American Tower's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.31.13 | About: American Tower (AMT)

American Tower (NYSE:AMT)

Q2 2013 Earnings Call

July 31, 2013 8:30 a.m. ET

Executives

James Taiclet - Chairman, President and CEO

Tom Bartlett - EVP and CFO

Leah Stearns - VP, Investor Relations & Capital Markets

Analysts

Brett Feldman - Deutsche Bank

Rick Prentiss - Raymond James

Michael Rollins - Citi Investment Research

Tim Horan - Oppenheimer

David Barden - Bank of America Merrill Lynch

Batya Levi - UBS

Jonathan Schildkraut - Evercore

Colby Synesael - Cowen & Company

Imari Love - Morningstar

Jonathan Atkin - RBC Capital Markets

Operator

At this time, I would like to welcome everyone to the American Tower second quarter 2013 Earnings Call. [Operator instructions.] I would now like to pass this call over to your host, Ms. Leah Stearns, vice president of investor relations and capital markets. Ma’am, you may begin your conference.

Leah Stearns

Thank you. Good morning, and thank you for joining American Tower's second quarter 2013 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks, under the Investor Relations tab on our website.

Our agenda for this morning's call will be as follows. First, I will provide a brief overview of our second quarter and year to date results, then Tom Bartlett, our executive vice president, chief financial officer and treasurer, will review our financial and operational performance for the quarter as well as our updated outlook for 2013. And finally, Jim Taiclet, our chairman, president and CEO will provide closing remarks. After these comments, we will open up the call for your questions.

Before I begin, I would like to remind you that this call contains forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2013 outlook and future operating performance, 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 press release, those set forth in our Form 10-Q for the quarter ended March 31, 2013, and in our other filings 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.

And with that, please turn to slide four of the presentation, which provides a summary of our second quarter and year to date 2013 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenues, which were generated from leasing income producing real estate, primarily to investment grade corporate tenants.

This revenue grew 15.7% to nearly $789 million from the second quarter of 2012. In addition, our adjusted EBITDA increased 12.5% to approximately $524 million.

Operating income increased 15.6% to approximately $313 million, and net income attributable to American Tower Corporation was approximately $100 million, or $0.25 per basic and diluted common share.

During the quarter, we recorded unrealized net credit losses, which negatively impacted net income attributable to American Tower Corporation of approximately $114 million, or $0.28, which is due primarily to the translational impact of foreign currency exchange rate fluctuations related to approximately $1.1 billion of intercompany loans, which are denominated in currencies other than local currency.

We have utilized these loans to facilitate the funding of our international expansion initiative general operations. For accounting purposes, at the end of each quarter these loans are remeasured based on the actual foreign currency rate on the last day of the quarter end. As a result of a stronger U.S. dollar, as of June 30, 2013, relative to March 31, 2013, the remeasurement of these loans generated noncash losses for accounting purposes.

Turning to our results for the first half of 2013, our rental and management revenue grew 14.7% to approximately $1.57 billion from the first half of 2012. In addition, our adjusted EBITDA increased 12.9% to approximately $1.05 billion. Operating income increased 12.4% to approximately $612 million and net income attributable to American Tower Corporation was approximately $271 million, or $0.69 per basic and $0.68 per diluted common share.

And with that, I would like to turn the call over to Tom, who will discussion our results in more detail.

Tom Bartlett

Thanks, Leah. Good morning everyone. As you can see from the results we released this morning, we had another solid quarter, with our core business once again outperforming internal expectations as our global customer base continues to rapidly invest in their networks. Over the last few quarters, we have seen the initial shift towards sales splitting take shape and new leasing activity in the U.S. is picking up.

Meanwhile, our international portfolio continues to see colocation activity in the form of new leasing as our customers seek to expand their network coverage and increase network capacity by utilizing our towers.

From a financing perspective, during the quarter we refinanced our 2011 revolving credit facility, reducing the draw and borrowing costs by over 40 basis points, extending the maturity date by two years, increasing our credit available under the facility to $1.5 billion, while also providing us with the ability to draw in certain foreign currencies.

Towards the end of the quarter, the translation of our international segment’s performance was impacted by the strengthening of the U.S. dollar against many of our international market currencies. This resulted in a headwind in the second quarter 2013 international rental and management revenue of approximately $7 million and adjusted EBITDA of approximately $3 million versus the rates assumed in our previously issued outlook.

We view the recent movements in foreign currency exchange rates as noncash translational impacts to our results, as the cash flows we are generating offshore are substantially being reinvested into our markets to add additional scale to our existing portfolios. As a result of these foreign currency exchange rate movements, we have adjusted the assumptions implicit in our outlook for the remainder of the year.

Despite these headwinds, which for the full year we expect will be roughly $40 million to revenue, $20 million to adjusted EBITDA, and $15 million to AFFO, we are reiterating the midpoint of our 2013 outlook for our total rental and management segment revenue and raising the midpoint of our outlook for adjusted EBITDA and AFFO. This is an indication of the strength we see in our underlying organic business and our confidence in the secular demand trends we are seeing throughout our global footprint.

If you please turn to slide six, you’ll see that for the second quarter our total rental and management revenue increased by nearly 16% to $789 million. On a core basis, which we will reference throughout this presentation as reported results, excluding the impacts of foreign currency exchange rate fluctuations, noncash straight line lease accounting, and significant one-time items, our consolidated rental and management revenue growth was over 18%.

Of this core growth, nearly 9% was organic, with the balance attributable to growth from new sites. As we mentioned last quarter, the nonrecurrence of a $5 million revenue reserve reversal in Mexico from the second quarter of 2012 negatively impacted our core organic growth this quarter. Adjusting for the impact of that discrete item, our consolidated core organic growth would have been nearly 10%.

Our organic growth in the U.S. continued to be driven primarily by amendments, although as I mentioned earlier, we began to see an increase in new leasing activity during the quarter from certain customers, reflecting the beginning of a shift from coverage to capacity builds in certain geographies. It’s important to note that we do expect the amendment cycle to remain strong as customers such as Sprint and T-Mobile continue to deploy LTE across their top markets.

In total, our new business commitments in the U.S. during the quarter increased by over 70% compared to the year ago period and the average amendment rate continued to exceed $700 per month, reflecting a significant amount of new infrastructure which is being added by our customers.

Meanwhile, our international segment posted yet another strong quarter of core business outperformance. Continuing the trend from the first quarter, our international operations drove over half of our consolidated core revenue growth, and we saw a new business momentum throughout our international footprint.

Our international business continues to be a significant source of profitable growth for the company, and the consistent long term returns we are generating throughout our global footprint remain compelling as the reach of wireless service continues to expand worldwide.

