美國電塔 (AMT) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Corporation second-quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Monday, August 2nd, 2004. I would now like to turn the conference over to Anne Alter, Vice President of Finance and Investor Relations, American Tower Corporation. Please go ahead, ma'am.

Thank you. Good morning and thank you for joining American Tower's conference call regarding our second-quarter earnings. We will begin with comments from Brad Singer, our Chief Financial Officer; and Jim Taiclet, our Chairman and Chief Executive Officer.

We'd like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include discussions about our quarterly and full-year 2004 outlook, statements regarding our goals, beliefs, strategies, objectives, plans, or current expectations and other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-Q for the quarter ended March 30th, 2004 filed with the SEC and other SEC filings. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call, including forward-looking statements, to reflect subsequently occurring events or circumstances.

Our earnings release, which includes information required by Regulation G, was furnished this morning to the SEC on a Form 8-K, and is posted on our website. Now I would like to turn things over to Brad Singer.

Thanks, Anne. American Tower delivered strong operating performance and continued to improve its financial position during the second quarter. We added another quarter of consistent incremental Tower revenue growth, strong cost control and capital spending discipline. Our solid performance enabled us to sequentially reduce our leverage and successfully access the bank market to improve our financial flexibility and put in place the capability to significantly lower our borrowing costs and accelerate our free cash flow growth.

Our second-quarter total revenues increased over 10%, to 193 million from the same period in 2003. Our high-margin Tower division continued to drive our revenue, accounting for 95% of our revenue growth. Our second-quarter adjusted EBITDA increased 15% to over 110 million, and adjusted EBITDA margins expanded to 57%. In our Rental and Management division, our revenues increased 10% to over -- to 167.6 million, and our Tower operating profit increased 14% to 115.7 million from the second quarter in 2003.

On a same-Tower basis, for the 13,400 towers that have been in our portfolio since April 1st, 2003, our revenues grew 9% and our Tower level cash flow which excludes our Tower SG&A costs grew 11%. Our second-quarter 2004 Tower division performance marked the 10th consecutive quarter in which we have increased Tower revenues while holding Tower expenses relatively flat, continuing to demonstrate the strength of the Tower operating model. Over the last 10 quarters we have added approximately 164 million of revenue to our Tower portfolio, without increasing Tower operating expenses, expanding our tower operating margins by 1250 basis points and converting all 164 million of incremental revenue into cash flow during this period.

Our Tower expenses declined slightly on a sequential basis, with some favorable real estate tax assessment refunds offsetting our typically higher seasonal repairs and maintenance expenses. We continue to anticipate seasonally higher repairs and maintenance costs and, accordingly, expect our Tower expenses to slightly rise on a sequential basis from the second quarter. We maintain our expectations of modest expense growth in 2004 and the conversion of over 90% of our 2004 incremental Tower revenues into cash flow. We have slightly refined our Tower outlook for the remainder of 2004, modestly increasing the lower end of our revenue and operating profit range to reflect our current performance.

The Services division reported revenues of 25 million and operating profit of 1.2 million for the second quarter. Our Construction services contributed 21 million of 25 million of total services revenue with no operating profit during the second quarter. As a result of the continuing difficult operating environment and breakeven operating performance, we are exploring strategic alternatives for the business, focusing primarily on selling all or part of our construction operations. Our remaining Site Acquisitions, Zoning and Structural services continue to perform well, contributing 4 million in revenue and approximately 1 million in operating profit during the quarter. We are including our Construction services in our current outlook for the remainder of 2004 and reducing our anticipated operating profit by 1 million each quarter.

In the second quarter, our capital expenditures were below the low end of our expectations at slightly less than 8 million. The lower than anticipated levels of capital spending was due to disciplined capital improvement investment criteria and fewer than expected newly built towers. While we continue to demonstrate stringent investment discipline we remain committed to investing in double-digit return in new build opportunities and anticipate building 90 to 110 towers in 2004. The 26 towers that we have built to date have averaged over 15% day-one return on investment. We have provided a breakout of CapEx spending as supplemental information in our press release. Our capital expenditure outlook for the remainder of 2004 has been lowered to reflect our second-quarter performance --

I'm having some background noise in our speaker line that's not coming from the room. I just wanted to make sure that everyone can --

Excuse me. Sorry.

