American Tower Corp's (AMT) CEO Jim Taiclet on Q4 2016 Results - Earnings Call Transcript

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American Tower Corp (NYSE:AMT) Q4 2016 Earnings Conference Call February 27, 2017 8:30 AM ET

Executives

Leah Stearns - SVP, Treasurer and IR

Jim Taiclet - Chairman, President and CEO

Tom Bartlett - EVP, CFO

Analysts

Josh Frantz - Bank of America Merrill Lynch

Ric Prentiss - Raymond James & Associates

Jonathan Schildkraut - Evercore ISI

Brett Feldman - Goldman Sachs

Batya Levi - UBS Securities

Amir Rozwadowski - Barclays Capital

Simon Flannery - Morgan Stanley

Spencer Kurn - New Street Research

Matt Niknam - Deutsche Bank

Michael Rollins - Citi

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the American Tower Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Leah Stearns. Please go ahead.

Leah Stearns

Thanks Greg. And good morning to everyone, and thank you for joining American Tower’s fourth quarter and full year 2016 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab on our Web site. Our agenda for this morning’s call will be as follows. First, I will provide some brief highlights from our financial results. Then, Jim Taiclet, our Chairman, President and CEO will provide a brief a update on our strategy before Tom Bartlett, our Executive Vice President and CFO, provides more detailed review of our financial and operational performance for the fourth quarter and full year 2016, as well as our full year outlook for 2017. After these comments, we will open up the call for your questions.

Before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our expectations for future growth, including our 2017 outlook, capital allocation and future operating performance, technology and industry trends, the potential reinstatement of our share repurchase program 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 earnings press release, those set forth in our Form 10-K for the year ended December 31, 2015, and in our other filings we make 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.

With that, please turn the slide four of our presentation, which highlights our financial results for the fourth quarter and full year 2016. During the quarter, our property revenue grew nearly 22% to $1.52 billion; our adjusted EBITDA grew nearly 17% to approximately $936 million; our consolidated AFFO increased by nearly 21% to approximately $655 million and net income attributable to American Tower Corporation’s common stockholders decreased approximately 2% to $202 million or $0.47 per basic and $0.46 per diluted common share.

This decrease was primarily attributable to a higher income tax provision as compared to the prior year, which was resulting from a gain which we realized associated with our newly formed European joint venture with PGGM. From a full year perspective, our property revenue grew by more than 22% to $5.7 billion; our adjusted EBITDA grew by nearly 16% to approximately $3.6 billion; consolidated AFFO increased by nearly 16% to approximately $2.5 billion; and net income attributable to American Tower Corporation common stockholders increased by approximately 43% to $849 million.

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

Jim Taiclet

Thanks, Leah and good morning to everyone on the call. Today, I’ll spend just a few minutes reviewing our history of growth and providing an update on our overall strategic directions for 2017 and beyond, which should leave ample time for yours following Tom’s remarks.

First, I would like to point through a few of the highlights of American Towers’ 2016 performance, as well as our consistent track record. The results you see on slide six are based on the strength and resilience of our portfolio diversification strategy; the skills and experience of our frontline management and employees in delivering superior operational execution; and our successful history prudently allocating capital.

2015, represented the Company’s seventh consecutive year of double-digit growth in property revenue, adjusted EBITDA and consolidated AFFO per share. Further, including our expectations for 2017, we are now positioned to achieve the double-double or doubling of our consolidated AFFO per share property revenue and portfolio size twice over a 10 year period. That’s our double-double strategy, and we’re confident we’re going to exceed it.

This double-double will have been generated through a number of different currency, macroeconomic and wireless investment cycles, which we believe exemplifies the durability of our business. This performance is also been complemented by our common stock dividend, which is increased by an average of nearly 25% per year since we introduced it in 2012. In total, we have returned more than $3 billion to our shareholders through the dividend in just the last four years.

Going forward, we will strive to extend this combination of double-digit annual consolidated AFFO per share growth and ongoing dividend growth. And thereby believe our business is positioned to support an attractive total return for our shareholders for many years to come.

To do this, we expect to stay true to our longstanding strategic pillars, and to serve as the foundation of American Towers’ performance over many years. The first of these is building asset scale through pursuing acquisitions in development programs, which exceed our return on investment criteria in select markets. Recent transactions like Viom in India and FPS Towers in France are examples that our Asia and EMEA teams executed on in 2016, and we continue to evaluate numerous acquisition opportunities worldwide today.

The second is focusing on operational excellence to maximize the cash flow generated from each and every of our properties. This is evidenced in our continually improving margins and return on invested capital on our legacy properties, as well as our declining cash SG&A as a percent of revenue, which is now under 8%. And third is maintaining a strong balance sheet in order to have efficient and consistent access to a diversified mix of funding sources to support our capital allocation program. With our net leverage now below five times, we entered 2017 with more financial flexibility than we had in a number of years, which we expect to support our growth and our total return strategy.

And with that, I’ll turn it over to Tom for a more detailed review of our 2016 financial performance and our expectations for 2017.

Tom Bartlett

Thanks, Jim. Good morning, everyone. The fourth quarter wrapped up another year of solid growth, complemented our nearly 8% organic tenant billings growth with well positioned acquisitions and newly constructed size, aiding over 45,000 new sites during the year. In addition, we exceeded our deleveraging targets while continuing strong growth in our dividend. As Leah highlighted, we once more posted double-digit growth across our key financial metrics, both in Q4 and for the full year. And as Jim just mentioned, what was achieved is just a latest example of our long track record of generating this type of growth. Looking ahead, we believe we are well positioned for another successful year in 2017. But before we get into the details of our 2017 expectations, let’s quickly recap our operating results for 2016.

