American Tower's CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: American Tower (AMT)

American Tower (NYSE:AMT)

Q4 2011 Earnings Call

February 23, 2012 8:30 am ET


Leah Stearns -

Thomas A. Bartlett - Chief Financial Officer and Executive Vice President

James D. Taiclet - Executive Chairman, Chief Executive Officer and President


Simon Flannery - Morgan Stanley, Research Division

Batya Levi - UBS Investment Bank, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Michael Rollins - Citigroup Inc, Research Division

Lukas Hartwich - Green Street Advisors, Inc., Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

Richard Choe - JP Morgan Chase & Co, Research Division


Good morning. My name is Brooke, and I'll be your conference operator today. At this time, I would like to welcome everyone to the American Tower Full Year Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Leah Stearns, Director of Investor Relations. Ms. Stearns, you may begin your conference.

Leah Stearns

Thank you. Good morning, and thank you for joining American Tower's Fourth Quarter 2011 and Full Year Earnings Conference Call. We have posted a presentation which we will refer to throughout our prepared remarks under the Investors tab of our website,

Our agenda for this morning's call will be as follows: First, I will provide a brief overview of our fourth quarter and full year results. Then Tom Bartlett, our Executive Vice President, CFO and Treasurer, will review our financial and operational performance for the fourth quarter and full year 2011, as well as our outlook for 2012. Finally, Jim Taiclet, our Chairman, President and CEO, will provide closing remarks. After these comments, we'll 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 2012 outlook and future operating performance, our pending acquisition 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 September 30, 2011 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 fourth quarter and full year 2011 results. During the quarter, our rental and management business accounted for over 98% of our total revenues, which were generated from leasing income-producing real estate, primarily to investment grade corporate tenants. This revenue grew 19.5% to nearly $641 million from the fourth quarter of 2011.

In addition, our adjusted EBITDA increased 17.3% to approximately $429 million. Operating income increased 21.8% to approximately $248 million and net income attributable to American Tower Corporation was approximately $201 million or $0.51 per basic and diluted common share. Please note that our tax provision for the quarter reflects the positive net impact of approximately $121 million due to the reversal of certain deferred tax assets and liabilities as a result of our REIT conversion.

For the full year 2011, our rental and management business grew 23.2% to nearly $2.4 billion. Our adjusted EBITDA increased 18.4% to approximately $1.6 billion and operating income increased 17.3% to approximately $920 million. Finally, net income attributable to American Tower Corporation was approximately $393 million or $0.99 per basic and $0.98 per diluted common share.

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

Thomas A. Bartlett

Thanks, Leah, and good morning, everyone. I'm pleased to report that our business continued to produce solid operational and financial results during the fourth quarter, building on our performance from the first 3 quarters of the year. These operating results exceeded the midpoint of our latest outlook for the full year 2011 and have positioned us well for 2012. What I'd like to do this morning is first discuss our fourth quarter results, then full year 2011 and finally conclude with a discussion of our current expectations for 2012.

If you'll please turn to Slide 5. You will see that for the fourth quarter, our total rental and management reported revenue increased by 19.5% to $641 million or 17.3% when you exclude the impact of our international segments pass-through revenues. This increase in pass-through revenue was attributable to the more than 11,000 new sites we have constructed or acquired in our international markets since the beginning of the fourth quarter of 2010. In addition, on a core basis, which we will reference throughout this presentation as reported results excluding the impacts of foreign currency exchange rate fluctuations, noncash straight-line lease accounting and significant onetime items, our consolidated rental revenue growth was 23%. Of this 23% core growth, over 9% was attributable to organic growth with the balance attributable to growth from new sites.

The key drivers of our consolidated organic growth in the quarter include new business commitments in the U.S. with AT&T and Verizon's LTE network deployments, continuing to drive the majority of our U.S. leasing volume in the quarter. In addition, we experienced similar demand trends in our international markets. In Latin America, for example, we are seeing sustained new business momentum as customers continue to roll out 3G services, a newly acquired spectrum. In our other foreign markets, we continue to see leasing growth as carriers invest in their 2G and 3G networks. Our revenue growth from new sites reflects the impact of our acquisition of construction of over 12,000 sites globally since the beginning of the fourth quarter of last year. Over 90% of these new sites are located in our international markets, where we have continued to focus on diversifying our portfolio across the 3 regions of Latin America, Asia and EMEA.

Turning to Slide 6. During the fourth quarter, our domestic rental and management segment generated results right in line with our expectations. Reported revenue growth was primarily driven by an increase in cash leasing revenue from our legacy towers, increased straight-line revenue as a result of our contract extension with Sprint and our recent acquisition of complementary property interest. This growth was partially offset by the non-recurrence of a significant onetime revenue item from the fourth quarter of 2010.

For the quarter, our domestic rental and management segment reported revenue grew 10.6% to nearly $465 million and our domestic segment core revenue growth was 10.9%. During the quarter, our domestic core organic growth was over 8%, which reflects the new leasing activity in the U.S. As I mentioned previously, this activity has been primarily generated by 2 of our largest customers as they continue to focus on deploying initial coverage for their 4G LTE networks nationwide. The remainder of our core growth was generated from the 850 sites we've acquired or constructed since the beginning of the fourth quarter of 2010, in addition to our newly acquired land interest.

