美國電塔 (AMT) 2008 Q1 法說會逐字稿

Good morning. My name is Danielle and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower Corporation first quarter 2008 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn today's call over to Mr. Michael Powell, VP of Director of Investor Relations. Mr. Powell, you may begin your conference.

Thank you, Danielle. Good morning, everyone, and thank you for joining American Tower's conference call regarding our first quarter financial results.

We'll begin with comments from Brad Singer, Chief Financial Officer. We'll then turn things over to Jim Taiclet, our Chairman and Chief Executive Officer. After these comments we will, of course, open the call up for your questions.

However, before we begin I'd 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 statements regarding our 2008 outlook, our stock repurchase program, our international business development initiative and any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-K for the year ended December 31, 2007, as well as our other filings with the SEC.

We urge to you consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequently occurring events or circumstances.

Now I'd like to turn things over to Brad Singer.

Thanks, Michael.

American Tower began 2008 with a strong performance during the first quarter with significant revenue and adjusted EBITDA growth. In our core Rental and Management division our revenue and gross margin increased 8% and 9% to $374 million and over $290 million respectively from the first quarter in 2007.

Our Rental and Management revenues and gross margins included a decrease of over $5 million of non-cash straight-line revenue compared to the prior year and over $4 million on a sequential basis from the fourth quarter. Adjusted to exclude the non-cash straight-line elements, tower increased 10% and gross margin increased 12% from the prior year.

The combination of our new business and the renewals and extensions of existing leases increased our non-cancelable lease commitments to $8.8 billion, or nearly six years of revenue. We expect the non-cash straight-line revenue will decrease sequentially in the second quarter of 2008 by approximately $2.5 million.

Our total selling, general and administrative and development expense was $48.9 million, including $16.3 million of stock-based compensation expense. The stock-based compensation is seasonally higher primarily due to the vesting of our all employee annual grants in March. We anticipate stock-based compensation expense of approximately $14.5 million in the future quarters in 2008.

Our selling, general and administrative and development expense also included $0.6 million of additional costs associated with the stock option review and related matters.

Our adjusted EBITDA increased 11% to $262.5 million and our adjusted EBITDA margin increased approximately 200 basis points to 69%. Adjusting to exclude non-cash straight-line revenue and expense, adjusted EBITDA increased over 14%.

Our operating income for the quarter increased $59 million from the first quarter of 2007 to $145 million. Of the increase, $30 million was attributable to the change in our estimate of the useful life of our towers and related intangible assets.

As previously disclosed in our third quarter 10-Q and our 2007 10-K, we've reviewed the estimated useful lives to determine whether we should modify our current estimate based on historical operating experience. In connection with the internal review we retained an independent consultant to assist with the analysis.

As a result of the internal and independent reviews, we have concluded that we should increase the estimated useful life of our towers and related intangible assets from 15 to 20 years and we'll account for the change prospectively effective at the beginning of this year. As a result, we have reduced depreciation and amortization expense by approximately $30 million in the first quarter of 2008 and anticipate reducing annual depreciation and amortization in 2008 by approximately $120 million.

Our net income for the first quarter was $42.2 million, which includes approximately $18.8 million net of tax related to the change of useful life. Our capital expenditures totaled $44.6 million.

During the quarter we completed the construction of 18 towers and three in-building installations. While the number of new towers was slightly below our expectations, based on our current construction pipelines we continue to anticipate completing 300 to 400 new towers and in-building sites in our existing markets.

We've also signed our first build-to-suit agreement in India which Jim will discuss in greater detail. We anticipate spending $15 million in capital to complete approximate 200 towers during 2008 in India.

Separately, we acquired 244 new towers in the quarter. The average unlevered day one return of the 265 new sites that we acquired and built in the quarter was over 13% with strong prospects for additional tenants further increasing our future returns on invested capital.

We also had higher than historical levels of redevelopment capital expenditures during the quarter due to the incremental investment related to one of our customers as well as the expansion of several of our casino properties to accommodate additional tenants. As a result of our growth initiatives we are increasing our anticipated capital spending by $15 million to 200 to $230 million to reflect our India build-to-suit project.

Our strong operating performance produced approximately $138 million of free cash flow for the quarter. We define free cash flow as cash provided by operations less all capital expenditures. Please note that the free cash flow calculations include approximately $37 million of discretionary capital spending on new site construction and land acquisition as well as redevelopment of existing sites.

