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American Tower (NYSE:AMT)

Q4 2010 Earnings Call

February 23, 2011 8:30 am ET

Executives

Leah Stearns -

Thomas Bartlett - Chief Financial Officer and Executive Vice President

James Taiclet - Executive Chairman, Chief Executive Officer and President

Analysts

Gray Powell - Wells Fargo Securities, LLC

Philip Cusick - Macquarie

Simon Flannery - Morgan Stanley

David Barden

Brett Feldman - Deutsche Bank AG

Jason Armstrong - Goldman Sachs Group Inc.

Operator

Good morning. My name is Don, and I'll be your conference operator today. At this time, I would like to welcome everyone to the American Tower Fourth Quarter Full Year 2010 Conference Call. [Operator Instructions] Ms. Leah Stearns, you may begin your conference.

Leah Stearns

Thank you and good morning, everyone. Thank you for joining American Tower's Conference Call regarding our Fourth Quarter and Full Year 2010 Financial Results. Please note that we have posted a presentation on our website, which we will refer to throughout our prepared remarks. Our agenda for this morning's call will be as follows: I will provide a brief overview of our fourth quarter and full year 2010 financial results; then Tom Bartlett, our Executive Vice President and Chief Financial Officer, will review our 2010 performance and provide an overview of our expectations for 2011; and finally, Jim Taiclet, our Chairman, President and Chief Executive Officer, will provide closing remarks. After these comments, of course, we will open up the call for your questions.

Before I begin, I would like to remind you that this call contains forward-looking statements that involve a number of risks and uncertainties. Examples of these risks include those regarding our 2011 outlook, our pending acquisitions, our consideration to elect REIT status 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 and those set forth in our Form 10-Q for the quarter ended September 30, 2010 and then 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 fourth quarter and full year 2010 results. Highlights from the fourth quarter included over 23% growth in total Rental and Management revenues to $536 million. Adjusted EBITDA growth of over 18% to $365 million, operating income growth of over 15% to $203 million and an increase in our income from continuing operations to approximately $84 million or $0.21 per basic and diluted common share.

From a full year perspective, we generated over 16% growth in total Rental and Management revenues to approximately $1.94 billion, adjusted EBITDA growth of over 14% to approximately $1.3 billion, operating income growth of approximately 17% to over $784 million and an increase in our income from continuing operations to approximately $374 million or $0.93 per basic and $0.92 per diluted common share. Please note that our increased expansion activity in international market, as well as changes to our organizational structure, have led us to separately disclose our Rental and Management operations in two segments: Domestic Rental and Management and International Rental and Management. In addition to the segment information provided in this morning's press release, we have also posted historical quarterly segment detail for 2010 to our website. Further, we recently completed a new investor presentation, which provides background on the tower industry, as well as American Tower, which can also be found in our website. We hope that you find these supplemental sources of information helpful.

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

Thomas Bartlett

Thanks, Leah, and good morning, everyone. I'm pleased to report that our business continued to produce strong results in the fourth quarter, positioning us well for 2011. If you'll please turn to Slide 5, you'll see that for the quarter, our total Rental and Management revenue increased over 23% to more than $536 million. Adjusting for the impact of FX, straight line and a one-time $8.9 million revenue item that occurred during the fourth quarter, the core growth in total Rental and Management revenues was nearly 14%.

Turning to Slide 6, continuing with some highlights from our Domestic Rental and Management segment for the fourth quarter, revenue increased 17% to over $420 million, and our sites ended the year with an average of 2.6 tenants per tower. Please note that our domestic revenue benefited from an increase in straight-line revenue, as well as the one-time $8.9 million item I mentioned earlier compared to the prior period. In addition, and as I've highlighted in our previous earning calls this year, three discrete items negatively impacted our results during 2010. These items included the impact of broadcast analog churn, the completion of a customer take-or-pay agreement and a customer settlement. Excluding the impact of straight-line revenue recognition, the one-time $8.9 million revenue item from the quarter and the three discrete items domestic revenue growth would have been about 10%.

For the quarter, our Domestic Rental and Management segment gross margin increased over $55 million or 20%, which reflects a year-over-year conversion rate of 91%. And finally, our Domestic Rental and Management segment operating profit increased 18% to just over $315 million. Please note that the impact of the one-time $8.9 million benefit to revenue this quarter was offset by one-time direct and overhead costs incurred during the fourth quarter of the year.

Turning to Slide 7. Our International Rental and Management segment produced strong growth during the fourth quarter of 2010, which is primarily fueled by our acquisition and expansion efforts. Highlights from our International segment performance include revenue growth of 53% to nearly $116 million. During the quarter, our revenue growth was positively impacted by our acquisition of sites in India from Essar, which contributed a total of approximately $26 million to our year-over-year growth. And in several of our international markets, as many of you may already know, we pass through ground rent, and in India, fuel costs to our customers.

Excluding the year-over-year increase of our international pass-through revenue of about $13 million, of which the majority was attributable to our acquisition of sites in India from Essar, our International revenue growth was 47%. International Rental and Management segment gross margin increased approximately 35% year-over-year to just over $78 million, which reflects a 68% gross margin. Excluding the impact of our pass-through revenue, our International segment gross margin would have been 92%.