For the fourth quarter, our domestic rental and management segment gross margin increased nearly $38 million or approximately 11.3%, which reflects a year-over-year conversion rate of about 85%. Domestic gross margin for the quarter was boosted slightly by the straight-line benefit from the lease extensions we signed during the quarter. As a result of our growth in gross margin and a modest increase in domestic SG&A expenses period-over-period, operating profit grew 11.9% to almost $353 million, which reflects an operating profit conversion rate of nearly 85%.

Turning to Slide 7. Since the beginning of the fourth quarter of 2010, we have continued to make significant investments in our international rental and management segment, adding over 11,000 communication sites to our portfolio, including over 5,400 sites added during this past quarter. As a result, our international rental and management segment reported revenue has increased approximately 52% to $176 million and now accounts for 27% of our total rental and management revenues. Core revenue growth was over 64%.

In addition, as we add new assets to our international portfolio, our pass-through revenue continues to increase as we share a portion of our operating costs with our customers. During the fourth quarter, our international pass-through revenue was over $49 million, which reflects an increase of approximately $17 million from the year-ago period. Excluding the impact of pass-through revenue, growth in our International segment would have been about 51%.

In 2011, as expected, organic leasing demand in our international markets was well above 2010 levels as our customers in Latin America began deploying recently awarded spectrum, while our customers in India continue to focus on adding capacity and coverage to their initial voice networks. In addition, we're seeing solid leasing demand in our African markets as we continue to promote the colocation model in that region and work with partners such as MTN, Vodafone and Cell C.

From a reported gross margin perspective, our international rental and management segment increased 45% year-over-year to almost $114 million, reflecting a 59% gross margin conversion rate. Excluding the impact of pass-through revenues, our gross margin and gross margin conversion rate was 90% and 83%, respectively.

Further, our international rental and management SG&A expense increased approximately $7.6 million from the fourth quarter of 2010. This increase is almost entirely attributable to costs associated with establishing our presence in our new markets, as well as investing in scaling our legacy operations to support our long-term growth. As a result of our international rental and management segment gross margin growth, offset by our investments in overhead to support our growth, our international segment operating profit increased 43% to roughly $92 million.

Turning to Slide 8. Our reported and adjusted EBITDA growth relative to the fourth quarter of 2010 was 17.3%, with our adjusted EBITDA core growth for the quarter at 18.2%. As we've communicated previously, throughout 2011, we have been focused on 2 key initiatives, which have resulted in lower than historical levels of adjusted EBITDA margin and conversion rates. We view these initiatives, which include our international expansion, as well as regionalization of certain overhead functions as investments which will allow us to support continued levels of growth in the future.

During the quarter, we increased adjusted EBITDA by $63 million. Driving this increase was a $106 million increase in total revenue, of which approximately $17 million was attributable to an increase in pass-through revenue. Offsetting the revenue increase was an increase in direct expenses, and excluding stock-based compensation expense was $32 million, of which $17 million was attributable to the increase in pass-through costs. In addition, nearly $9 million of the increase was attributable to direct expenses in our new markets.

Finally, SG&A, excluding stock-based compensation expense, increased $10 million from the year-ago period with virtually all of the increase attributable to the new market for regionalization costs. For the quarter, our adjusted EBITDA margin was 66%. And excluding the impact of pass-through revenue, our adjusted EBITDA margin was about 71%.

In connection with our conversion to a REIT, last quarter, we introduced AFFO or adjusted funds from operations as a key metric that we will be disclosing going forward. We believe it is a relevant measure of the recurring cash flow generation of our business and is similar to the recurring free cash flow metric that many of you are all familiar with.

In addition, similar to our core revenue and core adjusted EBITDA definitions, we will provide core AFFO, defined as AFFO excluding the impact of currency and significant onetime items. For a full reconciliation of adjusted EBITDA and AFFO to net income, please reference the presentation reconciliations, which are available on our website. During the quarter, on a pro forma basis, pro forma AFFO increased by $38.4 million or 16% relative to pro forma AFFO in 2010. And pro forma core AFFO increased by approximately 18.8%.

Now moving on to Page 9 and discussing our full year 2011 results, the performance of our rental and management business, both in our domestic and international segments, was slightly ahead of our plan. Our domestic rental and management segment reported revenue grew 11.4% to over $1.74 billion, and our domestic segment core revenue growth was 10.6%. As mentioned previously, we continued to see substantial leasing demand in the U.S. in 2011, particularly from AT&T and Verizon, which along with the over 450 communication sites and over 1,700 third-party property interest we added during the year, led to these growth rates.

Similarly, as a result of the over 10,000 sites we have added to our international portfolio over the last year and increasing levels of organic new business, our international rental and management segment reported revenue has increased approximately 73% to $642 million, with nearly 72% core revenue growth for the full year. These growth metrics include the impacts of pass-through revenue, which continues to increase as we add new assets and regions, where we share some of our operating costs with our customers.

In 2011, our international pass-through revenue was $176 million and reflects an increase of approximately $76 million from 2010. Excluding the impacts of pass-through revenue, growth in our international segment would have been nearly 72%. On a consolidated basis, in 2011, our rental and management segment revenue grew approximately 23% to a reported $2.39 billion, with core revenue growth at 22.6%.

