美國電塔 (AMT) 2012 Q1 法說會逐字稿

Good morning, my name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower first quarter 2012 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 will now turn the conference over to Leah Stearns, Director of Investor Relations.

Thank you, Christy, and good morning. And thank you for joining American Tower's first quarter 2012 earnings conference call. We have posted a presentation which we will refer to throughout our prepared remarks under the investor relations tab on our website. Our agenda for this morning's call will be as follows. First, I will provide a brief overview of our first quarter results. Then Tom Bartlett, our Executive Vice President, CFO, and Treasurer, will review our financial and operational performance for the first quarter as well as our updated outlook for 2012. And finally, Jim Taiclet, our Chairman, President, and CEO, will provide closing remarks. 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 2012 outlook and future operating performance, our pending acquisitions, and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release, those set forth in our Form 10-K for the year ended December 31, 2011, and in our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligations to update the information contained in this call to reflect subsequent events or circumstances.

And with that, please turn to slide 4 of the presentation which provides a summary of our first quarter 2012 results. During the quarter, our rental and management business accounted for over 98% of our total revenue which were generated from leasing income producing real estate primarily to investment grade corporate tenants. This revenue grew 25.1% to nearly $684 million from the first quarter of 2011. In addition, our adjusted EBITDA increased 22.7% to approximately $463 million. Operating income increased 25.7% to approximately $274 million. And net income attributable to American Tower Corporation was approximately $221 million or $0.56 per basic and diluted common share. The increase in our net income attributable to American Tower Corporation was primarily related to our strong operating performance for the quarter, a $55 million gain from foreign currency, and a lower tax provision as a result of our REIT conversion. For the quarter, our effective tax rate, or ETR, was approximately 11.5% and we continue to expect that our ETR for the full year will be around 8.5%. The variance between our ETR for the quarter and our full year expectations primarily relate to certain discrete items including our foreign currency gains.

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

Thanks, Leah, and good morning, everyone. I am pleased to report that we had a solid start to 2012 which has enabled us to raise our outlook for the full year. This morning I'll start with an overview of our first quarter financial and operation results, and then I'll conclude with a discussion of our updated expectations for the full year.

If you'll please turn to slide 5, you'll see that for the first quarter our total rental and management revenue increased by just over 25% to $684 million. On a core basis, which we will reference throughout the presentation as reported results excluding the impacts of foreign currency exchange rate fluctuations, non-cash straight line lease accounting, and significant one-time items, our consolidated rental and management revenue growth was over 24%. Of this core growth of nearly 8.5% was organic with a balance attributable to growth from new sites. Included in this new site growth is the impact of the increase in pass-through revenues attributable to the nearly 11,400 new sites we have constructed or acquired in our international segment since the beginning of the first quarter of 2011. Excluding pass-through revenues, our rental and management revenue growth was nearly 24%. Our revenue growth from legacy assets across our global footprint reflects strong new leasing activity which we believe will continue as we move through the year. During the quarter, 60% of signed new business was attributable to new leases with the balance coming from amendments, and we expect similar levels of new lease activity going forward.

In the US, the key drivers of our organic revenue growth in the quarter were attributable to AT&T and Verizon's LTE network deployments, Sprint's activity under our recently signed MLA, as well as continued new business from the regional carriers and a host of other companies. Additionally in the quarter, our domestic segment benefited from $15.6 million of revenue related to two nonrecurring items which I will further discuss in a moment. In our international markets, we continue to see our customers actively deploying their voice and initial data networks. Our Latin American markets exceeded our expectations virtually across the board. This new business was driven by customers such as Nextel International and Telefonica who are continuing to build out their 3G networks in Brazil and Mexico, and UNE in Colombia who is currently building out the region's first LTE network. Our African markets also outpaced expectations for the quarter as new business commitments with our major customers in South Africa like Vodafone and MTN were stronger than anticipated. We expect these new business trends to continue as our customers invest in the networks to build out the recently acquired spectrum.

In India, where approximately 90% of our revenue is generated from the large incumbent providers like Vodafone, Idea, and Bharti, we expect the market share leaders to continue to pursue investments in their wireless networks. Bharti for example has already launched 4G services in India, and we expect wireless data to become an increasingly important part of the wireless market in India going forward. Our overall revenue growth from new sites reflects the impact of our acquisition or construction of nearly 11,900 sites globally since the beginning of the first quarter of last year. Over 95% of these new sites are located in our international markets where we have continued to focus on diversifying our global portfolio.