Further, our year-over-year International gross margin conversion rate for the quarter was 51%. Excluding the impact of pass-through revenues and the nearly 7,500 new sites we have added to our international portfolio since the beginning of the fourth quarter of 2009, our gross margin conversion rate would have been about 80%.

As of the fourth quarter, the International sites which we have acquired or constructed since the beginning of the fourth quarter of 2009 had an average of about 1.5 tenants per tower and were generating a gross margin of approximately 50%. We believe these investments in both our legacy and new international markets provide us with the benefits of diversification, as well as opportunities to participate in higher growth markets. Further, we believe there is tremendous potential as we lease these sites up to drive future margin growth. Finally, our International Rental and Management segment increased operating profit by 30% to over $64 million.

Turning to Slide 8. On a full year and consolidated basis, our Rental and Management business performed very well. Our Domestic segment revenue increased over 11% while our International segment revenues increased nearly 43%. Total Rental and Management revenues grew just over 16% to over $1.9 billion. Total Rental and Management revenue core growth was approximately 11% relative to the full year 2009, which excludes the impact of foreign exchange and straight-line revenue recognition. I'd also like to highlight that from a full year perspective, the one-time revenue items from both 2009 and 2010 have nearly offset each other. And as I mentioned earlier, three discrete items impacted our results during 2010. These items included the impact of broadcast analog churn, the completion of a customer take-or-pay agreement and a customer settlement, which combined negatively impacted our reported revenue by approximately 1.7%. So excluding the impact of these discrete items, our core growth would have been approximately 12.6%.

For the full year, we experienced strong leasing demand from a diverse source of customers. In the U.S., our top new business customers included existing nationwide carriers such as AT&T and Verizon, as well as emerging carriers such as Clearwire. Our new business from our international markets was fairly balanced with top new business customers such as Telefónica in Mexico, Telecom Italia in Brazil and IDEA and Vodafone in India.

In addition, on a consolidated basis, we experienced new lease versus amendment levels in approximately a 70-30 ratio.

Turning to Slide 9. Our reported adjusted EBITDA growth relative to the fourth quarter of 2009 was 18.5%, with our core growth for the quarter at 7.6% on a currency-neutral basis and excluding the impacts of straight-line lease accounting. In addition, and as I have previously mentioned, the impact of the domestic one-time $8.9 million revenue item recognized during the quarter was completely offset by one-time domestic expenses.

Further adjusting for the three 2010 domestic discrete items which negatively impacted adjusted EBITDA growth by 2.4%, our core growth for the quarter would have been about 10%. During the fourth quarter, our adjusted EBITDA margin was 67% and our adjusted EBITDA conversion rate was approximately 57%, which was a direct result of the following: An increase of $13 million due to International pass-through revenue, which negatively impacted our conversion rate by about 9%. And additionally, since the beginning of the fourth quarter of 2009, we've added over 8,700 new sites to our portfolio, which currently have gross margins of approximately 54% due to their average tenancy of approximately 1.6. As we continue to increase the utilization of these sites, we expect their margins will approach our legacy portfolio levels after excluding the moderating impacts of pass-through revenue.

Excluding the impact of pass-through revenue, the new sites we have added and the one-time items from the quarter, our EBITDA conversion rate for the quarter would have been about 75%.

Turning to Slide 10. Our full year 2010 adjusted EBITDA increased over 14% to approximately $1.35 billion from the full year 2009. Core growth and adjusted EBITDA was 7.8% adjusting for the impact of foreign currency and the straight-line impact in one-time items. Further adjusting for the 2010 discrete items, which negatively impacted adjusted EBITDA growth by 2.4%, our core growth would have been over 10%. During 2010, we have made selective investments in our regional overhead, systems and corporate functions to support our growing global organization, in addition to our ongoing costs related to certain global business development initiatives. As planned, we have been able to maintain our overall EBITDA margins at 68%. And excluding the impact of our international pass-through revenues, our EBITDA margins would have been about 71%, consistent with our margins in 2009 calculated on the same basis. In addition, during 2010, we made a number of acquisitions in our existing and new markets. We expect that our main operational focus during 2011 will be on the integration of these businesses, and in particular, the continued global implementation of a common financial platform. We have made solid progress in these initiatives, and these will continue to be our main focus for the remainder of 2011.

As outlined on Slide 11. During the fourth quarter, we continued our disciplined approach to capital allocation. Specifically, we invested just over $500 million, which included over $118 million on total capital expenditures, including $95 million of spending on discretionary capital projects primarily related to the construction of approximately 370 new sites and $34 million on land purchases. The increase in activity in our land purchases can be attributed to our team's recent success in completing the initial phase of our land purchase program, which was targeted at our highest cash flow producing sites. As a result, we have expanded the scope of sites targeted and increased the capital allocated to this project while still meeting our return on investment criteria. In addition, during the quarter, we completed the acquisition of almost 1,400 sites, including about 270 sites in the United States and 1,130 sites internationally for about $315 million. The majority of sites acquired in our international markets during the quarter were attributable to our agreements with Telefónica in Chile, Colombia and Peru.

