.

4%. So it really is a timing issue there and then in Africa, it's pretty consistent we're seeing some delays, but nothing <unk> and it's not a change in terms of our overall longterm view in Africa, we're still looking at some churn in in <unk> in Ghana in Celsius, turning on some <unk>.

Sits down in in South Africa, So churn ends up being approximately 6%.

In the African market in Latin America, it's about six and a half per cent kind of in total for.

For the year. The other thing I would highlight as in Africa, we are seeing elevated levels of new business in activity. So we've been really pleased.

With that so that's the the charge piece I guess jumping over to India I'll just make a couple of comments on our process. There. So as you know and as we've talked about in the past where fully engaged in a process.

India. It started with a full evaluation of the market, particularly the future impacts.

Of that market under different scenarios and we're also valuating potential uses of capital that we may take out of that market as a result of of this process.

We are we continue to focus and we're very engaged with a few remaining select investors were.

Were highly focused on selling a majority stake in that business anywhere and I'll I'll be kind of broad the process is continuing here, but anywhere from 50 to 100 per cent stake sale I don't want to talk about any more details than that of course valuation is always important terms and conditions are always important their primary key consideration trusses as we work through it.

And I would say at the moment, we're happy with the progress that we've made to date, we've been working on it for quite some time, we are in the the late stages of the process and as I said in my prepared remarks, we do expect to complete a transaction sometime during the second half of this year, that's kind of what we're looking for <unk>.

And our goal is to drive the best outcome for our shareholders through this process. We're gonna remain very thoughtful very disciplined very patient as we get through the final stages here and we hope to update you all at some point soon in terms of the the process and and next steps here, but again, we're in late stages of the <unk>.

<unk>.

Excellent. Thank you.

[noise] next we go to line of Michael Rawlins with City. Please go ahead.

Thanks, and good morning, I was hoping to revisit some of the <unk>, you're providing around the carrier activity in.

In the U S and specifically you know is.

Is there a way to frame what changed relative to the carrier activity expectations that American Karen may have had.

Earlier in the year for the full year twenty-three and then given that customers under these comprehensive M L as <unk>.

<unk> execute a certain amount of capacity.

And if activity is less.

Does that mean, they're not taking full advantage of the capacity, they're paying for and then create some form of greater backlog of the appointments that need to come through the system in the future.

Hey, Michael maybe I'll start <unk> can kind of kick in any of those types of questions you're asking for I think we'll probably more appropriate for them.

We've seen T mobile come out and say the rolling out more carriers, we've seen Verizon talk about their deployment and looking for more midband and how that's going to drive a kind of a second wave, but why did they give you kind of step back you know the pullback that we're seeing and spending today is absolutely.

Reflective of the cadence of network investment cycles that we've seen historically I mean, you and I both been around long enough to see to see most of them and be all of them and and how that cadence has progressed and the five G cycle.

Is is no different at least from my perspective than what we saw with prior cycles. I mean, it you know when we looked at our our longterm growth expectations for you as in Canada, and 21, we had and had anticipated adding those comprehensive M L. As in place and so it's it's obviously.

Kind of straight line, what we are looking at in terms of our overall growth and protected us from from as we've talked about this kind of sideways. If you will of development, but the cycles typically progress as if there's a coverage cycle, what we've seen in past cycles, including three G and four G 10, additional multiyear period of elevated covered.

Capex and it's <unk> G spectrum aimed at upgrading the existing infrastructure. So are largely cost faced I mean, the carriers are dropping a new technology to bring down their overall cost per bed as well as N positioning themselves to be able to offer their customers are consumers and enterprise customers.

More technology and more capable <unk> ability.

Then followed.

By a some grooming that will go on and and perhaps that's kind of the stage that we're starting to see ourselves and at this point in time and then you know later in the cycle it'll fill back into a capacity stage, where we'll start to see you know more densification going on and so when we think of kind of services.

And the.