Turning to slide 6, during the first quarter, our domestic rental and management segment exceeded our expectations with reported revenue growth primarily driven by an increase in cash leasing revenue from our legacy towers and the impact of two one-time revenue items. Our domestic rental and management segment reported revenue grew nearly 17% to approximately $487 million, and our domestic segment core revenue growth was over 11%. I'd like to spend a moment to discuss the one-time revenue items included in our domestic results. One -- the first one, was approximately $6 million as a result of a tenant billing settlement. And the second one, about $10 million as a result of a lease termination settlement. The lease termination settlement relates to an outdoor distributed antenna system network which we built in 2010 for a cable provider. The cable provider had acquired the spectrum, committed the capital, and deployed an initial network, but ultimately decided not to launch service. While we recovered nearly the full construction cost of the network, because of the limited cash flows associated with the network and in accordance with GAAP, we also recorded an impairment of approximately $11 million during the quarter. However, we do intend on continuing to actively market the network to seek additional lease-up on the property.

During the quarter, our domestic core rental and management segment organic revenue growth was approximately 8.5%, which reflects new cash lease revenue in the US. As I mentioned previously, this leasing activity has been primarily generated by two of our largest customers as they continue to focus on deploying initial coverage for the 4G LTE networks nationwide as well as smaller contributions from our other carriers. The remainder of our core growth were 3.1% was generated from the over 530 sites we've acquired or constructed since the beginning of the first quarter of 2011 in addition to our acquired land interest portfolio. Also in the quarter, our domestic rental and management segment gross margin increased approximately $60 million or nearly 18%, which reflects a year over year conversion rate of 86%. As result of our growth in gross margin, operating profit increased over 18% to almost $375 million.

Turning to slide 7, since the beginning of the first quarter of 2011, we have continued to make significant investments in our international rental and management segment, adding nearly 11,400 communication sites to our portfolio. This includes the first quarter construction of nearly 600 sites and the acquisition of 800 sites in Brazil, which we closed at the end of the quarter. As a result, our international rental and management segment reported revenue has increased approximately 53% to $197 million, reflecting core growth of over 65%. During the quarter, our international operations accounted for 29% of our total rental and management revenues. As we add to our international portfolio, our pass-through revenue continues to increase as we share a portion of our operating costs with our customers.

During the first quarter, our international pass-through revenue was nearly $49 million, which reflects an increase of over $15 million from the year ago period. Excluding pass-through revenue, growth in our international segment would have been nearly 55%. The strong performance of our international operations was driven by our core organic revenue growth, which was over 9% in the quarter. From a reported gross margin perspective, our international rental and management segment increased 48% year over year to $130 million, reflecting a 62% gross margin conversion rate. Excluding the impact of past-through revenue, our gross margin and gross margin conversion rate was 88% and 80% respectively. Further, our international rental and management segment SG&A expense increased $6.4 million from the first quarter of 2011. The majority of this increase was attributable to costs associated with establishing our presence in our new markets including Uganda, as well as investing in scaling our legacy operations to support our ongoing growth. As a result of our international rental and management segment gross margin growth, our international segment operating profit increased over 51% to roughly $106 million.

Turning to slide 8, our reported adjusted EBITDA growth, relative to the first quarter of 2011, was nearly 23% with our adjusted EBITDA core growth for the quarter at 22.5%. We increased adjusted EBITDA by $85 million primarily as a result of the $134 million increase in total revenue of which approximately $15 million was attributable to the increase in international pass-through revenue related to the addition of new sites. Offsetting revenue increase was an increase in direct expenses excluding stock-based compensation expense of $35 million of which $15 million was the corresponding increase international pass-through costs, and nearly $5 million of direct expense increase was attributable to our African markets which we were just launching in early 2011.

Finally, SG&A excluding stock-based compensation expense increased $13 million from the year ago period. For the quarter, our adjusted EBITDA margin was over 66%. Excluding the impact of international pass-through revenue, our adjusted EBITDA margin for the quarter was over 71% consistent with prior quarters, and our adjusted EBITDA conversion rate was 64%. This conversion rate reflects impacts of our investments during 2011 to strengthen our SG&A base to support future growth. And during the quarter, AFFO increased by approximately $35 million or 13% relative to pro forma AFFO in the first quarter of 2011. Core AFFO increased by approximately 16% which excludes the additional impact of one-time start-up CapEx as well as the impact of currency fluctuations.