Turning to Slide 10. For the full year 2011, our adjusted EBITDA growth relative to 2010 was about 18.4%, with our core adjusted EBITDA growth for the year at 16.4%. Our adjusted EBITDA margin was about 65.3% and adjusted EBITDA conversion rate was 54%. As mentioned previously, there were several items during the year that affected our adjusted EBITDA conversion rate and margin, including the impact of pass-through revenue and expense, our new market expansion and our regionalization investments. Excluding the impact of just pass-through, our adjusted EBITDA margin was 70%. In addition, on a pro forma basis, 2011 AFFO increased by $114.3 million or 12%, relative to pro forma AFFO in 2010. And pro forma core AFFO growth was about 10.9%.

As outlined on Slide 11, we deployed over $520 million via our capital expenditure program in 2011, including $126 million in the fourth quarter. We spent $75 million on discretionary capital projects in the quarter and about $297 million for the full year. These expenditures include the costs associated with the completion of the construction of nearly 1,850 sites, including more than 250 sites in the U.S. and nearly 1,600 sites internationally. The majority of our international new tower build were in India, where we led a build-to-suit project for both Reliance and Vodafone. The remainder of our new sites were built primarily in Mexico, Brazil and Chile. In addition, we completed the installation of approximately 700 shared generators during 2011.

We continue to grow our discretionary land purchase program in the U.S., securing additional interest under our existing tower sites. During 2011, we invested about $91 million to purchase land under our existing sites through our capital expenditure program. In addition, we spent nearly $390 million and assumed about $200 million in debt to acquire property interest, which included land parcels under our own towers and over 1,700 land parcels under third-party sites. As a result of these investments, we now own nearly 28% of the land interest under our U.S. sites, which is an increase of about 4% from last year.

Our 2011 spending on redevelopment capital expenditures, which we incur to accommodate additional tenants on our properties, was about $55 million. Our 2011 redevelopment spending was higher than historical levels for a couple of reasons. First, in the U.S., we completed the upgrade of our Indoor DAS portfolio in Las Vegas to LTE. And second, we increased the augmentation in our legacy Latin American markets to accommodate the expected additional capacity needs of our customers as new spectrum and technology is being rolled out. Finally, our capital improvements and corporate capital expenditures have increased as a function of our tower portfolio growth, in addition to a specific U.S. maintenance project on our total guide [ph] broadcast towers. In aggregate, these capital expenditures came in at approximately $80 million for the year.

From a capital allocation perspective, we spent over $520 million on capital expenditures and over $2.3 billion on acquisitions in 2011. The acquisitions included 191 communication sites and over 1,700 third-party property interests in the U.S. and over 8,400 communication sites internationally. And we also made our pre-REIT accumulated earnings and profits distribution of approximately $138 million in December. And finally, during the year, we spent over $420 million to repurchase nearly 8.1 million shares of our common stock, pursuant to our stock repurchase programs.

Turning to Slide 12. Given the significant level of acquisitions we completed in 2011, I'd like to spend a few moments walking through how we expect these acquisitions to financially position us going forward. As a result of our activity in 2011, we spent a total of about $2.6 billion on assets, which on a pro forma annual run-rate basis will generate a total of approximately $340 million in revenues in the first full year in which they are part of our portfolio.

In terms of gross margin, commonly referred to in our business as tower cash flow by REIT investors as net operating income, we expect these assets to generate approximately $200 million in the first year. On a consolidated basis, this reflects a cash flow multiple of approximately 13x, or for those real estate investors who refer to cap rates, about 8% in year one. Given that the majority of these assets we acquire are in our higher growth international markets, we would expect strong colocation-driven growth from these assets. It should bring this multiple below 10x within a couple of years. We believe these types of results demonstrate our ability to pursue value-creating investments through our capital allocation process.

Moving on to slide 13. And finally, I'd like to begin our 2012 outlook discussion with a discussion of our expectations for rental and management revenue growth. Please note that these numbers only include sites in our portfolio as of today and do not include any of our pending acquisitions. On that basis, we currently expect that our full year rental and management segment reported revenue will increase from $2.39 billion in 2011 to between $2.67 billion and $2.71 billion in 2012, representing year-over-year growth of over $300 million or nearly 13% at the midpoint and core growth of approximately 16.2% at the midpoint.

The overall increase in total rental and management revenue can be broken down further into a number of discrete items. First of all, over 3.5% of the growth will come from our contractual rent escalations from our existing tenants, which represents about $85 million of incremental revenue for 2012. Second, at the midpoint, we expect approximately $105 million of our revenue growth will be generated from new business, including lease-up and amendment activity on our existing sites.

In addition, about $205 million at the midpoint of our revenue will result from the incremental impact of our new sites, which we built or acquired since the beginning of 2011. It includes our expectation that pass-through revenue, attributable to our new sites, will increase approximately $45 million. In addition, we estimate the churn will be about 1.6% and offset revenue growth by about $35 million.

And finally, we estimate that the net impact of our noncore revenue will negatively impact our growth in 2012 by about $60 million, which is primarily attributable to the impact of a stronger U.S. dollar. Within these rental revenue growth numbers, we expect our domestic rental and management segment to grow nearly 8% via mostly organic growth, and estimate that our international rental and management segment revenue growth will be nearly 27%, driven by both organic and new site growth.

I'd like to spend a moment on the key drivers of our new business assumptions for 2012. First, in the U.S., we expect leasing levels commensurate with 2011. This reflects consistent activity levels from all of our major customers in the U.S. and does not include any material leasing activity from Clearwire or T-Mobile. We are encouraged by the initial indications from these customers. However, consistent with our past practice, we will not include any expectations for increased spending levels until we begin to see the activity commence.

