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American Tower Corporation (NYSE:AMT)

Q3 2013 Earnings Call

October 30, 2013, 8:30 AM ET

Executives

Leah Stearns - Vice President, Investor Relations and Capital Markets

Thomas Bartlett - Executive Vice President, Chief Financial Officer and Treasurer

James Taiclet - Chairman, President and Chief Executive Officer

Analysts

Ric Prentiss - Raymond James

Jonathan Atkin - RBC

Batya Levi - UBS

Michael Bowen - Pacific Crest

David Barden - Bank of America

Amir Rozwadowski - Barclays

Jonathan Schildkraut - Evercore

Simon Flannery - Morgan Stanley

Operator

Good morning. My name is Tekitria, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower third quarter 2013 earnings call. (Operator Instructions) I would now like to turn the call over to Ms. Leah Stearns, Vice President of Investor Relations and Capital Markets. You may begin.

Leah Stearns

Thank you. Good morning, and thank you for joining American Tower's third 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 third quarter and year-to-date results, then Tom Bartlett, our Executive Vice President, CFO 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 will call contain 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, including AFFO growth, and dividend per share growth, our pending acquisitions 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 June 30, 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 4 of the presentation, which provides a summary of our third quarter and year-to-date 2013 results. During the quarter, our rental and management business accounted for approximately 99% of our total revenues, which were generated from leasing income producing real estate, primarily to investment grade corporate tenants. This revenue grew 14.2% to approximately $797 million.

In addition, our adjusted EBITDA increased 13.9% to approximately $528 million. Operating income increased 4.5% to approximately $309 million, and net income attributable to American Tower Corporation declined to approximately $180 million or $0.46 per basic and $0.45 per diluted common share. The decline was primarily related to unrealized non-cash losses attributable to our intercompany loans.

Turning to our year-to-date 2013 results. Our rental and management revenue grew 14.5% to over $2.36 billion. In addition, our adjusted EBITDA increased 13.3% to nearly $1.58 billion. Operating income increased 9.6% to approximately $921 million and net income attributable to American Tower Corporation was approximately $451 million or $1.14 per basic and $1.13 per diluted common share.

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

Thomas Bartlett

Thanks, Leah, and good morning, everyone. Our team has delivered another solid quarter results in Q3, which was a direct result of nearly 11% core organic revenue growth generated on our existing properties. Over the last year, we've also added just under 8,000 tower sites across our global footprint, driving an additional 8% of revenue growth.

During the quarter, we also announced two acquisitions, which will expand our portfolio of properties across the U.S., Mexico and Brazil. We completed our acquisition of GTP on October 1, which included over 5,000 tower sites in the U.S., a well-positioned network of managed rooftops and an established presence in Central America.

In Latin America, our acquisition of sites from Nextel International is expected to close during the fourth quarter and deepens our scale in the rapidly growing Mexican and Brazilian wireless markets. We continue to experience excellent organic growth overseas and anticipate these sites will positions us well. We believe that our legacy businesses strong organic growth coupled with these acquisitions will position us to continue to deliver significant value to our shareholders in 2014 and beyond.

If you please turn to Slide 6, our total rental and management revenue in the quarter increased by over 14% to $797 million. On a core basis, which we'll reference throughout this presentation as reported results, excluding the impacts of foreign currency exchange rate fluctuations, non-cash straight-line lease accounting and significant one-time items, our total rental and management revenue growth was over 18%. Of this core growth, nearly 11% was organic, with the balance attributable to new sites.

Our organic revenue growth in the U.S. continue to be driven primarily by our tenants network investments, largely in the form of lease amendments. We anticipate that over the next 12 to 18 months, our tenants will gradually shift their focus from coverage to capacity-driven network investments, leading to an increase in new tenant co-lo's. As a result, we continue to target core organic growth at or above the high end of our long-term 6% to 8% range.

Meanwhile, our international segment posted yet another strong quarter, driving about half of our consolidated revenue growth. As a result of our diversified pool of our customers, we are experiencing demand across our entire international footprint.

In our emerging wireless markets, including India and Ghana, 3G is in its early deployment stages. Increasing data usage is driving capacity deployments in our evolving Latin American and South African markets. And 4G deployments are underway in Germany. We believe these investment trends will continue, and as a result expect our international segment to continue to deliver double-digit core organic growth.

Turning to Slide 7. During the third quarter, our domestic rental and management segment revenue growth was driven primarily by an increase in recurring cash leasing revenue from our legacy properties. Reported domestic rental and management segment revenue grew by over 10% to approximately to $530 million and our domestic core revenue growth was over 12%.

This is the highest core revenue growth we have reported in U.S. in the last five years. Our domestic core organic revenue growth was 9.2% in the quarter, significantly exceeding our ongoing 6% to 8% core organic growth goal for the U.S.

AT&T and Verizon continue to lead the pack in terms of new business commitments with T-Mobiles, Sprint, and a number of other customers also making meaningful contributions. In addition to our contractual escalators and guaranteed payments, under our holistic MLA agreements, we again saw significant additions to pay activity in the quarter.