As outlined on slide 9, we deployed over $120 million via our capital expenditure program in the first quarter, including $64 million on discretionary capital projects associated with the completion of the construction of over 600 sites globally. Of these new builds, 29 were in the US with the remainder throughout our international markets. The majority of our international new tower builds were in India where we continue the build-to-suit project for both Reliance and Vodafone with the rest of our new sites primarily being built in Mexico, Brazil, and Chile.

We continued our discretionary land purchase program in the US to secure additional interests under our existing tower sites. In the first quarter, we invested about $15 million to purchase land under our existing sites through our capital expenditure program. And as of the end of the quarter, we owned or held long term capital leases under 28% of our domestic sites. Our first quarter 2012 spending on redevelopment capital expenditures, which we incurred to accommodate additional tenants at our properties, was $23 million. Redevelopment spending continues to be slightly higher than historical levels do to spending in our legacy Latin American markets to accommodate the additional capacity needs of our tenants. As I mentioned earlier, we are seeing strong lease-up trends in the region and are redeveloping some of our sites to ensure that we are well positioned to capture this incremental demand for our tower space.

And finally, our capital improvements and corporate capital expenditures have increased in tandem with our increase in tower assets in addition to the start-up maintenance CapEx in Ghana and Colombia we discussed last quarter. In aggregate, these capital expenditures came in at approximately $20 million during the quarter. From a total capital allocation perspective, we deployed nearly $370 million during the first quarter, including declaring our first regular dividend of $0.21 per share or approximately $83 million; over $121 million on capital expenditures; and approximately $159 million for acquisitions, most of which related to funding transactions which closed in the fourth quarter of 2011. During the first quarter, we acquired 35 communication sites in the US and 800 communication sites in Brazil. Please note that the funding for the sites in Brazil was completed in April. And finally during the quarter, we spent nearly $5 million to repurchase about 80,000 shares of our common stock pursuant to our stock repurchase program. We continue to expect that we will manage the pacing of our stock repurchases based on market conditions and other relevant factors.

Turning to slide 10, I'd like to spend a moment reviewing our success deploying capital while simultaneously increasing AFFO and return on invested capital. Please note that for comparison purposes we presented pro forma AFFO for prior year periods. Since 2007, we've invested nearly $9 billion in capital expenditures, acquisitions, and stock repurchases. Concurrently, we've increased in both our pro forma AFFO and pro forma AFFO per share on a mid-teen compounded annual basis. In addition, from 2007 to the first quarter of 2012, we've increased our return on invested capital by 180 basis points to 11.5% for the quarter. We've been successful at driving this growth through our disciplined capital allocation strategy. This strategy is simple.

First, seek to return capital to stock holders through our dividend to ensure we maximize the tax efficiency of the structure for our stockholders. Second, we seek to reinvest our excess capital into our business store capital expenditure program. Third, we further allocate capital acquisitions both in our existing and potential new markets when our return hurdle thresholds could be achieved. And finally, if our opportunities for reinvestment are exhausted, we deploy our excess cash flow through our stock repurchase program. We manage the entire capital allocation process within the construct of our targeted capital structure. Our disciplined approach to investments has resulted in our capital allocation strategy driving meaningful growth in both our return on invested capital and AFFO. As a result, we believe this capital allocation strategy will continue to create significant value for our stockholders.

Moving on to slide 11, given our strong first quarter results and expected demand trends for the balance of the year, we are updating our outlook for 2012. Please note that similar to past precedent, these numbers do not include any of our pending acquisitions with the exception of the 1,000 or so Uganda towers we expect to close over the next couple of days. Accordingly, our outlook reflects following adjustments. First, we are increasing our rental and management segment revenue midpoint to $2.77 billion from $2.69 billion, representing an increase of $80 million or 3%. As you can see, approximately $18 million of the increase is attributable to cash organic business out performance, while $40 million represents the revenue contribution from newly acquired assets not previously included in our outlook. The remainder is attributable to the weaker than expected dollar in the first quarter, a slight increase in straight line revenue for the balance of the year, and the impact of the first quarter's one-time items.