In our international markets, where we expect double-digit core same tower growth, we anticipate strong leasing trends to continue. In our Latin American markets, we expect companies such as Nextel International, América Móvil and Telefónica to roll out their recently acquired 3G spectrum. In India, where approximately 90% of our revenue is generated from the large incumbent providers, such as Vodafone, IDEA and Bharti, we expect the market share leaders to continue to pursue investments in their wireless networks. And finally, in Africa, we're expecting the solid leasing levels we experienced in 2011 to continue.

As I mentioned earlier, we've excluded from our current outlook the impact of our pending acquisitions of about 2,300 sites for an aggregate purchase price of just under $350 million. We expect these acquisitions to close during the first half of 2012. The pro forma run rate impact from these sites would be approximately $75 million of rental and management revenue on a full year basis, which includes approximately $40 million of pass-through revenue and $25 million of gross margin.

Turning to Slide 14. We currently expect our reported 2012 adjusted EBITDA to increase about $170 million at the midpoint to between $1.745 billion to $1.785 billion, with core growth of 13.8% at the midpoint. We continue to remain focused on controlling costs in our business, and our outlook for adjusted EBITDA reflects a gross margin conversion rate, excluding the impact of increases in pass-through revenue, of about 80%. In addition, cash SG&A is expected to remain flat at about the 10% level. As I previously mentioned, we've excluded from our current outlook the impact of our pending acquisitions, which are expected to close during the first half of 2012. The pro forma run rate impact to adjusted EBITDA from these sites will contribute approximately $15 million to $20 million on a full year basis.

In addition, we're introducing our 2012 outlook for AFFO of $1.167 billion at the midpoint, representing growth of nearly $100 million or just over 9%. On a core basis, we expect AFFO to grow by over 13%. Our outlook for AFFO reflects our growth in adjusted EBITDA and the recent refinancing of our revolving credit facilities. In addition, during 2012, we expect to incur approximately $15 million of startup maintenance costs on certain sites we acquired through our 2 joint ventures, which were contemplated in our business cases. Since these are startup related and not regular ongoing maintenance costs, we've identified them as onetime within our core revenue -- within our core growth metric.

Turning to Slide 15. In 2012, we will continue to pursue a consistent approach to capital allocation. We expect to continue to deploy our internally generated capital through our annual capital expenditure program and select acquisitions. We currently plan to deploy between $500 million to $600 million in CapEx during 2012, which includes spending on the construction of between 1,800 and 2,200 new sites. In addition, we currently have just under $350 million committed to fund the acquisition of the approximately 2,300 sites. Pro forma for these investments, we expect to have nearly 50,000 sites by year end.

Finally, in 2012, our primary method of returning capital to stockholders will shift to our quarterly dividend, which for the full year we expect will be between $0.80 and $0.90 per share or approximately $340 million at the midpoint, reflecting an AFFO payout ratio of approximately 29%.

Turning to Slide 16. I'd like to spend a moment to highlight a few points on our balance sheet. We ended the fourth quarter of 2011 with the last quarter annualized net leverage ratio of 4x, with the increase primarily reflecting the funding of the majority of our fourth quarter acquisitions in mid to late December. We would expect our net leverage ratio to decline from our current levels in 2012 as a result of the combination of the incremental adjusted EBITDA associated with the new sites we added at the end of 2011 and our organic growth in 2012. We continue to believe that we maximize the value of our firm by managing our capital structure within our stated target leverage range of 3x to 5x net debt to adjusted EBITDA and expect to continue to manage our capital structure consistent with this strategy.

Subsequent to the end of 2011, we completed the refinancing of our 2011 credit -- 2007 credit facility and term loan, which were scheduled to mature in June of 2012. We used our 2 new revolving credit facilities, along with cash on hand, to repay in full all amounts outstanding and accrued interest. As a result, we have no material maturities before our securitization in 2014. In addition, we continue to add ample liquidity of approximately $1 billion subsequent to our revolver refinancing, which includes the approximately $330 million in cash we had on hand as of December 31.

In summary, we have maintained our net leverage in the 3.5x to 4x range over the past 4 years, while growing adjusted EBITDA by nearly 50%, almost doubling our site portfolio and garnering investment-grade issuer ratings from 2 of the 3 rating agencies. Our disciplined approach to managing the balance sheet is further evidenced by a lack of near-term maturities. And we expect we will continue to opportunistically access the debt capital markets to extend our maturities and increase our liquidity.

Turning to Slide 17. And in conclusion, I'd like to spend a few moments recapping our key milestones in 2011 and outline some of our goals for 2012. In 2011, we continue to invest in our business by adding more than 10,000 sites to our portfolio while entering 2 new markets. To support this global expansion initiative, we invested in hiring teams and deploying common IT systems to run our new market operations, committed resources to implement a global ERP system and continue to spend selectively to ensure that we maintain a high level of service for our customers everywhere we operate. We believe these investments have formed a core level of infrastructure and people to facilitate growth in these markets.

In combination with our additional capital spending during 2011, we invested a total of $2.8 billion into our business in 2011, of which approximately 1/3 was invested in the U.S. and 2/3 was invested in our international markets. In the process, we've established mutually rewarding partnerships with global telecom companies, such as MTN and Telefónica, which we believe will continue to help us expand our operations in the future. And after significant efforts throughout the organization, we began operating as a real estate investment trust as of January 1. We firmly believe this structure is part of our global tax strategy is the best U.S. tax strategy for our business.