And a cadence if you will very time it is difficult to to predict because the cycles from each of the customers are so so different.

<unk> said you know.

$175 million or so we're we're looking services kind of the third on rec largest on record and the last two years were up I think north of the 200 million dollar range, but there still is a sizeable year or for our services business. So you know ending in our customers themselves are spending it.

Still record levels versus where they were spending and four G. So I know there's a lot of this anticipation what's going on in five G Y as pull back and it's been five G. I think we need to take a look at it.

And have a broader period of time here and saying okay.

Customers have deployed five G to a large extent, they're continuing to deploy we still do see obviously services activity from from all of them and we would expect to move through over the decade. You know further levels of investment you know as they continue to drive more value for enterprises as well as any more.

Value or consumers. So I'm I'm hopeful that you know there there are investor base doesn't get spooked by the fact that you know this is a pullback is very consistent.

Cadences is really spot on with what we've seen with with other technologies and we're gonna we continue as well as any of our customers do heavily investments in and the five G networks overtime.

Thanks.

[noise] next we go to Rick Prentice with Raymond James. Please go ahead.

Alright, everybody.

Good morning <unk>.

A couple of questions follow up until the wars. We've had thanks for the updates on India, but a few extra ones can you remind us again, how much you spent in India worse at on your books right now as we look to maybe a transaction getting wrapped up your hopefully.

Yeah, we've been best at around $5 billion in into the market. What we have on our books. Today is is in the range of about two and a half billion.

Okay and earlier I'd appreciate the color of that India's.

<unk> it is.

It looks like they're getting current and the purpose of it go forward at one point you thought you might take a stake on that receivable is that kind of on pause as you go through wrapping up the strategic review and did I hear you say it may be slowed down some of the bills in India is that also related to kind of the process.

Then I guess on the first piece when you say a stake in the receivables you might be talking about the idea of converting some of the receivables with V. I L into a different type of financial instrument. We have done that Rex we've got about $200 million a prior receivables that we've converted into more of a financial note or a note <unk>.

Fever will so that is in in place and I think it will certainly work to our advantage over time, we are seeing a slowdown in terms of the the new Bill in India and it is partly driven by our view of higher cost of capital kind of revealing pricing and and and and and our overall appetite to invest in them.

Market Uhm, it doesn't mean that those new bills might not accelerate again, if the opportunities come through with some higher pricing and and higher returns, but the we're focused on driving the highest returns on the on the opportunities that that we have the bill, but we are seeing kind of Ah Ah reduction there in India and it's not.

Because the overall demand is down it's really were being very disciplined and patient and we're also continuing to build housing and in Europe , and Africa and a handful in in Latin America. So in this environment would just being very selective and putting our capital towards the fight they give us the highest growth the highest risk adjusted right to return going forward and.

Balance that with our desire to Delevering prioritize some capital towards you know delevering this year and into next.

Okay. And then you also mentioned Delevering as a priority makes sense, but the stock buyback might make sense in the future, particularly compare to M&A out there what would be the time to think about putting a plan in place and and <unk>. Hello. This is <unk> you have to get maybe.

Yeah, I would say I mean, we we want to be opportunistic there uhm, but we're also we want to get down below five times as a combination of a couple of things work I think you want to watch where our leverage is getting down below five times I've said in the past and we continue to be ahead of the delevering schedule with the rating agencies so from that perspective.

Where we sit today, we're we're very comfortable we wanted to accelerate that delevering and get down below five times well ahead of the rating agency agreed plan because of the uncertainty around interest rates and the the high cost of of carrying get these days is U T ball experience. So you Wanna watch kind of where our leverage goes.

The closer we get the five times the low the lowered that overall leverage cats and certainly when it gets down below five times, we might feel a little bit more flexibility kind of in our capital allocation. The other thing that we are watching is is the right environment and where that goes and when they will be.