Second, we now expect our adjusted EBITDA for 2012 to be $1.82 billion at the midpoint, which is an increase of $55 million or 3.1% from our initial outlook. $28 million of the increase is attributable to the out performance of our legacy assets, $10 million is attributable to new assets, and $17 million is attributable to a weaker than expected dollar in the first quarter plus the impact of the first quarter's one-time items. Please note the flow through of revenue to EBITDA for our newly acquired assets is tempered by the impact of pass-through revenues and that the assets we acquired are primarily single tenant carrier towers which we believe have high growth potential.

Lastly we are raising our AFFO outlook for the year to be $1.186 billion at the midpoint, an increase of approximately $20 million over the guidance we shared with you in February. The increase in AFFO is attributable to the $55 million increase in adjusted EBITDA which is partially offset by increases in projected interest expense as a result of our recent 4.7% senior notes issuance and higher cash taxes due to the higher forecasted profitability of our international segment. In addition, we are expecting to incur an additional $5 million of start-up Cap Ex related to the launch of our operations in Uganda, similar to the start-up CapEx in Colombia and Ghana that we had discussed last quarter. For the year in these three markets, we expect to spend a combined $20 million for these nonrecurring start-up expenditures.

Now on to slide 12, I'd like to discuss the detailed components of our current outlook for rental and management segment revenue. We currently expect that our full year total rental and management revenue will increase to between $2.745 billion and $2.795 billion in 2012, representing year over year growth of almost $385 million or 16.1% at the midpoint, and representing core growth of approximately 18.7% at the midpoint. The overall increase in total rental and management revenue can be broken down further into a number of discrete items. First of all, 3.8% of the growth will come from our contractual rent escalations from our existing tenants which represents about $85 million of incremental revenue for 2012. Second, at the midpoint we expect approximately $118 million of our revenue growth will be generated from new revenue on our legacy sites, including new business lease-up and amendment activity.

In addition, about $248 million at the midpoint of our revenue growth will result in the incremental impact of our new sites which we built or acquired since the beginning of 2011 and includes our expectation that pass-through revenue attributable to our new sites will increase approximately $55 million to $230 million. In addition, we estimate the churn will be about 1.4% and offset revenue growth by about $31 million. And finally, we estimate that non-core items will negatively impact our revenue growth in 2012 by $35 million. This is primarily attributable to the impact of a stronger US dollar, partially offset by the positive one-time items from the first quarter which I highlighted earlier.

Within these rental revenue growth numbers, we expect our domestic rental and management segment to grow nearly 9%, mostly via organic growth as well as the additional benefit of the one-time items from Q1. Further we estimate that our international rental management segment revenue growth will be over 37% driven by both organic and new site growth. Please note that our current estimates for our international operations reflect the same FX assumptions for the remainder of the year that we used for our initial outlook. These outlook ranges reflect our expectation that leasing levels in the US will be more favorable than the levels we experienced in 2011. This assumption primarily reflects robust growth from AT&T and Verizon, but does not include any material new business contribution from Clearwire's LTE network overlay nor does it include an increase from T-Mobile. Although we are hopeful that we can see that materialize in the latter half of the year.

In our international markets where we expect double digit core organic growth in 2012, we anticipate that the strong leasing trends we experienced in Q1 will continue. In Latin America, we expect companies such as Nextel International and Telefonica to roll out their recently acquired 3G spectrum. Additionally, indications are that 4G spectrum will be auctioned in Brazil within the next few months, which may prove to be an additional catalyst in the near to mid-term. In India, we also anticipate demand trends to be solid going forward as the major carriers there continue to enhance their existing networks and eventually deploy 4G. In light of recent developments, it's important to note that we have very limited exposure as a result of the recent spectrum cancellations in India, as our strategy has been to focus our business with the incumbent service providers who are operating prior to the 2008 spectrum options.

As a result of this strategy, only 3% of our Indian revenue is at risk for cancellation and it has already been reserved in full. Therefore looking forward, we see potential opportunity for us as our major customers continue their spending to further deploy their existing spectrum licenses. And finally, in Africa we are expecting the solid leasing levels we experienced over the last few quarters to continue for the rest of 2012 as carriers continue to add coverage and capacity to their networks. As I mentioned earlier, we have excluded from our current outlook the impact of our pending acquisitions of 1,300 sites for an aggregate purchase price of just over $150 million. The pro forma run rate impact from these sites would be approximately $30 million of rental and management revenue on a full year basis, which includes approximately $10 million of pass-through revenue and $15 million of gross margin.