Turning to slide seven, during the second quarter our domestic rental and management segment revenue growth was driven primarily by an increase in recurring cash leasing revenue from our legacy properties, partially offset by a $4 million year over year straight line revenue decline. Reported domestic revenue grew by about 10% to approximately $521 million.

Our domestic core revenue growth, which adjusts for the impacts of straight line revenue, was nearly 12%, or about $52 million. Our domestic rental and management segment core organic revenue growth was 8.8% in the quarter, which exceeded our ongoing 6-8% core organic growth goal for the U.S.

This growth continues to be primarily generated from the big four carriers as they continue to overlay 4G technology across their networks. This includes ongoing contributions from both AT&T and Verizon, and is now being augmented by significant increases in new business from both T-Mobile and Sprint as they continue their respective network modernization initiatives.

Domestic signed new business in the quarter also remained at elevated levels, exceeding the year ago period by 60%. We would expect the vast majority of these signed contracts to commence within the next 12 months or so, and consistent with our commentary last quarter, our application pipeline remains very robust and suggests that the favorable leasing trends we’ve seen so far this year should continue into 2014, supporting our outlook of core organic growth at nearly 8% in 2013.

The balance of our second quarter core growth in the U.S., about 3%, was generated from the more than 1,100 new communication sites we have acquired or constructed in the U.S. since the beginning of the second quarter of last year.

Our domestic rental and management segment gross margin increased over $40 million, or 10.5%, in the quarter, representing a year over year conversion rate of over 85%. This conversion rate is indicative of our strong ongoing property level cost management program, including our land lease management initiatives.

We continue to proactively acquire and extend land leases under our sites during the quarter, purchasing nearly 150 parcels and extending an additional 355 by an average of 29 years. For the full year, we continue to expect capital spending on land acquisitions of $95 million at the midpoint.

Finally, as a result of our growth in gross margin in Q2, operating profit increased over 10% to nearly $402 million.

Moving on to slide eight, during the quarter our international rental and management segment reported revenue increased 28% to $268 million. International core revenue growth was nearly 32% and international core organic growth was about 9%, which continued to be driven primarily by strong new lease commencement activity from tenants such as Telefonica, Nextel International, and America Movil in Latin America, Vodafone and MTN in South Africa, as well as Bharti and Idea Cellular in India.

As we had discussed last quarter, our Q2 international core organic growth was negatively impacted by a revenue reserve reversal of about $5 million during the second quarter of 2012. Excluding this discrete item, the international segment generated 11.8% core organic growth, which was about 300 basis points higher relative to the U.S. as both of our rental and management segments continued to outperform our core organic growth expectations.

Continuing with the trend seen in the last few quarters, about 90% of our assigned new business internationally was in the form of new leases, rather than amendments, as carriers augmented their networks by adding new platforms of equipment onto our existing sites.

For the full year, we expect international core organic growth rates of over 12%, which is roughly 400 basis points above that of our domestic segment, and well ahead of our internal goal of at least 200-300 basis points above that of our domestic segment.

During the quarter, we constructed more than 300 sites and acquired over 100 more, allowing us to further expand our international presence. We’ve added over 8,200 communications sites to our international portfolio since the beginning of the second quarter of 2012, contributing over 22% to our international core growth and driving our international revenues to 34% of our total consolidated rental and management revenues.

As we add new sites to our international portfolio, our passthrough revenue continues to increase as we are able to share a portion of our operating costs with our tenants. During the second quarter, our international passthrough revenue was over $71 million, which is up about 29% from the prior year period.

From a reported gross margin perspective, our international rental and management segment increased by almost 25% year over year to $169 million, reflecting a 56% gross margin conversion rate. Excluding the impact of the passthrough revenue, our gross margin and gross margin conversion rate would have been 86% and 77%, respectively.

Finally, our international segment operating profit increased over 17% to roughly $137 million. Our international segment operating profit margins was 51%, and excluding the impact of passthrough revenue, exceeded 69%.

Turning to slide nine, our reported adjusted EBITDA growth relative to the second quarter of 2012 was nearly 13%, with our adjusted EBITDA core growth for the quarter at nearly 15%. Over 90% of our adjusted EBITDA core growth was attributable to our rental and management segment, which generally represents recurring run rate contributions to EBITDA as opposed to the non-run rate nature of EBITDA generated by our services business.

Reported adjusted EBITDA increased by approximately $58 million in the quarter. Of the approximately $33 million increase in direct expenses that impacted this growth, $16 million was related to international passthrough costs.

SG&A increased nearly $19 million from the prior year period, driven primarily by our international expansion initiatives as well as selected investments we’ve made in our domestic business and several corporate initiatives. In addition, the nonrecurrence of a bad debt reversal from the year ago period in Mexico accounted for approximately $4 million of the increase.

For the quarter, our adjusted EBITDA margin was 65% as compared to approximately 67% in the prior year period. Excluding the impact of international passthrough revenue, our adjusted EBITDA margin for the quarter was about 71%, and our adjusted EBITDA conversion rate was approximately 61%.

We continue to maintain industry leading adjusted EBITDA margins in the 65% range, even with the addition of over 33,000 sites over the last five years, many with just a single tenant day one.

As a result of our continued focus on driving colocation activity across our portfolio, and the material conversion rate of revenue to adjusted EBITDA that occurs, we are able to transform previously underutilized wireless infrastructure assets into profitable, high-margin components of our overall portfolio.

The strong EBITDA performance we saw in the quarter also translated into solid growth in adjusted funds from operations, or AFFO, which increased by over $60 million or more than 19% relative to AFFO in Q2 of last year.

Core AFFO grew over 18% after excluding the impact of foreign currency exchange rate fluctuations, and a $4.5 million nonrecurring tax refund received in one of our international operations during the second quarter. We continue to target at least mid-teen core AFFO growth going forward as both our domestic and international operations continue to generate strong recurring cash based returns.

Turning to slide 10, we deployed about $157 million in capital expenditures in the second quarter, including $73 million on discretionary capital projects associated with the completion of the construction of over 400 sites globally. Of these new builds, about 100 were in the U.S. with the remainder throughout our international markets. Our international new tower build for the quarter was split fairly evenly between Latin America, India, and Africa.

We continue our discretionary land purchase program in the U.S. to secure additional interests under our existing tower sites. In the second quarter, we invested about $17 million to purchase land under our existing sites, and as of the end of the quarter, we owned or held long term capital leases under approximately 29% of our domestic sites.

Our second quarter 2013 spending on redevelopment capital expenditures, which we incur to accommodate additional tenants on our properties, was $23 million. Our capital improvements and corporate capital expenditures for the quarter came in at about $35 million.

The increase in capital improvement and corporate capital spending was largely attributable to incremental investments we have made in IT infrastructure, as well as a few capital improvement initiatives we have spoken about previously in the U.S., including a lighting system upgrade and network operations center.