If you please turn to slide eight, we grow double-digit organic tenant billings growth internationally in 2016, and had another year of solid activity in the U.S. right in line with our expectations. This growth was supported by a record quarter of new business commencements in Q4. Our U.S. property segment revenue growth for the year was about 6.7%, which included a negative 1.3% impact from non-cash straight-line revenue recognition. U.S. organic tenant billings growth matched our expectations, is 5.8%, reflecting a slight acceleration in the back half of the year.

Volume growth from collocations and amendments contributed about 4.5%, while pricing escalators contributed about 3%. This was partially offset by churn of about 1.7% on an annualized basis, of which just 30 basis points was associated with operational churn from the big four wireless carrier core networks.

Demand trends in the U.S. remained steady with carriers actively spending to augment the coverage and capacity of their 4G networks. International organic tenant billings growth was double that of the U.S., coming in at about 13.5% on a consolidated basis with all three international segments growing between 13% and 14%. This was the seventh consecutive quarter of double-digit international organic tenant billings growth, supported by significant network spending by tenants across our portfolio.

Contractual pricing accelerators, driven by local CPI indices contributed about 6.9% to that growth. And volumes from collocation and amendments drove an even greater contribution at 7.7%. Other run-rate items contributed an additional 30 basis points. This was partially offset by churn of about 1.4%. Additionally, our organic tenant billings growth rate was elevated by about 30 basis points due to organic new business commencements on the new Viom assets.

Our large multinational tenant base continues to make significant investments in their networks as access to advanced handsets become more attainable to an increasing proportion of their customer base. Additionally, these network investments appear to be catalyzing incremental usage, as the quality of the mobile experience continues to improve. These trends along with our high quality asset base once again let a strong international growth for us in 2016.

On the inorganic side, the day-one revenue associated with the over 45,000 sites we added over the course of last year, including the Viom portfolio, contributed another 15% to our global tenants billings growth. Our new-build program also remained active, and we constructed over 1,800 towers globally this year with an average day-one NOI yield of about 10%.

Turning to slide nine, we also generated strong margin performance adjusted EBITDA and consolidated AFFO growth for the year. Our gross margin percentage was over 69% despite a negative 11% impact from pass-through revenue and the addition of approximately 45,000 new initially lower margin sites.

Cash SG&A, as a percentage of revenue, declined 70 basis points from 2015 levels to 7.9 %. And as a result, we generated a full year adjust EBITDA margin of just over 61%, which would have been about 10% higher excluding the impact of news sites in pass-through. In fact, if you were to exclude just the impact of pass-through over the last three years, our adjusted EBITDA margin would have been essentially flat, despite adding almost 80,000 news sites over that time, demonstrating the significant margin expansion on our legacy assets.

We also generated double-digit consolidated AFFO and AFFO per share growth for the ninth consecutive year. Consolidated AFFO grew by nearly 16% and AFFO per share grew by over 14% to $5.80, while AFFO, attributable to common stockholders, grew over 13% or nearly 12% on a per share basis. Notably, both consolidated AFFO and AFFO per share exceeded the high-end of our previously issued outlook and outpaced our initial outlook provided last February by about 4%.

Turning to slide 10, let’s now take a look at our expectations for 2017. At the midpoint of our outlook, we are projecting property revenue growth of over 10% to $6.3 billion. This includes a negative impact of about 1.3% from the expected year-over-year decrease in non-cash straight-line revenue, as well as a negative 70 basis point impact from the non-recurrence of approximately $39 million of U.S. decommissioning revenue realized in 2016.

We expect consolidated tenant billings to increase by over 12% or roughly $590 million in 2017, driven by organic tenant billings growth of 7% to 8%. In addition, revenue growth associated with pass-through revenue, non-cash straight-line revenue and other non-run rate revenue is expected to be offset by our forecasted impacts associated with foreign exchange fluctuations. Therefore, all-in, total property revenue is expected to increase by just under $600 million.

We expect strong organic growth in 2017 from both our U.S. and international businesses. These expectations are predicated on our sizeable new business pipeline, and our view that the positive demand trends underlying our 2016 growth will continue in 2017. In fact, in U.S., we actually expect organic tenant billings on a dollar basis to increase by more than 15%, resulting in the reacceleration of our U.S. organic tenant billings growth rate to approximately 6% for the year. This reflects our expectation of an increase in collocation and amendment activity across the portfolio. I would also like to make clear that we have not yet included any material leasing expectations from the ongoing incentive options nor any potential impact from first-net deployments in our current outlook.

In our International markets, we’re projecting organic tenant billings growth of around 10%, which includes nearly 30% increase in lease commencements from that realized in 2016. While pricing growth from escalations is expected to cline approximately 200 basis points from the prior year to about 5%. This is due to a new factors, including subdued inflation rates, primarily in Brazil, where the currency is stabilized; our U.S. dollar based contract in Nigeria, which provides us a natural currency hedge, but includes U.S. based escalation provisions; and our larger Indian business, which expects escalators around 2% to 3%.