Domestic signed new business, which we would expect to commence within the next six to 12 months, remained at elevated levels during the quarter, exceeding the year ago period by 13%. While domestic commenced new business, it's still over 70% amendment related, we are starting to see signs of a shift to new leases in our new business pipeline, where our co-lo applications make up closer to 40% of that total.

The balance of our core growth in the U.S., about 3%, was generated from a more than 1,000 new communication sites we acquired or constructed in the U.S., since the beginning of the third quarter of 2012. Included in the 1,000 are about 350 new built-to-suit towers and we expect that our U.S. new build program will increase over the next 12 months.

Our domestic rental and management segment gross margin increased over $46 million or 12% in the quarter, representing a year-over-year conversion rate of about 94%. Our strong conversion rate trends are a result of our robust organic revenue growth complemented by our 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 a 170 parcels and extending over 300 by an average of over 30 years. As of the third quarter, we owned land under approximately 30% of our domestic properties and have on average only 1% of ground leases up for renewal per year over the next 10 years.

Combined with our recent acquisition of GTP, about 90% of our domestic tower sites are located on land that we either own or have land leases under for at least 10 years. Finally, as a result of our growth in gross margin in Q3, operating profit increased 11.4% to over $410 million.

Moving on to Slide 8. During the quarter, our international rental and management segment reported revenue increased about 23% to $267 million. International core revenue growth was nearly 32% and international core organic revenue growth was over 14%. During the quarter, foreign currency fluctuations negatively impacted our growth by about $6 million, when compared to the rates we assumed in our outlook.

Our organic growth continue to be driven primarily by strong new lease commencement activity from tenants such as Telefónica, Nextel International and America Movil in Latin America; Vodafone and MTN in South Africa; and Bharti, Vodafone and Idea Cellular in India.

Unlike the U.S., our international segment organic growth is primarily generated by the addition of new tenant co-locations across our existing properties. This is a result of the lower average tenancy across our international portfolio, which today stands at about 1.6.

As you recall, many of the towers, we've acquired internationally over the last three years were single-tenant towers on day one. These properties had not previously been marketed or made available to other wireless service providers.

Given our established presence and relationship with our customers, as a leading independent tower operator, we are well-positioned to drive incremental leasing on these assets. We expect this organic growth to increase tenancies across our international portfolio, and will also result in substantial margin improvement for the segment.

During the quarter, we constructed more than 400 sites and acquired over 500 more. We have added 6,800 communication sites to our international portfolio, since the beginning of the third quarter of 2012, all of which contributed over 17% to our international core growth.

As we add new properties to our international portfolio, our pass-through revenue continues to increase, reflecting our ability to share a portion of our operating costs with our tenants. During the third quarter, our international pass-through revenue was over $71 million, which is up about 25% or $14 million from the prior year period.

From a reported gross margin perspective, our international rental and management segment increased by 25% year-over-year to $170 million, resulting in 69% gross margin conversion rate. Excluding the impact of pass-through revenue, our gross margin and gross margin conversion rate would have been 87% and 96%, respectively.

Finally, our international segment operating profit also increased nearly 25% to roughly $138 million. Our international segment operating profit margins was 52%. And excluding the impact of pass-through revenue was over 70%.

Turning to Slide 9. Our reported adjusted EBITDA growth relative to the third quarter of 2012 was nearly 14%, with our adjusted EBITDA core growth for the quarter at over 17%. All 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.

During the third quarter, our services segment contribution to adjusted EBITDA declined on both a sequential and year-over-year basis, as a result of the completion of a specific project related to a customer network upgrade initiative. During the fourth quarter, we expect activity will increase in our service segment, as a result of a new services project and drive activity closer to our second quarter of 2013 levels.

For the quarter, our adjusted EBITDA margin was over 65%, which increased compared to the prior year period, despite the addition of nearly 8,000 new sites since the beginning of Q3 2012. The average day one tenancy of the 8,000 new sites was just over one. This results in lower initial margins and provides a platform for margin expansion over the next several years. And excluding the impact of international pass-through revenue, our adjusted EBITDA margin for the quarter was nearly 72%, and our adjusted EBITDA conversion rate was over 80%.

Moving on to Slide 10. 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 $72 million to $367 million or $0.92 per share. AFFO and AFFO per share of growth were over 24% relative to the third quarter of 2012.

Core AFFO grew by about 26%, after excluding the impact of foreign currency exchange rate fluctuations, and the impact of a $3.5 million one-time favorable international cash tax refund received during the quarter. This strong growth in AFFO reflects a significant organic new business growth in a number of successful opportunistic refinancing transactions, which resulted in 100% conversion of adjusted EBITDA to AFFO during the quarter.

Looking forward, we continue to target at least mid-teen core AFFO growth and believe that we're extremely well-positioned for long-term upside from our recently announced acquisitions, and the continuing underlying demand trends we are seeing across our global footprint.