Finally, we spent approximately $8 million on startup capital projects in Q2. For the full year, we currently expect to spend approximately $525 million to $625 million in total capex, which reflects a slight reduction in discretionary capital projects related to a slower international build plan, primarily in India. We are now forecasting to add approximately 2,000 new sites to our portfolio in 2013, through our build to suit pipeline.

From a total capital allocation perspective, year to date we have deployed over $900 million, including our first and second quarter dividends of $0.26 and $0.27 per share, or about $210 million; about $281 million on capex; and nearly $360 million for acquisitions. During the second quarter, we added 34 communications sites through acquisitions in the U.S., and nearly 119 communication sites internationally.

Finally, we have spent about $75 million to repurchase about a million shares of our common stock pursuant to our stock repurchase program. We continue to expect that we will manage the pacing of our stock repurchases based on market conditions and other relevant factors.

Moving on to slide 11, based on the continuing favorable demand trends we are seeing across our global footprint, and the momentum in our core business, we are reiterating our full year 2013 outlook for rental and management segment revenue of $3.16 billion to $3.21 billion.

We expect the underlying performance of our business globally will offset the negative impact of translational FX fluctuations at the rates implied in our guidance, and as a result, we now expect our core growth in rental and management revenue to be nearly 18% at the midpoint. This robust leasing activity also translates into stronger core organic growth, which we now expect will be over 8% in the U.S. and over 12% in our international segment.

In addition to reiterating our rental and management segment revenue outlook, we are increasing our outlook for adjusted EBITDA by $5 million at the midpoint. We anticipate that the strong performance of our global business, including stronger than planned organic growth, and continued property level cost controls, will allow us to more than offset the expected translational FX headwinds to EBITDA relative to our prior outlook, which is driving our increase in core growth by 140 basis points.

We continue to leverage the colocation model to drive strong flow through from the top line to the EBITDA level, and expect our rental and management segment to drive almost all of the adjusted EBITDA growth for the full year.

Finally, we are also raising our full year AFFO outlook at the midpoint by $10 million. This increase reflects the robust core performance of our business, which is now expected to generate core AFFO growth of over 21%. Irrespective of the translational FX impacts, as mentioned previously, we have now increased the midpoint of our AFFO outlook by $70 million, or over 5%, since we issued our initial 2013 guidance in February, primarily from recurring cash flow sources.

If you’ll turning to slide 12, I want to provide some incremental color on the components of our revised outlook. In terms of rental and management segment revenue, we are reiterating the midpoint of our existing outlook, despite our anticipation of about $40 million of translational FX headwinds relative to our prior outlook assumptions.

This is being driven by the core outperformance of both our domestic and international segments, as well as approximately $4 million in incremental straight line revenue. The core revenue outperformance in the U.S. is attributable predominantly to stronger than anticipated new business commitments as our major customers continue to make progress in the 4G network buildouts.

Similarly, in our international markets, a significant portion of our expected core revenue growth is being driven by new business commitments. In addition, approximately $5 million of the increase is attributable to an incremental passthrough revenue we expect to receive in Africa due to higher ongoing fuel usage.

Overall, we are raising our outlook for core rental and management segment revenue core growth by 1.4% to nearly 18%. In addition, we are raising the midpoint of our adjusted EBITDA outlook by $5 million, which translates into core growth expectations of 16%. We believe that the business outperformance I just mentioned will enable us to more than offset the forecasted $20 million adjusted EBITDA impact from unfavorable foreign currency translation.

Of note, adjusting for the $5 million in incremental international passthrough revenue I mentioned earlier, the international conversion ratio of core revenue to core adjusted EBITDA is expected to be nearly 80%.

In the U.S., this conversion ratio is lower, largely due to a one-time land rent benefit recorded in Q4 of last year. In addition, we anticipate an approximately $4 million contribution from the impacts of incremental straight line revenue to flow through to EBITDA.

The growth in core adjusted EBITDA that I just discussed, combined with some favorability in expected cash taxes for the year, has allowed us to raise the midpoint of our AFFO outlook by $10 million while raising our core AFFO growth projections for the year to over 21%.

The $10 million increase includes an incremental $5 million in corporate capex that we are spending to augment our IT systems in the U.S. We believe that our ability to raise our outlook for adjusted EBITDA and AFFO, even in the face of foreign currency translational headwinds, clearly illustrates the strength of our core business.

Now, moving on to slide 13, as we’ve highlighted in the past, we remain focused on deploying capital while simultaneously increasing AFFO and return on invested capital. And as you can see in the chart, we believe that our investment discipline has created meaningful value for our shareholders.

Since 2007, we’ve invested over $12 billion in capex, acquisitions, stock repurchases, and dividends, adding more than 33,000 new sites and expanding into eight additional markets on three continents. Concurrently, we’ve consistently increased both our AFFO and AFFO per share on a midteen compounded annual basis. In addition, based on the investments we’ve made to date, we expect to have increased our return on invested capital by nearly 200 basis points to 11% by the end of the year.

This sustained growth in AFFO and ROIC reflects the disciplined capital allocation strategy we have used in the past and will continue to utilize in the future to drive long term, profitable growth. In addition to returning significant cash to our shareholders via our regular dividend distributions, we continue to seek to maximize our returns as we deploy capital for new builds and acquisitions worldwide.

Our extensive, methodical investment evaluation process, combined with our experienced development and operational teams across the globe, provide us with a competitive advantage that we believe is unmatched in the industry, and our track record of generating significant returns speaks for itself.

We are focusing our efforts on continuing to drive strong growth in AFFO and further improving our ROIC metric, and believe our meaningful, rapidly growing dividend, in combination with our ability to grow the business, will provide our shareholders with a compelling total return over the long term.

Turning to slide 14, I wanted to briefly talk about how we’ve seen our segment level return on invested capital metrics trend by segment since 2007, to highlight the underlying strength of our legacy business while also framing the opportunity we believe is embedded in our recently acquired assets.

Starting in our international segment, as you can see, in 2007 our legacy operations in Mexico and Brazil were generating ROIC of approximately 17%. This was a reflection of the leasing momentum we had seen in those countries since the early 2000s, and the value we added to the initial investments we made as a result of our ability to add new tenants to previously single tenant sites, which we acquired from carriers such as Nextel International.

Since 2007, if you isolate those legacy international assets, you can see that we have consistently grown ROIC on this portfolio, which stands today at approximately 22%. Over the same time period, we have added over 30,000 sites to our international portfolio, many of which, like our legacy Mexican and Brazilian assets, were initially single tenant sites acquired from carriers.

Further, in 2010, 2011, and 2012, the vast majority of our acquisitions were completed during the fourth quarter, and as a result the end of year impact to return on invested capital was muted. This illustrates the underlying thesis of our investment philosophy, which seeks to acquire nonperforming tower assets from multinational wireless service providers and turn the properties into shared infrastructure solutions that can be leveraged by multiple tenants.