And while 2011 has been a very good year, we believe we are well positioned for 2012, as evidenced by the guidance we issued today. Based upon our customers' public statements, we again expect solid leasing trends throughout the business. And finally, we will continue our disciplined approach to investment. With that, I'd like to turn the call over to Jim. Jim?

James D. Taiclet

Thanks, Tom, and good morning, and welcome to everyone joining us on the call today. I'd like to begin by expressing our appreciation to our investors for your continued confidence in our company and to our employees, from Boston to Mumbai, for delivering the results that Tom just described. We're also fortunate to have a dynamic and vibrant global customer base. Several of those have joined us in building extensive and growing partnerships, as you just heard.

This morning, I'll be taking a few moments to update you on the 3 strategic pillars of American Tower. I introduced these 3 strategic pillars to you nearly 10 years ago, and we have been pursuing them diligently ever since. The first pillar is to focus on achieving meaningful scale and leasing communication site real estate. The second pillar is to bring operational excellence to our leasing business to maximize return on investment. And the third is to maintain a strong balance sheet to support our capital allocation priorities through all phases of the business cycle. These 3 strategic pillars have held us in good stead for the better part of a decade, and we plan to keep advancing them for years to come.

Hopefully, you can appreciate the continuity of our strategic banking in the 2012 guidance that Tom just laid out. In the U.S., we expect ongoing strong performance from our nearly 22,000 communication sites, augmented by the approximately 1,700 third-party property interests that we acquired last year. Internationally, we will achieve outsized growth due to the combination of relatively high lease upgrades and fast-growing wireless markets and a full year contribution from the over 10,000 sites that we built or acquired in 2011. Plus an additional 2,300 international sites that we've already agreed to purchase and plan to close in 2012, but are not yet included in the guidance.

Our expectations also indicate that we can set the foundation for robust future growth for many years, while maintaining our historically high standards of operating leverage. For example, in spite of adding those 10,000 new international sites last year, we expect to maintain adjusted EBITDA margins for 2012 at 70%, excluding the 0 margin pass-through expenses, which is consistent at 70% year-over-year. Moreover, having put the organizational structure in place to operate at a truly global level, and I think we're the only tower company that can say that, we've also built up on organic Outdoor DAS and shared generator product line internally. Our guidance shows that SG&A as a percent of revenue, in spite of these activities, will be flat, as you heard from Tom earlier, at approximately 10% of revenue in 2012.

In addition, we're staying true to our financial policies in 2012, planning to maintain our net leverage ratios squarely within the 3x to 5x range, terming out our existing credit facilities, expanding our borrowing capacity by entering into new credit facilities and minimizing cash tax exposure through our REIT conversion. While at the same time, continuing our commitment of returning cash to shareholders with our annual redistribution, which we anticipate will be between $0.80 and $0.90 per share.

But these 2012 objectives are just the beginning. Those of you who have followed the company for some time know that we use a multiyear planning horizon. So I'll spend my remaining time with you today to summarize our mid- to long-term thinking for each of our 3 strategic pillars. As to achieving meaningful scale in wireless communications real estate, we plan to maintain an active business development initiative, both domestically and abroad, using our disciplined investment approach.

Back in 2007, we set out internally to achieve a goal of doubling our site count, while simultaneously doubling adjusted EBITDA. We began 2007 with approximately 22,400 sites in 3 countries. And we expect by the end of 2012, as you heard, to have approximately 50,000 sites in 10 countries, which will more than double our site count over that 5-year period. We now have a globally deployed and experienced management team and the financial strength to continue on this path. But as before, we'll only pursue assets that meet our risk-adjusted return hurdles.

In the U.S., we seek to position American Tower to meet future customer demand as carriers' technologies and deployment patterns evolve. For example, we still believe, based on direct interactions with many of our major customers, that tower-based macro sites will continue to be the primary choice for wide area network development into the foreseeable future, with urban rooftops, distributed antenna systems and Wi-Fi offloads serving as complementary solutions. As a result, we expect to continue to direct the bulk of our CapEx and acquisition spending to tower-based real estate. And we will organically and efficiently develop a full range of capabilities to offer and deliver a complete suite of complementary solutions, when needed by our customers, using our well-established Indoor DAS business, which we think is the industry leader as the core of that capability.

Outside the U.S., we've established focus areas for future investment based on our successful introduction of the commercial leasing business model into various countries, especially when we have done it with other multinational leaders in the wireless communication industry. Given our understanding of international markets today, I expect that much of our future construction and acquisition investments outside the United States will be in countries where we currently operate. We will be open to new countries as well, particularly in our established regions of Asia, Sub-Saharan Africa and Latin America.

Moreover, we have already developed strategic partnerships or acquired assets from Telefónica and MTN in multiple countries, and at least in one country with Millicom and Cell C, among others. We'll seek to extend those partnerships to additional markets as well. A current example of our success in both those dimensions is the acquisition of approximately 2,500 towers in our legacy market Mexico from Telefónica. This acquisition complements deals that we have done with this carrier in Colombia, Chile and Peru already. Similarly, we are now partnered with MTN in both Ghana and Uganda.

