American Tower's (AMT) CEO Jim Taiclet on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: American Tower (AMT)

American Tower Corporation (NYSE:AMT)

Q2 2014 Earnings Conference Call

July 30, 2014 8:30 AM ET

Executives

Leah Stearns - VP, IR, Treasurer

Jim Taiclet - Chairman, President, CEO

Tom Bartlett - CFO, EVP

Analysts

Armintas Sinkevicius - Morgan Stanley

Batya Levi - UBS

Ric Prentiss - Raymond James

Richard Choe - JPMorgan

Amir Rozwadowski - Barclays

Jonathan Schildkraut - Evercore

Steve Sakwa - ISI Group

Will Cape - Macquarie

Operator

Good morning. My name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Leah Stearns, Vice President of Investor Relations and Treasury. Please go ahead.

Leah Stearns

Thank you. Good morning and thank you for joining American Tower's second quarter 2014 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab on our Web site.

Our agenda for this morning's call will be as follows. First, I will provide a brief overview of our second quarter results, then Tom Bartlett, our Executive Vice President and CFO will review our financial and operational performance for the quarter, as well as our updated outlook for 2014, 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 will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2014 outlook and future operating performance, our expectation regarding future growth, our AFFO per share, industry trends and any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release, those set forth in our Form 10-Q for the quarter ended March 31, 2014, 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 second quarter 2014 results. During the quarter our rental and management business accounted for approximately 98% of our total revenue, which were generated from leasing income producing real estate primarily to investment grade corporate tenants. This revenue grew 27.4% from the quarter ended 2013 to over $1 billion.

In addition, our adjusted EBITDA was 30.2% to approximately $682 million, adjusted funds from operations increased to 29.4% to approximately $474 million and net income attributable to American Tower Corporation's common stockholder with approximately $230 million or $0.58 per basic and diluted common share.

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

Tom Bartlett

Thanks Leah, good morning everyone. As you can see from our press release, we had another strong quarter in both our domestic and international businesses. Aggressive carrier or 4G deployments in the U.S. continue and the demand for tower space in our international markets also remain strong as wireless services become increasingly ubiquitous. As a result, we are again raising our full year 2014 outlook for all of our key metrics.

If you please turn to Slide 6; our total rental and management revenue in the quarter increased by more than 27% to over $1 billion. On a core growth basis, which we will 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 nearly 33%. Of this core growth, 13.6% was organic, resulting from another very strong quarter of commenced new business. Excluding the impacts of pass-through organic core revenue growth was about 11.5%. In addition, we experienced an excellent quarter of signed new business which positions us well to continue delivering high levels of organic growth.

The balance of our core growth were over 19% was attributable to properties we have acquired since the beginning of Q2 2013 including the GTP and NII portfolios we acquired late last year and the Richland assets we added in April. These assets continue to augment our organic growth and we expect to generate strong growth on these sites in the future.

Turning to Slide 7, our domestic rental and management revenue growth in the quarter was over 26% with core growth of around 30%. Domestic organic core growth was over 11% which consisted of about 3% from escalations and more than 10% from existing site revenue growth net of around 1.5% from tenant churn. This organic core growth reflects our tenants continued aggressive network investments they are making in 4G.

In addition, organic core growth in the quarter benefited from accelerated revenue recognition under our multi-year equipment customer agreement which is expected to generate about $21 million per year through 2016. We had projected that revenue associated with this activity would be evenly spread throughout the year. However, during the quarter, we recognized $8 million of incremental revenue due to the accelerated timing of work performed under this agreement.

Going forward, our revenue recognition attributable to this agreement may continue to fluctuate quarter-to-quarter, our domestic organic core growth without this incremental revenue would have been just under 10%.

Overall, in the U.S. about 60% of the commenced new business activity generated in the quarter outside of the holistic agreements was in the form of amendments compared to about 65% a year ago. Also our new business pipeline reflects a split of 55% amendments and 45% co-locations reflecting a continuing shift towards network densification.

As a result of this strong activity, we expect organic core growth in the U.S. to be in the mid 9% range for 2014. Domestic rental and management gross margin increased by more than 25% to over $533 million and grew by about 29% on a core basis. Domestic organic gross margin core growth was over 12% which reflects an 87% conversion rate for properties which we have owned since the beginning of Q2 2013.

We also constructed 276 towers in Q2 and in addition purchased or extended the remaining term on almost 600 of our ground leases with the extensions averaging about 30 years. Finally, we generated domestic rental and management operating profit growth of nearly 26% or about 30% on a core basis, which reflects our continuing commitment to property level cost controls and disciplined spending on SG&A expenses. As we referenced last quarter SG&A synergies from the GTP acquisition continued to come in ahead of initial expectations.

Moving on to Slide 8, our international rental and management segment generated revenue growth of 29% or nearly 39% on a core basis during the quarter. Of this core growth about 18% was organic with a balance driven by nearly 8000 new assets we have acquired since the beginning of Q2 2013. These new properties continue to outperform our original expectations similar to the U.S., we are seeing a very strong demand backdrop overseas and our Brazilian and Colombian markets both had a record quarter of commenced new business in the quarter.

Organic revenue core growth rates range from about 10% in India, around 18% in Latin America and over 22% in EMEA during the quarter with Telefónica, Airtel and Vodafone among others continuing to spend extensively on their networks. In addition to organic new business outperformance, we recorded increased pass-through revenues in a number of markets which boosted our organic core growth in the quarter excluding pass-through international organic core growth was about 12%.