Finally, churn for 2017 is expected to be just over 2% internationally, which includes the assumption of higher churn in India, driven by carrier consolidation. We remain encouraged about our growth prospects in markets like Mexico, where we expect double-digit growth to continue, even without factoring in any contribution from a new wholesale network deployment expected to begin in late-2017; and in Brazil, where there have been some macroeconomic challenges, we are seeing indications of stabilization and potential for a reacceleration in carriers spend. In fact, we realized record setting levels of new commencements in Brazil in Q4. In Latin America, as a whole, we expect organic tenant billings growth of around 11% in 2017, down from 2016, primarily as a result of the lower CPI-based escalators; again, most notably in Brazil.

Growth in our EMEA region is expected to step-down from about 14% in 2016 to around 10% in 2017. On a dollar basis, we expect volume from collocations and amendments to be consistent with 2016 levels; however, expect them to be more weighted to the second half of the year compared to 2016 where we saw commencements weighted more to the first half. In addition, our Nigerian assets have a natural currency hedge with over 50% of their tenant leases indexed to the U.S. dollar with the corresponding U.S. CPI index escalator.

Given the recent volatility in Nigeria’s currency, we believe this is a favorable component to de-risk our business. Even though, it reduces growth in the country compared to what we would have achieved with local inflationary based pricing escalators. Meanwhile, we continue to expect solid tenant demand in growth in India. In fact, we expect volume growth from new collocations and amendments to be nearly 10%, which reflects the impact of new business agreement signed late last in 2016, as well as strong new business pipeline.

Offsetting a portion of this growth is an elevated level of potential churn, which we expect will reduce revenue growth by around 5%, primarily as a result of the ongoing carrier consolidation activity in the market. While it creates a near term headwind, we view consolidation as a long-term structural positive for the market. And in the future, we expect stronger well capitalized tenants to support an industry where wireless competition can be incrementally more rational. And as we’ve said previously, India has always been a market where we expected a long cycle of consolidation, while the long-term opportunity remains strong.

So to summarize, we expect another year of double-digit international organic tenant billings growth as a result of increased levels of collocation and amendment activity in our international markets in 2017 despite lower CPI based escalators and some increased churn assumptions.

Moving on to slide 11, we expect another solid year of growth and adjusted EBITDA and consolidated AFFO per share. Our adjusted EBITDA is expected to grow by about 9% for the year. Cash SG&A as a percentage of total revenue is again expected to be under 8%, despite adding France and Argentina to our footprint, as well as increased spending on IT system upgrades in the U.S. Our consolidated adjusted EBITDA margin for the year is expected to be down around 1% from 2016 levels, but actually up from the prior year, excluding the negative impacts of pass-through and the year-over-year $72 million decline in that straight-line.

The margin is also being negatively impacted by the full year inclusion of the Viom portfolio in 2017, as well as the non-recurrence of about $39 million in 2016 decommissioning revenue in the U.S. We expect our legacy business, exclusive of the items I just mentioned, to actually drive margin expansion of round 90 basis points in 2017 as compared to last year. Meanwhile, consolidated AFFO and consolidated AFFO per share growth are both expected to be over 10% for the year. In addition to our operational efficiency, this reflects our active balance sheet management.

We expect consolidated AFFO per share in 2017 to be $6.40 at the midpoint of our outlook. This reflects the expected resumption of our sharing purchase program in the near-term. Relative to FX impacts, we’ve used our historical approach to forecast the impacts of currency fluctuations. If the spot rates as of Friday held for the balance of the year, our AFFO forecast would increase by about $38 million or about $0.09 per share.

As you can see on slide 12, our outlook for total 2017 capital expenditures is $850 million at the midpoint. This includes $160 million in non-discretionary CapEx, primarily related to site maintenance. The remaining $690 million or so is related to discretionary CapEx, including about $160 million for new site construction.

During 2017, we expect to build around 3,000 sites primarily in our international markets or around 1,000 more than we built in 2016. As a result of ongoing carrier investment, we expect new site construction to accelerate compared to the prior year across nearly all of our international markets, particularly in India, Mexico and the Brazil. Historically, sites we’ve constructed in our international markets have delivered highly favorable returns with our most mature vintage of those sites now delivering NOI yields of approximately 38%. Even on sites we built since 2014, NOI yields were already in mid-teens. We expect that price constructed during 2017 will deliver similar returns overtime and further enhance the growth and yield of our global asset base.

Turning to page 13, you can see that we’re entering 2017 with a tremendous amount of financial flexibility. During 2017, we expect to generate cash from operations in excess to the $2.7 billion we generated in 2016, and expect to have around $900 million in incremental debt capacity to maintain current leverage levels. As a result, we expect to have more than $3.5 billion available to deploy during the year; applying 20% growth rate to our 2016 common stock dividend results in a projected payout of $1.1 billion in 2017, subject to our Board’s discretion. We also expect to spend about $87 million of preferred dividends and about $850 million in CapEx with just $160 million of that being non-discretionary.

Additionally, earlier this month, we deployed around $500 million to fund our acquisition of FPS Towers. After accounting for these items, we expect to have over $1 billion of excess cash available to the either reinvested back into the business or returned to shareholders. Given the expected strong growth in our business over the long-term, driven by the secular trends in the global wireless industry and resulting pending investments needed to support that growth, we believe our stock is fundamentally undervalued today.

Accordingly, given the accretion opportunity to buying back shares currently offers is potentially compared to our other options, we would expect to reengage our share repurchase program shortly. As always, we continue to evaluate acquisitions in the event those opportunities offer a better strategic and long-term AFFO accretion profile, we would adjust the pacing of our repurchases to accommodate. In either case, we expect to utilize our substantial expected excess cash to create value for our shareholders.