We believe that this growth will drive significant improvements in the cash generation characteristics of our recently acquired international assets and will drive a corresponding increase in the returns on invested capital into the future.

Turning to the U.S., where we have not added new assets to the extent we have in our international markets, you can clearly see the steady trajectory of ROIC improvements since 2007, once again reflecting our ability to drive meaningful organic cash flow growth on our assets over time. Given the very high conversion of organic revenue into EBITDA, and ultimately into operating cash flow, we would expect to see this trend continue in the U.S.

Taken as a whole, we think that these long term trends are extremely effective in communicating the way that we look at the business. We have invested heavily over the last several years in less mature assets in rapidly growing wireless markets because we believe that the trends we have seen in Mexico and Brazil, and the trends we have seen in the U.S., will ultimately be replicated in other emerging markets.

The short term diluted impact on ROIC that these high growth investments have, in our view, pales in comparison to the long term potential for meaningful, sustained cash flow growth that they should provide.

Finally, on slide 15, and in summary, our core business in American Tower continues to outperform our internal expectations. The secular trends we are seeing in the global wireless sector continue to translate into robust demand for our tower space, generating strong revenue, adjusted EBITDA, and AFFO growth.

As a global leader in communications infrastructure, we believe that we are in an excellent position to continue to expand our portfolio and operations while simultaneously growing recurring cash flows in support of our goal of doubling our AFFO per share over the next five years.

The disciplined investments we have made throughout the world over the last decade continue to yield strong returns and provide a solid foundation for us to build on going forward. In the U.S. we are in what we believe is a compelling demand environment with all four major U.S. carriers aggressively deploying 4G, and the leader is starting to transition from the initial coverage build to cell splitting and infill activity.

In our international markets, our large, multinational carrier partners are also investing heavily in their networks to provide their customers with ever-advancing wireless technology solutions.

Taken as a whole, we believe we are extremely well-positioned to continue to leverage our diversified asset base throughout the world to generate significant, sustained, long term returns for our shareholders.

And with that, I’ll turn the call over to Jim.

James Taiclet

Thanks, Tom, and good morning to everyone on the call. During our first earnings call of the year, back in February, I outlined to you our aspirations to once again double American Tower’s key operating and financial metrics over the next five years.

We did, and still do, firmly believe that the rapid expansion of 4G mobile data and entertainment deployment in our core U.S. market, coupled with the advancement in our international markets through 2G, 3G, and onto 4G, will support the midteens annual AFFO growth required for us to get there.

On the last call, I identified the specific demand drivers that we are seeing in the United States that will play a critical role in the growth of our domestic business. These include our customers’ 4G LTE network investment cycle, where we are seeing carriers progress through the coverage buildout phase while simultaneously preparing to bolster network capacity as demand for data services continues to grow at a rapid pace.

As a quick update, here’s our view on each of the four major U.S. carriers’ network plans that we’re confident will drive the 6-8% core organic growth that we expect in our domestic business, which still delivers 75% of our rental and management segment’s operating profit.

Verizon Wireless has completed its first phase LTE coverage build, but it’s now increasing capacity by the deployment of AWS spectrum, which will provide additional amendment revenue in addition to brand new cell site colocation leases that they’re deploying to densify their networks.

AT&T Mobility continues to invest aggressively to achieve its coverage goals of 270 million people by the end of this year, growing to 300 million by year-end 2014. AT&T is already engaged in site densification as well, to support growing LTE adoption.

Sprint and T-Mobile are racing towards the 200 million population coverage milestone by the end of this year, and we fully expect both companies to pursue wider and deeper coverage well beyond that.

Each of these carriers has recently secured financial and strategic successes that significantly strengthen their respective abilities to fund and implement competitive 4G networks in the United States.

Sprint now has access to the SoftBank funding and Clearwire spectrum and subscribers. T-Mobile, meanwhile, has bolstered its own financial subscriber and spectrum positions through its merger with Metro PCS.

As a result, it’s our view that the recent strategic activity between Sprint, SoftBank, and Clearwire, and between T-Mobile and Metro PCS, has significantly enhanced the prospects of having four very competitive mobile operators in the United States. We anticipate that all four will continue driving toward nationwide 4G deployment, which is very positive for our company.

Not only will the four leading mobile operators in the U.S. seek to leverage consumer excitement around 4G to grow their revenues and profits to advance data and video utilization, but they’re also evolving these new networks to carry high-quality voice traffic to more efficiently employ their valuable wireless spectrum.

This will be done by a voice over internet protocol technology using 4G LTE, all better known as VoLTE. Already, Verizon is planning to roll out VoLTE beginning in 2014. As you may recall, we also spoke of the technological requirements of VoLTE on our last earnings call, which we believe necessitates further cell site densification in the near to intermediate term, and thereby elevates future demand for tower space for all four U.S. carriers.

Since we focused on our U.S. market environment on our previous call, today I will devote most of my remarks to reviewing the strong performance of our international business, which we believe is the perfect complement to our U.S. operations.

We’ll cover the international segment’s legacy assets, how these assets expand our company’s scale while diversifying our customer base, and how our international markets will lengthen and strengthen the growth trajectory of our business. We’ll also identify some of the key wireless network investment trends across our global markets that will underpin this continued growth.

As a quick FYI, during our next earnings call I’ll provide our thoughts behind key wireless technology developments which we believe will further support long term growth across our business globally.

Turning to our international initiatives, in 2006, soon after the integration our acquisition of SpectraSite in the U.S., which was the first major domestic industry consolidation, we began preparing the company to expand overseas beyond our established presence in Mexico and Brazil that Tom has talked about.

Importantly, to compliment the senior management team we had in place at the time, we added some new members, with broad expertise and experience in global business development and operations. Today, each of my five direct reports, as well as myself, have run international operations for leading public companies. And the four new executives that have joined us since 2006 bring the capabilities that they developed at large, established multinationals including United Technologies, Verizon, Motorola, and National Grid.

Each of my direct reports in turn have recruited their own senior teams of experienced management, including both ex-pats and regional leaders from Latin America, South Asia, the U.K., Germany, and South Africa, among other sources.

Of one thing I’m very certain. We have the domestic and international talent base to redouble the size of the company over the next five years and to deliver on our performance targets, both in the U.S. and internationally.

So having established the global leadership team, we embarked on an evaluation country by country to determine the areas of investment focus we would pursue. This country selection process involved a rigorous market risk assessment, including conducting due diligence on political, legal, regulatory, and business environments, as well as each country’s respective macroeconomic condition and forecast.

Special attention was, and is, paid to the tradition of rule of law in that country, the track record of judicial independence, and respect for property rights, specifically with regard to existing foreign investments. To confirm this, we often actually interview U.S. and European company executives that are already operating in these markets.