Turning to slide 13, we currently expect our reported 2012 adjusted EBITDA to increase about $225 million at the midpoint to be between $1.795 billion to $1.845 billion with core growth of 16.5% at the midpoint. We remain focused on controlling costs in our business and our outlook for adjusted EBITDA reflects a gross margin conversion rate excluding the impact of increases in pass-through revenue of about 80%. In addition, cash SG&A is expected to continue to trend below 10% of revenues. As I mentioned, aside from the impact of our Uganda acquisition, we've excluded from our current outlook the impact of our pending acquisitions. The pro forma run rate impact to adjusted EBITDA from our pending acquisitions which contributed approximately $15 million on a full year basis. In regards to our expectations for this year's AFFO, we are increasing midpoint of our outlook to $1.186 billion, representing growth of nearly $120 million or over 11% or over 12% on a per share basis. On a core basis, we expect AFFO to grow by nearly 15%.

Turning to slide 14, in 2012, we will continue to pursue our discipline approach to capital allocation. We are reaffirming our plan to deploy between $500 million and $600 million in CapEx during 2012 which includes spending on the construction of between 1,800 and 2,200 new sites. During the first quarter, we spent approximately $159 million on acquisitions and are currently projecting total expenditures for acquisitions for the full year of between $600 million and $650 million. This includes approximately $170 million that we anticipate spending in May as well as an additional $150 million committed to funding the acquisition of approximately 1,300 sites we believe will close by year end. Considering these investments on a pro forma basis, we expect to have well over 50,000 sites by year end. And finally in 2012, we continue to project that our primary method of returning capital to stockholders will shift to our regular dividend, which for the full year we expect will be between $0.84 and $0.90 per share or approximately $345 million at the mid-point, reflecting an AFFO payout ratio of about 28%.

Turning to slide 15 and in conclusion, we had a very successful first quarter and believe we've built a strong foundation for the rest of the year. We have seen robust leasing activity in all of our markets and anticipate this trend to continue throughout the rest of the year. Our recent investments in people and systems are paying off in the form of process efficiencies and adequate staffing levels to allow us to rapidly expand our portfolio. And moreover, we continue to leverage our relationships with premier global telecom companies such as MTN and Telefonica to add high quality assets to our portfolio and grow the business. We continue to try to optimize our balance sheet to enhance our financial and operational flexibility, and ended the quarter with approximately $1.8 billion in liquidity and leverage of about 3.7 times. As a result of our opportunistic capital raises over the last several years, we have also been able to ladder our debt maturities and have no significant refinancing requirement until mid-2014. Through the payout of our first regular dividend, we've introduced a new means by which we are able to return capital to our stockholders while utilizing a US tax strategy that we believe to be optimal for our business. As I previously noted, we now expect a full year distribution of $0.84 to $0.90 with the timing and amount of the distributions at the discretion of our board of directors. In closing, we believe our recent investments will position us well to capture strong growth in 2012 and beyond. Our operational expertise and the strong underlying wireless demand trends I have highlighted today throughout our global footprint have positioned us well to have another very successful year in 2012.

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

Thanks, Tom, and good morning to everyone on the call. Our first quarter operating performance of 25% tower revenue growth, 23% adjusted EBITDA growth, and 13% AFFO growth demonstrates that our core business execution and disciplined investment approach continued to deliver compelling results for shareholders. As a result of this robust first quarter performance and the completion of our recent acquisitions, as Tom said we raised our full year guidance for 2012 for all three of the key financial measures. Today, I'd like to spend a few minutes discussing how we believe our strategy allows us to further differentiate American Tower as a unique investment opportunity in real estate leasing in the fast growing mobile communications sector.

In the US, our first mover advantage in tower industry consolidation domestically resulted in what we believe is the highest quality portfolio of properties in the US today. Internationally, our global diversification strategy provides opportunities to boost organic growth through early stage real estate investments and faster growing wireless markets. Globally, our focus on maximizing the utilization of our existing asset base complemented by our consistent and disciplined approach to evaluating investment opportunities has enabled American Tower to deliver compounded growth in AFFO per share in excess of 17% over the past five years while simultaneously increasing our return on invested capital by 180 basis points to 11.5%.