And finally, consistent with our capital allocation strategy, we spent approximately $75 million to repurchase approximately 1.5 million shares of our common stock during the quarter, pursuant to our buyback program. For the full year 2010, we invested over $1.65 billion on behalf of our shareholders, which included nearly $350 million related to our annual capital expenditure program, including discretionary investments of approximately $194 million to complete the construction of approximately 1,040 new sites and $83 million to purchase land. And we invested approximately $900 million in acquisitions, which included our purchase of sites from Essar in India, Telefónica in Latin America, as well as over $300 million spent in the United States to acquire close to 550 sites. And we repurchased 9.3 million shares for a total of $421 million, pursuant to our buyback program.

Turning to Slide 12. As a result of our continued solid operational performance and disciplined capital allocation, consistent with our risk-adjusted and market specific return hurdles, we have delivered compounded annual growth and recurring free cash flow and recurring free cash flow per share of over 15% and 17%, respectively. In addition, we have increased our return on invested capital by approximately 200 basis points over the same historical period. Our main focus will be to continue to drive growth in these two key metrics in the future. Our internal long-term goal is to grow recurring free cash flow at mid-teen levels per year while concurrently increasing our return on invested capital.

Turning to Slide 13. I'd like to discuss our guidance for Rental and Management revenue growth for 2011. Please note that our guidance only includes the 140 sites acquired from VTR in Chile and the initial purchase of approximately 960 sites from Cell C, which we are very close to closing. There are an additional 2,900 sites from other pending acquisitions, which we will incorporate the impact of into our outlook after they do close. We currently forecast that our full year Rental and Management segment revenue will increase from $1.94 billion in 2010 to $2.2 billion to $2.24 billion in 2011, representing year-over-year growth of over $280 million or nearly 15% at the midpoint.

Since there is very little anticipated net impact from straight-line revenue and foreign exchange, our reported and core revenue growth are currently expected to be approximately the same in 2011. The increase in total Rental and Management revenue is primarily the result of the following key items: Approximately 3.5% growth from our contractual rent escalations from our existing tenants, which represents about $70 million of incremental revenue for 2011; at the midpoint, approximately $93 million as a result of new business, including lease up and amendment activity on our existing sites; and about $150 million at the midpoint as a result of the incremental impact of our new sites built or acquired since the beginning of 2010.

In addition, we estimate that churn will be approximately 2% and offset revenue growth by about $40 million. And finally, we estimate that the net impact from FX, straight-line and the 2010 one-time item will positively impact our growth in 2011 by $15 million.

From a segment perspective, we currently estimate that our Domestic Rental and Management segment will grow by roughly 8% to 9%, the vast majority of which will come from organic growth. We expect that our International segment will continue to generate solid organic growth while also experiencing strong contributions from our recent expansion activities.

Therefore, we're currently anticipating our International segment to produce revenue growth of approximately 40% and expect it will contribute to about 23% of our total Rental and Management revenue for the full year.

Turning to Slide 14. We currently expect that our 2011 adjusted EBITDA will be in the range of $1.49 billion to $1.53 billion, representing core growth of over $160 million or 12% at the midpoint. 2010 was a year of significant investment for American Tower as we sought to further our global presence and uniquely position ourselves to capture a portion of the growing global demand for wireless services. Our accomplishments included our announced expansion into five new markets, which will result in revenue growth, as well as initial startup costs in 2011. A key point to remember is that our outlook for cost includes nearly all anticipated SG&A associated with our new operations in Chile, Colombia, Peru and South Africa and 100% of the interest on borrowings we made in December of last year to fund our planned acquisitions.

As I mentioned earlier, our outlook for revenues includes only 1,100 of the approximately 4,000 sites we expect to acquire in 2011. Therefore, once the acquisitions of the additional sites in these markets are completed, we would expect to incur minimal incremental overhead costs. During 2011, we expect that our expansion initiatives will continue to result in lower consolidated EBITDA conversion rates as our current outlook implies introducing, through new site construction and acquisition, over 2,400 new sites to our portfolio.

We strongly believe that our current levels of development spending while creating near term headwinds for margin expansion will position us well for future growth. Further, we expect that despite our incremental investments in 2011, we will generate adjusted EBITDA margins at an industry-leading 67% or 71%, excluding the impact of international pass-through revenue equivalent with 2010, calculated on the same basis.

Finally, incremental to our current outlook, and as we highlighted this morning in our press release, we are expecting to complete the purchase of approximately 565 sites in Brazil for an initial purchase price of about $420 million prior to the end of the first quarter. We believe that on an annualized basis, these sites will produce approximately $50 million of revenue and $35 million of adjusted EBITDA. If we were to incorporate the contribution from these sites for a full three quarters into our current outlook, we would generate over 16% of total Rental and Management growth and approximately 14% of adjusted EBITDA growth for the full year 2011 at the midpoint. Once we have finalized the actual financial impact of these sites for 2011, we will update and include them in our outlook.

Turning to Slide 15. We've outlined our forecast for 2011 capital expenditures. And the headline here is that we are making additional selective discretionary investments to grow our business. We expect that our discretionary investments will increase from 2010 as we currently plan on building 1,200 to 1,500 new sites, which represents an increase of approximately 30% from 2010 and includes approximately 400 to 450 sites in the U.S. and approximately 800 to 1,050 sites in our international markets. We expect that the total cost for these sites will be in the range of $200 million to $220 million. In addition, we are increasing our spending on land purchases and expect to allocate between $80 million to $100 million in 2011 to our land purchase program.