As indicated in our press release, we are increasing our 2008 outlook. At the midpoint of 2008 outlook we anticipate tower revenues of $1.5375 billion, tower gross margins of $1.193 billion, and adjusted EBITDA of $1.082 billion.

We continue to anticipate 2008 levels of commenced new business to be above our 2007 level based on our current pipeline of commenced and signed leases as well as our applications received in dialogue with our customers. Our financial position remains solid due to the strength of our operations and the continuing solid fundamentals of the wireless industry.

In March we substantially increased our liquidity with a new $325 million term loan facility which we used to pay down our existing revolving line of credit providing us with total undrawn capacity of close to $600 million.

We entered into interest rate swaps locking in our interest rate on the significant majority of the new term loan below 4% providing very reasonably priced capital. Over the past six months despite the uneven credit market conditions, we have successfully raised over $800 million of reasonably priced debt demonstrating the success of the diversification for financing sources and the strength and durability of our financial position.

During the first quarter we repurchased approximately 4.5 million shares for $171 million, and approximately 1 million shares subsequent to the end of the quarter. Our repurchase activity was lower than we had anticipated.

Under the purchase plan we put in place we expected to benefit from current market volatility by repurchasing a greater quantity of shares as the price declined and lower the purchase activity as the price of our shares rose. The strength of our share price performance subsequent to the end of the first quarter reduced the number of shares we have purchased to date.

We review our repurchase activity subsequent to our earnings release each quarter as we set our new 10b5 purchase program. We remain confident in our financial performance and seek to utilize our financial position to appropriately maximize shareholder returns through our investment and repurchase activity.

With five weeks into the baseball season the Red Sox are well positioned to return to their championship form sharing first place despite being by (inaudible) by the Rays last weekend. I will now turn things over to our Chairman and CEO, Jim Taiclet.

Thanks a lot, Brad, and good morning to everybody.

Our company once again delivered excellent growth in the first quarter, a 10% increase in cash tower revenue and a 14% increase in cash adjusted EBITDA. These results are a credit to our employees who are striving every day to get the many tasks accomplished that enable new cell sites and augmentations to be added to our towers and in-building systems.

We experienced strong commenced new revenue in Q1 of which 70% was new installations and 30% was augmentations to existing cell sites. Demand for tower space remains robust as being confirmed by our application pipeline which remains at high levels, by direct interactions with our customers and industry development.

Since the beginning of the year I've met with each of our most critical domestic and many international customers and from these meetings and the carrier's public statements have derived the following conclusion. First, the largest U.S. wireless carriers continue to aggressively invest in network quality for current 2 and 3G technologies while laying the groundwork for 4G data services, which include securing spectrum and defining technology road maps.

Second, Option 66 deployments continue and spectrum clearing is progressing well. T-Mobile, Leap and Metro PCS are all active with us. And third, we're securing meaningful lease up from a range of regional and emerging technology customers such as ITCS, MediaFlow and AirCell.

In Latin America, Mexican carriers continues to invest in their networks as quality plays an increasingly important role in that competitive market. While in Brazil, two market entrants in Sao Paulo state, coupled with regional deployments related to recent spectrum auctions are resulting in a significant increase in demand for our sites in Brazil.

Our strong first quarter financial results also demonstrate that our fundamental corporate strategies continue to pay off. Our management team first implemented these strategies in 2001 and we've been driving them forward ever since with appropriate course adjustments based on market conditions.

Our first strategy has been to focus exclusively on the tower leasing business model and achieve meaningful scale of high quality assets. By maintaining this focus, we've avoided the costs and management distraction of non-leasing businesses and have been able to add very high quality assets to the Company and leverage those assets to attain consistent tower revenue growth.

The U.S. wireless tower businesses is the core of our company. With the acquisition of SpectraSite back in 2005 we are able to accomplish the first and only tower company merger that brought together substantial former cellular, or 800-megahertz tower portfolios.

With this critical transaction towers purchase from SBC AirTouch, now Verizon, Alltel, Nextel and AT&T Corporation, as well as towers built solely for co-location by ATC and SpectraSite were all brought together. The characteristics of these towers were and still are critical because strongly lease up growth over time depends on three factors, location, tower capacity and ground space and what we call readiness.

At American Tower we feel we have the best tower asset in the U.S. and here's why. We have a healthy 63% of our U.S. wireless towers in the top 100 markets with an additional 28% in second tier cities in high traffic corridors which also experienced high demand.

It's our view that tower company built an 800-megahertz carrier towers generally have favorable structure capacity and tower space and ground space characteristics. These characteristics may support greater lease up potential and lower redevelopment Cap Ex over time.