Turning to Slide 11. We are raising our full year 2013 outlook for rental and management segment revenue to between $3.25 billion and $3.28 billion. This includes an incremental contribution from GTP and Nextel Mexico of approximately $86 million, plus $5 million of incremental straight-line revenue from our existing business, partially offset by a $13 million negative impact of FX fluctuations relative to our prior outlook, $6 million of which impacted our Q3 results.

We expect to close the NII tower acquisition in Brazil late in the fourth quarter and consequently have excluded the benefits of those assets from our outlook. For the year, we now expect our core growth in rental and management revenue to be over 21% at the midpoint. The robust leasing activity we have assumed for the rest of the year, also translates into stronger core organic growth, which we now expect will be nearly 9% in the U.S. and about 13% in our international segment.

We are also increasing our outlook for adjusted EBITDA by $55 million at the midpoint. This includes a $58 million contribution from the GTP portfolio and the NII sites, plus a $4 million net straight-line benefit, partially offset by about $7 million in unfavorable FX fluctuations. We expect core growth and adjusted EBITDA for the full year to be more than 19%.

Finally, we are also raising our full year AFFO outlook at the midpoint by $10 million. This increase reflects the impact of our recent acquisitions and the debt we raised in August, used to help close the transactions anticipated in Q4. It is important to highlight that we've included the interest expense impact of the full financing in our outlook, but have not layered in the associated EBITDA for the Brazilian portfolio.

Also, we've included just two months of EBITDA contributions from the NII Mexican portfolio, given an expected close in November. We now expect to generate core AFFO growth of over 22% for the year. This growth reflects the immediately accretive nature of the GTP and NII transactions.

Moving on to Slide 12, and walking through our 2013 rental and management segment revenue build. You can see that we expect consolidated core organic growth in 2013 to be about 10%, composed of cash growth from escalators, new leases and amendments on existing sites, partially offset by some churn.

The balance of our core growth, about 12%, is attributable to the nearly 12,000 sites we've added to our portfolio since the beginning of 2012. 10% would be the highest full year core organic growth rate we have achieved in over five years, which we believe is an excellent indicator of the momentum we are seeing across the business.

Our ability to not only leverage our strong balance sheet to deploy capital for accretive transactions, but also grow our large base of business organically, is in our view a clear indication of the quality of our properties in global scale. The foundational principle of the tower business is centered on organic growth, given the extremely high flow through of revenue to margins in low levels of required incremental capital spending.

We have been focused for a number of years now on positioning ourselves to generate significant sustainable organic growth from our operations and are now seeing the fruits of those initiatives. We expect to generate continued strong organic growth across our global footprint into 2014 and beyond.

Turning to Slide 13. We remain committed to the long-term financial policies that have enabled us to deploy over $17 billion in capital since 2007 to fund accretive acquisitions, our CapEx program and the return of cash to our shareholders through our repurchase programs and REIT distributions. As a result of our acquisition of GTP, we expect to end the year at 5.8x net debt to adjusted EBITDA on a pro forma basis.

We intend to delever back to our targeted range of net debt to adjusted EBITDA over the next 12 to 15 months. We anticipate that this deleveraging process will be driven by a combination of adjusted EBITDA growth from both, our legacy and newly acquired assets as well as selective debt repayments utilizing the significant free cash flow generation of our business. Pro forma for our recently completed term loan and our acquisition of GTP, we have liquidity of about $2.6 billion, including about $700 million in cash on hand.

Turning to Slide 14. And in summary, we've had an excellent year so far in 2013. We believe that we have improved our competitive positioning and ability to drive solid returns through our recently closed acquisition of GTP and our announced transactions with Nextel International.

We have established our status as a global leader in telecommunications infrastructure, and as a result of recent acquisitions, expect to have over 65,000 sites on five continents. We have positioned our company to benefit from the next generation network technology deployments around the world.

In the U.S., we believe our recently expanded portfolio of over 27,000 sites, positions us to benefit from an unprecedented demand environment that we believe will continue through 2014. All four nationwide carriers are aggressively deploying 4G networks with Verizon and AT&T leading the group and T-Mobile and Sprint working hard to keep pace. We have deliberately positioned our U.S. business to better serve these large, well-funded carriers.

Pro forma for the GTP portfolio. We will derive nearly 80% of our domestic, rental and management segment revenues from the top four carriers. With over 60% of our portfolio located in the top-100 markets and significant incremental capacity and the vast majority of our tower sites, we believe we are poised to benefit from the carriers continued investment in their networks for a number of years to come. The acquisition also increased our presence in top key markets such as New York, San Francisco and Washington D.C.

In our international markets, where we will have nearly 40,000 sites, once we close the NII transaction, our large multinational carrier partners are also investing heavily in their networks to provide their customers with increasingly bandwidth-intensive wireless technology solutions.

In our anchor Brazilian and Mexican markets, where we have demonstrated a proven ability to generate return on invested capital in excess of 20% on legacy tower sites, our portfolio will expand over 15,000 sites. As the largest independent tower operator in those regions, we intend to use our portfolio on long-standing relationships with key customers such as Nextel International, Telefónica and America Movil to continue to generate sizable returns.