-- and the reduction in new-build tower expectations. Total capital spending is anticipated to be between 44 and 51 million for 2004.

As a result of the continued strength of our core Tower operations and tight capital spending controls, we sequentially [technical difficulty] cash flow by 8 million from the first quarter to over 34 million of free cash flow in the second quarter, our highest level ever, and 21 million more than the second quarter of 2003. While we continue to expect our free cash flow to grow as our operating profit increases and our interest costs decrease we do anticipate higher levels of CapEx on a sequential basis. We define free cash flow as adjusted EBITDA less total interest expense and CapEx.

As we continue to focus on improving our operating performance and asset composition, we are also working hard on strengthening our financial position and lowering our cost of capital. Consistent with our goals of increasing our financial flexibility while reducing our leverage and interest costs, we completed a new $1.1 billion bank facility during the quarter. The new facility significantly increases our financial flexibility, extending over 550 million in near-term maturities to 2008 and beyond. Under the terms of the new facility, we have the ability to utilize our cash on hand, cash we generate from operations and our $400 million revolving loan to repurchase higher cost debt securities. Based on our current cash on hand and our current rate of cash generated from operations, and the $400 million revolving loan, we anticipate having over $1 billion available over the next four years to repurchase and repay high cost debt and reduce our interest costs.

Subsequent to the closing of the new facility, we have begun repurchasing our high-cost debt, successfully retiring over 200 million of face-value high-yield securities for approximately 165 million. We anticipate saving approximately 18 million in annual interest savings as a result of the initial debt repurchases, which we have incorporated into our interest expense outlook for the remainder of the year.

We also recorded a $31 million one-time loss in the second quarter, comprised of a $12 million write-off of deferred financing fees related to our prior credit facility and 19 million of purchase-price premiums and deferred financing costs related to the debt repurchases. We anticipate incurring at least another 11 million in losses related to the remainder of the repurchases in the third quarter. Please note, we have provided detail on our debt repurchases as supplemental information in our press release.

We expect to continue to repurchase our higher cost debt at prices that make economic sense. We will be selective in repurchasing our debt as we have several debt issues outstanding and will purchase the issues that are most attractively priced. We maintain our expectation in reducing our interest costs by 40 to 50 million on an annual basis over the next 18 months through ongoing debt repurchases and additional refinancing activities.

While our free cash flow growth has primarily been driven by our strong operating performance based on organic revenue growth and expense and capital expenditure discipline, the strengthening of our [technical difficulty] free cash flow as we continue to reduce our interest expense. Our strong operating performance also enables us to sequentially reduce our leverage. Our net debt to analyzed adjusted EBITDA ratio decreased during the second quarter to 7 from 8.4 a year ago. Based on the midpoint of our outlook, our net debt to annualized adjusted EBITDA is expected to be in the mid-6 range by the end of 2004. Overall, our 27 cents per share net loss from continuing operations exceeds our outlook for the second quarter as a result of the one-time loss in retirement of debt obligations. Excluding the one-time charges on a net basis our net loss would have been approximately 18 cents per share.

I will hand things over to Jim Taiclet, American Tower's CEO and Chairman, who will provide additional operational updates, and may provide no commentary whatsoever on the Red Sox season and their current nine and a half game deficit to the Yankees.

Thanks, Brad and good morning to everyone on the call. Today I'd like to summarize our year-to-date progress and our expectations regarding our financial performance, our customer relationships, management development efforts and our strategic initiatives. The operating leverage of the Tower business model continues to be demonstrated through our financial performance during the first two quarters of 2004. Revenues continue to grow at a solid pace, primarily driven by new broadband leases on existing towers, and supplemented by additional equipment and frequencies being added by our customers to existing towers, by the selective addition of high-return new towers and by contractual escalators.