Turning to our non-discretionary spending. A number of factors have resulted in our expectations for higher non-discretionary CapEx in 2011. We grew our tower portfolio by 29% or 7,800 sites in 2010. As a result, we anticipate higher capital improvement spending due to a greater base of sites to maintain. We are anticipating spending approximately $10 million related to a domestic non-recurring maintenance project. And our IT team is focused on implementing our global financial statement consolidation platform to support our new markets.

And finally, we are anticipating increased demand for certain of our international sites following spectrum auctions, as well as spending in the U.S. to upgrade certain indoor DAS networks to accommodate our customers' 4G deployments, and therefore, our redevelopment CapEx is expected to increase to support this lease up. As a result, we expect our non-discretionary CapEx to increase in 2011 to support these activities.

Turn to Slide 16. Over the past few months, we have announced several key international expansion initiatives. And as of today, we have made significant progress as we work towards closing the transactions, as well as launching our operations in two new markets in 2011. Further, we currently have a significant capacity to invest, which as of the end of 2010, included over $880 million of cash on hand and a little over $900 million of availability under our revolving credit facility. In addition, based on our current outlook, we expect to generate over $1 billion of cash from operating activities. Consistent with our historical capital allocation strategy, we expect our investments in 2011 will include the following: Our CapEx for 2011 is projected to be $425 million at the midpoint, and we currently have committed nearly $900 million to fund acquisitions in 2011. After accounting for these investments, we still have significant liquidity to drive further growth and to return capital to shareholders during 2011.

Turning to our growth initiatives. Subsequent to the end of the fourth quarter, we closed on 140 sites from VTR in Chile and included these sites in our outlook. This brings our tower count to just over 250 sites in Chile, and we look forward to working with VTR in the future as they seek to roll out the first 100% co-location base network. In addition, we are currently working to complete the following acquisitions. As you may recall, during the fourth quarter, we announced an agreement with Cell C, the third-largest carrier in South Africa, to acquire up to approximately 1,400 existing sites and up to 1,800 additional sites that are either under construction or will be constructed over the next two to three years for an aggregate purchase price of up to approximately $430 million.

We expect to close on an initial 960 sites by the end of the first quarter and have included these sites in our outlook. We anticipate funding the purchase price with a combination of cash on hand as well as local financing. In addition, during the fourth quarter of 2010, we announced a joint venture in Ghana with one of the leading wireless carriers in Africa, MTN, where we will have operational control and own a 51% stake. We currently expect the initial tranche of sites will close during the first half of 2011 with a total of up to 1,876 sites to be purchased for up to approximately $219 million. We also expect to acquire about 350 additional sites associated with our agreements with Telefónica in Chile and Colombia by the end of the third quarter. Finally, and as I previously discussed, we expect to acquire approximately 565 additional sites in Brazil for an initial purchase price of about $420 million.

Turning to Slide 17. We continue to actively evaluate making an election to a REIT and continue to believe that it is the optimal tax strategy for our U.S. operations given the nature of our assets and business. Our goal in 2011 is to position ourselves to qualify as a REIT commencing January 1, 2012. This involves three concurrent work streams, which our teams are actively engaged in today, including finalizing our tax due diligence, finalizing any changes to our organizational documents, such as our charter, necessary to comply with REIT qualification requirements and ensuring our operational readiness, which includes modifying any internal systems and/or processes that need to be REIT ready as of year end. Please note that there is no guarantee that we will ultimately elect REIT status. Any election is subject to board approval, and in addition we would need to distribute to shareholders any accumulated earnings and profits attributable to the pre-conversion profitability of our domestic legal entities. We continue our work to determine the amount of such accumulated earnings and profits, which we expect to finalize later this year. The actual form, amount and timing of this special distribution will be determined by our board of directors. And finally, we may make a determination to elect REIT status as early as the second half of 2011.

Turning to Slide 18, and in conclusion, we have had a very successful 2010. We continue to produce strong results, including double-digit Rental and Management revenue and adjusted EBITDA growth of 16% and 14%, respectively. Investing over $1.6 billion on behalf of our shareholders while remaining disciplined and consistent with respect to our investments, which enabled us to deliver double-digit growth and recurring free cash flow per share while simultaneously increasing our return on invested capital.

In addition, we are able to return over $420 million of capital to investors through our stock repurchase program. Our fourth quarter results were solid and established a solid foundation for our revenue and EBITDA growth in 2011. In addition, we have a robust pipeline of pending acquisitions that we expect will close in 2011 and drive further revenue and adjusted EBITDA growth during the year.

With respect to our balance sheet, we currently have approximately $1.8 billion of liquidity, have recently raised over $1.7 billion through longer dated senior notes offerings raised at attractive rates, and we expect that we will continue to opportunistically seek access to the capital markets to further ladder and extend our maturities.

With that, I'd like to turn the call over to Jim.

James Taiclet

Thanks, Tom, and good morning to everyone on the call. I'd like to begin my remarks by saying thanks to our employees for delivering such great results and to our customers for their confidence in us to host much of their network infrastructure.

Today, I will outline our view of the business environment, within which American Tower operates, and how our company strategy is designed to take maximum advantage of this favorable environment. In the U.S., the single most important factor in our business environment is that AT&T Mobility and Verizon Wireless are being very aggressive in advancing both 3G and 4G mobile broadband services.