In Brazil, as the World Cup and Olympics approach, we anticipate a strong demand environment to continue through 2014 and beyond and are well-positioned to capitalize on this investment cycle. We're especially excited to start leasing up to nearly 2,800 predominantly single-tenant sites we are acquiring from Nextel, given their favorable locations and the fact that they have never been actively marketed previously.

In Mexico, where we will also have the largest independent tower portfolio in the country, we expect solid demand trends we have seen so far in 2013, to continue into next year as carriers such as Nextel, America Movil and Iusacell continue to aggressively invest in their 3G networks.

We anticipate that 4G network deployments in Mexico will commence in the near-term as well, which will be another driver of organic new business for our portfolio of over 8,000 sites. We expect demand trends in our other international markets to remain compelling as well.

Our customers in Africa and India are expected to be continue to invest in their networks, as wireless services continue to expand. As we've talked about previously, the distinct lack of fixed line infrastructure in these regions, make wireless a compelling value proposition for the end-user. And as a result, we expect to see solid growth in these emerging markets going forward.

Although, we will wait to issue formal 2014 guidance, until our Q4 call in February, we are confident that we will once again be able to achieve core organic growth rates at least in the high-end of our target ranges of 6% to 8% in the U.S. and at least 200 basis points to 300 basis points above that in our international markets.

We anticipate that this organic growth in combination with EBITDA contributions from our 2013 acquisitions and the repayment of borrowings under our credit facilities will enable us to delever back to our target leverage range. Further, the impact of our GTP and NII acquisitions should contribute approximately $0.25 to $0.30 to our AFFO growth in 2014, further demonstrating the accretive nature of the investments we have made on behalf of our investors in 2013.

In summary, we believe that our legacy business performance complemented by the accretion associated with our recent acquisitions will position us well for another strong year in 2014. We believe that this growth in cash flow coupled with the anticipated growth in our dividend will create meaningful value for our shareholders.

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

James Taiclet

Thanks, Tom, and good morning to everybody on the call. As evidence by our elevated third quarter and year-to-date core organic growth rates, the rapid adoption of advanced mobile services continues to drive demand for tower space.

Today, I'll take some time to briefly review the technical foundations of the essential role of the tower in the delivery of wireless service. These fundamentals, routing the physics of radio wave obligation provide a strong validation of our future revenue and cash flow expectations.

Our recent strategic initiatives notably the GTP and NII transactions demonstrate our confidence in these technical foundations and will add approximately 10,000 high-quality sites to our three most long-standing markets, U.S., Mexico and Brazil, as Tom mentioned.

From an investor perspective, I believe there is just one fundamental technology concept to keep in mind. Modern wireless service is delivered in two basic stages. The analog voice and they travel through the airwaves between your handsets and the tower-mounted antenna and the digital portion of the signal path that is routed via the internet or landline telecom network.

The tower is the physical point for analog and digital converge and analog wave physics drive tower economics. Therefore, as we assess the impact of mobile technology development, it's essential to differentiate between analog and digital considerations. Analog factors determine tower density and tower loading requirements, while digital factors primarily impact the wireless operators for network needs for base stations, switches, routers, storage and servers.

At the most basic level the two most important analog wave characteristics for our business are spectrum frequency and signal strength attenuation. So let's address each of these separately with respect to 4G LTE deployments in the U.S. as our example.

First, as you all know, spectrum propagation distance is inversely proportional to frequency. In other words, the higher the frequency spectrum, the shorter the effect of distance. Therefore, all else being equal, higher frequency spectrum requires greater cell density and for us more tower leases.

All four national wireless carrier have begun their LTE deployments with initial spectrum either in the 700 megahertz range, Verizon and AT&T, or the PCS or AWS range inclusive of 1.7 gigahertz to 2.1 gigahertz, and that would include Sprint and T-Mobile U.S.A. But based on their respective public statements and announced transactions, we believe each of these carrier is or will be adding higher band spectrum to its initial LTE network design.

Verizon has already deployed AWS spectrum and is likely to later refurbish PCS spectrum to LTE. We expect that AT&T will apply on repurpose, AWS, PCS and even WCS spectrum at 2.3 gigahertz over the next few years. Sprint is likely to pass the Clearwire 2.5 gigahertz spectrum for a widespread LTE coverage. And T-Mobile will potentially migrate to Metro PCS spectrum in the AWS band to LTE as well.

Consequently, it's our view that U.S. carriers will need to add cell-sites for coverage and/or capacity, especially in light of the shorter propagation spectrum being introduced for LTE. The second critical analog signal factor is the level of signal strength required to deliver a competitive user experience to your handset or device. Again, the basic physics of wave propagation result in signal strength diminishing as the wave travels outward from its source.

Advanced mobile applications enabled by LTE, such as video, music, broadband internet access and voice over LTE or VoLTE, they require higher signal quality than 2G circuit switched voice or even typical 3G data application such as email. As a result, if its signaled at a given distance from the tower, provided a viable user experience for 3G applications, it may actually prove inadequate for a likeable 4G video stream, for example. Consequently, the additional signal strength needed at the cell edge for many 4G applications will further encourage greater cell-site density and hence more tower leases over time.