Further, we evaluated the competitive characteristics of each target country’s wireless industry, and we narrowed the list to where there were three or more wireless service providers, a growing demand for voice and/or data services, and a government which was actively making required spectrum available.

Finally, we assessed various strategic entry strategies, which typically consisted of either an asset purchase from an existing carrier, and in most of these cases was an existing customer of ours in another market. Each identified transaction opportunity is assessed to weigh its specific risks and relative to the assets of the counterparty, and while being benchmarked for returns based on our expectations of future organic revenue growth.

This whole process is conducted and quantified using a 10-year discounted cash flow analysis with conservative risk adjusted target return hurdles, which outside the United States are well above our domestic target returns.

As evidenced by our international customer base today, we have strategically aligned ourselves with strong, multinational wireless operators with solid financial foundations, and we’ve leveraged these relationships across multiple countries and even regions.

For example, we have purchased assets or have coinvestment projects and/or have significant commercial lease arrangements, with the following multinational telecoms, in addition to many others: Telefonica in Mexico, Brazil, Chile, Colombia, Peru, and Germany; Vodafone in Germany, South Africa, Ghana, India, and the U.S. via its substantial ownership position in Verizon Wireless; America Movil also in Mexico, Brazil, Chile, Colombia, and Peru, and also in Germany through its part ownership of KPN; AT&T in the U.S. of course, and indirectly those same five Latin American countries, through AT&T’s part ownership in America Movil; T-Mobile in the U.S. and Germany; and Millicom in Colombia and Ghana. And there’s many other examples.

The growth we’ve pursued across our international segment has enabled us to meaningfully increase our scale and global brand recognition while allowing us to diversify our market exposure and broaden our revenue sources, with over 50% of our international tenants rated as investment grade.

We’re confident in our ability to successfully apply this thorough evaluation process to every international investment prospect and to effectively operate our business globally. As a result of the international investments we’ve made over the last five years, we’ve established a diverse portfolio of international properties which span 10 countries in various stages of the wireless technology cycle.

Our early stage markets include India, Ghana, and Uganda, which are all primarily focused on bolstering the speed, quality, and coverage of voice networks while beginning to introduce data services. Our transitional markets include five select countries in Latin America, as well as South Africa, which has extensive voice coverage and are ramping up their data network investments utilizing 3G and 4G.

And our advanced phase market is Germany, which has seen the deployment of 3G for several years to address subscribers’ expanding data usage, and where 4G deployments are now bringing greater speed and capability.

Next, let’s review a few examples of how America Tower has executed on our international investment process, looking at our legacy markets, Mexico and Brazil, and two of our newer markets, South Africa and India. I’d like to mention that the industry specific that I’ll periodically reference throughout these portions of my remarks are data points provided by our external technology advisors.

Let’s begin with those pioneering initial investments in Mexico and Brazil, which we launched in 1999 and 2000. As Tom illustrated earlier, our pre-2000 eight legacy sites today generate the highest level of return on invested capital in the business, at 22%. Our Mexican and Brazilian legacy sites today have tenancy rates and generate revenue and profit margins per tower that are in excess of our assets in the U.S.

At the time of our international initial investments, the wireless profiles of these countries were characterized by nascent voice penetration and initial 2G buildouts, and they’ve evolved today to roughly 100% voice penetration as carriers shift their focus to early data network investments via 3G and 4G deployments.

So one might characterize that the wireless markets in Mexico and Brazil were, and are, about five years behind the U.S., but on a similar network development trajectory as we have experienced here domestically. Our portfolio has benefitted tremendously from these compelling secular growth trends, as evidenced by the strong returns generated by our long-held towers in Mexico and Brazil.

The more recent transactions we have completed in Latin America are also generating solid performance for the business. For example, the portfolio we acquired from site sharing in Brazil in 2011 is seeing robust leasing activity.

Since integrating these sites into our portfolio just under two years ago, on a currency neutral basis we have grown revenues by over 20%, and EBITDA by over 15% on these assets. Again, all in less than two years. Further, we’ve increased the occupancy rate on these sites by over half a tenant, which is higher than initial expectations.

Over the next several years, we expect to continue benefitting from solid industry trends in Latin America as carriers in Brazil work toward building out 4G spectrum in advance of the 2014 World Cup and 2016 summer Olympics.

In both Mexico and Brazil, mobile data is still early in the adoption phase, while smartphone penetration in both markets was just 15% at the end of 2012. It did grow rapidly, though, at a 67 per year annual pace. Also, RPU driven by data is approximately 23% for Brazil and 37% for Mexico, compared to the U.S. at just over 40%.

This signals that demand for more complex wireless services and sophisticated handsets is increasing as markets move down the technology curve over time. We fully expect that this trend will result in robust and long term leasing activity across our asset base in Latin America and elsewhere around the world.

South Africa is our cornerstone country in Africa, and another example of a key wireless market in transition from a focus on voice services to data services. By year-end 2012, 25% of RPUs there were data-driven and subscribers’ adoption of mobile internet remains on an upward trajectory.

Consumer trends are similar to when mobile email and web browsing started taking off in the U.S. during the 2005 to 2007 timeframe, back when Blackberry use here was on the rise and the original iPhone was introduced.

As overall internet usage continues to expand in South Africa, we anticipate that the vast majority of this growth will continue to be captured in the mobile network, given South Africa’s very low wireline penetration of 9%.

Already, the strong subscriber ramp up in data is fueling significant need by the carriers to invest in 3G capacity builds. MTN and Vodacom, for example, have recently reported plans to increase their 3G deployment activity. This is resulting in leasing activity across our South African sites well in excess of our original expectation.

Our acquisition of towers from Cell C, which represented our launch into South Africa, is a prime example of this success. Upon acquisition, the portfolio had on average just over one tenant equivalent per tower. Within just three years of integrating these assets, we have grown the occupancy rate to nearly two tenant equivalents per tower, and today are generating return on invested capital of approximately 20% in local currency.

It has been through our disciplined approach to identifying and evaluating investments like this that’s enabled us to achieve these types of results. However, we believe we still have substantial upside to grow in South Africa. Today, smartphone penetration is only 20%, so there’s significant upside to data adoption as handsets become cheaper and more accessible for those consumers.

Further down the road, we view LTE deployments as a longer term growth driver in the South Africa market, and anticipate that carriers will largely use the spectrum they have been allocated to provide more advanced services such as mobile video.

South Africa, like our other transitional markets in Latin America, therefore represent another opportunity to elongate our growth profile by 5 to 10 years beyond what we were seeing domestically.

Lastly, let’s turn to one of our early days wireless markets, India. In this nation of nearly 1.2 billion people, subscriber trends continue to be marked by rapid, growing voice penetration. At the end of 2012, wireless subscriptions in India were at 75%, which represented a 33% compounded annual growth rate since ’07 and only 16% of the RPUs from these folks were generated from data usage.