Available capacity and ground space enhance the readiness of the site to accept new leases and equipment. With speed of execution increasingly important to our carrier customers, the quality of our tower portfolio provides for fast lease application cycle times.

We believe our company is an industry leader in this area of speed resulting in greater customer satisfaction based on our latest third party customer surveys which in turn helps us further maximize our share of new lease opportunities.

Our assets outside the U.S., which provide about 14% of our revenue currently, has similar characteristics to our U.S. towers. Revenue per tower in both Mexico and Brazil are at or above the U.S. average and both markets have delivered superior returns on investment while providing diversification to our customer base. And we continue to explore additional markets in Latin America and elsewhere for opportunities to replicate those successes in Mexico and Brazil.

After an in-depth assessment of the Indian market, for example, we have chosen for the time being to establish a presence by a build-to-suit agreements with key customers and are pleased to announce the first of these today. This approach enables to us enter the market on a construction cost basis versus the currently higher entry cost routes of large acquisition or joint venture alternatives available today in that country.

We believe we can achieve viable scale in India over a period of time with this build-to-suit approach while gaining experience on the ground that will help us evaluate potential future opportunities there and regionally. Our immediate goal in India is to build a set of high quality towers in the country and demonstrate our ability to drive industry leading co-locations rates in that market.

The commitment to achieve industry leading co-location rates in India is completely in line with the second of our major strategies over the last six, seven years and that's to use operational execution to maximize returns on our assets. Our operating teams have combined dedication to customer service and revenue growth with a commitment to cost control, and as a result, in the first quarter American Tower delivered 69% adjusted EBITDA margins, significantly higher than our industry peers.

Our operations in the U.S. and in Latin America use three fundamental operational processes to drive results and accountability and we'll take these processes to other markets as we enter them. These are an integrated operational goal setting and measurement process, our quarterly operational and financial reviews and our talent management process.

We complement this blocking and tackling of these basic management processes with our in-house continuous improvement team and with investments in data quality, site documentation and IT systems.

The overarching goal of all these operational programs is to rapidly provide our customers with information they need to make a purchase decision and then to sign a lease on our tower as quickly and accurately as possible. Speed is what we're all about and it's where we place our operational investments.

Our third major strategy is to maintain financial strength and flexibility. Simply said, we never want to be painted into a corner.

We never want an overstretched balance sheet to prevent us from being able to do the right thing for the business and for you, our shareholders, be it an investment and assets at the right (inaudible) price or returning capital to an appropriate share repurchase program. We also never want our investors to question our ability to refinance our debt at reasonable terms and costs.

As I've said, we are designing this company for long-term success. We are gifted with a foundation for future growth in the expanding wireless industry that we serve. Our balance sheet and capital structure position our company to weather a range of economic and financial market scenarios and still take full advantage of the opportunities that I'm confident will be available to American Tower.

As I hope you can tell, we're very energized about our current position and performance and even more so about the future.

So thanks for joining us on the call today and at this point Brad and I will be happy to take your questions. Operator? Danielle, are you there?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Rick Prentiss from Raymond James.

Good morning, guys.

Hello, Rick.

I guess it's appropriate to be first since the Rays are in first place by a few percentage points over you guys in Boston. That's the last time I'll be able to say that probably. A couple of questions for you guys.

First, on the change of the life of the tower assets, obviously, the non-cash item does reduce depreciation, does increase book taxes, can you update us on where your NOL. balance is and what this change might do as far as the lifetime of burning through that NOL and are you paying any cash taxes yet?

Hey, Rick, it's Brad.

It does not have any impact on our tax position, it's a GAAP adjustment in terms of the estimated useful life so our NOL is around $1.6 billion so it would not change the burning through of that.

We don't pay U.S. income taxes. We do pay certain franchise taxes that are not large in size but we are a taxpayer in Mexico and Brazil.

Second question is the Indian, as I call it the toe touch there, think it is a much smarter way to get in at what looks like, should we assume the $15 million is the full cost to build those 200 towers which would imply $75,000 per tower?

And some extra questions associated with that is how tall are the towers you're looking to build in India? What's the capacity that the towers could hold? What's the barriers to entry as far as zoning protection?

The anchor rent, can you help us kind of understand how the business model works in India from a standpoint of the anchor towers, the cost of the towers, the capacity of the towers, the anchor rent and how long it might take to get that second carrier?

Hey, Rick, you want us to send you over our business model?

That would always help and '09 guidance now would help, also.