So to summarize, we expect the introduction of higher band spectrum combined with the increasing signal quality requirements of LTE services will drive significant new leasing opportunities for our business. This conclusion rest on basic principles of analog wave physics and addresses the coverage requirements of evolving wireless networks and large capacity applications.

But in addition to these coverage considerations, other capacity constraints based on the physics of analog radiofrequency transmission also come into play. Wireless spectrum in bands usable for radio frequency transmission are as you know of limited resource. An incremental wireless spectrum measured in megahertz in a given band has a limitation on how much information it can carry.

Further there are electrical power constraints at both the cell-site, and especially in the handset, due to a host of factors such as device battery life, regulatory restrictions, signal interference, thermal considerations et cetera that also put limitations on the effective capacity of an analog radio frequency signal.

Against these special and tower limitations is the exploding consumer demand for bandwidth. As subscribers upgrade from 2G to 3G to 4G devices and applications, the amount of information being transmitted and receive grows dramatically.

The average megabytes per month of information transmitted from a 3G device as compared to a basic 2G device has been measured in approximately a four times increase. However, data consumption of the average 4G device today is 1,300 megabytes or 1.3 gigabytes per month and that's nearly 200 times that of the basic 2G feature phone.

Given this very heavy usage pattern, U.S. wireless carriers are already beginning to experience capacity challenges in major market, since the electrical power settings are generally fixed and dedicated 4G spectrum is also relatively limited at this time. These early capacity challenges have emerged during the year in which 4G device penetration in the U.S. grew from 10% to only about 20% of devices.

As 4G penetration and usage patterns double again from 20% to 40% and then again from 40% to 80%, we expect that mobile operators will be adding additional equipment loading to their current cell-sites resulting in the elongation of amendment revenue opportunity for the US.

Moreover, in addition to traffic volume, the introduction of additional spectrum bands that we talked about such as AWS, WCS and 2.5 gigahertz spectrum will further support tower loading on existing cell-sites as dedicated antennas are often installed to optimize the different propagation characteristics of each of those bands.

Finally, given the anticipated enormous increase on data throughput as the majority of subscribers end up connecting to LTE, we expect cell splitting for capacity in addition to coverage to complement that coverage-driven network identification effort that I mentioned earlier.

We covered a lot of ground on the analog or tower base side of the wireless network, so let's turn to the digital or core side of the network for just a few moments. The analog signal to and from a handset or device is handled by the antenna up on the tower as you can see. Below the antenna either tower-mounted or in the base station on the ground is a component known as the radiohead.

This component performs the analog digital conversions needed to connect your phone or device to the core network over the airwaves. The base band receiver or base station then provides the digital signal processing to begin to guide your signal to its ultimate destination via fiber or other wire backhaul.

Most of the current development activity in wireless technology that we read about today, effects the digital core side of the network. Some examples of this are software defined networks of FDM, cloud-based radio access networks or Cloud RAN and LTE-Advanced. While these technologies hold promise for more efficient spectrum utilization, then signal path optimization, we don't view them as changing the trajectory of significant growth from either cell-site identification or tower loading as the baseline limitations on the analog or tower site of the network remain intact.

Lastly, while we so far today focused most of the conversation so far on the U.S. market, we expect a similar migration towards 4G LTE in all of our served markets. As a comparison of mobile data market development, the U.S. wireless industry derives around 40% of its ARPU from data, with Brazil as an example, only at 23% or about half. Our general expectation is that these evolving markets, will track three to five years behind the U.S. from advanced data network deployment. With earlier stage markets, such as Ghana, tracking five to eight years behind, thereby lengthening our growth trajectory.

To wrap up in advance of taking your questions, in our view the combination of greatly expanding consumer demand for advanced high-quality wireless service in both the U.S. and globally, plus the fundamentals of analog radiofrequency physics, combine to pave a clear path to continue the robust growth for our business as, Tom described.

Our recent acquisitions of GTP, which significantly expands our U.S. asset base as 4G deployment trends upward here, and with NII, which further improves our position in our two largest international markets, will both enhance our AFFO per share performance. These two important transactions will also contribute significantly to our aspirational goal of doubling our AFFO per share from 2012 to 2017.

So thanks to all of you for joining our call today. Now, we look forward to celebrating with you all the impending Red Sox victory in World Series. Operator, you can now open up the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ric Prentiss with Raymond James.

Ric Prentiss - Raymond James

Apologize for joining the call while in progress, it's been a busy earnings day, obviously. On your guidance, certainly very exciting time globally for wireless and towers. Within the guidance for '13, can you walk us through a little bit about how much of the increase was from the acquisitions Global Tower Partners and Nextel Mexico?

Thomas Bartlett

There is a slide in there that that is in the appendix that I didn't talk to, that actually gives a walk of the revenue, EBITDA and AFFO growth from our prior outlook versus the new outlook. And so you can see that looking on that Page 16, the impact of GTP and NII in itself is about $86 million at revenue, $58 million for EBITDA and $53 million for AFFO, less than the $36 million, which is the financing, which is there was some pre-funding in there, because we actually raised some debt in August for that.