The pacing of our future asset expansion efforts will continue to be guided by the quality and growth prospects of the properties available, as compared to the asking price of those properties. We may well continue to say no to more opportunities than we end up accepting. It is to some note that since the beginning of 2007, concurrent with doubling our site count and based on our operational discipline, American Tower also doubled adjusted EBITDA from $868 million in 2007 to $1.77 billion based on our outlook for 2012. This type of performance in expanding operating profit is the result of our commitment to bringing operational best practices and discipline to the management of our real estate assets in all of our markets worldwide. And we'll remain committed to that operational discipline.

At the moment, as Tom mentioned, we're installing standard IT systems and business processes globally, based on the intellectual property that we have developed over the past decade in the U.S. and Latin America. And which has been further enhanced by learnings in our new markets as well.

Each of our markets also uses 4 overarching management programs in a consistent and thorough manner. These are account management review process for leadership development, our investment committee process to evaluate and acquire assets, our Six Sigma-based process excellence program for our operational improvement and finally, our annual performance and operational review process for performance monetary and management at all levels of the organization. The combined purpose of these 4 programs is to accelerate the return on investment of each and every one of our markets and acquisitions and product lines.

As to our third strategic pillar, maintaining a strong financial position, Tom and I are dedicated to implementing the optimal balance for capital allocation within our target to deleverage range. As this business generates significant cash and additional financing capacity, we plan to continue to allocate capital along the same priorities that have served our company so well over the past few years. With experience and skilled management teams in all 4 of our operating regions, we have very high confidence in their recommendations for construction, augmentation and securing property interest. Thus making our ongoing investments in existing markets via our capital expenditure program our highest cash allocation priority after the required dividend, of course.

Furthermore, our M&A program, which is recently executed, essentially managed by our corporate executive team through the investment committee process, remains our next priority for capital allocation. And in the event the company is in a position of excess cash due to a relative lack of contemporary M&A opportunities that meet our investment criteria, we can still elect to return additional cash to shareholders via our existing stock repurchase program.

In sum, the goals of our capital allocation program are and will be to determine and implement the optimal mix of distributing cash to shareholders and reinvesting in the business. That, in our view, will maximize the long-term value of the company to you, our shareholders.

So thanks, again, for joining us on the call today. And Tom and I will be happy to take your questions now. Operator, go ahead and open up the lines.

Question-and-Answer Session


[Operator Instructions] Your first question comes from Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley, Research Division

I wondered if you could just talk about the acquisition environment. You've obviously taken your leverage up to 4x, it will come down over time, but there's been a lot of speculation that Deutsche Telekom might also put the U.S. towers on the block again. What's your interest in your capacity to do something like that? And you did say that, I think, that Clearwire and T-Mobile are not in your numbers. But clearly, both of them are now very explicit about their build plans for this year. So given your conversations, do you think that's something we'll start to see in Q3 or Q4 coming into your numbers?

James D. Taiclet

Sure, Simon. Thanks for the questions there. First of all, in the acquisition environment, we're positioned, as I said, both operationally and financially, to look at every asset opportunity that comes available, and that would include T-Mobile. In that case, it's a fairly sizable portfolio, and we would reserve the right to potentially use a mix of cash and stock if we were to go forward with something like that. But again, we're going to use the same disciplined approach we always have. And as I've said in the past, that we've said no to more deals than we've actually said yes to. And we'll apply that same discipline if the T-Mobile towers come up. Secondly, with respect to T-Mobile, we are pleased to see in their earnings release just last night that Deutsche Telekom indicated a formal commitment to deploy LTE in the U.S. But as Tom said, and has been our practice, we haven't included any impact from that in our guidance. And we'll introduce it when and if we have a clear picture of T-Mobile's rollout schedule and site configuration later, sometime this year. With respect to Clearwire, same story. We don't have a plan that we're working through with them at the detail level yet. And if we do, we'll include that in the guidance and we'll let you know.


Your next question comes from David Barden with Bank of America.

Your next question comes from Batya Levi with UBS.

Batya Levi - UBS Investment Bank, Research Division

You mentioned that you expect the organic tower revenue growth to be about 8% this year. Can you talk a little bit about how we should think about the trajectory into the year? Do you expect it to be more streamlined or more back-end loaded like we have seen in '11?

Thomas A. Bartlett

Yes. Actually, Batya, I mean in the quarter, as we talked about, we're kind of in the 8% to 9% from existing sites, revenue from existing sites. 2011 was probably around the 9% level. And in 2012, we're kind of in that 7-plus percent range. I would expect that to be pretty evenly distributed throughout the year, kind of on a 50-50 basis, if you will, from a commence basis. And as Jim just indicated on the last question, I mean, to the extent that there is some new business activity coming in from Clearwire or T-Mobile, I would expect that to be back half end loaded. So that could impact the trajectory, if you will, going into 2013.


Your next question comes from David Barden with Bank of America.

David W. Barden - BofA Merrill Lynch, Research Division

If I could, maybe 2. First, just Tom, for you, to clarify in the CapEx outlook, you've got about $260 million to $330 million of discretionary capital projects, and you're expecting to build about 1,800 to 2,200 new sites. I know you excluded the yet-to-be-closed acquisitions from guidance. Are those new tower build expectations that are in the CapEx guidance in there or...

Thomas A. Bartlett

They are, Dave. So the capital is in the plan for 2012 and the expected benefit from those towers is also in the plan. And they are pretty spread out throughout -- pretty evenly spread out throughout the year. As opposed to the 2,300 sites that we have yet to close, we identified what the revenue on a full year basis would look like, as well as the adjusted EBITDA. But those are not included in our guidance. And when we, in fact, close those and have certainty as to the timing and what the impact will be for the year then we would, as we've done in the past, include them in our guidance going forward.