We estimate that today’s stage of wireless network investment in India would be equivalent to what we saw in the U.S. around 10 years ago. And due to the lack of wireline infrastructure, wireless communications is the first and only mode of communications available for a large portion of this population.

So back in the mid-2000s, as we assessed the investment opportunity India presented, these long term subscriber trends stood out to us as being compelling for the tower colocation model. We want to participate in the evolution of these trends, which we believe complimented our market exposures in Mexico and Brazil. However, at that time, asset valuations for portfolios in the market were notably higher than our investment process supported.

As a result, we opted to launch our Indian operations not through an acquisition, but through a massive power construction program, primarily with the large, incumbent carrier. We then proceeded to increase our scale in India through M&A, only when the asset prices moderated and met our investment criteria.

Furthermore, with our long term perspective, we strategically aligned ourselves with the incumbent well-capitalized players in that market, with the belief that the wireless industry would, and it did, see consolidation of the smaller operators.

Our Indian assets have experienced strong leasing with relatively low churn, and today average nearly 2 tenants per tower, resulting from the robust secular growth trends across the region and our focus on those major national operators.

Recently, carriers have made notable efforts to stimulate further 3G subscriber penetration in India. In mid-2012, for example, most of the large incumbent carriers cut data service pricing to promote 3G update. Overall, consumer internet penetration, wireless and wired, across the country, is only at 10%, and we believe that this demand will grow rapidly with the vast majority of people getting online by the mobile network. We therefore view the Indian market as a long term growth investment.

In conclusion, we believe we are extremely well-positioned to deliver strong operational results from both our domestic U.S. segment and our international segment over many years. We believe the investments we’ve made, and our commitment to doing business with integrity everywhere, will enable us to meet our goal of doubling AFFO per share over the next five years.

Further, as demonstrated by the success of our current legacy international portfolio assets, which generate approximately 600 basis points of incremental return on invested capital versus our legacy domestic assets, we believe we’re being prudent in our assessment of risk adjusted hurdle rates, the prices we’re willing to pay for assets in the U.S. and abroad, and our overall deployment of capital.

And with that, operator, can you please open the call for questions?

Question-and-Answer Session

Operator

[Operator instructions.] Your first question comes from the line of Brett Feldman with Deutsche Bank.

Brett Feldman - Deutsche Bank

Thanks for that deep dive on your international. I think that was very helpful. Sort of along those lines, you have been a little less active this year in terms of acquiring portfolios. I know you’ve done some deals but still below your recent run rate. You have a huge liquidity position. I was hoping you could share with us some thoughts on the opportunities you see out there, both domestically and internationally, and if you don’t identify an attractive deal soon, what other types of options do you have for that cash?

Tom Bartlett

The pipeline continues to be incredibly busy. As you know, we have a very disciplined investment approach, and while we’ve closed on a couple hundred towers, if you will, in Q2, we’ve passed on many opportunities just because they didn’t meet our investment hurdles.

But I can assure you that there is a significant pipeline globally, in just about every market that we’re represented. To the extent that those don’t pan out, as we’ve done in the past, and will continue to use, is our buyback program.

We have just over a billion dollars of buyback available under the plan that the board put in place just a couple of years ago, and so as we did this past quarter, we increased the pacing of that buyback, and to the extent that opportunities that meet our hurdles don’t pan out over the balance of the year, we’ll continue to use that as a means of returning capital back to shareholders.

Operator

Your next question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

You reduced the tower build program, primarily in India. Can you talk a little bit about what’s going on there, in particular in regard to Jim’s comments? And then as you look at the transactions internationally, buying a portfolio versus building, how do you think about the price per tower, necessarily? Is it a premium to the build cost? And kind of how that relates.

James Taiclet

Our tower build program, especially in India, in our original budget submissions, was very aggressive, and we recognize that here, but we wanted to make sure if there was that much opportunity in the market to build sites this year, that did, again, meet, in each particular individual case, our hurdle rates there. We wanted to make sure we had the capital to do it. And so just based on carrier budgets and timing and schedules, it wasn’t as aggressively deployed as far as new builds as we thought. And by the way, the colocation business did quite well so far in India as an aside to that.

So we definitely budgeted more than we ever had for India to build towers. The team was very aggressive and kind of overshot, frankly. So we’re scaling back the guidance a little bit in that regard.

When it comes to build versus buy, price per tower is a derivative outcome of our investment process. And as you know, whether it’s one tower or 10,000, we use the same model framework. So a price per tower is going to depend on build costs, it’s going to depend on how many customers we think we can get on it, and over how long a period. What’s the amount of equipment and therefore rent that the first customers signing up to pay?

There’s a host of inputs that go into whether we’re going to decide to build a tower or not. And the two things that fall out of our 10-year DCF, whether it’s one tower or 10,000, are what was the multiple of cash flow, and what was the price per tower? So those things are derivative answers from an investment processes that’s going on a 10-year DCF.

Rick Prentiss - Raymond James

In rough prices, the build in the different regions, is it still kind of 60-ish in India, 150-ish in Latin America? Or just kind of broad build costs?

James Taiclet

Yeah, about $50,000 in the U.S., depending on whether it’s a rooftop, or whether it’s a ground-based tower, to $150,000-ish down in Latin America, $250,000 if you will, in the U.S. And in Africa, in kind of that $150,000 range.

Operator

Your next question comes from the line of Michael Rollins of Citi Investment Research.

Michael Rollins - Citi Investment Research

I was wondering if you could talk a little bit about cash that you receive on a prepaid basis for capital reimbursement. And maybe you can give us a sense of what kind of number that is on an annual basis. And then also, how much of the amortization related to those cash payments do you see in your revenue, or in your AFFO, on an annual basis?

Tom Bartlett

We actually have additional disclosure in our release that you can probably point to. It’s actually on page 12 of the release. We talk about the balances on year over year balance, and you can see that our beginning balance actually was quite a bit higher than last year, largely due to bringing on some new markets and the fact, in Germany, we get a lot of the cash actually up front.

You can see the cash component of it that we actually received in the quarter was about $18 million. But what we actually run through the P&L is what runs through AFFO, which is about $14 million. And you can see, for the first six months, in 2013, the delta’s about $18 million. So we received cash of about $45 million, but we amortized that over the balance of that lease as GAAP tells us to do, and so we amortized about $27 million, and that’s, in essence, what runs through our P&L and our AFFO.

Was that the question?

Michael Rollins - Citi Investment Research

Yeah, that’s actually very helpful disclosures, with that detail. And can you just review for us how you think the fair way is to present these types of numbers within the AFFO, or what the practice is from your research into when you looked at other REITs and other companies that try to define AFFO, what you think the most fair practice is?