And that includes the GTP acquisition as well as the assets in Mexico, which we anticipate closing for two months of the quarter, not for the full three. And we then anticipate closing Brazil late in the quarter, before the end of the year, and haven't included any of the benefits of that portfolio just because of the shorter timeframe to be in the quarter. So the GTP and NII Mexico transactions from a revenue perspective will generate that $86 million that we have on Page 16.

Ric Prentiss - Raymond James

And obviously a little continued weakness back in the third quarter from the FX more than what we had?

Thomas Bartlett

In my remarks I mentioned we had about $6 million of FX headwinds versus our prior outlook and we expect another $7 million in the fourth quarter. So that gives you the total impact of '13. Just to round out the revenue, we had some additional straight-line in some of our legacy assets, as well as a couple of million dollars of even positive results to generate that full $80 million increase at the midpoint.

Ric Prentiss - Raymond James

And I think you also mentioned that $0.25 to $0.30 of AFFO per share growth in '14 is coming from the Global Tower Partners and both Brazil and Mexico for NII. Can you remind us about how much impact those two transactions had as far as maintenance CapEx and SG&A spending because I will assume that's baked into that number as well, that's a net benefit?

Thomas Bartlett

That's exactly right. All of those costs are baked in there. On the transactions, I want to say, it was roughly $10 million of maintenance CapEx for 2014. NII is largely going to be integrated right into the business, so there is very little SG&A that's required, maybe a couple of million dollars.

And with regards to GTP, there are some synergy benefits, but it's about, I want to say, $527 million of incremental SG&A. As you recall from our last call when we talked about GTP, we anticipate spending $10 million to $12 million of integration expenses and as a result, we expect synergies of $5 million. I think it was in the first year thereabout and growing to about $10 million over the 24-month period.

Operator

Your next question comes from the line of Jonathan Atkin with RBC.

Jonathan Atkin - RBC

My questions are on international and except Germany perhaps, can you summarize to the degree to which you've got more versus less zoning protection by region and therefore some degree of competitive installation for your structures. And then on any future hypothetical carrier transactions, how open do you remain to considering the joint venture structure where the carrier retains ownership of the assets and ownership stake in the assets?

James Taiclet

I'll start off the first part by just sort of reiterating that the main barrier to entry for a particular tower site isn't necessarily the zoning restriction placed by the local government, but it's just the economic reality of the franchised value of the site, meaning if there is a limited amount of licenses in any given territory to build next to somebody else is essentially an economic mistake, because you cut your available market in half.

So it's not a sensible thing to do from a business perspective, but then further supporting our franchised value is the zoning barrier and in the U.S. it's varied across the country, but been fairly high. And what we're seeing is in almost every other market the trend is towards sort of the U.S. level, if you will. So if you take Brazil, again it varies across Brazil, but in some of the major cities and especially historical districts zoning barriers is just as high as they are anywhere in the U.S.

When you get to India, as an another example, again when you are in Delhi and Mumbai, zoning restrictions can be very, very difficult and existing sites become thereby more valuable, as you say. And then the last example I'll give you is Ghana, where it's probably one of the toughest new-build environments anywhere from a regulatory perspective. So everything is trending sort of towards the U.S. on the local regulatory side, but the most important factor again is just the economic rationality.

As for the JV structure, if we can work with a regional or global leading telecom partner, we'll entertain the opportunity for minority states and retention by those partners in those countries. So we have those with MTN and Millicom at the moment and we would entertain them going forward and it also helps some risk sharing and an alignment of interest in countries that are new to us, as well. So we will look at it, but our goal ultimately or even additionally often is 100% ownership.

Operator

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

Batya Levi - UBS

Couple of questions, first on your outlook for 2014 of at least 8% organic growth in the U.S., can you talk about what that assumes in terms of activity, especially coming from Sprint, is it the level of activity we're seeing today or are you making some assumptions that they will continue to overlaid at 2.5. And also just in terms of this third quarter, it looks like the core growth from existing sites were higher than the new sites and we haven't seen that historically. Can you talk a little bit of that, what drove that difference?

Thomas Bartlett

I mean, on the last question it's just timing. I mean the strong organic growth we've seen throughout the year. And as you know, when we look at kind of new site growth, we look at those assets that we've just haven't owned for full 12 months. And so given some of the timing of the transactions, it's less, if you will in terms the overall core revenue. Strong growth on all those new sites, but just in terms of the way we build the core organic and the new site revenue, the core organic growth is higher.

And by the way as I mentioned, it's among the highest levels that we've achieved, which I think is a reflection of just the demand we've seen throughout the world, which kind of gets into your second question, from what we seen in 2014, and we'll talk about guidance in February.

The rates that what I'm talking about now for 2014 are just building from the rates we have now. So I'm not anticipating any significant growth if you will, coming from any particular carrier. It's just continuing with the deployment schedules that we are realizing at this time.

James Taiclet

And what I would add on the U.S. market is we're seeing what we expected over the last few years continuing into the next few years, which it there is such terrific consumer demand or such interesting new devices and applications coming out, that's driving carrier investment in the networks to handle all of that.