International rental and management gross margin in the quarter grew 26% to about $212 million, while core growth in gross margin was nearly 32%. International organic core growth in gross margin excluding pass-through was about 16% which reflects a gross margin conversion ratio actually of over 100%.

Our international rental and management segment operating profit margin grew over 30% to $178 million, while the operating profit percentage was 51% excluding the effects of pass-through revenue; our international operating profit margin was over 70%.

Turning to Slide 9, our reported adjusted EBITDA growth in the quarter was over 30% with our adjusted EBITDA core growth at more than 33%. Similar to prior quarters, our adjusted EBITDA core growth was primarily attributable to our rental and management segment which generally represents recurring run rate contributions to EBITDA as opposed to the project oriented non-run rate nature of EBITDA generated by our services business.

Our Q2 adjusted EBITDA margin was over 66%, excluding the impact of international pass-through revenue, our adjusted EBITDA margin for the quarter was nearly 73%. And our adjusted EBITDA conversion rate was 79%.

Cash, SG&A as a percentage of total revenue in the quarter was under 8% which includes the added benefit of the recovery of certain expenses in corporate SG&A of about $7 million. For the full year, we expect our cash SG&A as a percentage of revenue to be under 9%. This strong EBITDA performance resulted in solid growth in AFFO, which increased to $474 million or $1.19 per share. AFFO and AFFO per share growth were both over 29%. Core AFFO growth was 31% reflecting significant organic new business growth coupled with the addition of a number of AFFO accretive acquisitions.

Our adjusted EBITDA to AFFO conversion rate during the quarter was about 68%. We continue to target at least mid-teen core AFFO growth going forward and believe that we are well-positioned to exceed our goal of doubling 2012 AFFO per share by 2017.

Moving on to Slide 10, we remain committed to our capital deployment strategy. Our goal is to simultaneously fund growth, return cash to our stockholders and maintain a strong balance sheet. Year-to-date, we have declared over $261 million in common stock dividend, spent about $466 million on CapEx and have reduced our total debt by more than $500 million.

The $500 million plus we have spent on acquisition so far this year includes about 60 tall towers in the U.S. and over 400 towers internationally. We also announced a Brazilian acquisition of BR Towers in June and expect that transaction to close in the fourth quarter of 2014. We have not included any impacts from pending acquisitions in our current outlook. We continue to expect our primary method of returning capital to stockholders for the rest of this year will be through our REIT distributions as well as dividend payments to holders of our mandatory convertible preferred stock. The amounts and timing of our dividend payments are to discretion of our Board but our goal continues to be to deliver base annual common stock dividend growth of over 20%.

Our net leverage is a function of EBITDA as of quarter end was approximately 5x on a LQA basis. We continue to maintain a long-term target range of between 3x to 5x and expect to be in the low 5x range at year end 2014. We have maintained significant liquidity and as of the end of the quarter and nearly $300 million in cash on hand and about $3.2 billion in capacity under our credit facilities. Our average remaining term of debt is over 5 years with an average cost of 4%.

Turning to Slide 11, based on the strong tenant demand trends, we are seeing across our footprint, we are raising our full year 2014 outlook for rental and management segment revenue by $45 million at to midpoint to $3.98 billion. About $15 million of the increase is attributable to organic revenue outperformance in our domestic business with an additional $5 million or so attributable to U.S. straight line. The balance of the increase is being driven by our international operations including about $10 million attributable to organic revenue outperformance about $8 million in incremental straight line revenue and $12 million increase in past due revenues. And this is partially offset by around $5 million in FX headwinds versus our prior outlook.

For the year, we expect core growth in the consolidated rental and management segment revenue of 26%. We expect domestic organic revenue core growth for the year to be between 9% and 10% and now expect our 2014 international organic revenue core growth to be around 15%.

Our strategy of acquiring less mature, higher growth assets in international markets has boosted our organic growth rates and we would expect that trend to continue in the future. On a consolidated basis, we expect organic core revenue growth in 2014 to be about 10.6%. In addition, while not yet included in our core organic metrics, the portfolios we have acquired over the last year are outperforming expectations.

We are also increasing our outlook for adjusted EBITDA by $55 million at the midpoint. This includes about $30 million from domestic and corporate outperformance including stronger than expected organic revenue growth and around $10 million in corporate SG&A expense recovery, $7 million of which we booked in Q2.

In addition, about $20 million of the increase is attributable to our international business driven predominantly by organic outperformance with $5 million or so from outperformance in the services segment. On a consolidated basis, we now expect core growth and adjusted EBITDA for the full year to be nearly 26%.

And finally, we are raising our full year AFFO outlook at the midpoint by $30 million reflecting the increase in adjusted EBITDA at $5 million decrease in maintenance CapEx partially offset by about $16 million in net straight line impacts and $14 million in incremental funding costs associated with acquisitions. We now expect to generate AFFO growth of nearly 21% for the year or over 23% on a core basis.

Turning to Slide 12, and in summary we continue to maintain momentum we realized in the first quarter. Organic core revenue growth in the U.S. continues to benefit from our tenants increasing to coverage in capacity with the 4G networks. Internationally, key customers like Airtel, Vodafone and Telefónica are making sizeable network investments as their customer base is adopting increasingly advanced wireless services.