Moving on to the slide 14, we expect to utilize our financial flexibility and disciplined capital allocation strategy to drive growth and improve yields across the business. As you can see, our track record speaks for itself. We have significantly increased our asset base since 2012, positioning us as the global leader in our industry, while continuing to invest in our existing business and fund our growing common stock dividend, which is more than double since its inception in 2012. Our disciplined investment methodology has enabled us to expand and diversify our asset base across key wireless markets around the globe, resulting in sustained growth and key financial metrics, including significant recurring free cash flow generation.

Turning to slide 15, and in summary, we generated strong operating results in 2016, highlighted by our seventh year of double-digit growth and property revenue and adjusted EBITDA, and our ninth consecutive year in double-digit growth in consolidated AFFO per share. At the same time, we enhanced our Company’s long-term strategic positioning in key markets through selective acquisitions while reducing our SG&A, as a percentage of revenue to under 8% and growing our common stock dividend by about 20%.

In 2017, we are focused on strategic priorities which support our vision of being the premier independent owner, operator and developer, of communications real-estate globally, while continuing to drive strong financial results. We expect to evaluate accretive investment opportunities, explore additional avenues to drive future growth, and use our significant internally generated investment capacity to do so. We’ve expanded our presence to currently 15 countries, having substantial scale and significant capability to adeptly serve the biggest global companies in the largest free market democracies in both developed and emerging markets around the globe.

Operationally, we remained focus on efficiently integrating our new assets, while driving strong growth across our existing asset base and leveraging the scale we’ve built across our global business to drive expanding margins and growing cash flow. We are well positioned to support our customers as new technologies and networks are deployed, particularly in the U.S., with the potential FirstNet opportunity, as well as in Mexico with the awarding of a new wholesale network buildup, which could provide upside to our plan.

Further, we are now back within our target leverage range and a substantially increased financial flexibility to pursue large accretive acquisition opportunities and resume our share repurchase program. As a result, we expect to drive strong total shareholder returns, both in 2017 and beyond, as we continue to provide solid underlying growth in our business with an increasing yield.

And with that, I’ll turn the call over to the operator so we can take some Q&A.

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. Your first question comes from the line of Matthew Hines. Please go ahead.

Unidentified Analyst

Looks like your organic billings growth on the international side is a few hundred basis points below what we were looking for, and appreciate the detail you provided in your prepared comments. But I was wondering if you could just offer some further details around the timing of the churn impacts you’re anticipating in India. And given the comments around carrier consolidation, what’s giving you the confidence to maintain a heavy level investment in new sites in that market this year?

Jim Taiclet

Well, I mean India we’re expecting total tenant billings to be up 30% to 40% as a function of the additional quarter of the Viom acquisition, as well as underlying organic billings growth. The churn is up a little bit. We forecasted it to occur pretty decently throughout the year. It’s unclear as to actually when that is to occur, so there could actually be a little bit of upside from a churn perspective. But when you take a look back at some of the underlying investments we’ve made into the market over the last several years, they clearly included estimates of what we would have thought would be going on in the market. When we first entered this market back in 2008-2009, they were upwards of 15 carriers in the market and we knew that was unsustainable. We knew that there is going to be a significant amount of consolidation going on over the next five to 10 years. And in fact that’s what’s happening.

So you have probably five to six telecom companies global telecom companies that are going to in the marketplace, which we think will provide an incredible stable market for us going forward. On the underlying growth, we had a record quarter of new business in Q4 with RJIO launching in the marketplace. And that’s going to be providing significant growth for us going forward, as well as ongoing investments. The colos and amendment activity that we see in Asia in 2017 is probably about -- and tenant billings, is probably about twice that, which we saw in 2016.

We expect commencement, new commencements, in year to be probably 20% to 25% higher in the market. So, there is a significant amount of activity that’s going on in the market, which we think provides a really positive benchmark for us. And we think now with the 60,000 sites that we have in the marketplace, we’re really well positioned to be able to continue to take share and to take growth in the market.

Operator

Your next question comes from the line of David Barden. Please go ahead.

Josh Frantz

It’s Josh Frantz in for Dave, thanks for taking the questions. Just a couple, you mentioned the 4.5 gigs or so data usage per month. Can you just say about where that was last year? And with that where in the timeline of the spectrum deployments and [indiscernible] and the carriers are? Thanks.

Jim Taiclet

I don’t have the choices, Josh. I want to charge and find new, we get the numbers for you later year-over-year. But basically usage is going up 30% a year when you multiply the number 4G handset-times usage per month, et cetera. So, it's a significant bump year-over-year, and that’s going to continue. I think the most important thing for you guys to focus on is what’s really the components of driving investment of noble operators in their networks, and I think there is couple of other happening right now; one is the reinvigoration of unlimited data plans across all four U.S. carriers that has to be ultimate motivator for them to continuing to invest in their network to be able to deliver that prospect to their subscribers.

The second thing is for going in video usage that’s driving a lot of that 4.5 gigahertz a month, video requires a better quality signal than pretty much every other network delivery that you do. And so sites are going to ultimately has to be closer together. And then with the transition again to the 4G handsets, which are just now crossing two-thirds of the handset base, there is a lot of VoLTE, Voice over LTE, that’s being utilized with that handset transition. And that, again, causes sites to be closer together with the single strength you need to deliver VoLTE.