We expect that revenues will continue to grow as a result of the fundamental trends being demonstrated in the wireless industry. These fundamentals include steadily increasing subscribers and voice minutes of use, a healthy set of major carriers that have the ongoing financial capacity to invest in their networks, and the emergence of higher speed wireless data services.

We also recognize that the rate of network investment has to make economic sense to our carriers. Therefore, we continue to believe that cell site deployment will proceed at an annual pace of about 15,000 sites or greater, and we remain comfortable with our revenue guidance for the year.

On the cost side of the equation, we continue to hold Tower leasing costs and corporate expenses flat, while adding revenue to top line. In the second quarter, we again converted over 100% of our incremental Tower revenue to operating profit. While many of the major organizational streamlining and back-office consolidation efforts in our Tower division have already been completed, we continue to attack the details of our cost structure at the direct expense level and in SG&A.

Our capital expenditures also remain well under control with total CapEx, including new construction, running less than 5% of total sales. Tower maintenance and augmentation needs continue to run within our expectations and we will continue to adhere to strict return criteria in our approach to new builds.

As Brad outlined, we continue to find attractive opportunities to utilize our growing free cash flow to buy in portions of our higher cost debt. We're extremely focused on meaningfully reducing our interest costs using a disciplined approach over the next 18 months, and our new bank facility gives us substantial flexibility to accomplish this objective.

With respect to our customers, the trends are positive. In the U.S., the wireless industry added over 4 million new subscribers in the second quarter, with most carriers also posting very solid operational and financial results for that period. As a result of sustained subscriber growth and continued expansion of minutes of use, U.S. wireless carriers remain dedicated to improving the quality of their networks. We are engaged in a substantial level of leasing activity with all the major wireless carriers; and many regional carriers are also active.

As wireless carrier executives are focused on staying ahead of subscriber growth and combating subscriber churn, their network development organizations are emphasizing speed to market, quality, and capital efficiency. With co-location on an existing tower almost always the fastest, and the most economically beneficial way to get on-air, it's the preferred deployment method for carriers we deal with. In addition, carrier network organizations are planning, and in some cases such as Verizon, executing 3G data rollout. Depending on the technology these rollouts begin with base station upgrades and in many cases involve additional lines, antennas, and/or spectrum on existing cell sites. Over time assuming that 3G subscriber growth rates support more extensive investment, we anticipate that this addition of equipment in spectrum will be accompanied by increasing the density of the cell sites in the network as well. 3G data service really seems to be emerging as a competitive requirement in the U.S. wireless market with Verizon, Sprint, Nextel, AT&T Wireless, and Cingular either actively trialing 3G technologies or announcing more aggressive deployment schedules. In addition to our major customers in the U.S. we're also pursuing new business opportunities, with increasingly active government customers and with developers of new technology-based products such as wireless broadband.

As we stay close to customers we're also focused on the quality of management throughout our Company. Our senior executive team and leadership at the operating level has remained consistent over the past three years, as we've executed on our strategic and operational objectives. Each of our senior executives, which includes our CFO, General Counsel, Presidents of our U.S. and international businesses, and myself have been with the Company throughout this period.

We've also invested in our operating management, too. All of our line and functional managers at the vice president level have completed a customized executive leadership course, that includes extensive 360-degree evaluations. In addition, over 90% of our line and functional managers have completed a tailored first-level management course designed to improve their effectiveness in managing assets and people in the Tower business.

As we continue to refine our core tower leasing operations, we've begun to formally introduce the principles of Six Sigma process improvement methodology into our organization. We've trained a core team in the principles of Six Sigma and this team is both leading key projects personally and providing training and guidance to others on the methodology. Together, through our executive, managerial and process improvement training programs, we're driving a culture of operational execution in the Company at all levels and in all functions.