In addition to capitalizing on these organic growth trends, we continue to add high quality assets through accretive acquisitions while being mindful of preserving our strong balance sheet. For example, by issuing mandatory convertible preferred stock subsequent to our acquisition to Richland Towers, which was initially funded through our revolver, we are able to simultaneously reduce leverage preserve the accretive nature of the transaction and increase our flexibility to fund additional M&A for the balance of the year.

For example, we expect to close our BR Towers transaction in the fourth quarter further expanding our presence in a fast growing attractive market while also maintaining leverage in the low 5x range. We also maintained our strong track record of growing adjusted EBITDA and AFFO per share in the quarter with both metrics significantly outperforming our long-term mid-teen growth targets.

In addition, we have cleared a common dividend of $0.34 a share or about $135 million representing an increase of nearly 26% as compared to the second quarter of 2013. We believe we are well-positioned to sustain this momentum and as a result are once again raising our 2014 outlook across all of our key metrics. Application levels for space on our towers remained at elevated levels giving a solid visibility into new business growth on our existing assets throughout the rest of the year.

And with that, I will turn the call over to Jim for some closing remarks before we take some Q&A. Jim?

Jim Taiclet

Thanks Tom and good morning everyone on the call. Today, I'm going to continue our practice of focusing on a specific theme from my prepared remarks. As you may recall, during our February call we provided an in-depth update on our long-term strategic plan and key aspirational goals for our company. Then on our call in May, I focused on the strong domestic wireless investment environment and the outperformance of our U.S. operations.

Today, I will provide a similar perspective on our international segment. Finally, and looking ahead on our upcoming Q3 call on the fall, our focus will turn to the fundamental trends in wireless technology which we believe will continue to drive network investment and long-term growth for American Tower.

So today's remarks I will discuss a brief overview of our international business and lease investment priorities, a snapshot of current global technology and industry trends that we anticipate will support ongoing organic core revenue growth of 200 to 300 basis points in excess of our domestic segment. And a brief assessment on the performance of three significant international investments we have made in the major regional telecom markets of Brazil, Latin America, India and Asia Pacific region and South Africa and the Europe, Middle East, Africa regions.

As many of you may recall, we reenergized our commitment to international market in 2007 following the acquisition and integration of SpectraSite. Since then our international investment evaluation process has entailed an exhaustive assessment of each target countries political and macroeconomic fundamentals of its wireless commercial and regulatory environment and the specific counterparty for each potential transactions.

Further, we established country specific hurdle rates, which reflect specific risk adjustments based on several key factors, the largest of which tends to be the spread between the local government bond and its U.S. treasury equivalent.

As a reference point, our assessments tend to resolve an unlevered return hurdle rates in the low to mid teens in markets across Latin America and in India and returns in the mid to high teens if not 20% or more in markets in Africa.

By having pursued early international expansion through a disciplined and methodical approach, we constructed a diversified portfolio of properties which consistently generates organic growth rate exceeding those of our high performing domestic business. This quarter was no exception. As Tom previously mentioned the second quarter core organic growth rate for international business was nearly 18% or in this case over 600 basis points greater than the impressive growth rate delivered by our domestic U.S. segment.

We believe the several key factors will continue to support strong international tower leasing demand in the long-term. First, consumer demand for mobile services globally continues to increase rapidly and put strain on existing wireless networks. Second, we believe that the carriers desire to monetize this increased usage will compel them to compete and seek to improve their networks.

And finally, we expect this to translate into significant carrier investments and wireless CapEx and an incremental lease up on our global portfolio of towers as a result. For the fundamental drivers of demand for tower leasing are consistent both in the U.S. and globally, the different stages of wireless technology development across the markets we serve presents us with the unique opportunity.

In evolving wireless markets like Mexico and Brazil, carriers are focused on adding equipment to new and existing sites actually for 3G capacity and initial 4G coverage. While an emerging wireless market like India where smartphone penetration is only 10%, the wireless carriers there are primarily focused on adding equipment for 2G capacity and initial 3G coverage.

Forecast indicates that these markets will see tremendous growth in mobile data usage over the next 5 to 10 years and we fully expect that our portfolio will benefit from the investments required to support the resulting network upgrade cycles in all these countries.

In addition to pursuing higher growth rates and solid returns to investing internationally, we also strive to minimize potential execution counter party and inflation risks. We are able to greatly mitigate execution risk in our newer markets by exporting seasoned management, establish systems and processes and our best commercial practices and contracts from our U.S. and legacy international operations.

Counterparty risk is minimized by maintaining close relationships with strong multinational tenants. In fact, six of top international tenants are customers of American Tower in more than one of our markets. Further, most of our contract in international markets are hedged for inflation through CPI linked escalators and pass-through provisions for largest expenses.

We are also well-diversified within our international portfolio which is spread across 12 countries and four continents. As a result, our international business is not depending on any one country to achieve strong growth.

And internationally just as in the U.S. consumers want more and more access to both basic and advance mobile services. Smartphone penetration is at about 55% in the United States, but it is just 12% in emerging markets. We are starting to see smartphone adoption rising rapidly in those markets with smartphone penetration rising quickly over 65% versus prior year across emerging markets.

With respect to the most advanced mobile technology global 4G LTE subscriptions grew even faster at 170% last year yet there is still a just 180 million LTE subscriptions worldwide and over 80% of those are concentrated in only three countries, the U.S,, Japan and South Korea.