So, those are the real big issues. As far as what any and each carrier in on AWS-3, it's probably something better to ask them. But when you add in AWS-3, 700 deployments by certain carriers that continue WCS, et cetera. That’s what’s providing 6% organic tenant billings growth for us in the U.S. this year set- combination, and we continue to look at it that way and expect that that’s the volume we’re going to get.

Operator

Your next question comes from the line of Ric Prentiss. Please go ahead.

Ric Prentiss

Want to ask one quick one on India, and then one on stocks. In the Asia market, Tom, you mentioned -- did I get it right, churn for this year will be then 5%. What’s net growth going to be in India then?

Tom Bartlett

I mean, the overall tenant billings growth is about 37% in the market and the organic tenant billings growth is in the -- the international growth is 10%. India is probably in 8% to 10% range.

Ric Prentiss

And that’s before churn.

Tom Bartlett

No, that includes the churn. The actual co-lo amendment growth is 10%.

Ric Prentiss

And you mentioned there is a long cycle of carrier consolidation there. How long should we assume, and what kind of magnitude should we assume for India churn as you look out over the next several years?

Tom Bartlett

It’s difficult to say. If you take a look at the major consolidation that we -- going on right now with the major carriers. And even though there are rumored, RIc, it’s probably upwards of 10,000 tenancies over couple of year period, two to three year period for us. And so that could be upwards of say 1% about consolidated revenue, probably in those, and it’s very difficult to predict. We have lock-in periods for all those carriers as well. So, it’s really difficult to predict that there’ll be settlements along the way or the extensions, or how that will impact.

As we said all along when you take a look at this major consolidation, it goes around the globe and we’ve got a lot of experience within the U.S. We’ve always found in the U.S. with the major consolidations, it’s actually been a net positive for us. Its carriers are overbuilding their networks and positioning and integrating their business. And in India, there is such significant growth. We’ve talked about the new build-to-suit programs that we have. We’re building 150 to 200 sites there a month in over the last couple of years.

And so when you take a look at the amount of white space in the market, just in terms of coverage issues that they have, and now where the prices are in handsets and the new spectrum that’s being deployed in the market, we’re really bullish in terms of the type of growth we’re seeing going forward. So, it’s really difficult to impact what the churn is. I know what the overlap is, if you will, between the carriers. But it’s difficult to predict just how much of that will actually result in churn.

Jim Taiclet

With all the ups and downs in the India market since we entered in 2008, just as a reference point for all of you, we’ve got about 12% NOI yield on the site count that we have today, including Viom at the price we paid for it. So, you got 12% NOI yields on the base. This consolidation, as Tom said, we expected to have and it really had to happen, because when there were 12, 14, 15 national or regional mobile operators in India, each of which had a slice of spectrum too small to really deploy ultimately 4G. This had to happen. And Reliance Jio is catalyzing that to happen fairly rapidly and that’s a good outcome for us.

And one of the best parts of that outcome is that Reliance Industries is investing on the order they say $20 billion a year into their network. And that’s going to cause those incumbents that due either continue independently or consolidate to rise to that challenge. And so we think over the 10 to 20 year timeframe, starting in 2008, this is going to be a really strong market for American Tower.

Operator

Your next question comes from the line of Jonathan Schildkraut. Please go ahead.

Jonathan Schildkraut

The first, just wanted to make sure I understood what was going on in terms of the investment into new sites, domestically and internationally. As I look forward at the new tenant billing site for the U.S., I guess is, just over 0%, so 0.1%, last year you were looking for a couple of percentage points. And does this just simply reflect the allocation of new built dollars to markets outside the U.S. relative to inside the U.S.? And then I guess my second question would be is there any change in U.S. escalator assumptions that we should be aware of? Thanks.

Tom Bartlett

In terms of the new assets billings, don’t forget that last year we had an additional quarter of rolling over from 2015 of the Verizon portfolio. So, that’s what really drove a lot of the new asset billings last year. This year we’ll continue with our build program and we’ll probably build 50-60 sites, if you will. So, that will be the major contributor of new asset billings, as well as the site builds that we did last year that are rolling over into 2017. So, that’s a reason for that particular decline. And your second question again, was…

Jonathan Schildkraut

Was there any change in escalator assumptions applies to the U.S. portfolio for ’17?

Tom Bartlett

No, absolutely not. I mean the escalator assumptions continue to be right around that 3%. But remember from an overall waiting perspective, they declined slightly as a result of the escalator that was underwritten in the large portfolio from Verizon, so that drove the overall of that a little bit. But the overall is right at 3%.

Jim Taiclet

And important to station on the Verizon portfolio, Jonathan, and that is that, as Tom said, the option itself demanded a 2% escalator for the anchor tenant. But for subsequent tenancies we’re back to market, which is 3% to 3.5% for all those that joined on to those towers.

Tom Bartlett

We have very few have asked this question before. So, I mentioned, less than 5% of our sites actually are CPI based in the United States, so 95% of them are on fixed escalators of some type.

Operator

Your next question comes from the line of Brett Feldman. Please go ahead.

Brett Feldman

When you were talking about the assumptions underlying your outlook for improved organic tenant billings growth in the U.S this year, you noted what was not in there. You said you were not assuming any accelerated build-out of the broadcast licensees and the option that you were not assuming FirstNet. You are assuming I think scale a little better. So I am just curious what’s kind of underpinning your outlook for improved overall activity?