Strategically, we've made a carefully considered decision to divest our construction and installation businesses, while retaining the internal capability to conduct regulatory, operational and maintenance activities on our sites. This approach produces four principal benefits -- it removes the lower-margin construction business from our overall business portfolio, enabling our operating management to focus even more time and resources on our higher margin tower leasing business. The exceptional economics of our core tower leasing business combined with the successful sale of our lower margin construction business would result in adjusted EBITDA margins in the mid-60% range. The second benefit to divesting our construction business is it eliminates that business's inherent competitive barrier to successfully compete for third-party work on other tower companies' towers. Third, it provides for the retention of a meaningful amount of working capital through the sale. And, lastly, while we will be divesting the elements that make up the for-profit construction and installation businesses, we'll be retaining the internal operations team that conduct customer site visits and perform regulatory and maintenance functions retaining the cost advantage we have relative to out outsourcing these tasks.

Our core strategy remains straightforward and, we believe, compelling -- maximize the return from our existing tower asset base, continue to explore sensible and accretive investment opportunities, and apply building free cash flow to reduce absolute levels of debt. As our financial position continues to improve and we achieve our targeted capital structure, we will be relentlessly focused on the most efficient manner to increase shareholder value.

A final and important investment consideration is that, in addition to its fundamental attractiveness as a company with strong revenue growth and very high conversion rates to free cash flow, American Tower can also increasingly be viewed as a proxy for the U.S. wireless industry. For the second quarter, wireless carriers generated 80% of our Tower revenue and over 90% of our new leasing business.

Moreover, the distribution of American Tower's revenue from the Big 7 carriers closely correlates to each carrier's respective market share. Therefore we believe that A&T can be viewed as a reasonable index reflecting both Big 7 and the overall wireless industry’s performance and growth. This perspective is even more meaningful when you consider that the Sprint PCS tracking stock has been recombined with FON and that the AT&T Wireless stock will soon be integrated into the Cingular joint venture, leaving Nextel as the only large pure player wireless equity.

One last point before we go to questions. Both our ongoing conversations with our carrier customers, and the application pipeline that we're seeing, support a solid second half of leas-up on our towers. We maintain high confidence in our projections for new business for the balance of the year, and we believe that the underlying forces that drive demand for tower space, which include subscriber and minute growth, a healthy wireless industry, and the competitive requirements to improve voice quality, and deploy higher-speed data services are all highly sustainable into the future. For our part, we'll continue to be dedicated to closing on each and every new lease opportunity and on delivering consistently strong and improving operating performance.

And yes though the Red Soxs might be trailing the Yankees by a mere nine and a half games remember that it isn't til it's over so don't stop believing. Brad and I'll now be happy to take your questions.

[Operator Instructions] One moment, please, for the first question. Our first question is from the line of Jonathan Atkin, RBC Capital Markets. Please proceed with your question.

Yes, good morning. A couple of questions. One, I was wondering if you could speak to the revenue and cash flow trends going on in Mexico as well as on the broadcast side of the U.S. business? And then with respect to the strategic options that you are exploring for the services business, how might we think about either the proceeds from that sale or the expense savings you might achieve going forward from selling that business?

Jon, why don't I take the first one and Jim will take the service question. On the revenue and cash flow trends in Mexico, our new business was divided proportionally even that we signed this quarter between the U.S. and Mexico. So if we -- so in terms of new business, it was 15% of our revenues is Mexico, 14%, that's about what new business that was generated. So they are fairly equal on this cash flow trends and how they contribute and growth wise they are fairly even as we move forward. In terms of the services, I'll turn that over to Jim.

Yeah, Jonathan. We're really going to be eliminating a revenue line and an equal cost line from the Company, so what you'll see is the margins go up as I indicated once we remove that lower margin business. It's fairly self-contained, Jonathan, as far as the for-profit piece, but again on the internal cost side, we're going to keep the team that allows us to have what we think are lower operating costs versus outsourcing these various tasks. So it's really going to be I'd say a neutral outcome on tower leasing costs.