Consequently, while global mobile data traffic grew 81% last year there remains significant pent-up demand around the world especially in less developed markets. As a result of consumers' healthy appetite for mobile access and increasing bandwidth, we believe wireless carriers will also be rewarded by investing in higher quality networks.

In the U.S. where there is well-developed wireless infrastructure, annual industry churn stands around 1.7% among our carrier customers. In comparison, in emerging markets for wireless infrastructure is less developed churn is more than double the U.S. at about 4.1%. Given the cost of subscriber churn represents carriers are further incentivized to improve the quality of their networks.

Brazil is a prime example of a Latin America market where we are well-positioned to capture the resulting leasing activity as the wireless carriers ramp up their networks to meet raising consumer demand while retaining their existing customers. For example in Brazil current 3G penetration stands at about 40% and smartphone penetration only at 20%. Those figures lag the U.S. by about five years. However, today consumer demand is strong and rapidly increasing in Brazil for mobile access and mobile data.

Last quarter smartphone penetration there grew 67% over the prior year period. This trend is expected to continue with the forecast of data as a percentage of ARPU for the carriers to grow nearly 1900 basis points from 27% at the end of 2013 to 46% by 2018. Over the same time period, mobile data traffic is expected to grow by 11x in Brazil.

Consequently further network investment is necessary in Brazil to meet growing consumer demand. Currently Brazil has over 4000 subscribers for each cell site compared to the U.S. were just over 1000 subscribers for each cell site despite having similar spectrum to subscriber ratios. This means the Brazilian carriers will need to add sites as wireless data usage carrier across the networks increases.

Additionally, ANATEL, the Brazilian telecommunications regulator has become increasingly focused on mobile body of service. Given the expanding consumer demand and regulatory focus on service quality, the CEO of Vivo recently stated that his company will need 10,000 new macro cells in the next two years. Further recent 4G auctions have also featured aggressive rollout targets spanning major cities and rural areas across Brazil.

As a result, carriers have committed to increase capital investments to improve the capacity of their 3G networks and increased coverage of their new 4G networks. American Tower is poised to benefit from this investment cycle due to our strong relationships with the major mobile operators in the region and our industry leading portfolio of towers and desirable locations in Brazil with nearly three quarters of our sites there located in urban areas where wireless usage is concentrated.

Based on these trends and our positive track record in Brazil, we continue to make strategic investments in that country to enhance to scale of our existing business. Our core organic revenue growth in Brazil grew over 20% in the last quarter and resulting return on investment across all tower visitors there continues to increase.

Also impressive is the return on investment for our properties acquired and constructed from 2006 to 2010 which is increased by over 200 basis over just the past year into the high 20% range for those towers.

In addition, the performance on our recent investments has been solid with the increasing tenancy on the towers we just acquired from Vivo resulting in core revenue growth of 31% and tower cash flow growth of 39%.

So given our positive investment performance in the country and our strong operational foundation, we remain active investors in Brazil and expect our recently announced acquisition of BR Towers to close in the fourth quarter. This acquisition will complement our existing portfolio well and increase our scale in Brazil to over 11500 towers.

Turning into our EMEA region, South Africa was our initial entry market and is at a similar stage as Brazil in terms of development of its wireless sector. Smartphone penetration is only about 20% in South Africa, during the first quarter of 2014; it grew nearly 50% from the prior year.

Data as a percent of ARPU is expected to increase nearly 1800 basis points over the next five years up to 48%. And further, mobile data traffic is expected to grow 53% a year in South Africa. Similar to those in Brazil, mobile operators in South Africa are still working to increase capacity for 3G and has started initial coverage builds for 4G. The current ratio of subscribers' two sides is 3000 per cell site, which is nearly 3x as high as the United States. As a result, forecast indicates that cell sites in South Africa will increase by 8% a year on average for the next five years for the 11,000 sites expected to be added there by 2018.

Our financial performance in South Africa has been positive and we remain committed to helping our customers expand their networks in that region. Tower supplied in the country prior to 2012 which includes the original Cell C transaction to launch our South African business have increased their returns by over 250 basis points over the last year which are now in the high 20% range. This was driven by core revenue growth excluding past due of 9% and tower cash flow growth of 10% over last year.

India is another key market for our company where we currently have a footprint of 12,000 towers. For the Brazilian and South African mobile markets are about five years behind the domestic U.S. market, the Indian telecom is estimated to be some 10 years behind that of the U.S. In fact, nearly 90% of mobile connections in India are still made using 2G technology. While technological deployments in India lags that of Brazil, South Africa and the U.S., consumer appetite for wireless access does not.

Mobile connectivity has become instrumental to many consumers in India and over 90% of the country's Internet subscribers use a mobile connection to access the Internet. In addition, smartphone penetration has begun to increase rapidly more than doubling to 10% during 2013.

Given strong consumer demand a long runway for growth and indications of an improving regulatory environment, we believe that the major carriers in India are increasingly well-positioned for future success. Recent results are also improving as on average carrier EBITDA service margins there have improved each of the last four quarters on a year-over-year basis. This trend is expected to continue with EBITDA service margins expected to expand 270 basis points over the next two years to nearly 34% for these carriers although over the same time period ARPU is forecasted for them to grow over 12%.