Well, Rick, we actually had our Latin American teams design a special tower for the India market that would be easy to replicate the construction of low cost and be able to hold three carriers out of the box. And so that's our capacity goal is three to four carriers, initial construction cost of about 475,000, as you said, 40-meter towers plus or minus 5-meters depending on the utilization.

So it's basically a low cost way to get into a very fast growing market and we're going to build our way into it rather than go through the higher cost and probably higher risk routes of big acquisitions and big joint ventures for the time being.

And I would assume the Indian carriers would not be paying the similar kind of rent that we would see in the U.S., but in Latin America you do get some extra payments back for, I think, land, don't you?

We pass through ground rents in Latin America. That's not the case in India but there are some other pass through costs like security and things so in some contracts.

So what we basically have done, Rick, is align our business model to meet our return criteria and with the rates being set by the market, as you suggested, and India being a little bit lower than, say, Latin America we needed to make sure our cost basis was also lower going into the country and that's really the reason we established our beach head in this way.

I think it's a smart way to go. I guess the other way to ask the question maybe is you mentioned 13% kind of day one returns on the stuff that you did within the quarter as far as acquisitions and builds. What would kind of day one India IRs be then?

In India it'll be mid single digits with one build-to-suit customer which we expect to grow into mid double digits, mid-teens as you bring on the second carrier. And since it is the fastest growing wireless market in the world we think we're going to have a lot of confidence in getting a second and ultimately a third carrier on these towers someday.

Okay. Thanks a lot, guys, and we'll see how you do against the Rays this week.

Your next question comes from the line of Jonathan Chaplin from JPMorgan.

Thanks.

Just following on from that question, where do the IRs ultimately go as you get to three and then maybe four carriers?

And then if I could also ask you on the guidance, it looks like if I look at the increase in revenue, increase in EBITDA, it doesn't completely conform to your, to the expected incremental margins. I'm wondering what the offsets are there? Thanks.

Sure, Jonathan, it's Brad.

With regard to where the IRs ultimately go, I mean, the business is scaled similar to U.S. in terms of the incremental tenant in India doesn't come with a significant amount of incremental cost, it would not be passed through. So you should assume if we're getting kind of off a second tenant up to like a mid-teens [it should be] slightly better return the third tenant would also flow right above and so you'd be well in excess of that 20% or higher kind of return.

With regard to our incremental margins, they're still running, I'd say, the high 80s to 90% as you look at our outlook between revenue to the gross margin line item in the tower business and that's what you should anticipate as we move forward.

When you look at the slight disconnect between the increase in guidance for revenue and EBITDA, is there an offset to your typical gross margins?

Well, we had about $1 million more of corporate expense this quarter that had to be incorporated, so that's why you're dealing with fairly small numbers. So when you have the midpoint of revenue go up $7.5 million and EBITDA goes up $5.5 million or so, that extra $1 million counts towards that percentage.

There's not meant to be, there's no change in the actual business model just that we're incorporating what actually happened in the first quarter into that outlook for the year.

Got it. Thanks, Brad.

Your next question comes from the line of [Gore Stately] from UBS.

Thanks. Good morning, guys.

Just to follow-up on the India question a little bit, it's obviously a very fragmented market, a lot of wireless carriers especially beyond the top four carriers there. You don't have to give me a name but you said you're targeting some strategic customers, is it those top four big carriers or are you looking at the smaller carriers?

Our contracts indicate that we keep the counter parties silent on those and all I can tell you is it's major carrier that's growing significantly in India right now. It's not, I don't mean to say [it's in the opposite] (inaudible). It's not a new entrant [without a] business. We feel pretty confident about their ability to (inaudible).

That's great.

And then just on the guidance upside slight increase to the revenue guidance, is that coming mainly from domestic or is it Latin America? I'm assuming there's no India revenue this year.

Yes, the way our guidance, the increase is based on both U.S. and the Latin America operating performance, both of them were a little bit ahead of expectations internally. We did not incorporate the Indian assets that we put in place and that would probably be third and fourth quarter. You may have $1 million or two of revenue that may come in those quarters but it'll be pretty far out and so I don't think they'll change the guidance in any significant way.

Okay. Great. Thanks, guys.

Your next question comes from the line of Clay Moran from Stanford Group.

Good morning.

I wanted to ask about the existing towers, a few things. Could you just share with us the percentage of towers that are at full capacity now? And also the percent of new leases that require augmentation capital?

And then talking about the change in estimated life, can you talk about what you see with your oldest towers, what happens to maintenance Cap Ex if anything, how old those oldest towers are?