Tom Bartlett

First of all, it’s the fact of our pipeline and the conversations with that with all our customers in terms of their expected activity for 2017. Then it’s just the ongoing expectations of that 30% to 40% growth in data traffic and the unlimited plans. And all the things that Jim talked about in his piece in answering a question just not too long ago. So, it’s all of those Brett that are really driving that increased demand. As I said, underpinned by what we physically have in the office in terms of driving new co-lo and amended business, which is really what’s driving the activity. Clearly in 2017, we expect about 15% growth, as I mentioned in my prepared remarks, relative to increase in co-los and amendments as compared to 2016 in organic tenant billings. So, that’s really what’s driving the growth.

Operator

Your next question comes from the line of Batya Levi. Please go ahead.

Batya Levi

Just to follow-up on that question, you mentioned that you had record new business commencements in the fourth quarter. Does that translate into a more linear growth in the U.S. this year? Or do you expect it to be more back-end loaded? And just a quick question on FPS, can you quantify the revenue and EBITDA contribution in ’17 guide.

Tom Bartlett

I think last year is the CapEx budgets are actually deployed by the carriers. There is still a slightly more back half loaded deployment in activity for tower companies or ourselves included, I don’t know if that’s significant, it's probably pretty even. But I would just expect that there is a slightly more back half loading. I think in certain markets, as I mentioned in EMEA, for example, outside of United States we’re going to see a little bit more back half loading than front half loading that we had last year, which is partially driving what the decline is in the tenant billings growth. And relative to FPS, it’s in the $55 million range revenue and $40 million, $45 million for EBITDA.

Operator

Your next question comes from the line of Amir Rozwadowski. Please go ahead.

Amir Rozwadowski

Just a follow-up on Brett’s prior question around the acceleration you’re seeing in U.S. Is it related to some new spectrum deployments, or we have quote in the past that some of the carriers have tampered some of their activities. So, I was just wondering if it’s a pick-up in their activity related to that. And then Tom you’ve mentioned obviously resumption in the focus of the buyback here, but also mentioned you’re keeping dry powder in the event acquisitions come forward. There has been lot of chatter about potential assets coming to market, which I’m sure in India. So, just wanted to make sure we understand messaging there. Is that foreseeable future you’re focused on the buyback, or do you expect acquisition activity at similar levels, so love some clarification on that? Thanks very much.

Tom Bartlett

Let me answer that one. We’ve very disciplined capital allocation process within the business. We’ve talked about that before. I mean it’s all mass. It’s where we’re going to be generating the most value on an NPV basis, as well as on ongoing basis from an AFFO accretion perspective. So, we’ll continue to evaluate transactions on a global basis. There is a lot of activity no doubt around the globe. We’re very selective when we’re looking at those particular acquisitions. And as I mentioned in my markets, I do believe that our stock is fundamentally undervalued today.

And so, I think it affords us an opportunities, given the position that we’re now in. We’ve got additional financial flexibility to flex our muscles a little bit and to go into the market. And as you’ll recall, prior to the two large transactions in United States, we were -- even though we were paying a growing dividend, we were still active in the market in terms of buying back shares. With those two acquisitions, it took our leverage up into the 5.5 plus range. And so it was very important for us to get that back down south of 5, which is where we are today.

And so that affords us the opportunity to really look at that program, as well as continually look at acquisitions. So, we’ll continue using the approach that we’ve used. It’s worth. If you take a look at the results, I think the record speaks for itself, and we’ll use that model going forward.

Jim Taiclet

And Amir, again, as far as the U.S. demand, it's idiosyncratic that each carrier in many ways. However, on our application pipeline, as Tom referenced, it’s more robust at the beginning of this year than it was say in the beginning of 2015. And we can track those expected commencements dates through this year. And gives us some really good confidence to say hey there should be an up-draft in the ultimate organic tenant billings growth from the amendment pipeline we have, and the co-lo pipeline that we have.

And with that the collocation interest is higher, I would say, this year than it was last year at this point in time. And again that cycle is always back to video usage VoLTE being deployed more robustly, higher frequency mid-band spectrum being deployed a little more aggressively. And when you include higher band frequencies and carrier aggregation scheme, for example, you’re going to need to deploy just sites closer together at the end of the day. So, the collocation is starting to turn up a bit for many of those factors. But again, it’s going to be idiosyncratic by region and carrier across the U.S. and ultimately in our other markets too. But when you aggregate it all up, it was a little more robust this year than even in last year.

Operator

Your next question comes from the line of Simon Flannery. Please go ahead.

Simon Flannery

So just Tom, quick one on the buybacks. Is the idea to uses up to the 1 billion, or is it -- do you think you’ll spend as much on that if the price remains where it is? How should we think about that either really aggressive early in the year or would it be more linear? And then maybe, Jim, you can just touch on 5G, obviously a lot coming out of Mobile World Congress. But what are your latest thoughts on the 5G opportunity from American Tower and how does that play into small sales and bad systems? Thanks.

Tom Bartlett

Simon, on the buyback, it’s really difficult to say just how much is going to be used in 2017 relative to buying back shares. We will put our typical process in place and run programs throughout the year. And depending upon where the volume this year is, we’ll pick it. We’ll pick up the pacing in. And it will also, as I said if and when we’ll continue to look at M&A throughout the year. And to the extent that we determine that there is an M&A opportunity out there that’s strategic and is more accretive than buying back shares, then that will probably prove to be the spot where we will be investing the cash. So, it’s really difficult to say exactly. I can’t tell you that hopefully in short order we’ll have that program back on and we’ll continue to be able to reinvest back in the business and return cash back to shareholders wherever we can create the most value.