In the US, American Tower holds largest portfolio properties either constructed as part of a build-to-suit project or acquired from the original cellular carriers or independent tower companies that we purchased. This is an important strategic advantage which we believe will drive superior returns on invested capital and it's nearly impossible to replicate. Specifically, towers built by independent tower companies like us or the original cellular carriers generally have greater initial capacity to accommodate more tenants, and equally as important, larger ground space with favorable ground lease terms. This added capacity results in lower ongoing OpEx and CapEx as additional tenants are added resulting in stronger AFFO and return on invested capital growth in our core domestic US business.

Through our 2005 acquisition of SpectraSite, American Tower brought together two of the three highest quality US tower portfolios at that time. The quality of that combined portfolio has been in one of the key drivers of our ability to generate the highest cash flow margins in our industry. Another benefit of our acquisition of SpectraSite was the addition of distributed antenna system or DAS capabilities. Today, American Tower operates the leading portfolio of indoor DAS properties in the US and we've had seven years of small cell experience. We believe that the best strategy for DAS continues to be measured internal investment to enhance our internal capabilities and ensuring that we're positioned to meet our customers needs with when and if they evolve. While we don't currently experience or envision huge demand for distributed antenna systems as compared to the tower base macro cell network, we do expect it will be a complementary part of our customer solution set to meet some of their dense urban market deployment needs.

Strong secular trends continue to support our US business with wireless carrier CapEx expected to exceed $30 billion in 2012. As a result of the growth in wireless data usage, we believe our customers will continue to invest to increase the coverage and capacity of their evolving data networks for years to come. Moreover, we are highly confident that similar dynamics around wireless data and entertainment adoption will occur in our international markets. Consequently, after we completed our integration of SpectraSite in 2006, we launched our global diversification strategy, as we felt that American Tower had the necessary experience and intellectual property from our many years of operation in the US, Mexico, and Brazil to build further value for our shareholders globally. As a result, we started to replicate our investments in Mexico and Brazil which at that time and currently now are generating the highest returns in our Company.

Through a detailed global assessment of macro business and political fundamentals, wireless industry dynamics, and counter party opportunities, we've identified select countries where we felt we could duplicate this past success. Today, our international segment represents approximately 29% of our tower revenue, 23% when you exclude the pass-through revenues, and validating our original revenue thesis, our international properties cash organic revenue growth is higher than that of our domestic segment, as Tom pointed out, on a currency neutral basis. We are confident that our investments in our international operations will lengthen and strengthen our Company's growth potential.

A key component of our international diversification strategy has been our focus on aligning ourselves, not only with great countries, but with high credit quality counter parties, as demonstrated by our relationships with some of the world's leading global telecommunications companies like Telefonica, MTN, Vodafone, Bharti, and America Movil among others. As a result of our global reach and longstanding business relationships with many of the world's leading companies, American Tower has developed and continues to pursue a much broader set of investment opportunities. We've invested in a global M&A platform which today maintains a robust acquisition pipeline around the world. Through our disciplined M&A evaluation process, we conduct a detailed discounted cash flow evaluation analysis of each opportunity which we consistently apply globally. Then we compare our DCF valuation to current trading multiples to provide relative value context in the current market. We intend to continue this disciplined approach to valuing opportunities and we only pursue those which meet or exceed our risk adjusted internal rate of return hurdles that will help us continue to expand our return on ROIC over time. We believe the effectiveness of our acquisition assessment process has demonstrated our investment discipline and our continued commitment to delivering compelling growth and return to our shareholders.

The final point I'd like to highlight before we turn the call over for your questions is how we seek to return capital to shareholders, which we believe further enhances our total return profile for our investors. This includes both our dividend distribution which Tom outlined earlier. We initiated that in connection with our reconversion and we still maintain our stock repurchase program as well. Given the growth opportunities we see for our business, our current dividend distribution levels provide for a yield to our investors comparable to that of other high growth S&P 500 companies. For 2012, our dividend distribution is expected to be approximately 30% of our AFFO or our internally generated cash available for distributions.

As we reach the full utilization of our current net operating losses over the next few years and as our tower depreciation expense diminishes, our distribution as a percent of our AFFO will likely increase such that we would expect our dividend distribution growth to outpace our AFFO growth. Of course, each distribution will be subject to the approval and the discretion of our board of directors as we move along. It's also our expectation that given the strong organic growth characteristics of our communication real estate assets and with our relatively low leverage as compared to other REITs, we believe that American Tower would be in a position to deliver both dividend growth in excess of AFFO growth while continuing high levels of reinvestment in the business to drive continued expansion in our top line and adjusted EBITDA as well. Our goal is to be a growth plus yield company.