And then you raised the estimated life to 20 years but what do you truly think the life is? When do you need to replace a tower? Thanks.

A lot of questions, Clay. Let me go through each one.

On the capacity side, we don't give a specific statistic but very, there's a small percentage of our towers that we'd say are at capacity. Even those that are at structural capacity we typically can put money into a site and into redevelopment costs to add additional tenants.

So you can create capacity by what we call redevelopment capital. So I think there's very few times where we can't put a customer on a site and I think that's the best way to think of it.

In terms of how often we have to do something to the tower, probably one in five times when a -- one in four, one in five times when a new customer comes on, not when they're adding more equipment but a new installation is where we would have to put redevelopment money into it. The customer typically pays half of that cost when we do have to improve the tower when they come along.

In terms of our maintenance capital, it has not dramatically gone up or down over the last several years and the maintenance area is what we disclose as improvement capital. For the most part that, the largest driver of maintenance capital, believe it or not, are lighting systems and I think that's one of the bigger segments and so it's not actually the structure itself.

The structures, based on the studies we've used from third parties and our own operating experience, lasts well beyond 20 years and well beyond 30 years even in the studies, and some are 50 or 60 years. And even when you keep putting improvements into them can last even beyond that. So the structures are very long lived.

We went to 20 years based on an incremental approach to how we were looking at the useful life. And I think it's also comparable to our largest peer in the industry also uses 20 years.

Okay. Thanks.

Your next question comes from the line of Jonathan Atkin from RBC Capital Markets.

Yes, good morning.

I have a couple of follow-ups on India, but first of all, can you refresh us on what the average tenancy level is in Mexico and in Brazil versus the U.S.?

The physical tenants, 1.8 roughly in Latin America prices are higher there per lease as you might remember, Jonathan. So the revenue per towers are at or above the U.S.

And then the build-to-suit approach in India, is there a deep demand for that type of service by third parties such as yourself? I'm just trying to get a sense of how much you could ramp this effort if you decide after the initial 200 to go full bore.

There's estimates as high as the need for 300,000 more structures over the next five years so years in India, Jonathan, so there's plenty of open field to play in, frankly, and we're more interested in the performance of a set of towers, not necessarily the absolute number and so we feel there's plenty of room for us.

And what we really want to do in the India market is change it by driving co-location versus pure construction as the method of getting cell sites on there and that's what we'll hopefully really make our mark.

In the past I think you've talked about other Latin American and other South Asian markets. Are you still actively considering entering those?

Yes, we're considering them and using the same sort of due diligence that we have so far in India. And if you think of Latin America you might just view the kind of countries where we have common customers, Jonathan, and that would be kind of a good clue as to what's interesting. We don't have anything specific to announce yet but that's one way to kind of gauge where our interest level might lie in Latin America.

As far as overhead costs to support the in Indian efforts above and beyond the office that you established there, what are we looking at in terms of employees of ATC versus contracted labor and so forth?

We're doing it mostly with outsource contractors right now especially all the physical work. So we're thinking of a dozen people to get the first build-to-suit off the ground is probably what we would need on in-house.

Thanks very much.

Your next question comes from the line of John Marchetti from Morgan Stanley.

Hi. Thanks. Just one quick housekeeping item and then I'm going to beat this India thing to death again.

Can you against give a sense for the towers that you acquired in the quarter, you know, how many were U.S. and how many were in Latin America?

And then just following up on the comment you just made about changing the business model in India, what gives you the confidence that right now they're not just in land grab mode and everybody's just looking to put up a tower as quickly as possible but that you can convince operators to go this sort of co-lo route and get more tenants that way?

Let me just touch the acquisition piece first. It's was sort of an 80/20 Latin America-U.S. for us in the first quarter, so most of those sites were in Mexico and Brazil.

And then secondly on India, yes, there is a number of dynamics I'll say going on in that market right now. Some of those dynamics depending on who you are would drive to you build maybe more towers than to really actively try co-location on existing towers, but that's not going to be our motivation.

So what we're going to try to do there is what we've done in U.S. and Latin America which is to prove to the carriers is that if there's an existing tower, and hopefully it will be ours, that we can get them on air at a much faster cycle time than they could get by building their own tower or doing some other alternative and that's what I think is our goal in India is to prove that.

In respect to the competition that that you're seeing there today, is it largely that decision where there aren't a lot of tower operators and it's more just the carriers themselves or do you see a lot of third parties coming in now and trying to take advantage of the some of the growth dynamics that they see there?