This positive financial performance is expected to help support network investment with capital expenditures among Indian carriers anticipated to grow 30% during 2014 and another 19% in 2015. In addition, Reliance Jio has committed to building a nationwide 4G network to provide data only mobile access to Indian customers. This would be the first network of its kind in the Indian market and we look forward to partnering with Jio in this endeavor toward our recently signed master lease agreement with this new customer.

In anticipation of this capital investment cycle, American Tower has developed the robust build program in India. Over 40% of our current India tower portfolio is composed of American Tower constructed sites. These towers drive strong returns for our company and we remain committed to helping the carriers expand the mobile access through our tower construction program.

Return on investment for new build in India generally reaches into double digit on day one due to relatively low construction cost in the market and over time these returns expand. For example, our portfolio of towers constructed between 2006 and 2010 generated returns in the mid to high teens during this second quarter.

In conclusion, we believe the investments we've made are delivering solid returns and have positioned as well to deliver strong operational results from both our domestic and international segments for many years to come.

We also believe that by investing in our portfolio across select markets at various stages of wireless development, we will lengthen and strengthen our growth profile, while diversifying the company's long-term revenue in cash flow streams.

Our international portfolio strong return on invested capital performance and organic growth rates clearly demonstrates that international strategy is tremendously complementary to our consistently high performing U.S. operations. Given our strong domestic acquisition track record, we also remain committed to making smart investments in the U.S. as demonstrated in the most recent cases of GTP and Richland Towers. We also plan to continue our disciplined expansion efforts in international markets, which bring greater scale of global presence to serve leading multinational mobile operators and further drives our growth trajectory.

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

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Simon Flannery from Morgan Stanley. Your line is open.

Armintas Sinkevicius - Morgan Stanley

Good morning, this is Armintas for Simon. Thank you for all that color on the international markets. That was very helpful. It seems like we here about an international tower portfolio coming to the market several times a week. Just wanted to get your color in terms of – if there is a goal – a percentage goal for the international business and if you are considering other markets that you didn't highlight in your presentation?

And also another one just – get some more detail on the BR Towers and the thought process behind the acquisition? Thank you.

Jim Taiclet

Sure. This is Jim. First of all, I want to point out that we have stated a few times before publicly that we don't have a specific goal for percentage of revenue for example in our international business. We have the benefit of a global apertures, so we can look at opportunities for acquisitions in growth in the U.S. and all the regions I just talked about.

So we are going for the best risk-adjusted return on capital, many of the opportunities that do come to market as you pointed out whether they are in the U.S. or overseas, don't meet our investment criteria and therefore you don't see us move forward with those whether all this is due or not is a different story.

And so we are really focused on our existing markets and ancillary markets that complement those. So an example of an ancillary complementary market would be Ghana as to the complementary major market of South Africa. So those are the kinds of situations we look for. And as another input to those reviews, we look for those multinational carriers that I talked about in the prepared remarks that we serve at least in one other country in that region as a plus for given country. But, most of our investment you have seen lately has been in existing markets especially the U.S., Brazil as you pointed out and others like it.

So Tom, if you talk a bit about the BR Towers?

Tom Bartlett

Yes. And I would just add that, strategically what we are trying to do is make sure that we are either number one or two in every market that we serve. And as Jim said strategically what we are trying to do is invest in our existing markets where we can get the best return profiles given the amount of investment that we have already made into the market.

With regards to BR, just to as I mentioned in some of my remarks that the impact of BR is not included in our guidance. We expect to close this in Q4 really not earlier than October 31st. We paid as you may recall just under 900 maybe $1 million, day one annualized revenues about $130 million, day one TCF is about $80 million, since we paid about 12x TCF and EBITDA is right around $75 million to $80 million. We picked up 4600 sites. It's modestly AFFO creative initially around $0.04 per share, 24% of the sites were in the top 15 cities, 45% are in the top 300 cities. So we are very excited about this opportunity really positions us well on top of the existing portfolio that we have in the market. We have a very terrific management team in the market. And we are really excited about the opportunity and the future going forward.

Armintas Sinkevicius - Morgan Stanley

Thank you.

Tom Bartlett

SG&A by the way just on that is also very low. Again, it kind of complements what I was saying before in terms of vesting into our existing market. So there would be additional SG&A on this is 2.5% of revenue. So very, very low given the amount of infrastructure we already have in the market. Hope that helps.

Armintas Sinkevicius - Morgan Stanley

Thank you.

Operator

Our next question comes from the line of Batya Levi from UBS. Your line is open.

Batya Levi - UBS

Thanks. Couple of questions. Sprint on it's call right now lowered its CapEx outlook by $1 billion for 2014 as it neared completion of the network vision plan, which is actually contradictory to our view. Do you expect any slowdown in activity from Sprint or do you see any slowdown right now?

And another question on the integration process for new tower purchases, how long do you think it takes to refit them into your base and how does the incremental lease up compare to your more mature portfolio, which I believe it has been growing up about point 2/10 on an annual basis?

Jim Taiclet

Batya, it's Jim, good morning. As to Sprint, you may recall that we introduced with them a fairly innovative contract structure a few years ago that stabilizes and locks in our growth rate for a number of years. And we are in the process of implementing and executing that contract and partnership with Sprint now. So we are very confident that the growth rate and inputs that we are seeing from Sprint in our case are going to continue to be very similar.