Jim Taiclet

And as the 5G, Simon, we continue to look at in a similar fashion. It is a groundbreaking technology in many ways, especially for the ultimate consumer, the user. They’re going to see between 10 and 100 times faster download speeds. So again when you get into video and other applications that have high volumes of this traveling through the spectrum, this is going to make that spectrum utilization much more efficient, much more pleasing end-user experience and giving more capability, similarly for IoT, including connected cards et cetera.

You’re also going to get much quicker latencies. So the transactions back and forth between the server and your handset are going to be 5 to 10 times better, from a latency perspective. So, you get really quick reactions again not only does that help with playing say a video game on the one hand but also helps a lot in controlling driverless cars as well. So this is a really strongly enabling technology. And when you modify everything together, it’s about 100 times of throughput for broadband. So, you can end up doing HD video, you can end up doing virtual reality types of scenarios while you’re on mobile. And that actually gets really interesting when you’re in a driverless car with a lot of time on your hands. What’s the bandwidth that’s going to be needed or requested by people when they’re on our community with nothing to do but watch videos and do VRs.

So this is an exciting and an enabling technology. At the end of the day, though, it’s got to travel through license spectrum primarily for mobile utilization, which is the business we’re in. So again at the end of the day, for us, we feel that in the topologies where towers make sense for 4G, they’re going to make the same exact sense for 5G. And that’s where 85% of the people live, it’s were 99% of our towers are. We expect 5G in 10 years to be deployed on essentially all of our towers, just like we’re working on 4G in this investment cycle. So, that’s how we think it plays out.

When it comes to small sales, if you’re using higher band spectrum to deliver 4G or 5G, you’re going to end up probably looking harder at small sales. And our refreshed analysis continues to tell us, both from a technical perspective and an economic perspective, which is really important. When you’re going to substitute, if you will, or do an exercise at substitutes for a macro roof-top or a macro tower, what is the comparable number of small sales you’re going to need, it’s going to be between 10 and 100 small sales per macro site.

When you get into technical difficulties and economic burden of doing that, at this point in time, still we believe that these really dense small sell deployments in lieu of macro sites or even in addition to them are only justified in dense or urban areas, or rather really high value very targeted small geographies. We are going to continue to explore how compete in that. We determine, at this point with the technology and the cost structures that are out there that you need two things to get the return on investment on small sales that would be similar to towers, which is our target. We want to get good ROIs, as good of ROIs as better in small sales, if you will, as we do in towers.

So, what do you need for that? In our view, you need two things; franchise real-estate rights; and you also need a homogeneous RF environment where you’re the answer, you’re the small sell answer and someone can’t build another small sell network right across the street on another strand of fiber identity. And where you find that so far? We found that in indoor scenarios and environments of large scale buildings. We’re going to try deepen our access to the buildings in the United States and go from 500,000 square-feet 100,000 square-feet and make the technical and the economics for those, that’s the focus for us. And we have selective outdoor locations where we’re trailing small sell activities and technologies and trying to figure out with new and existing partners how to make those economics work, and we’ll continue to do that.

Operator

Your next question comes from the line of Phil Cusick. Please go ahead.

Unidentified Analyst

This is Richard for Phil. Just wondering to get a little more color on the acceleration in the U.S., is this, do you think sustainable in terms of carriers under-spending for a few years, and now greater demand is growing, so they actually need to continue to spend not only this year but in the years after? Or is this a one-year putting spectrum to use type of thing?

Jim Taiclet

We based our forecast on facts and our outlook on facts. And the only facts we have are for 2017 that can answer that question here. You could ask it certainly of the carriers and ask what their long-term spending and deployment projections would be. But the facts are for 2017, the aggregate is going to be of capital spending based on carrier commentary, so far it's been public, is about $30 billion as 12% to 13% of industry service revenue this year seems like a very supportable number to us. And that’s the facts for this year. We have an existing pipeline that Tom described earlier, and I’ve touched on that we can actually measure and program out over the course of the year and say when these dimensions happen at these rates, we see this growth. This time next year, we can talk about 2018, I guess, but not quite yet because we don’t have the facts to get there.

The larger level view of it is, if daily usage keeps going up 30% and effective sell site transmission reduce, for all the reasons we talked about, 12% to 13% of revenue sounds like sustainable CapEx model. But that’s something that carriers answer but not us.

Operator

Your next question comes from the line of Spencer Kurn. Please go ahead.

Spencer Kurn

When you consider all of the markets that you look at, internationally, could you just talk about which countries or regions are most attractive for you, given your footprint today? And then follow-on, we know you have a series of options in 2018 and 2019 to require the remaining 49% stake in Viom. And I’d love any color on how your thought process around exercising those options may or may not change, depending on consolidation that we might see over the next couple of years? Thanks.

Jim Taiclet

The countries and regions that are attractive to us are predominantly the ones that we’re already the market leaders in, that concludes the U.S., which I would always put at the forefront of -- and include in this conversation. But something Tom mentioned earlier has been bit of our mantra on this. We’re looking for the largest three-market democracies with competitive independent mobile operators to deploy our type of business model. And if you go look around the world, you’ll see that we’ve been reinvesting in those anchor markets, including the U.S., Brazil, Nigeria, we’ve recently entered in India. Those are the largest three market democracies under respective continents. And Germany and Europe, where we had a position for quite a few years now and France is right behind it with the UK. So, we are in many of the -- I would be misstating most of the markets we would find attractive, we’re already in them. And we selectively add to those anchor markets, and Argentina has been the most recent example of that along with France.