In India there are a few existing third party companies. I would not say that there's a sort of Oklahoma land rush of company's coming in there and the market will settle out And I think the best performing third party companies will do well and some may drop off and some will get acquired.

We're very focused on, we're very cognizant of the surroundings but we're also focused on how we are successful and we are successful by, just as we did in Brazil, you know, 6, 700 towers at this point perform really well in a much larger market because we've got low entry costs and good co-location rates. And that's what we're going to strive to do in India and then if something larger opens up at the right entry cost we'll look at it also.

Thank you.

Your next question comes from the line of Jason Armstrong from Goldman Sachs.

Thanks. Good morning. A couple questions just one more on India. In terms of --

I'm going to start charging for these, Jason.

Okay.

Go ahead.

One more if I may. The foreign ownership caps, just how you're getting around this and are you splitting the economics here with anybody else?

No. Let me just answer that real quickly.

There are no foreign ownership caps on infrastructure in India where there are in wireless service matters, so we don't have that restriction and, frankly, one of the reasons we're going in the way we're going is so that we can control the whole entity at this point at least, so.

Okay. Great.

And then second question just on the share repurchase, I know you said there was some structural limitations around the 10b5 in the quarter just given the way the share price had moved. As you reset the parameters post the earnings release can we think about a rate similar to what we saw in '07 in terms of the pace of the buyback?

I think, Jason, we're still trying to take advantage somewhat of volatilities [although] volatility has been an upward bias of late but we want to maintain certain leverage parameters and so to maintain our leverage and not delever you should anticipate that we would increase the pace of buyback from where it has been.

Okay. Great. Thanks.

Your next question comes from the line of David Barden from Banc of America.

Hey, guys, thanks for taking the question. A couple if I could.

Just following up a little bit on the buyback side, Brad, obviously with LIBOR down you guys locking in some very low rates, does that increase the ability of the Company, do you think, from a relative yield perspective to go after stock so to speak?

The second question related to that is if you guys are going to be taking much more incremental steps in terms of a build-to-suit approach in India rather than maybe holding out for one of these big acquisitions, does that maybe release, again, some incremental capacity on the balance sheet from a leverage standpoint to go after stock if the credit markets can support it, I guess.

And then my last question is there's been a growing number of questions, if you've been listening to the calls over the last couple of quarters, about the ability of the tower industry to support the growth in wireless from a capacity standpoint. To your point, you guys are having to put money to work one in every four, one in every five new deals.

Does this kind of maybe unravel a little bit the whole idea of recurring cash flow being the relevant benchmark here since almost one in every four deals requires new capital to be put to work to grow? I'd love your comments on that. Thanks.

Let's take your last question first. We put in total, let's make sure we bracket this, that one in every four, one in every five totals $30 million a year. So this is not a significant capital expenditure. Usually they're fairly modest and, as I said, that is gross. It's not even net of what the customer gives us so we record it gross from a book perspective.

So if you think of our improvements costs us around $25 million a year across our portfolio and then the amount that we put into redevelopment is $30 million across the portfolio. That's really the aggregate amount you're putting into your existing portfolio in terms what our historic experience.

This year is a little higher in redevelopment but that's due to one specific customer in international. It has nothing to do with the structural limitations that we talked about. I think whether you want to call it recurring cash flow after improvements or recurring cash flow after the redevelopment, both of those I think are realistic expectations.

But we haven't seen an uptick in redevelopment just that's about where it has been running and you usually just need to put a little bit of money but it's reinforcing the tower through brackets so they're touching the foundation when you're adding customers. So I just want to be careful that you understand that fully as you've thinking about valuation and that is based on our specific capital spending history.

With regard to LIBOR and our share repurchase, look, it makes the math better the long-term we do or always think about ultimate value and how we create it best for our shareholders and that's how we base where our financial position is as well as the incremental opportunities to deploy that capital.

Having said that, India is starting off with an initial 200-tower build we are still looking at several other areas to explore internationally and we do also want to be able to take advantage if asset prices don't remain as tight throughout the world or there's opportunities that come up for us to put money to work.

So I think you'll still anticipate us to have financial flexibility. We think it's very important, that's how we create a lot of value, and we should still be within that four to six times leverage. Nothing has changed our bias to do that.

Great. And just maybe since you raise the issue, Brad, how does that contribution from customers who are participating in that capital enhancement of a tower come back to you from an accounting standpoint?

Have to recognize the revenue over the life of the lease. So if we have ten-year leases, if they give us $10,000, it's $1,000 a year. So it's a very small, you don't see it come through the income statement because it's over such a long period of time.