Tom Bartlett

I think what we’re trying to do is present what the recurring cash flow nature is of our business. And I think the way that we reflect it is what runs through the P&L, runs through AFFO, is the way we should be looking at it, to give our investors a notion of what they should expect to be on a recurring basis. And so we think that this is the appropriate way of disclosing this type of an event.

James Taiclet

Just to cap it, it’s consistent through revenue, EBITDA, and AFFO for us. It’s all treated on an amortized fashion. We think that’s the right way to go.

Operator

Your next question comes from the line of Tim Horan of Oppenheimer.

Tim Horan - Oppenheimer

Jim, when we get through the amendment process here, and we start seeing more cell splitting, what do you think that means for overall revenue growth? Because you’re obviously growing at a really healthy pace at this point. And then secondly, is there much variance in what customers pay you internationally for collocating on your cell sites? Maybe the original tenant pays more or less than what you think the market rates are? Or is it just fairly even?

James Taiclet

Whether it’s amendments or new colocations via cell splitting, the way we view the market is that it all flows from subscriber demand, and the population for paying more for advanced mobile services. And we see that happening everywhere around the world. It’s most prominent and obvious here in the United States.

That subscriber demand, then, flows through to revenue and cash flow to the carriers, which makes them feel comfortable investing at the levels that they have been over the last few years. You know, collectively among the big carriers, $20-plus billion a year.

There’s so much on the network side. There’s so many projects, amendments, new sites that the engineers want. There’s plenty of things to spend money on. I look at it as a cash supply and demand. There’s plenty of demand from the engineers to put more cell sites in, to put more equipment out there to improve their network. And will the investor base of the carriers support the cash supply to do that.

We see that happening, and therefore we think the overall run rate that you’re seeing today, whether it’s the mix of amendments and colo changes, the supply of cash is going to be similar over the next three or four years to roll these networks out, and so we think our demand is going to be similar.

So it may result in a different amendment split for us, but I think the overall area under the demand curve for leasing activity is going to come out very similar in cash terms.

Tom Bartlett

And on the second part of the question, as you would expect, the rental rates are going to largely be, from the carrier’s perspective, based upon the divested capital to actually build the tower. So if you take a look at our average rates, which have continually been trending positive, if you look at the United States, our average rates on a rental basis are in the $2,500 range.

Going down to Mexico and Brazil, they’re in the couple thousand dollar range. Ghana’s a little bit higher. South Africa is in that range. And India, which you would expect, where the tower costs us $50,000 to build, the rental rates in India are in the $500 to $600 range. So it’s reflective of the ROI from the carrier’s perspective, and they do vary in each of the markets, depending upon the level of investment that it takes to build the tower.

Operator

Your next question comes from the line of David Barden of Bank of America.

David Barden - Bank of America Merrill Lynch

Just a couple on FX. I guess the first question would be just confirming, Tom, that the revenue guidance midpoint off of the first quarter currency expectations would have been $40 million higher but for the change in the expectations for forex that we’re making this year.

Tom Bartlett

That’s exactly right.

David Barden - Bank of America Merrill Lynch

So I guess two questions then. One is with respect to the rates that you’re choosing to guide to now, can you walk us through how you come to those expectations? For instance, why is a 2.2 real the right number if the spot rate’s 2.9? And then the second question is, walk us again through the thinking on hedging or not hedging, and why not hedging is the right choice.

Tom Bartlett

With regard to the selection of the points, we’ve used a process since I got here, a consistent process right from the beginning. And we look at Bloomberg [unintelligible] for the balance of the year, which is an average, the number of the banks, and use that rate as a rate, and disclose it as it’s disclosed on page 4 of our release, to give investors the transparency in terms of what we’ve selected. So we’ve said for the second half of the year, you picked [RAI] of being 2.2.

And so there’s a consistent process that we’ve used. People can use different rates if they would like, but we think that this is a process that’s been consistent and is appropriate. And as a result, it results in that $40 million of headwinds at the rental and management revenue level.

With regard to hedging, as you well know, we don’t currently actively hedge our international FX exposure on a material basis. We do hedge specific transactions and have done in the past if we’ve had cash going out the door on a specific date and wanted to lock in an attractive exchange rate at a local time.

Given virtually all of our international revenue operating expenses and SG&A are denominated in local currency, we’ve got an implicit operational hedge in place without actually entering into any specific hedging transaction.

As you know, substantially all of the cash generated by our foreign operations is reinvested right back into those same markets, so hedging that cash flow has not made much sense to us at this point, particularly in light of the costs involved. Translational hedging is really just cost prohibitive.

And so since we’re not repatriating any meaningful cash from our international operations to the U.S., if we were to hedge, we would essentially be sending real cash out the door in order to hedge strictly translational FX impacts, which generally has not made sense to us given those costs.

And so if we do reach a point in the future where we’re actually repatriating substantial amounts of international cash back to the U.S., it may make some sense to reevaluate our hedging strategies at that time. But in the meantime, we’re constantly evaluating potential hedging opportunities, but would not expect to hedge our international operations material for the time being.

Operator

Your next question comes from the line of Batya Levi with UBS.

Batya Levi - UBS

A question on the U.S. You mentioned organic growth of about 8.5% for this year, exceeding your target. Can you talk a little bit about if that includes any increased activity from Clearwire? And also, looking out to ’14, you do expect leasing activity to remain strong. How should we think about how that translates to organic growth for next year?

Tom Bartlett

Relative to Clearwire, not meaningful, candidly. A little bit of an uptick so far, but I wouldn’t say they’re a meaningful contributor to the 8.5% growth.

And as I mentioned before in my remarks, significant new signed activity in the quarter. We would expect that to be commenced, if you will, over the next 12 months. We’ve consistently said our goal is the 6% to 8%. We’re quite a bit over that, if you will, for 2013, and hopefully we’ll see some of those similar trends in 2014.

But it’s really too early to kind of tell at this point, in terms of where that might be in the curve, but I think we’re seeing some really positive signs in the U.S. market.

Operator

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

Jonathan Schildkraut - Evercore

First, you gave us a lot of great color in terms of the uptick in new lease activity. And I was just wondering if maybe you could give us some additional detail on whether this is incremental to the amendment activity or whether this is a shift in demand. And maybe in that, give us the breakdown of activity between new cell sites and amendments.

And then secondly, we’ve gotten a lot of questions about what it’s going to mean for the tower companies. Sprint defines a higher capex plan and potentially comes out with a network vision too, if you will. And just wanted to get a sense as to, given your MLA being different from some of your partners, under what scenarios will you benefit from an uptick in spending from Sprint.