In their most recent public statements, both companies were clear on their views that mobile broadband subscribers provide dramatically higher ARPU and greatly enhanced customer loyalty, which mitigates churn. Both companies were also clear in their increased commitment to investing capital in both 3G and 4G networks. Moreover, both AT&T and Verizon have the spectrum resources, financial capacity and supplier relationships with the likes of Apple, Google and others to aggressively drive mobile broadband penetration. Given this trend, being able to offer credible, competitive 3G and 4G mobile broadband services has become a strategic imperative for any national wireless carrier in the U.S.

As a result, we believe that Sprint Nextel and T-Mobile USA will also vigorously pursue the deployment of 3G and 4G mobile broadband services. To deliver on this objective, each of these companies will also have to gain access to adequate spectrum resources and top-tier supplier relationships while committing the requisite financial resources to provide advanced data services.

So in sum, we believe that the U.S. wireless industry is in the relatively early stages of a multiyear investment cycle that will result in four robust competitive mobile broadband networks, complemented by regional and prepaid carriers. By the end of the decade, we anticipate a U.S. market, in which the penetration of true mobile broadband devices approaches 100% in the U.S. Much as during the last decade basic feature phone and Smart phone penetration approached 100%. As to how this favorable trend in mobile broadband relates to American Tower strategy, I'd offer that we've been preparing for this moment for a number of years.

Back in 2005, we led tower industry consolidation with the SPECTRO site merger, driving first mover advantage with what we believed was clearly the best available asset. In the intervening years, we have driven operational excellence through the combined asset base, thereby delivering the highest margins in our industry. We've also worked to elevate our customer relationships to preferred supplier status, leveraging our expanded portfolio to secure volume-based contracts, as well as our strong balance sheet to consistently invest on behalf of our customers in new towers and other projects.

For example, in 2010, American Tower invested just over $600 million in U.S. base capital expense and acquisitions, 49% of our total investments globally for the year while also maintaining our strict investment discipline. We remain fully committed to maximizing organic growth in the U.S. market, which we believe will be there for years to come. And we will continue to seek out additional domestic investment opportunities, but only at the right price.

Another key factor in the business environment is our view that traditional towers will provide the vast majority of wireless coverage now and even in the future, and even as broadband speeds and capacity requirements increase. Due to a host of technical and operational reasons the benefits of the tower-based macro site are substantial and cannot be replicated with any other transmission technology. At the same time, American Tower has also explored niche technical solutions as potential complementary revenue sources for our core tower base. We feel that we understand this space well as the leading provider of indoor distributing antenna systems, known as DAS, which we've doubled in size since entering the space with our SPECTRO site acquisition.

We extended our DAS expertise into the outdoor area as well. We've also concluded that indoor and outdoor DAS are certainly worth investing in as part of our overall strategy to be the preferred supplier of communications infrastructure. But our experience has been that the tower base macro site remains the clear number one choice for our customers as they deploy and strengthen their networks.

While the U.S. remains our home-based market with a substantial majority of our invested capital and revenue generation, we believe that we can achieve potentially even better performance over time in select international markets. The fundamental reason that the U.S. has been such a successful market for the tower industry is that a robust commercial co-location market developed here in the late 1990s and early 2000s. During that period, most A and B site cellular carriers divested their single use towers to newly formed companies like ours that would then lease them up to multiple carriers on a commercial basis. For the past decade, American Tower's international strategy has been to seek out specific countries where we believe we can establish our commercial co-location industry structure.

The first of these endeavors were in Mexico and Brazil nearly 10 years ago. Then after a few years of focus on U.S. industry consolidation, which culminated in our integration of SPECTRO site, we recharged our international efforts once again. So over the past few years, we've concluded that certain geographies were ripe for the introduction of the commercial co-location model. These countries include India, certain adjacent markets to our Brazil operations in South America and specific countries in sub-Saharan Africa. All of these locations, we think, offer relatively stable economic and political foundations, competitive multi-carrier wireless industries and qualified counterparties willing to engage in reasonably priced transactions with us.

Our strategic goal for 2011 is to consolidate and strengthen our operational position in each of our eight international markets and drive the benefits of the commercial co-location business model in each country. Our company's mission is to be the premier provider of communications infrastructure in each of the markets that we choose to operate in around the globe. So we're excited about our future prospects, both in the U.S. and abroad, and we're proud to have you join us on this journey as our investors.

So, operator, can you please open the call for questions at this time?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Brett Feldman with Deutsche Bank.

Brett Feldman - Deutsche Bank AG

Just to talk about the planned reconversion. You mentioned how you may have to make a distribution to your shareholders, potentially accumulated earnings. How do we go about estimating what that looks like? I mean, if we just simplistically look at the balance sheet, you have an accumulated deficit. So it looks like there wouldn't be anything to distribute. I'm just wondering how much that's going to be influenced by, say, the way you do your internal reorganizations?

Thomas Bartlett

Brett, it's Tom. It won't be a function of our internal reorganizations, if you will. And it is a very difficult long process, I must say, that our advisors and our internal tax groups have gone through to determine it. And it's a function of going back and looking at the details from a tax perspective of results since the beginning of time. So it's almost impossible to try to correlate it with what you may see on our GAAP financial statements. We will, as our board approves, would look to approve a distribution in the future, we will be providing more color on that clearly. It's not a material item, as I have said in the past. I don't think it's a significant item going forward. But we will be providing a lot more color on that throughout the year.