And just to circle back, Jon, I didn't answer your broadcast question directly. The broadcast grew a little bit slower this quarter than the overall wireless towers. And their growth was in the low single-digits.

Okay. And then any update on ground-lease purchases?

We had very minimal ground-lease purchases. As you know, we already own 20% of the underlying land across our portfolio.

Thanks very much.

Thank you. Our next question is from the line of David Small, Goldman Sachs. Please proceed with your question.

Hi, good morning. A few questions, but first could you maybe, Brad, go through the difference in the margins of the U.S. site leasing business versus Mexico? Maybe just give us a little more color if those are broken out separately what would they look like?

The margins are fairly comparable, David, between the U.S. in site lease and Mexican. They're both approximately right around the 70% of the site-level range across both the portfolios.

And then just on the kind of -- if you look at your to Tower portfolio, you had this quarter, the managed towers that were -- that you -- I guess you didn't renew the leases on during on the quarter, just tell us what we should expect in the future and then just on the other hand in terms of potential acquisitions of towers, what's the thinking there?

In terms of the managed business, some of you might have noted that in our tower counts on the management sites it dropped down by I think about 180 managed sites. What happened there is just as you go through the managed site business and evaluate each of those sites on the basic economics and whether it's worth renewing those management agreements, it was decided that for those sites we did -- that the economics did not justify continuing operating them. So it was a minimal impact both revenue and expense-wise. And Jim in terms of acquisitions?

For the balance of the year, we're very selectively David looking at acquisitions. On the other hand, on the Sprint towers we are looking at that book right now and we'll do our assessment, but you don't want to -- shouldn't expect to see significant acquisitions in the U.S. at all. We'll be doing some more in Mexico but it's a few towers a month down there.

Okay. And just, lastly, Brad, how should we be think thinking about the 9 3/8 notes that are callable at the beginning of next year? How should we be thinking about the potential for you to tender for those early?

Well, it's based really on the -- on how we would refinance those notes. Right now they're trading as if they're very close to any type of tender price or about 107 I think, if you compute an outright tender I think slightly above that, maybe at 108. And so it's what you would replace those notes with. Typically, NPV, if you were doing straight debt, would be anything slightly above 8% or lower. And so I think we evaluate that based on the current market conditions and does it make sense for us to move forward and do that. And that's a question of timing in the high-yield market.

Great. Thanks a lot.

Thank you. Next question is from the line of Ric Prentiss, Raymond James. Please proceed with your question.

Yeah, good morning, guys. Actually Jim it's getting scary you're closer to the Devil Rays than the Yankees but have good history down here with football and hockey so watch out. Questions for you. First you talked about your target kind of capital structure but I didn't hear you expound upon where you think that correct leverage is and interest coverage is, Brad, if you could, kind of, walk us through. You said you think by the end of the year '04 you should be in the mid-6s based on the midpoint. Where do you think that goes in '05 and what's your target? And then on the buying back the high-priced debt, any kind of size limitation or is it really just taking a look at the NPVs that you'll look at as far as buying them back?

Hey, Ric. In terms of our target leverage, we say publicly that 4 to 6 times net debt to EBITDA is our target leverage. We would be a little over -- like mid-6s, 6.5 or so at the end of the fourth quarter '04. So we're getting near that target leverage. If you don't make -- if you're not making even heroic operating assumptions we should be during '05, and we have not publicly guided our 2005 yet, we should be towards the -- during the year or even toward the end within that range of our target leverage of 4 to 6 times. And so that's kind of how I would frame the target capital structure, whether it's closer to 4 or closer to 6 is really a function of the marketplace and how we can set the capital structure on a longer term basis in the most cost-efficient way possible for shareholders, and to really have financial flexibility and a long-term capability to maximize shareholder value.