David W. Barden - BofA Merrill Lynch, Research Division

Perfect. And then, Jim, more on the strategy side. Obviously, we've seen a couple deals that have fairly large DAS components to them from some of your tower peers. It seems like there's an expectation that as LTE builds out that there's going to be an increasing focus on smaller cell sites, disproportionately. I know you mentioned in your prepared remarks that there's an expectation that macro sites are really going to be the focus going forward. Could you kind of elaborate a little bit how you see network architectures in your position in macro versus DAS in the market?

James D. Taiclet

Sure, Dave. I mean, you have to look at the geography and the topology of the overall network, right? So again, the majority -- and this is our customers speaking to us as we understand it, the majority of that topology is going to be covered by the macro site network, including rooftops, right. And the complement to the areas where the towers or the rooftops can't quite reach, can be DAS systems, indoor or outdoor, by the way. And we, at American Tower, are in the business of having a complete, what we call, suite of solutions for the customer. So we feel really comfortable right now with what we've done, developing that suite, which is the tower position we have with the classic towers we've got, the leading Indoor DAS business in the country. And we've also got an organically developed and efficiently developed, I would say, Outdoor DAS capacity that we're able to branch right off from the indoor team. So we can offer all those solutions and we have put in Outdoor DAS systems selectively, and we're actively offering it. We've got 270 DAS systems up and running today in 3 countries, actually. And still, our customers are telling us it's a complementary solution.


Your next question comes from Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

A couple of questions. First, maybe just on REIT benchmarks that you've been excluded from some of the more common REIT benchmarks. How are you -- or what are you hearing as far as the reasons for exclusion? And are there things you've been directed to do, whether it's higher land ownership or something else, that might drive some sort of difference in your business activity over the course of the year? And then second question, just on India, there's been news out recently on potential foreign ownership caps for tower companies. Just how you're thinking about how real this ultimately is, and if it is real, what the solution might be.

Thomas A. Bartlett

Yes. Sure, Jason. I mean, from a REIT perspective, as we've stated all along, the reason we're becoming a REIT, it's the best global tax strategy to us on the planet for us in the United States. And relative to all of the REIT index inclusions, I know there's been a lot of speculation over the past 6 to 9 months as we've embarked on this process of what indexes would we be in. And it's very difficult to kind of read, if you will, the indexes, given some of the -- or lack of transparency that they may have in their definitions. I mean, from our perspective, 97%, 98% of our revenues is real estate-related. And if you look at the benchmark and what's in there kind of white papers of what would be required to be included, and I think we fit right down the middle. I have been told by some that it's our sheer size that has actually kept us out of some of the indexes. And I don't know if that's the case entirely, but it seems to be kind of a common theme that I've heard of. But again, we continue to embark on this strategy that Jim just laid down. And we think that regardless of whether we're in one index or another, there's good value that can be created in our business.

James D. Taiclet

Jason, it's Jim. Regarding India, earlier this morning, I just spoke to our India leader for an update. And essentially, with the ownership task, that decision has been put on hold, as it's called in India. Which means that higher level government officials have deferred any discussion of this particular topic for sometime in the future. And as a result, I think this is unlikely to ultimately pass and won't be any kind of a near-term issue for American Tower.


Your next question comes from Michael Rollins with Citi.

Michael Rollins - Citigroup Inc, Research Division

I have 2 questions. First, as you're looking at the pace of international acquisitions and where you've been doing them, do you see it getting tougher to get sizable deals done? And I guess the other part of that is, is it tougher to get sizable deals done in the countries that you really want to expand in? And then if I could just ask a question about the guidance. So if I looked at the EBITDA growth of, like, $170 million I think was the midpoint. You multiply that by like 3x the leverage and you add that to the AFFO guidance at the midpoint, you get about $1.7 billion. But on that slide, I think it was 15. If I'm adding up the piece parts correctly, there's only about $1.2 billion of expected capital allocation. So if there's some room in that Slide 15 in terms of the dollars of capital allocation, even removing the idea of like an outsized deal coming around like a national tower portfolio or something like that, but just looking at sort of the basic blocking and tackling of what you do, is there some more room in that pie chart to get a little bit bigger as the year unfolds?

Thomas A. Bartlett

Michael, maybe I'll take the first one and Jim can then come back on the other one. I mean, that chart was not meant to be what our total available capital would be to be able to spend on items, if you will, or allocate during 2012. It was really just meant to represent what we know today in terms of the major allocation elements for 2012. So don't think of that pie as the total cash available to reinvest back into our business to stay within our stated leverage ranges.

James D. Taiclet

And that takes us right to the pace of opportunities, Mike. And frankly, it takes 2 or 3 years to be in region to get credibility with the counterparties in the countries that you want to deal with. And so we paid our dues in that way in India. We paid our dues in that way in Latin America for 10 years. And we paid our dues for 3 or 4 years in EMEA and, specifically, in Sub-Saharan Africa. Getting to know them, get credibility with these customers, who then in turn are willing to do large transactions with you, which we have absolutely just completed a couple of, what I would consider, top-shelf deals with some really attractive carriers. 2,500 towers in Mexico, as I said, with Telefónica. We've just recently agreed to do a joint venture with Millicom. Again, 2,000 towers plus in Colombia, which we think is a very attractive place. Our Ghana operation that we started with MTN, I'm very optimistic about because of the leasing opportunity and the strength of MTN's position there as far as their portfolio. And we went ahead and expanded that partnership to Uganda already. So we feel that we're getting the deals we want with the counterparties that we like the best in the countries that we're targeting. It takes time, and you have to be deliberate and disciplined about it. But we don't necessarily see a dearth of opportunities, but we're going to keep that discipline and only take the ones we really think are right.