A little less uncertainty around rates and when they peak and begin to come down we're not making any bets on when that will happen, but that will be something we continue to watch and depending on how that unfolds, we may be able to prioritize buybacks sooner rather than later or maybe not if rates continue to stay high end. This continued on <unk>.

Certainty so we'll be watching both the right environment here in the U S. And you know, we do a lot of borrowing and euro denominated debt as well and we'll be looking at our overall average hopefully that helps you of course the share prices is part of that as well.

So it makes sense all the calculus that you look at great. Thanks, everyone stay well.

Thanks for.

Next we go to John Atkins with RBC. Please go ahead.

Thanks, very much on on the core site, Frank Tom can talk about that with.

Renewable spreads and <unk> I wondered is that happening.

As a result of like a higher price list for.

Cabinets and could cross connect is that is kind of a deliberate action you're taking on both new business and apply it to the base or giving you can kind of tell us a little bit about the source of that strength and then asked about.

<unk> is it just will click on yes with their de Mayo retiring.

And then some of the you know uncertainty around that should.

Should we think broadly about about U S leasing trends you know be beyond this year, just didn't get a qualitative settlement. Thanks.

You know I think relative to dish.

David.

Great partner of ours going forward as well as the entire business. So you know I'm sure awhile, he will be missed and they they have a good day I.

I've got a great team in place here, Jonathan So I don't think they're gonna Miss a beat.

You know as I said, David Great Guy really really a great engineer very very technical has been instrumental to to driving the business, but but there are big business and and like with with ours.

We lost one person and and that changed the direction of the business that would be a sad thing. So you know there are a large institution and I think they are well positioned and and a good partner of ours. So I don't see any any change there at all with regard to your first question Jonathan was.

Yeah of course, a little bit more color around the core site trying to you're saying yeah right right you know a lot of it.

Is it is a function of our own pricing increase that we put in place I mean looking at the market looking at the demand. They were you know initiated by our ourselves the volumes are a robust as I said the pricing is up 15% above first half with 22 the final was healthy.

As a matter of fact on the on the final under 54 million I think 80% of it is actually retail and scale, so largely enterprise driven as opposed to even having a major piece driven by the scale. It on the on the seven per cent you know historically, we've been in that 2% to 4% rate. So very pleased with the fact of those.

Renewal rates being up significantly above where we've been historically.

And then anything around innovation initiatives around the edge edge data centers things of that nature.

You know we have a number of projects going on within within the business candidly Jonathan No news to report working on <unk>.

Several different pilots with potential customers.

As I mentioned in the past we have a number of sites that are have a significant ability to add capacity of power at each one of them. So you know it's still very early days early innings of of that hopeful that a I <unk> in particular will will drive even more of that need out.

The customer <unk>.

So we continue to explore continue to work through a number of different pilots and projects, but not nothing new to report at this point.

Thank you.

Next we go to Greg Williams with T. D. Cohen. Please go ahead.

Great. Thanks for taking my questions just the first one would be on the <unk> of your U S new leasing going forward.

You hit about 119 and releasing in the first half of the year and your your guiding 220 for the full year Southern Plaza.

Notable stepped down to like 50 million mark per quarter and the next two quarters, but you did give yourself living room, my saying at least 220 million here in until then so I'm just understand and how much of this is conservatism versus you know it.

Taking our estimates down to the low fifties and just second question in in that New <unk> are you seeing a lot of D O D spectrum or or do a band radio spectrum being deployed and if not could we then see another like of growth as the dual band radios and did he get scaled and ready to deploy.

Hey, Greg Thanks for the question regarding the the cadence here I think you you do want a plan for that lower 50, certainly by the time you get out to Q4, we'll see a slight deceleration from Q3 Q for so.

You're up in the mid fifties in the low fifties by the time you get the the queue for but that's what we do expect and see in terms of the new business in the U S going forward and it it it's very in line with kind of that 222, 20, plus sort of rain. So we are certainly very happy with that.

And it drives about a five per cent new business growth contribution to that overall organic set up <unk>.