In terms of the open-market purchases we have made, you are constrained by certain tender rules by the ultimate amount of what you can buy in. There is no hard and fast rule, but I think a fair level is that you really can't buy more than half of any one issue in the open market. And I think most of the issues that we would buy in, we'd probably -- we would never get to those levels prior to a call date, chances are anyway, and we just would exercise a call. As we think of the price that we pay it really is what is NPV positive based on our current cost of capital. If we had to use the line of credit to finance those purchases, let's say it wasn't out of operating cash flow, we had gone through all our operation cash flow; we borrow at LIBOR plus 200. Today's rates that's slightly below 4%. You would say if it was callable in a year and a half you would put in a swap rate on there and so you would be looking at some sort of NPV of closer to 5% on trying to buy in the notes. So hopefully that's helpful.

And just an update with the Sprint book coming out onto the marketplace, any thoughts as far as industry consolidation on the tower side, just an update? Every now and then that kind of raises its head, just your current thoughts on tower company consolidations.

Ric, this is what we've always stated, which is there are some benefits to consolidation but in our case certainly we feel we have the scale to be very successful just as we are.

And then revenues the margins in the tower business were really better than we looked for. The revenues were a little bit light can you elaborate a little bit on what's going on on the tower leasing side?

Sure. Our Tower revenues came in slightly above the low end of our outlook, which is 167 to 170 million, it came in at 167.6. On a sequential basis that we looked at, we signed this quarter a little over 1.2 million of monthly new business, which if you annualized that and you did it evenly across each quarter, that's around 58 to $60 million of annual new business, which is about where we thought we'd be. So our new business that we're booking and signing is right in the spot as we looked at our growth.

The reason the shortfall occurred is a combination of a bunch of little things. Some timing of commencements. Other things was we had some slight currency weakness. As you know, most of our contracts are dollar denominated but we have a small percentage that are not, that resulted in a you know, call it a 250 to $350,000 weakness. We had modestly higher one-time churn from NextWave, you know, when they sold their spectrum they came down off the tower they were saving the licenses on. And then we had a few very minor one-time items. So that's really it, if you look at it with why it was 3 million rather than 3.5 or 4 million sequentially. Those are the items that made up the difference.

As you look going forward, the timing, you would expect would clean itself out and currency something who can predict that. NextWave, was that a one time thing or do they have some more to pull down as far as the license saves?

They pulled down the vast majority of it. As we looked at our guidance moving forward, we did move up the bottom end of the ranges to reflect how we view our current future revenue going forward. So the next sequential one to hit the bottom end would be at least a $3.5 million sequential rise or 3.4 million.

Great. Good luck, guys.

Thanks.

See you, Ric.

Thank you. Our next question is from the line of Michael Rollins, Solomon Smith and Barney, please proceed with your question.

Thanks. Good morning. Just a quick question on the overall annual guidance. Is it fair to say there's a slight acceleration in activity in the back half of the year? Or when you strip away all the one-time items that hit in each of these quarters, is it fairly even? And as you look maybe a little bit further into '05, how are you perceiving some of the activity relative to '04?

Okay. Mike, I'll comment in '04 and I'll let Jim broadly -- Jim will broadly comment on '05. But we put out our guidance for the next year, typically with our third-quarter earnings, just with more specificity. In terms of 2004, it is fairly even, there's not an acceleration, and we generally book our business in terms of what we sign evenly throughout the year. Commencements are usually a little bit lighter in the first quarter of the year, but for the most part, it is a fairly even amount that hits and if you look at our guidance at the beginning of the year we gave and even way back in November of 2003, thinking all the way back then, our guidance has generally been right in the middle-ish of that in terms of our -- I mean our performance of that guidance.

Yes. And Michael looking forward, I mean just essentially equilibrium that the carriers see, on one hand the demand for new sites, demand for additional equipment, more spectrum getting put out there, is very high. You know, they're launching 3G, they're getting more and more competitive on the quality side, and they've got a support these 16 or so million customers a year coming onto the networks as well. So lots of demand for tower space. Their supply side half the equation is how much capital expenditure can they put into their network in a given period and we sort of think that that's settled into again the $20 billion a year category for the next potentially few years for the carriers. And that equates to 15,000 or so cell sites a year which seems to be a very sustainable sort of supply side to that equation. And so that's how we look to the future in general kind of a 15,000 cell site a year deployment for the next, potentially, few years.