Michael Rollins - Citigroup Inc, Research Division

And Tom, just to follow-up, to figure out -- if investors want to figure out the size of the pie for 2012 or any given year, is that the right logic stream to apply? You take your target leverage ratio range wherever it should fall, times the EBITDA growth, plus the AFFO as a starting point for the base case of cash available to invest or distribute to shareholders over the course of the year?

Thomas A. Bartlett

Yes, Michael. I think that's a very good way of doing it.


Your next question comes from Lukas Hartwich with Green Street Advisors.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

Jim, this is a question for you. As of today, American Tower has something like 2.5 tenants per tower in the U.S. and something like 1.5 tenants per tower internationally. I'm just curious what you think those numbers will eventually stabilize at and kind of what kind of time frame do you think that'll play out?

James D. Taiclet

Lukas, stabilization isn't something we've seen yet in wireless infrastructure real estate, frankly. These towers, if they're well located and they have the capacity in the tower and on the ground, can be up to 7, 8, 9 customers per tower. Now that's not the endpoint for the whole portfolio, But there really isn't necessarily a limitation that you can identify as sort of an asymptotic ending to the growth curve. So our goal is to keep the pacing going of what we call lease-up and add incremental tenants and amendments to the towers at the most robust rate we can. And again, I don't think there's a asymptotic end stage to the growth rate in any of the countries.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

Right. There may not be like an endpoint, so to speak, but is there a target that you're kind of targeting over, let's say, the next 5 years or something that?

James D. Taiclet

Well, we have a business model for each and every acquisition or build that we do. And specific to individual towers, what we do, Lukas, briefly is, we get an understanding of who's on the tower when we build or buy it. So some of their launch tenants or the base tenants we have. And then we look at how many licenses are in the area that aren't on the tower and how strong is the signal strength, if there is any signal at all with those other licensees. And so as licensees have to have denser networks, they may end up on our tower some day. As the original customers need more equipment, there'll be amendments. And as new licenses get distributed from the governments, you're going to have new entrants and they're going to need space, too. So we have assumptions in our business models on all those dimensions and they're very specific, in some cases, by individual tower. And that's how we run the business. So for us, the annual guidance is really the best way to look at the company and saying, okay, given this time frame of, say, 2012, all those assumptions rolled across 45,000 towers gives us the guidance that Tom laid out. And next year, we'll try to maximize it again. And the year after that, we'll try to maximize it again. But a lot of those parts are moving. The technology is moving. The signal density requirements are moving. The number of iPads and iPhones is moving in each market and the number of licenses is often moving. So these are things that we need to refresh every year for you and we do.


Your next question comes from Jonathan Schildkraut with Evercore.

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

So listen, a lot of my questions have been asked and answered, but maybe we could focus a little bit on some of the spectrum legislation that came out at the end of last week. And in particular, there was an interesting provision regarding the ability of tower operators to add incremental equipment to existing sites, kind of preventing states and municipalities maybe from slowing down that process. And I was wondering how you felt that, that could impact your business and whether it would change the company's perspective on, say, building new sites versus acquiring new sites in the U.S.

James D. Taiclet

Jonathan, the ability to forego zoning to colocate or augment a customer's existing space on the tower was our #1 regulatory priority, for say, 3 or 4 years. And I'm really proud of PCIA, which is our industry association, and Steve Marshall, who's our representative on there to help get that included in the legislation. Having said that, it's going to accelerate our ability to colocate on our existing sites. That will be a good thing. Time lines will be shorter. Amendments will come on quicker. And so that will be therapeutic to our growth rate as will it be therapeutic to other tower companies' growth prospects. It's not going to change our capital allocation process, though. If we see in practice that there's acceleration of colos and amendments, which we fully expect from this, will weave that into both acquisition and new build decisions, and we'll treat them similarly with those new assumptions.


And our last question comes from Phil Cusick with JPMorgan.

Richard Choe - JP Morgan Chase & Co, Research Division

This is Richard for Phil. I just wanted to follow-up on that with the legislation passing in kind of seeing a long potential, long-term potential of a public safety network. What are you hearing? And could we actually start seeing something in the next few years?

James D. Taiclet

Well, advocating the public safety network was our second highest regulatory priority over the last few years. And again, with the joint effort with the other tower companies in our association, hopefully, we're a little bit helpful in getting that approved. That's a long-term project, however, and probably will not have immediate impact on 2012. But if something happens quickly we'll, again, update you over the course of the year. But it indeed could be another national network. It'll probably be done in, I would expect, in partnership with some existing wireless carrier, so it would be efficiently rolled out on behalf of the government, and we'll be fully participating in that when it happens.


I will now turn it back to the presenters for closing remarks.

James D. Taiclet

That's great, everybody. We appreciate all of your attention. If you have any follow-on questions, please give Leah and/or I and her team a call. We will, obviously, be here all day, and we really appreciate your attention. Thanks very much.


Thank you. This concludes the conference. You may now disconnect.

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