Brett Feldman - Deutsche Bank AG

When we look at sort of the core growth in the business, as you detailed very clearly, you're doing better right now on the top line than you are on the bottom obviously because of the investment you've been making, particularly international markets. Can you give us a little color to think about at what point we might start to see some of the operating leverage kick in, an acceleration in EBITDA growth and acceleration in cash flow growth?

Thomas Bartlett

Well, and that's what we've been trying to do with our conversions rates and kind of giving you a sense of what kind of conversion we've had in our legacy sites, in the domestic, it's over 90%. And if you take a look at the new domestic disclosure that we've had, you can actually see growth in that business and from a margin standpoint, on a quarter and a year-over-year basis. What we hope to be able to continue to do, Brett, is continue to invest in these markets domestically, as well as internationally, to continue our top line growth going forward for many years to come. But I think the Domestic business is a reflection because we did acquire a fair amount of sites in the United States during 2010, and you can still see the kind of revenue and profitability accretion in the marketplace. But as I said, we hope to be able to do both revenue growth, invest and be able to maintain the margins. As I mentioned in my remarks, without pass-through, our margins are at over 70% and they’ve been that way for the last two years, and we're planning on at that level in our outlook for 2011.

James Taiclet

Brett, it's Jim. Just to complement what Tom is offering here, we're essentially setting out growth platform for the future. And I think as we move through the rest of 2011 and beyond, the revenue growth that is going to be built off that platform is going to be pretty exciting. And then, as Tom said earlier, the actual SG&A platform itself should not need to grow much more after 2011.

Operator

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

David Barden

First, Tom, I guess what I saw on the slide was 10.8% domestic core growth year-over-year. If we took out some headwinds, it was north of 12%. But I think in your comments about the forward-looking guidance for the domestic core growth, you're only looking for 8% to 9%. Obviously, Jim, you've been talking about expectations for a better year-over-year in terms of leasing performance. So could you kind of bridge the gap between what should have been a 12.6% growth year in '10 but now kind of guidance that looks at an 8% to 9% domestic core growth rate in '11? And the second question I had for I guess either Jim or Tom was this Brazil situation, could you elaborate a little bit on what's going on? It looks like you're paying north of $700,000 per tower to get this thing done on March 1 but then there's a clawback potentially based on a review of the financials. It just looks strange relative to how smooth a lot of the international stuff has been to this point in time.

Thomas Bartlett

David, it's Tom. With regard to the growth, the 16% growth that I was talking about before was on a consolidated basis. The U.S. growth, if you're looking at the kind of 2010 growth, is in the kind of the 11% gap growth. We're looking at kind of 9-ish, 9-plus percent growth, if you will, on GAAP growth. And our core growth in 2011 will be roughly equivalent on a consolidated basis to our GAAP growth of 15%. So I think you were comparing the consolidated versus the Domestic growth trends. So hopefully that clears that up. Relative to Brazil, first of all, on the valuation, we're paying roughly 11x to 12x cash flow. The typical sites that we are picking up are higher-valued sites, good tenancy, good opportunity for growth, largely in the Sao Paulo area. So I think relative to the EBITDA and the valuation, it's a very attractive transaction for us and further solidifies our position with our existing customers because those towers that we're acquiring have a similar distribution of customers as we do in our larger portfolio. Relative to the timing of the transaction, we have an agreement in place. We do expect to close this in the very near future. The reason that I didn't include it in outlook is that we're still working through exactly the impact of this business on our existing operations. We're integrating it into our existing operations. We don't expect it to be significantly different from those numbers that I actually included in my remarks. But I didn't include it in outlook, and will include it in outlook once the transaction closes.

James Taiclet

And, David, it’s Jim. You can be assured, we approached this particular deal with the same discipline and process that we have for Domestic, International deals in the past. Now I would look at this particular business as a third party tower operator as kind of the SPECTRO site of Brazil. It's really a strong number to us. We really like the business, they've leased it up nicely and we're paying 11x to 12x cash flow for it, which in that market, we think is quite reasonable for a good asset.

Operator

And our next question comes from the line of Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc.

Maybe first question on technology, since a lot of people are focused on it now. Can you comment on these light radios from Alcatel-Lucent as they’re obviously getting a lot of attention? Can you help us just gauge the risk and how you would think about it? And then second on guidance, you’ve had this carrier category with questionable financing, whether it's Clearwire, LightSquared, et cetera. I'm just wondering to what extent incremental activity is embedded in your 2011 expectations with them.

James Taiclet

Jason, it's Jim. On the technology front, we actually look at the light radio product as an early-stage technology that's an opportunity for our company in a couple of dimensions. One is, we think we can potentially use it in our DAS systems being an advancement to what we have available today if the promises that are being made by the OEM are going to come true. So there's a plus there for us. And secondly, this is a technology that our external and internal engineer advisors tell us is more suited to really dense urban environments where there really aren't any towers proportionally today. So we see this as a benefit to our carriers and the tough spots where the tower access isn't there anyway. It will make them more successful and then therefore, it will make them able to invest more in the macro sites where we do provide coverage. So that's the summary on that one. As to Clearwire and LightSquared, they're de minimis in our guidance that Tom laid out for you today. The only prospects we have in there is some current market upgrades in Clearwire, and it's very small. Essentially nothing for LightSquared in the outlook.