Great. Thanks.

Thank you. [Operator Instructions] Our next question is from the line of Jim Ballan, Bear Stearns. Please proceed with your question.

Thanks a lot. A lot of my questions have been answered but the -- one thing I wanted to ask you about was, you know, the lack of spending and CapEx in the quarter, you're obviously sticking to your hurdle rates there, and you have the opportunity to prepay debt as an alternative. As you get to your target range, can you talk a little bit about your philosophy -- your target range on your leverage, can you talk about your philosophy of continuing to pay down debt versus possibly lowering your hurdle rate on CapEx or buying back stock or whatever else you'd want to do?

I think if you think of target investment and hurdle rates, if our -- let's just use if our target range is 4 to 6 cents, let's use 5 times as a leverage ratio, if our hurdle rate right now is about a 10% return on assets on a new investment, given a 5 times target leverage structure, what that equates to is an after -- is a return to equity-holders of somewhere, depending on where the interest rate environment is, of 13% to 15% day one on equity. So if you're going to redeploy that into new-build opportunities you're not -- and your day-one return will go down from 13% to 15% on that initial investment.

Now, if the investment has good growth and it's a good tower with good opportunities, and you should easily go well above that 13% to 15% return and ultimately a good tower on a levered basis gets, you know, mid-20s, mid-30s return pretty well. And so that's how you think of do you lower the hurdle rate; it's within what your cost of capital is and what the growth assumption is on these new towers and the certainty of that growth that you're deploying the capital into. And then you weigh that as you deploy capital, whether into a new investment opportunity, whether it's better just to buy in stock. If the stock appears very reasonable, that's a good way to repatriate capital and do that on a consistent basis versus buying in debt which, if you set your capital structure, lowering debt actually increases your weighted average cost of capital because equity becomes a much greater component of your overall capital structure and that's probably the least attractive to at a point where you've set your leverage ratio.

Yes, Jim, just to add one quick thing. These aren't necessarily close calls in the U.S. whether to build a tower or not. If it's a one-carrier tower you're talking about mid-single digit returns. If it's a two-carrier tower you're north of 10. So our real investment criteria in the U.S. is can we get that second tenant day one signed up on that tower, we'll go build it. So that's really how we're making those calls. And it's a tough match-making game to get two carriers on the same tower at the same time but we strive to do it whenever we can.

Okay. Great. Thanks a lot, guys.

You bet.

Thank you. Our next question is from the line of Evan Marwell, Criterion Capital. Please proceed with your question.

Good morning, guys. Two things. First we had some audio difficulty earlier on when you were talking about the 26 towers that you have recently built, did you say 15% or 50% day one ROI?

I wish I'd said 50. I said 15.

Okay. Then the second question was, in terms of lowering the numbers of towers you're building, is that being driven primarily by the inability to get two carriers on the towers, or is it more permitting and regulations? I wonder if you could give us a little more sense of that.

It's a combination of those two things, but it's also in Mexico we thought we would be building slightly more towers than we have to date. We do believe that that building will pick up in the second half of the year. And that's probably the larger part of the shortfall. The U.S. is behind in it's build program, but in Mexico we also had a build program that we are behind. So it's those three things that make up the shortfall.

And why has Mexico gone slowly?

It's just a question of carrier build plans.

Okay.

We earmark money going into the year to build to towers in Mexico and certainly if the carriers are ready when we are we'll build them inside that budget, but they just haven't been.

Okay. Thank you very much.

Thank you and there are no further audio questions. I'll turn the conference back over to you.

Thank you very much. We do apologize for the audio difficulties and also, the delay in getting the appropriate number for the call.

Take care.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.