They are figuring out a way to do it profitably and smartly. And therefore, they are increasing their demand, more tower spaces, as we go again, whether it's on existing sites through amendments and more equipment or new sites to densify the network. So it's a positive trend that continues along all of the fundamentals.

And then, if you take a look at the individual companies or even their public statements as late as yesterday, it suggests that they're going to up their investment in these trends, whether it was Verizon at their Analyst Day or AT&T who is talking about $20 billion a year of total CapEx for the next few years; and T-Mobile and Sprint, who with their new structures, and in this case of Sprint, its new parent, are bullish on investing in the U.S. market. So all of those are going to support the kinds of expectations we will be delivering in detail to you in our next call.

Batya Levi - UBS

Just one more follow-up question, can you remind us what percent of your revenues in the U.S. are on fixed escalators of 3.5%?

Thomas Bartlett

The lion share, I mean the 80 plus percent are on the fixed escalator, in that 3.5% range, Batya.

Operator

Our next question comes from the line of Michael Bowen with Pacific Crest.

Michael Bowen - Pacific Crest

I was just wondering if you could give us an idea at this point of what you're expecting with regards to small cell activity, both currently and going forward. And if you tend to volunteer, what percentage of revenue that is currently and also what you think that could grow to in 2014?

James Taiclet

There is activity in the small cell universe. We look at it in two major categories; one is traditional distributive antenna system technology, which we are active in. And we are seeing actually some of the best organic growth in some of the most interesting new venues to deploy those DAS systems in this year, so it's active, but having said that, it's about 2% of our total revenue.

And would we love to get it to 3% or 4%? Yes, we would, but the tower business is growing so significantly that that's a hard race to run to increase the DAS percentage against the strong growth on the tower side. So it will probably be low-single digits for the foreseeable, but it's definitely additive and it's helpful.

And then on the sort of more distributed even single small-cells, the carriers are making very public statements about that. The deployment numbers depending on what you count can be high, but many of those deployments are for homes or small offices where the radius is 50 to 100 feet, so it doesn't really lend itself to co-locations, if you will and really not a competitive kind of product for what we do.

So where we can compete effectively on large venues with DAS systems that can handle lot of traffic, we're right in the market and with these other smaller cells, you will see the numbers, but they won't really be a competitive product, I do believe.

Michael Bowen - Pacific Crest

And then one quick follow-up, Jim, with regard to Verizon, are you seeing them accelerate their small cell activity and I guess also do you see any small cell activity internationally as well?

James Taiclet

I think it's best to ask the individual carriers what their technical plans are for their network. But there is interest across the major carriers in DAS and the U.S. as various levels, frankly. And internationally it's starting to pick up interest and we've deployed some venues in Latin America and African and we're looking at in Asia now. So there will be some opportunity in those places as well, but again compared to the big macro network on towers, it will be a complementary offering for us.

Operator

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

David Barden - Bank of America

Tom, could you kind of give us a sense as we look, both now versus last year, and maybe thinking about some of the drivers for 2014, how two things are changing. One, the mix of new cells versus amendments activity from the carriers and then second the amount of activity you're seeing that then historically is encompassed by MLAs that are capturing some of these amendment revenues versus off MLA incremental revenues at the margin?

Thomas Bartlett

Sure, David. I mean, first of all in the mix, I mean in the U.S., we have see some new co-location growth, but as a percentage clearly the total, we're still seeing 70-plus percent coming from amendments, albeit the amendment pricing is actually rising, which actually indicates the carriers themselves pretty more up on those existing portfolio, on those existing platform. So I think it's a precursor then for them just start to shift to more new co-lo's, which we're starting to see now in the application pipeline.

And so as I mentioned in my remarks, we're starting to see about 30% to 40% of the application pipeline actually being co-locations, so I think we will continue to see that growth in volumes over the next 12 to 18 months as the carriers are now going to be starting to have to split cells and increase leasing as the LTE penetration continues to grow from there, kind of the mid-teens up to the north of 20, which we would expect, again over the next 12 months.

So I think it's a natural trend, David, which we've seen in the past with prior deployments. Relative to the question on kind of the MLAs, and holistic MLAs, which I think is what your question was. About half of our core organic growth in the U.S. is actually now fixed, which is largely the escalators plus the right to use fees that we have on our holistic agreements with the balance coming from the activity from our non-holistic related master lease agreements are less than churn. So we're actually seizing a sizeable portion of our organic growth rate now as a flow or as a fixed rate.

David Barden - Bank of America

And if I pick that together, and then I look at your 9% core organic year-over-year growth during the third quarter, and then think about your comments about coming in with the higher end of core growth of 6% to 8% for next year. Are there reasons that, based on Jim's comments that, you can name here now that the growth would be as slow as 6% to 8% relative to the 9% you're generating now in third quarter on a core organic basis in U.S.?

James Taiclet

Well, I think what I said David was that we would expect to be at least at the high end. So without giving formal guidance, which we will in February, we would expect the pacing to be consistent with where we are now. There is no reason to think that it would slowdown.