Thomas Bartlett

If you put some numbers on it, no LightSquared and Clearwire is less than half what we have had in 2010.

Operator

And our next question comes from the line of Gray Powell with Wells Fargo.

Gray Powell - Wells Fargo Securities, LLC

I know you touched on this before, but can you compare the organic growth rates that you saw in Mexico, Brazil and India in 2010 to that of the U.S.? And then, just as we look into 2011, can you provide any insights on carrier initiatives that could impact the current trajectory?

Thomas Bartlett

Gray, this is Tom. Let me look at it because David asked the question before in terms on a consolidated growth and organic growth. As I mentioned before, at the consolidated level, GAAP consolidated growth was 16% in 2010. And we've just laid out a forecast that we'll get that roughly to 15%, which is equivalent of core growth in 2011. Our GAAP kind of same tower growth on a consolidated basis was in the 9% range on a consolidated basis, and our core growth overall for the year on a consolidated basis was about 11%. And our core same tower growth organic was in kind of in the 4% to 5% range. On the U.S., just looking at the U.S. on a consolidated for Domestic business, our GAAP growth was about 11%. Our GAAP same tower growth or organic growth was about 9%. Our core growth was in the 7% to 8% and our core same tower growth was in the 5% to 6% range. And as I mentioned in 2011, our GAAP and core growth will be in that kind of 9% range, 90% of that being organic. At the consolidated International level, our GAAP core growth is over 40%, as I talked about a few minutes ago, and our GAAP same tower organic growth is around 10%, with our core growth in International being roughly 30%. If you peel that one back, it does vary significantly from market-to-market. I mean, India, as you would expect, it had a significant GAAP growth. It also had a significant amount of growth that came from acquisitions. Brazil had GAAP growth in the 20% to 25%, if you will, in 2010. In 2011, we're looking at that probably going down to about the 15% range. And in Mexico, we had GAAP growth, significant GAAP growth, if you will, of about 6% to 7%. GAAP same tower growth was about 6% to 7%, and we would expect that to maintain itself in 2011.

Gray Powell - Wells Fargo Securities, LLC

I'm just trying to get a sense as to like which markets you guys are most bullish on? And then there have been spectrum auctions in Mexico midyear and also in Brazil. Just kind of what kind of impact you’d expect leasing activity in those regions to have on the organic growth rates excluding acquisitions?

James Taiclet

Gray, this is Jim. I'll give you a brief tour kind of around the world as to what we see. In the U.S., as I stated in my remarks, AT&T and Verizon we think are going to lead the pack this year and really try to get those customer enhancements and benefits that they see by giving increased penetration and a higher level of Smart phone and other devices. And with that, we also believe that Sprint Nextel and T-Mobile are going to have to figure out a way to stay on that trend as well. A lot less, as Tom mentioned, from any emerging carriers on the order of LightSquared or Clearwire. And also, we'll have modest contributions from MetroPCS and Leap and the other regionals as well. So it's going to be, again, in U.S. market, in 2011, we believe driven by the AT&T and Verizons, the other national carriers complemented by the rest of the carrier group there. If you move down to Mexico, there has been a spectrum auction that will be very interesting we think for us because Nextel was a significant winner of licenses. We understand and expect that they'll be driving a 3G overlay. Many of those installations will be on our towers with them that we already have in Mexico. Also in the Mexico City area, Telefónica garnered some licenses. We acquired a few leases with them. Again, an opportunity for some nice amendments and new tower installations there as well. If you go further south in Brazil, a similar story. There were spectrum auctions completed in late 2010. We think by late 2011 that, again, Nextel, who is a big winner of those licenses, will be rolling out 3G in Brazil. And then as you go to the markets in Colombia and Chile, also spectrum auctions, there’ll be new entrants in each of those countries, UNE and Colombia and also VTR who you’ve heard us talk about in a significant arrangement with us in Chile. So all through North and South America, both the advancements we think towards 3G and 4G in the U.S. will be our most significant market in the Western Hemisphere. As you move to the Eastern Hemisphere, start with India, there was a pent-up demand that we think will be released in 2011 due to some government restrictions on imported radio base stations and antennas last year in 2010. So we think it's sort of held back growth a bit. For us, it wasn't as big an issue because we had the SR sites to integrate and they’re ready to go for 2011. So we think it will be a good year for us in India. In addition to that, there is still plenty of voice penetration to come in a very competitive market with at least half a dozen well-established carriers that will be vying for market shares. So again very positive on India's prospects for us in 2011. And then as we move into our newest markets of South Africa, that's more of a Mexico-type situation, pretty good voice penetration. But a lot of work to do on 3G and ultimately 4G data starting, we think, this year in South Africa. And then Ghana is an earlier stage situation similar to a Colombia where there’s still voice penetration to go, complemented a little bit further out by data. So we see that as the landscape, Gray. Hopefully, that was a fairly comprehensive brief world tour for you.