James Taiclet

Speaking first to new lease activity and how it is incremental to our MLA run rate, these master lease agreements we have with three of the four national carriers are very well defined when it comes to how many sites can be used in most cases, how much equipment can be on a single platform, how much vertical space you can operate on, and ground space, if you’re a carrier and spectrum-constrained.

So going over and above any of those parameters results in what we call additions to pay, beyond what we call the holistic use right of doing some amendments within those boundaries. And so there is a significant proportion of our new business now that’s coming from these additions to pay, because carriers are needing more equipment. Sometimes they’re needing two transmission elevations on the tower. Sometimes they’re needing more ground space. So all these things are outside of the parameters, and therefore they result in additions to pay, which in the U.S. have been significant for us.

In addition to that, most of these agreements don’t have any provisions for new colocations, and none of them have any provisions for build to suit sites. We’re one of the most prolific builders in the United States of new towers right now, and of [DAS] systems, and so those are outside of these agreements. And any acquisitions we do in the United States are also outside these agreements.

So there’s a complete portfolio of addition to pay opportunities, I guess I’d call them, and we’re seeing a lot of that now. The split in the U.S. currently is 70% amendments and 30% otherwise. Again, colocations, new build to suits, [DAS] installations, things like that.

So that’s really where we get the turbocharger on these master lease agreements, through that structure and those additions to pay.

Secondly, when it comes to Sprint, I think it’s always important for us to lead off to say we have zero Nextel related churn risk with Sprint. And that is because in the holistic agreement we’ve put together with them, we gave them some more flexibility on CDMA and ultimately 4G and network vision to prevent any churn with the Nextel equipment and [prices] were going to come down, which they are as they are as we speak.

That agreement had limitations as well, and there are some additions to pay with the Sprint agreement. As far as network vision two, again there’s a limitation on total number of sites, which if exceeded will be completely outside this agreement. So we think there is some upside to us with SoftBank funding and with Clearwire’s spectrum being able to be controlled by Sprint.

Operator

Your next question comes from the line of Colby Synesael with Cowen.

Colby Synesael - Cowen & Company

There’s been a lot of change in who owns what spectrum, certainly recently in some deals that have been done, but also carriers now just deploying spectrum that they’ve been holding on to. Can you just remind us as carriers start to deploy new spectrum - so, Verizon, for example, deploying AWS - how that could potentially benefit you, especially in consideration of the MLAs that you have?

James Taiclet

It has a very direct benefit, especially in the case that you cite, which is Verizon AWS. So let me step back for just a second. We think the two most important things going on in the U.S. market right now is this ability for carriers to have the financial foundations to deploy national 4G competitive networks, and also to have the spectrum that enables them to actually do that in a quality way.

So when spectrum gets in the right hands, so to speak, to someone that can actually put it out there in the field and install equipment on towers, that’s going to benefit our industry. And AWS spectrum that Verizon has secured is an excellent example of that.

When it comes to our agreements, we tend, again, to have spectrum limitations or definitions around what could be on the tower, but more importantly, almost all that new spectrum tends to come with additional equipment, because you don’t necessarily want to dilute your existing transmission operation to add the spectrum, which would be counterproductive. So carriers often add equipment to bolster their ability to transmit.

And so in the case of AWS, there’s sort of an amendment standard of bill of materials that Verizon tends to put on for an AWS upgrade, if you will. We have rates by region of the country for those, and that is complete additional amendment revenue for us, with our arrangement in that particular case.

Operator

Your next question comes from the line of Imari Love with Morningstar.

Imari Love - Morningstar

Just wanted to touch back internationally on zoning restrictions, ground leasing dynamics, access to licensing. If you can just speak to, maybe just on a high level, things getting on the margin easier to make moves, build in acquisitions internationally, specifically in Latin America. Or are things starting to get a little tighter from maybe a regulatory backdrop perspective?

James Taiclet

Broadly, zoning and permitting restrictions are increasing in difficulty in every market at a different pace, but they’re increasing everywhere. But also I think it’s important to reiterate that zoning is not what makes a franchise tower. What makes a franchise tower is the economic disincentive to build next to to an existing site, because the existing site is able to capture, on its own, within its territory, all of the license holders in that location. So if there are five license holders and we have a tower there, we’ve got five potential customers.

For someone to build next to us once we’re already up and running, and have, say, a couple of those customer already on, is economically foolish. Because we’ve already got two of the five customers, and then in theory they’d be splitting the opportunity for the rest, and so no one really does that in any market. Rationality has come to all of the competitive tower markets that we operate in.

And so the biggest disincentive to someone building near your tower and sort of damaging the franchise potentially is an economic incentive that is universal. If you add to that the zoning restrictions which are difficult and getting more difficult, especially in places like Chile and Brazil, Mexico, South Africa, Ghana is very tough right now, India’s increasing. So municipalities are sort of enhancing our franchise value kind of as we speak. But the main franchise protector is economic.

Operator

Your final question comes from the line of Jonathan Atkin with RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets

I was wondering about the property level cost control that you mentioned, that contributed to the EBITDA raise, and what was that, and where was that, which market? And then wondered about Latin America. It sounds like your new tower builds are [unintelligible] towards Mexico. What’s driving that? And is Mexico still going to be where you do the preponderance of your new builds in that region?

Tom Bartlett

On the first one, it’s largely in the U.S. As we have done historically, we continue to either extend leasing contracts with landlords, or buying towers. Last year we effected about a thousand parcels. We have effected roughly a thousand parcels in just the first half of this year, and the goal for our U.S. tower team is 2,000 parcels. And they just assured me that they’re going to hit that number.

So it’s largely just a function of buying parcels where it makes sense, and extending them where the landlord is not interested in selling. He just wants to go back out on a renewal.

James Taiclet

And the other element globally is we are becoming, I think, quite capable in fuel management in the markets where we have to deal with that. And so you can actually drive down fuel costs, put in programmatic power contracts with your customers, where there’s actually some profitable upside. A little bit of profitable upside sometimes. But we’re getting very good at fuel management and that’s helping us to manage our costs.

Tom Bartlett

And from 2007 to 2012, land lease expense as a percentage of domestic rental revenues continued to decline from about 16% to 13%, illustrating that our revenue growth significantly outpaced any increase in our land expense.

James Taiclet

And when it comes to construction, this is one of the things we’re proud of in the company. We built 400 sites last quarter. Almost 100 of those were in the U.S., by the way, just last quarter. Mexico was actually fourth, frankly, behind India and one of our African markets. There’s 48 towers built in Mexico, much of that driven by just the transition, as we’ve talked about, from a strong 2G network to a much stronger 3G network that can deliver data. There’s density requirements, especially in regard to spectrum that’s being deployed, that need to be addressed, and so tower building is helping with that.

Tom Bartlett

Thanks, everybody. I really appreciate all of your ongoing support, and to the extent that you have any further questions, Leah and I are both here for you. So thanks again, and have a great morning.

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