And then in terms of the the D O D as in the spectrum.

We're not seeing a lot of that I don't I'm not sure if I would go out and say that that's upside certainly not in the in the short term if it would it would probably be fairly.

Small here this year, we wouldn't expect to see much of an impact.

And to the extent that it is deployed later some of that may be within our holistic agreements as well with certain carriers.

Got it thank you.

You're welcome.

And our next question is from Bhatia Levi with UBS. Please go ahead.

Great. Thank you a couple of follow ups first how do you think about your current scale in the data center business against the growing demand that you're experiencing and and on the services side. You did mention that there was an abrupt slowdown in carrier activity was that across the board or specific too.

Two one or two clients and do you do you put my misplaced for installation versus maybe managed services in one of your peers is getting out of the installation business. How do you think about that thank you.

Hey, <unk>. Good morning, Thanks for joining the call I think when you think about data centers, we're happy with the scale that we have we've got great facilities 28 facilities across really eight.

Key markets their their ego the ecosystem there is very rich with cloud on ramps and network companies and enterprise customers and it really gives us kind of the backdrop into footprint. That's that we need and we're we're not we're not seeing any headwinds because of a lack of scale. So all the.

Great financial results that we're seeing we're able to do it because of the quality of the ecosystem in the way that these facilities are distributed throughout the U S. So from that perspective, we feel really good with with our data center.

<unk> now certainly, adding a location here or there.

Let's do that a little bit even before we bought core site that certainly could be in the cards going forward, but we really do like the app as we have it why not overly focused on trying to ramp up the scale as we've talked about in the past when it comes to services I would say you know we are seeing a slowdown.

It's I don't know if a <unk> is the right word to use their but we get the kind of a slowdown uhm I wouldn't say that it's across the board I don't want to get into specifics carrier by carrier a court, but some parents continue to plug right along and I'll just have slowed down a little bit again, it's not unexpected from from our our view when it comes to the fine.

Part of your question in terms of the construction services. That's all we've got a pretty small part of our business, we'd spend maybe a little different than some of our competitors from that perspective. It is a small piece it and it continues to be a small piece of our our business most of what we do within the permanent zoning engineering kind of those preconstruction at.

<unk>, we do some construction services and deployment, but not a lot.

Alright, thank you.

You're welcome.

And our last question will come from Phil Cusick with J P. Morgan. Please go ahead.

Hi, This is Richard fulfil just wanted to follow up on the grooming told me that you made earlier does that typically last for just a few quarters or is that something longer.

And then I have one more.

Yeah, I mean, it depends it it will be depending on the on the carrier.

Customer themselves.

You know typically the you know as as we said in the past and make things happen in a form of sideways wishing every every bill.

Then we will see you a lighter build advocates build carriers aren't gonna be spending the money and and ahead of time until they see the network demand and so there'll be certain location certainty geography urban parts of the market more Canadians and there's more of the suburban where you know.

You can see shorter cycle on the on the grooming side. So it really depends on the on the customer and it's it's <unk> you can't really come out with a kind of an average if you will over overall.

Got it and then on the expense side are using any pressure in the domestic business on ground lease negotiations on renewals, given where CPI or inflation is.

No Richard I would say well, we're really not I mean, we have longterm leases on the vast majority of the sites, we either one or have 20 year leases on more than 70% of our site approaching 75 per cent. So we're in good shape from from that perspective, and we do a lot of work well ahead of exploration of.

The ground leases to renew these things and kind of move move the expiration date out or four by the the.

The land through our our capital program. So we all see and we're really not exposed to any short term significant spikes and land Rad because of an inflationary environment on average our land goes up in line with our revenue in that 333 to four per cent range.

Great. Thank you.

You're welcome.

No now turn the conference back to the leadership team for closing comments.

Thanks, everyone for joining today's call. Please feel free to reach out to myself or the investor relations team with any further questions. Thank you.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.

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