Operator

And our next question is from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

First on the international assets, obviously lot of growth potential there. Can you help us in terms of the REIT election status, does that put any sort of significant limitations on how substantial that business can become as part of your overall strategy? And are you thinking ultimately that's a 25%, 30% part of your business, or could you take it to 50-50 on sort of EBITDA, on revenues and so forth? And then the second one is on leverage, on a forward basis, your leverage is almost at 3x now. How are you thinking about, given the attractive financing rates and so forth, how are you thinking about optimal leverage here given your expectations for 2011 both in terms of acquisitions and free cash flow generation?

Thomas Bartlett

Simon, it's Tom. With regards to the REIT international, not at all. The REIT does not get in our way at all in terms of how we're growing any part of our business any part around the world kind of full stop. With regards to the leverage, we continue to believe that the 3.5x is really our sweet spot and kind of our target leverage, our range is still the kind of 3x to 5x. We do have over $800 million of cash sitting on our balance sheet largely as a result of what we raised at the end of last year. And that was really in anticipation of a lot of the transactions, the kind of the 4,000 towers that I laid out, and Jim and I laid out before. So I mean that cash was earmarked for these deals that we have planned. And so we remain committed to the 3.5x. And our philosophy is not to go out into the market and raise cash ahead of time significantly just because the rates are sufficiently low. We want to make sure from a capital allocation process that we've got a use of proceeds and a use of cash, and we'll continue to manage it that way. That's been our philosophy, and we’re firmly committed to that.

James Taiclet

And, Simon, it's Jim. Just to cycle back to the proportion of revenue that we're targeting for international, the public statement is still 25% to 30% is what we're looking for. If and when we achieve that range, we'll update it for you. But right now, we're looking for 25% to 30%. And the U.S. as I've said, is growing both in assets and in organic growth right along the way. So it's quite an endeavor to keep up or exceed that growth level.

Operator

And our next question comes from the line of Phil Cusick with JPMorgan.

Philip Cusick - Macquarie

One question on the progress of talking to Sprint about the iDEN network. I know one tower company has gone out and done some things to give Sprint a little more flexibility. Can you give us an update on how you're thinking there?

James Taiclet

Phil, it's Jim. We don't speak to specific customer negotiations. But what I will tell you is that our performance with Sprint has been, as it’s historically been over the last few years, meaning we've had almost 100% renewals on iDEN and Sprint sites recently. We treat that contract base as something that’s very precious for us. We are not going to make concessions, frankly, on cash for a straight line. That's not an approach we would take. And we're going to work with Sprint to try to make them successful while maintaining and sustaining our contract and our revenue base position with them.

Philip Cusick - Macquarie

There's a lot of chatter that a national public safety network could be built out. Are you guys starting to look out and talk to these guys or even thinking about it in your numbers at this point, or is it sort of pie in the sky?

James Taiclet

Phil, yes, it's Jim. I have spent time in Washington, as have others, proposing that this is the best, most effective answer from a public policy perspective, which is government-owned spectrum managed by the federal government in collaboration with local first responder organizations, but that the network itself could be operated on an outsourced basis by a current carrier who could bring the technical and management expertise to do that. This idea seems to be getting traction. So we're pleased that maybe we've had a little bit of positive input into that process. Having said that, you still need funds to go ahead and roll that kind of a project out. There are significant funds that will be required. It may or may not be tied to some spectrum auctions a little bit down the road. But we do think, again, if you're taking a decade-long perspective like we are here, that it's a fairly reasonable probability that by the end of the decade, we have a national public safety network.

Philip Cusick - Macquarie

But you ramped up your ground lease acquisition rate this quarter and your rate for 2011 is a little higher than you were doing in 2010. Has your philosophy changed a little bit on this? Are you going to be more aggressively going back to that? Or is this just we have the capital and we're going to go sort of deploy some?

Thomas Bartlett

Rick (sic), this is Tom. I don't think our philosophy has changed on that. I think we've just found ourselves focusing more in on some of those higher cost sites, if you will. And we've found ourselves having kind of the right people on our team to be able to help negotiate those things and work through those things. So we had great success, I think, in 2010 generating some good rates of return, and we're going to continue that and commit more capital to it in the hopes of being able to achieve those same levels of returns.

Operator

And I'll turn the call back over for closing remarks.

Thomas Bartlett

This is Tom. I really want to thank you all for joining us. Jim and I and the employees of American Tower are really pleased to report the earnings today. We're very proud of them. We think we're well positioned for 2011. 2011 is going to be an exciting year for us given the integration activity that's going to go on within the business, all of the acquisitions that we have planned and to further working to make ourselves REIT ready by the end of the year.

James Taiclet

And from an overall environment perspective, again, thanks for everyone being on the call. We are strong advocates of the belief that broadband mobility is going to be and continue to be a pervasive and desirable product for consumers. And the U.S., that's going to be a leading market for these kinds of products. We're well positioned here. And we also believe that as time goes forward, depending on the specific country, that same phenomenon is going to get traction over the next few years. We're positioning ourselves both in the U.S. and in selected places overseas to take advantage of the primacy of mobile broadband and through 3G and 4G service for millions and millions of people literally around the world. So that's our investment thesis, we hope you share it, and we thank you for being on the call this morning.

Operator

Thank you for joining today's conference call. You may now disconnect.

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