Operator

Your next question comes from the line of Amir Rozwadowski with Barclays.

Amir Rozwadowski - Barclays

Just following-up in terms of overall opportunities in the U.S. market here. I was wondering, if you could talk about some of the pricing trends that you folks are seeing with respect to some of these new sites? I mean it does seems though that based on the amount of equipment that needs to go up on the towers, the amount of support that they need to provide with some of these high bandwidth applications. Our check suggest that you folks are getting a step-up when it comes to pricing, with respect to an LTE tower versus what we've seen from a traditional 3G sense. And I was wondering, if you could provide us a little bit more color there?

Thomas Bartlett

I mean, overall, if you take a look at the trends, candidly over the last four or five quarters in the United States, I mean clearly our average lease rate per customer per month is up 10%. So I think what you're suggesting is right. There is more infrastructure going on the site themselves, which is driving the increase in revenue per lease per tower.

And as well as just more of, as what Jim was referring to, more of the radioheads, more of the electronics is actually coming up on the tower itself. And we have seen a nice growth in the U.S. market over the last four or five quarters just in terms of that lease rate per month. And it's been about, as I said, kind of on a q-over-q basis, it's probably about 10%.

Amir Rozwadowski - Barclays

So one could surmise that as you start to see increase cell identification from the carriers, which I think seems to be now be consensus for you amongst the carriers in terms of the public commentary that could be a beneficial trend, when it comes to overall pricing trends continuing.

Thomas Bartlett

Absolutely.

Amir Rozwadowski - Barclays

And then if I may just one follow-up question. Now, GTP deal is completed. Obviously, we've seen what's happened with the AT&T tower sale process. How do you folks view ongoing M&A opportunities going forward? I just wanted to get a better sense in terms whether or not the pace of M&A, particularly the pace of M&A of significant scale is likely to slow going forward at this point?

James Taiclet

Obviously, there are fewer large portfolios even theoretically available in the United States right now. Others will be determined by their owners, if ever and when they might come to market. We would always be interested in any of those at the right pricing terms and we're pretty disciplined on how we do those calculations, but of course we show interest and review each opportunity.

But there is always smaller tower acquisition options in the U.S., as time goes forward and we'll be very active in that market too. In fact, GTP was quite good at that and we're going to absorb some of that talent into our company and keep our eyes open.

Operator

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

Jonathan Schildkraut - Evercore

Most of them have been answered, but maybe we can drilldown a little bit deeper in terms of the question David asked about, amendments in new cell sites. At PCIA, Leah had made some comments about and maybe for Verizon and AT&T being further down the path in terms of the transition. And so maybe you can give us a little bit more color on where those guys are in terms of their amendment versus new cell-site deployment, as potentially indicated for where we might see the rest of your client base go?

James Taiclet

Jon, I want to continue in respect to our customers individual rollout plans, again, refer you to them on specifics. But if you just look at the pattern of initiation of LTE network deployment, obviously Verizon started fairly early, AT&T was right behind them, and then Sprint, T-Mobile really picked up the pace recently.

So the historical pattern has been a significant overlay, I'd say two-thirds of your site. Then do the grooming that this involves, to understand what the usage patterns are, then you may go back and start cell splitting and filling in coverage holes, etc cetera.

So we are again seeing Verizon and AT&T logically being the first to enter that phase two of the standard deployment cycle and Sprint and T-Mobile will enter a bit later. So I think aside from that it would be best to get more specifics from each of them.

Thomas Bartlett

And Jonathan, just to follow-on that I mentioned that if you take a look at the pipeline that we have from an application perspective of about 40% our co-lo's versus 60% amendments' that was 35% four months ago. So we're actually seeing the growth overall in the new co-lo's and we're seeing that candidly in the application pipeline, which we would expect to bring online in the next six months.

Operator

And your final question comes from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

Tom, I heard you were talking about deleveraging over the next several quarters, but I did notice you did do some buyback in the quarter? Perhaps you can talk about your appetite for continuing buybacks going forward assuming no M&A? And then also a little bit more on dividends and how you're NOL position is changing with some of the recent yields that you've done?

Thomas Bartlett

Sure, Simon. I mean, the buyback program we actually put on hold, when we announced the GTP transaction. So that was the activity prior to the announcement of that particular transaction. And I think in the light of what we're trying to do over the next 12 to 18 months in terms of delivering, there will be very little buyback in our program.

With regards to the NOLs, we ended the year at about $900 million and we'll use about $250 million this year, so we have about $650 million at the end of the year, which we will then use over the next three to seven years, if you will. The dividend as we've said in the past, it's obviously subjected to our board, but what Jim and I have talked about is our 20% compounded annual growth in our dividend. And so we would anticipate that our dividend will grow at that rate over the next several years.

That concludes the call this morning. Everyone, we really appreciate your call. I'm sure you heard kind of the energy around what we were able to generate in the third quarter. We think we're on path for a really solid 2013 and really well-positioned for again another solid 2014. And we're excited about being able to share those results in February with you. So thanks, again, for the call. Bye.

Operator

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

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