Okay. Great. Thanks, guys.

Your next question comes from the line of Michael Rollins from Citi Investment Research.

Hi. Good morning.

Just had a couple of questions on the land purchasing side. Can you give us an update in terms of where we are with the percent of revenue to tie to land or if you want to include 99-year leases that you own?

And then the second part of the question is how should we think about land repurchases over the next couple of years in terms of your valuation expectations for what you're bringing them in at? Thanks.

Michael, with regard to land repurchases, we look to protect the assets that's on that land so we either extend leases or we ultimately by the land. We're agnostic about which way we pursue that.

This year we budget 40 to $60 million, we'll probably be somewhere in the mid point of that maybe closer to 40 to 50 rather than 60. And that's really based on the cost to extend the land.

Right now we own about 16.5% of our sites. But also, just as important, we've extended many more sites over the last, call it, 18 months so we have very few sites that over the next 15 years will ultimately that we have to work through.

There's roughly about 1,000 sites over the next 15 years with the vast majority being years 10 through 15 that we need to work through. And so we do that by making payment to landlords or redoing the ground leases themselves.

One of the things that comes through as a prepaid rent is that we have about 4 or $5 million that we've spent over the last six months on paying landlords to extend leases and capturing another 20, 30 years. And so we really take it, we do the most economic way to take care of all of our leases and we've been very successful in protecting those assets.

Just to give you some numbers over 1400 leases have been extended or purchased in 2007. That was over that 12-month period. So we've been very, very successful in doing that.

We've got probably about 1,000 to go to make sure the next 15 years are completely taken care of. That should probably be done by the end of the year but no later than probably six months after that for the vast majority. And we just do it in a common sense economic approach.

And just one last question.

When you do extend the leases what kind of escalators do you see in those land purchases, or lease agreements?

We typically have three-year escalators, I'm sorry, 3% escalators. Almost all of our ground leases have 3%.

Thank you very much.

Your next question comes from the line of Anthony Klarman from Deutsche Bank.

Perhaps a larger piece of the international business going forward.

Anthony, the first part of your question either was on mute or something. Could you repeat it please?

I'm sorry. It was just about anything that you might be doing to manage FX exposure in the Indian market going forward particularly as you start making that a more significant presence in the international segment.

One of the key things about FX exposure or how we think about the currencies is making sure if you're getting paid in a currency in the sovereign currency of that country is you get the appropriate return. So we risk adjust all capital expenditures based on ultimately how we're getting paid.

So you take the sovereign rates, you adjust it for their equity market premiums and determine for us what the return on that asset is. The absolute fluctuations in those currencies we have not hedged out in the past and we probably will not hedge out in the past unless we felt that there was a situation that was unique.

So it's safe to say that as you compare day one returns in the U.S. versus India you are currency adjusting those day one return estimates to [for billing] purposes?

That's exactly right. We do it in Mexico, Brazil and we do that in India and every country we look at.

Plus, Anthony, there's local currency denominated costs that we incur so that's part of a self-hedge in a way.

Right. The business in and of itself is hedged because you're in occurring costs in the local currency. I guess I'm just wondering about how it translates into when you report U.S. revenue and EBITDA and things like that.

Sure. In the past the only currency that's benefited us, really has been the Reais down in Brazil and that's produced, last year it produced about 4 to $5 million of revenue on $1.4 billion was what the tower revenues were.

If I look at your balance sheet today and you had roughly, call it, $4.4 billion of debt at the end of the quarter and if I back out that 3.25% convert, that's pretty well in the money by a wide margin.

And I look at the midpoint of your guidance, you could actually see below your low end of your leverage range. I think even if you assume some pace of share repurchases with debt reduction I think at worse you'll probably be at the very low end.

I guess would it seem like you guys are pretty well set up in this market in the sense that you're at the low end of the leverage range for the entire sector and the low end of your own leverage range and the credit markets are more challenging. And so I'm wondering if there are opportunities that you're looking at to perhaps be more aggressive either, I think, some earlier questions were about maybe accelerating the share repurchase but maybe about accelerating some of the purchase opportunities maybe even in the U.S. as people aren't able to raise capital at the same types of rates that you've been able to and have the same type of leverage.

Anthony, most of the opportunities that you highlight are not on the small scale, they're on the larger scale. So when assets go above a certain price level in terms of the aggregation of that price, we do have, we believe, an advantage because we have access to capital and are fairly flexible from that perspective and so we have looked at certain situations.