The other thing that contract did was aviated -- any of neither insured with American Tower. So even if they accelerate which we believe they have viewing our equipment takes down that Tom talked about earlier from our sites that's not going to negatively impact the company. So whether Sprint moves its CapEx up or down by a $1 billion really shouldn't have a material input on our proceeds and revenue streams from them.

Go ahead Tom, you can talk about integration?

Tom Bartlett

Yes. We are just talking about – on the integration, and obviously, it's a function of whether we are actually acquiring a carrier portfolio or an existing tower portfolio. So you can see that with the acquisition that we made with GTP. We are largely completed with GTP tower portfolio into our business. And as a matter of fact and some other remarks I made you saw that we have really accelerated much of the benefits that we saw that would made them happen in two years time – two, three year time, we are actually realizing out of those synergies actually in 2014.

And with regards to the lease up opportunity, lot of it depends upon the – actually the amount of tenancy that exist on the towers out of the gate, so both in Jim's comments and my comment, we talked about a lot of the portfolios that we have acquired internationally over the last three years have been with low tenancy on their towers. And you can see that the organic growth rates in those markets for those towers that we have had for greater than a year are up in the – this particular quarter 18%.

So it's a function of tenancy really that they have in the marketplace and how we are positioning in the market. But clearly in those lower tenancy towers, we are seeing a very accelerated rate of growth in those markets.

In GTP, which is a portfolio that –obviously, we just acquired given their – they had about two tenants per tower. We are seeing consistent rates of growth on the GTP as we are with the U.S. So it's a function more of how the towers are positioned in the market and what kind of tenancy they are coming with. Hopefully that helps you Batya.

Batya Levi - UBS

That's great. Thanks. Just one – quick follow-up, there was some chatter that potentially in Mexico we could see some M&A with Telefónica looking at (indiscernible). Can you – if you have the data, can you tell us what is the remaining contract life for those tenants and what the overlapping exposure would be?

Tom Bartlett

Without having that specific spread sheet in front of me, beyond the order of 7 years Batya in our case.

Batya Levi - UBS

Okay. Thank you.

Operator

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

Ric Prentiss - Raymond James

Thanks. Good morning.

Jim Taiclet

Good morning.

Ric Prentiss - Raymond James

Apology, all questions have been asked. Was in two places at one time today. First question for you guys, if I could, on international portfolios, as you think about – I think Tom, I heard you say want to be number one or number two in the market. How do you consider partial sales or operating control, do you guys want – I assume be in control of operations of tariff portfolios?

Tom Bartlett

Ric, that's been one of the premises of our actually domestic and international expansion since this management has been in place. We think it's really important for us, if were the owner-operator of the sites that we have the independent Phase 2 to the marketplace, so that other global operators feel comfortable leasing the sites on one hand. And secondly, so the carrier partner doesn't have sort of detail on who goes on the site or (indiscernible) get on it.

So for us it's important to have operating control whether exceptions to every principle there can be but we haven't gone in that direction as of yet on any transaction.

Ric Prentiss - Raymond James

And then also I noticed you closed about 100 or so the next owner international remaining towers in this 2Q anyway still expectation to close the rest of probably 900 towers towards the end of the year?

Tom Bartlett

It will be a subset of that Ric. But, it won't be the full 900.

Ric Prentiss - Raymond James

And then two other quickie ones, when you consider on the U.S. side your guidance, is there any significant or how is Sprint sparked the 2.5 GHz reflected in your guidance and also have you seen the activity from the T-Mobile low band work?

Tom Bartlett

On the Sprint side Ric, it's very consistent with what we have been realizing in the first half of the year. So now there is no real significant uptick in spark. I mean we are seeing some 2.5 being rolled out but pretty modestly. So we would expect that more of it in 2015 kind of an activity as well as T-Mobile pretty consistent within the second half of what we have realized in the first half. So we would expect an uptick in that perhaps towards – latter part of the year and into 2015.

Ric Prentiss - Raymond James

Makes great sense. And the final question is, when you consider amendment versus co-location what's been kind of the split on a dollar basis maybe in the U.S. side as far as how of the leasing activity in 2Q is coming from amendment activity versus co-lo?

Tom Bartlett

Yes. I mean on the overall levels, within the 60 kind of 40 range, I mean we are seeing application, we are seeing values of amendments in kind of that $700 or $800 range and probably 3x that relative to new co-los.

Ric Prentiss - Raymond James

As far as that was a dollar value 60%...

Tom Bartlett

Yes.

Ric Prentiss - Raymond James

Revenues were amendments versus co-los?

Tom Bartlett

It's right, Ric.

Ric Prentiss - Raymond James

Great. Thanks so much guys.

Tom Bartlett

You bet.

Operator

Our next question comes from the line of Phil Cusick with JPMorgan. Your line is open.

Richard Choe - JPMorgan

Hi. This is Richard for Phil. Following up on Batya and Ric, in terms of the domestic revenue guidance after the first half performance it seems like you with the revenue – accelerated revenue recognition that growth is accelerating and kind of above the 9.5% to the guidance. It seems like there is – this might be a slow down in the second half, is that just being conservative or is there something that we are not seeing. And then also in terms of domestic, what is driving the strong build, and should we expect that going forward?

Tom Bartlett

Let me – on the build program, I mean that continues with a lot of momentum we started last year. I mean I think it's just indicative of the fact that carriers are looking for some additional density as well as some coverage but largely additional density. So we have obviously strong relationships with the customers and we expect actually to build and kind of 500 to 600 towers for 2014. And we are hopeful that kind of energy will continue into 2016.