So, those are the kinds of countries that we have great interest in, whether strong property rights, whether it's a democratic society, whether it’s a strong rule of law that underpins real-estate investments, such as ours. So, those are the countries and regions we find important. And then when one like Argentina meets our investment criteria, you’ll see us act pretty quickly, if there is a good opportunity there.

And relative to the second question, I mean there is a process by which we can increase our ownership overtime in India. And where we would -- we’re anxious to do. We’re very bullish on the marketplace. It’s our desire to ultimately own the properties that we’re in where we can create the most value for our shareholders. And as I said, there is a process to do that over the next couple of years.

Operator

Your next question comes from line of Matt Niknam. Please go ahead.

Matt Niknam

Just two if I could, one on SG&A. You’re already now below the 8% cash SG&A, as a percent of revenues, target that you’ve talked about in the past. So, maybe if you can give us a sense of where this can go from here, as you now digest and move past bigger deals from the last two years? And then secondly on the U.S., it’s been a lot of discussion around the typical license spectrum bands getting built out. But any expectations on impacts to the business from either LTE you’re getting build out in 5 gigahertz, or build-outs coming in the 3.5 gigahertz as well. Thanks.

Tom Bartlett

On the SG&A question, we continue to drive that down. If you take a look at the legacy business, there’s continued improvement in the overall SG&A as a percentage of revenue. This particular year, we also have bringing on people in Argentina and people bringing on in France, it's probably 200, 300 people between the two markets, as well as I mentioned before, we’re making some incremental IT investments in our ERMs in the United States. But going forward when you take a look at our conversion rate shows when you pull out straight-line or not straight-line pass-through revenue, you’re up. And then at the gross margin level, you’re up in the 90% range, and at the EBITDA level you’re up in the 80% range.

So, given that kind of conversion ratio on our legacy business, you would expect to see some sizable, I think, reductions in overall SG&A as a percentage of revenue. What we continue to do is we continue to walk [indiscernible] at the same time, so we continue to invest back into the business to be able to drive growth to create a long-term sustainable path for our shareholders. But I think if you take a look at the one of the charts that we had in the PowerPoint presentation today, you can see the incremental SG&A margin that’s been driven in the business, and that’s largely through reduction in SG&A as a percentage of revenue.

Jim Taiclet

And then when it comes to unlicensed spectrum, especially the two bands you referred to, which is 3.5 gigahertz and 5 gigahertz that might be deployed in a novel way, let’s say versus the license spectrum that we’re all familiar with. That’s an area that we’re already exploring, these new spectrum bands. And can we get again tower like returns deploying fairly short radii transmission sites for users of LTE-U or shared access network eventually that might come about on the 3.5 band. We’re in active exploration and even trailing some of these things today. If we can get to a point where yes those are tower like return at the end of this year, you’re going to see us participate in that.

Operator

And your final question today comes from the line of Michael Rollins. Please go ahead.

Michael Rollins

Two if I could, one in terms of new site leasing in the United States, I was wondering if you could discuss if the terms have changed meaningfully over the last three years, on average, in terms of maybe the upfront reimbursements you get from customers to put their infrastructure on your towers, the first month rents and then the escalators thereafter, just some sense on maybe how the new business may or may not be shifting? And then secondly if you look at the slides that -- you’ve provided 2017 guidance on, I think the two numbers that I wanted to reference, does it show that the property revenue growth is over 10% and the AFFO per share growth is about 10%. And I was wondering if you look forward into your longer term aspirations, should AFFO per share growth exceed revenue growth over a three year to five year horizon, and how investors should think about that relationship going forward? Thanks very much.

Jim Taiclet

Mike, its Jim, and then I’ll turn it over to Tom on the outlook portion of your question. So, when it comes to new site leasing terms, it’s been on a very stable framework in the U.S. And again, the footnote is outside of two large asset transactions that had set terms to participate in those transactions the last two-three years. Taking those aside, it’s been a very stable collocation leasing framework that we have provided to and been accepted by our customer base. And that’s along all those areas that you mentioned, whether capital contributions, redevelopment or it's starting your rent on the first day that the right say that you should, we doing -- continue to do to have that portion as well of the traditional framework. The escalators on collations as we said has been between 3% and 3.5% as a standard barring level for our Company at least. We do and have always engaged in volume discussions with clients just like most other industries do. So, there is really nothing different in site leasing framework that we have accepted or offered over the last two or three years.

Tom Bartlett

As we take a look at, Michael, just looking at the total property revenue versus AFFO per share. First of all, it’s always our goal. I mean it's our objective to have double-digit AFFO per share growth, going forward. I mean that’s really is driving our business in the investments that we’re making in the business. I think if you take a look at ’17 versus ’16, you take a look at pass-through revenue, for example. I think the increase in pass-through revenue is just as a result of bringing on the additional quarter of Viom, is probably driving that property revenue, whereas it's not driving to that nor AFFO per share. So, that would be one of the reconciling items to be able to connect the two.

Operator

And I’d now like to turn the call back to the Company’s management for closing comments.

Leah Stearns

Great, thank you all for joining us today. And if anyone has any follow-up questions, please feel free to reach out to the Investor Relations team. Thank you everyone.

Operator

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