On the smaller side, it is not apparent that we would have any advantage because buying 50, 100, even 200, 300 towers, I think the access to capital is fairly readily available.

And, I mean, I guess, what are you seeing in terms of, has there been a material change in terms of what sellers are looking to get paid given what has happened in the credit markets or has there, is there still pretty wide bid offer spread?

Anthony, we haven't seen a big change in what sellers are willing to accept for tower assets that they think are valuable and, again, as Brad said, for those portfolios they can be financed by numerous parties from different sources and that hasn't changed our view of how we value these things.

And basically it's the entry cost, what's the current cash flow and what's the potential growth of that cash flow. And when we make that equation work we'll be able to finance it and we know we can but it's not going to change the equation for us.

Final question.

You've got a couple of bonds that are refinanceable this year and I think they're the last remaining securities that you have that have any limitations in terms of high yield covenants because I think that 7% note you did was more in the investment grade format.

Just wondering about now as you sort of have another chance to redo your capital structure, if you thought that that was something that made sense this year if you could get the returns to work in terms of refinancing those remaining high yield notes and going to an all investment grade structure of the unsecured credit facility and then the investment grade covenant package?

Anthony, it's something we look at. We basically just run it if it economically makes sense to do that. We have plenty of room under the restricted payment baskets which would really be the only gating item on those two bonds at 7 1/8 and the 7.5.

Since we have plenty of room and we're well below the 7.5 times leverage, and that's without the carve out for bank facilities, we think we'd have, they're, at this point doesn't seem to make a lot of sense to call them in but we do evaluate it quarter-to-quarter periodically.

Thank you very much.

Your next question comes from the line of Joseph [Mastergiovan] from Credit Suisse.

Good morning. Thanks for taking the question.

If I could just follow-up on the land purchases I think historically you guys purchased land at about 10 or 11 times. Have you seen any change at all in prices there?

And then also a second question. It sounds like demand is strong across all your markets. Can you maybe talk a little bit about pricing that you're seeing in the U.S. and Latin America?

Why don't I take land and I'll turn it over to Jim for pricing.

Our purchases this quarter are probably more in the 11 to 12 rather than the 10 to 11 range, so it's modestly slightly higher. We're still fairly judicious in terms of what we think is appropriate to pay for land and in some cases if the historical rate was really low that could distort the multiples of what you pay and that's the best way to think about it.

But there are many people in many entities out there trying to buy land under towers. Some may not do it in the most economically appropriate way but we try to be fairly thoughtful about it.

On the demand side, Joe, It's not much affecting lease pricing and historically we've talked about this over the years, because the carrier's next best alternative is to build their own tower and those factors of production don't change much and therefore the lease price sort of [band] doesn't change much.

So the short answer to strong demand affecting initial lease pricing up or down is not much because of that alternative that carriers theoretically have which is to build.

Great. Thank you.

And I think we have time for one more question.

Your final question comes from the line of Jonathan Schildkraut from Jefferies.

Great. Actually two questions.

The first is back on the land ownership, is there another way that we can kind of quantify your protection on the down side of the land? Is there a weighted average length on the leases?

And the second question is we've been hearing a lot about incremental demand from wireless backhaul. Are you seeing any applications, any installations on the wireless backhaul side? Is that coming from, if you are, is that coming from carriers directly or is that coming from third party backhaul providers? Thank you.

It's Jim. On the wireless backhaul, I'll just take that first and turn it over to Brad on the land question

There is some incremental additional demand for microwave dishes for backhaul from a couple of carriers. I'd say in the U.S. that could be a combination of redundancy purposes and/or adding capacity and not necessarily paying for T1s to do so. It's been modest, it's helpful.

And, of course on Fiber Tower and a couple of other smaller companies they're out there doing that on a third party basis and we supported them for the last few years as far as tower space. So we get lease revenue from both those sources. It's helpful but it's not necessarily the driver of our revenue growth right now although it is helpful.

And just to give you, to be very specific about our land leases, and we do out it in the back of our investor presentation, but in the U.S. less than 1% of our cash flow is at risk before 2011 and less than 4% is at risk between 2011 and 2021. So in aggregate if you went all the way to 2021 it's under 5%. Does that frame it for you?

Yes. Thank you.

And, John, that team that Brad talked about earlier which is out either renegotiating or purchasing that property is focused exactly on that 5% and working it down.

Thanks again.

Thanks, guys. Thanks, everyone, for participating on the call. We really appreciate it.

Have a great weekend, everybody.

This concludes today's conference call. You may now disconnect.