With regards to the – your first question on the results, no, I mean the application levels in the second quarter were 20% higher than they were same time last year. So we are expecting continued solid quarter gain of growth going in the second half of the year. Keep in mind that we do have on the U.S. basis that acceleration of some of the revenue associated with the decommissioning. So there is some skewing with that from the first half of the year and not in the second half of the year. But, we are excited about what we are seeing going forward.

Richard Choe - JPMorgan

And then in terms of AFFO, can you give us a sense of what percentage comes from the services business?

Tom Bartlett

Yes. Service is very, very small, I would say less than five – less than 5% the predominant is coming from the U.S. seconded with the international and then the services which is probably in the 2% to 3%.

Richard Choe - JPMorgan

Great. Thank you.

Tom Bartlett

Sure.

Operator

Our next question comes from the line of Amir Rozwadowski from Barclays. Your line is open.

Amir Rozwadowski - Barclays

Thank you very much for taking the question. I guess, the first question from my side Jim, clearly we have seen the CapEx plans come out of the carriers that have reported thus far. And I recognize that delineating your business from their CapEx trajectory is a little bit more magic than science. But, with AT&T and Verizon implying that they frontend loaded CapEx for the year. What gives you comfort in terms of the visibility for the back half of this year clearly in rising your outlook.

And then any indications of how we should think about the carry forward into 2015?

Jim Taiclet

Sure, Amir. It's Jim here. Look our actual experience to-date with both Verizon and AT&T and frankly the other carriers -- major carriers in the U.S. as well Sprint and T-Mobile is that we haven't seen a decline in activity whether it's commencements meaning we start to fill that includes installation of equipment whether as Tom said applications, sign new business, all this is trending very positive for us and that gives us very constant visibility into the next few quarters that our demand for space real estate is going to stay strong.

When various companies recognize CapEx for equipment or soft costs or other things and put it on their P&L and balance sheet that's something you have to really tease out with them. And secondly, we would also want to point out that AT&T in a specific case continues to be our largest new business customer anywhere in the world. We have a strong pipeline of new business with them both in built-to-suite towers and in co-locations and amendments a numerous dash projects as well. Verizon is not far behind frankly in all those kinds of activities with us.

And AT&T reiterated it's CapEx guidance for the full year at $21 billion and again, how they may account and put things through the general ledger and when they do that versus when equipment gets installed on sites then we start billing. Those things may not be perfectly correlated as you said.

So our confidence is showing through in our guidance. There was some sort of one time or seasonal things that happened in the U.S. to our benefit in the first half. It's not an issue of demand, is the second half guidance that we put there, demand is strong.

Amir Rozwadowski - Barclays

Thanks a lot. And then a follow-up on some of the international trends here. Thinking about potential appetite for other transactions in the marketplace, and it does seem as though we are hearing more and more about opportunities in some of the international markets what you folks have defined as sort of core international areas of focus. Appetite for additional transaction Jim or anything along those lines would be helpful?

Jim Taiclet

Well, the appetite for additional transactions is totally in place our company. Each of those as to on its merits meet our investment criteria and as I said in the past and even today there are evaluations we do as a country, the wireless market in the country and a specific counterparty. And then it's a matter of our modeling at the assets growth over time. And as the purchase price being sort by the seller then within our investment model some times it does and you see us active other times, you don't and some else takes it or offer for sale is withdrawn.

So the appetite is clearly there. We have got terrific management teams in Latin America, EMEA and Asia that are involved in pretty much every opportunity that one could think off that is ongoing out there. And those that pass [muster] (ph) we'll act on and we have the balance sheet and the financial position to do that. And those that don't meet our investment criteria we won't act on. And there are more of those than the ones we act on or quite active everywhere.

Amir Rozwadowski - Barclays

Great. Thank you very much for the incremental color.

Operator

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

Jonathan Schildkraut - Evercore

Yes. Great. Thanks for taking the question here. I'd like to ask a question on DAS, I know that you guys have had pretty deep operations on the indoor DAS side for a while with the inclusion of the roof tops from global tower partners; I thought that we are sensing maybe a change in perspective on outdoor DAS. But, I recently read an interview with Steve Marshall where he talked about some of the challenges on ODAS and really the inability to scale. I was just wondering if you could sort of update us on your perspective for investments in the DAS business. And then maybe elaborate a little bit on the challenges of getting scale on the ODAS side? Thanks.

Jim Taiclet

There is a differentiation between outdoor DAS and indoor DAS in our experience in the American Tower. The indoor DAS projects which we focused on since the SpectraSite acquisition nearly 10 years ago now have had leasing rates additional tenancies and upgrades due to technology in a similar sort of pace as the classic tower would have. And our experience frankly in outdoor DAS which is a much, much smaller piece of our particular business has been that those revenue growth rates per unit aren't as rapid.

So we have to then bake that experience of somewhat lower growth rate into our investment models and therefore, we end up doing less of those projects frankly. It is still a good complementary technology. We are doing a few projects as we speak, but those have been long in negotiation and we have been able to get in a position where those do meet our investment criteria but it's tougher to make the hurdle frankly for outdoor DAS in our company than it is for an indoor DAS project or classic tower.

Jonathan Schildkraut - Evercore

Great. If I can ask a follow-up question, just in terms of your debt, you've got down to 5x leverage now. It hasn't seemed to hold you back from making acquisitions, but now that you've gotten back into your leverage target range, does it open up new opportunities for you to do investments?

Tom Bartlett

We never really held back candidly on investments that we were looking at. I mean we always had – we believe the liquidity as well as the wherewithal to look at any investment as we have done. We have been pretty inquisitive even in the first half of the year. And looking the BR Tower transaction in the second half of the year, we have been fortunate in terms of being able to issue a mandatory preferred and subsequent to the Richland Tower deal and that gave us a little bit more flexibility to continue to have a pretty good run rate of looking at opportunities down the path, we are not shy to the extent if there was a large strategic transaction there just as we had identified at the end of last year. We would use equity where we thought that it was value creating and accretive to our business.

So yes, in the second quarter we did land it around 5x with the BR transaction and what we expect for the second half of the year, we should be in the kind of the 5.1x to 5.3x. But as I said we are not shy from using our balance sheet in all of the tools there into the extent that we see a transaction that makes sense for us.

Jonathan Schildkraut - Evercore

All right. Thank you so much.

Tom Bartlett

You bet.

Operator

Our next question comes from the line of Steve Sakwa from ISI Group. Your line is open.

Steve Sakwa - ISI Group

Thanks. Just a couple of quick questions. As it relates to capital deployment, I know you got the Brazil transaction closing in Q4. Is there anything else that's been announced but has not closed, I just want to make sure I have kind of my dollars slotted in correctly for Q3.

Tom Bartlett

We have one additional small U.S. transaction that we have said just signed and it's a couple of 100 million dollars of funding for – it will occur $140 million, $150 million actually Steve. It will be in the fourth quarter but that's really it -- subsequent to the end of the Q, we did buyout the minority partners’ interest in Colombia and that was to the tune of $100 million or so. So a couple of small little items like that.

Steve Sakwa - ISI Group

Okay. So maybe $100 million in Q3 and then an incremental call $150 million in Q4 with Brazil?

Tom Bartlett

Yes. And then Brazil on top of that. That's right.

Steve Sakwa - ISI Group

Correct. Okay. And then just to make sure I understand the incremental $8 million of revenue that you picked up seemed to be somewhat of a timing issue. So as we think about just normalizing Q3 would you say half of that goes away in Q3, or I want to make sure we don't over extrapolate or under cheat the run rate going forward?

Tom Bartlett

Fair point. I mean the way we had it in our original outlook as I mentioned it's about $21 million of revenue in the year and we had it ratably across all four quarters, so it isn't $5 million per quarter. So for the first half of the year, we have actually recognized $17 million, $18 million of that revenue so there will be $3 million left that we will recognize in the second half of the year.

Steve Sakwa - ISI Group

Okay. And then just to be clear that kind of goes away in 2015?

Tom Bartlett

No, no, no. That's recurring through 2016.

Steve Sakwa - ISI Group

Okay, sorry about that. And then just on the expense side that $7 million just again to be clear, about another $3 million benefit will occur in Q3, but almost sounds like that $7 million was a little bit high in terms of a run rate?

Tom Bartlett

Yes. That's exactly right. We would expect another $3 million sometime in the second half of the year.

Steve Sakwa - ISI Group

Okay, great. That's it from me thanks.

Tom Bartlett

Great. Thanks Steve.

Operator

And our last question comes from the line of Kevin Smithen from Macquarie. Your line is open.

Will Cape - Macquarie

Hi, guys. Thanks. This is Will for Kevin. Regarding Mexico, there's been a lot of news over the past few weeks. Can you update us on current lease up and amendment activity there and your take on America Movil's tower spinoff and the other potential Iusacell and Movistar merger being reported today? And also do you expect AT&T to enter the market?

Jim Taiclet

What we can speak to with most accuracy is our own run rate in Mexico which has been solid and stable over the last couple of years, I would say. These are investments criteria and has been a very successful market for us. I mean it's on the order – the results are on the order of Mexico again long tenure experience there with American Tower in that country and we have got a great management team as well in Mexico. And they have been performing steadily over the few years.

As far as the other situation, its best I think left to the parties you mentioned to elaborate on those. America Movil, I will point out as an important customer of ours in multiple markets and Latin America. I think we have a strong business relationship with their management team, if they like us to collaborate with them down the road in some fashion we would certainly listen to that. But, we have nothing to report at all on how they are going to dispose of their towers at this time.

And then finally, with Iusacell and Telefónica Movistar, again we have long lasting contracts with both of those seven, 10 years, if they get together you will have certainly a much stronger competitor in Mexico by combining those two companies. But, we don't have any visibility as to the probability of that happening or any regulatory inputs that might happen. We will be successful we think whether there are three or four large carriers in Mexico just like we have been successful in the U.S. as it has gone sort of from seven to four over the last few years. So we wouldn't look at this as a material concern for us.

And then finally, the only people that can comment of AT&T is going to enter the market are AT&T, so we don't have any view into that at all.

Will Cape - Macquarie

All right. Thank you.

Jim Taiclet

Great.

Operator

I will now turn the call back over to our presenters for any closing remarks.

Jim Taiclet

Thanks operator. And thank you all for being here with us today. I know it's a busy today. We appreciate all of your attention to the extent that you have any follow up questions please give Leah or myself a call. Thank you.

Operator

And ladies and gentlemen, this does conclude today's conference call. Thank you for joining us. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!