And with that, operator, you can open the call up for questions.

(Operator Instructions)

Jason Armstrong, Goldman Sachs.

Maybe a couple of questions. First, just wanted to follow up on the last comment on dividend distribution and just thinking what that could be and in 2013, 2014, and beyond. You said the relationship between AFFO and earnings per share sort of implies 30% AFFO payout this year. That should go up over time. Can you be any more granular on what that may look like in 2013 just given what you know on NOLs, bonus depreciation, and how that runs off. And then second question, just with everything that T-Mo wants to accomplish over the next year, year and a half and the pace they want to move at, would you expect contractually that this could probably take the form of an MLA similar to what we saw from other carriers? Thanks.

Sure, Jason, let me take the first one and I think Jim will take the second one. With regards to the dividend distribution, given some clear guidance around what we expected the distribution to be this year because it was very -- we thought it to be very helpful given the fact that this was the first year in fact that we were going to be paying a dividend relative to our movement to a REIT. But let me give you a few data points that could be helpful to understand how we think about this distribution growth over the next few years. First of all, we have an internal goal of sustaining long term double digit AFFO growth. We've historically been able to generate and we have that continued goal going forward. Our current payout ratio as a percent of AFFO is in the 28% to 30% range depending upon the guidance that we give in the $0.84 to $0.90 based upon the midpoint of our 2012 outlook. Over the long term, as our NOLs and depreciation tax shield declined, as you identified, our distribution should begin to increase as a function of both AFFO growth and higher payout ratio. And this would obviously result in the distribution growing faster than our AFFO growth rate. Now clearly, this is all going to be a function of where our board lands on that and it's within their sole discretion, but hopefully that gives you a couple of data points that will be helpful to think about that going forward.

Yes, Jason, this is Jim. Regarding T-Mobile and their future, our goal with each of our customers is to contribute to making them successful in their technology deployments and upgrades, and at the same time optimizing American Tower's revenue growth trajectory with that customer and minimizing churn risks, especially episodic churn risks. You can expect that we're going to apply those same principles in our collaboration with T-Mobile going forward, and we'll be able to talk more about that when we have some conclusions with them.

David Barden, Bank of America.

If I could just follow up on the AFFO and the DIV question again another way which is -- philosophically, look, you guys have raised AFFO guidance target as a result of paying out a $0.21 dividend. The low end of your dividend range has come up. So as you think about AFFO growth maybe being in excess of expectations, is your recommendation to the board to try to consume NOL faster? Or does the higher AFFO maybe embolden you to move to the higher end of dividend expectations? The second question I had, Tom, just on India, you said it was fully reserved. Could you talk a little bit more specifically about what that means for reporting? And if we had to think through a bad case scenario for the Indian market license issues, what does that mean for AMT? Thanks.

Sure, David, on the second one -- on the India, we looked at some of those companies, some of the smaller companies that we didn't think candidly would be back in the market relative to some of the events that are going on. And they represented roughly 3% of the -- our revenue stream in India. And we in essence have canceled those or set up an allowance, if you will, for those, and that charge hit in the first quarter relative to our run rates. So there isn't any longer any more run rate revenue coming for them, and that's included in the churn numbers that we outlined today.

We have about a 0.3% exposure, David, to the entire Company which has been reserved. So I think it's passed us. And let me just say a word on the second topic and Tom can add more color if you like. But again, we're working to optimize growth in the business, David, and the yield for our shareholders at the same time. And so, that would imply that we're going to work the assets that we have as efficiently as we can, acquire new assets at attractive prices, and show growth in the dividend as well to reflect that on both dimensions. So, that's the philosophy. We will work with our board on this. We'll give them recommendations every quarter, every year on what those relative growth rates ought to be. But our expectation is that our dividend growth will be faster than the average REIT and it will also exceed our AFFO growth. That's our expectation and that's how we'll philosophically work with the directors.

So -- and I apologize to follow up. So can I interpret then that while you're raising your AFFO guidance, but you're not raising or changing your dividend expectations that the inference is that you've decided to reserve that incremental benefit for incremental investment in growth as opposed to incremental investment in dividend returns?

Yes, I think that's fair, David. And we're talking about 2012, and that we had a range for the dividend between $0.84 and $0.90. So clearly, we could be at the high end of that particular range. And I think that as Jim pointed out going forward, I think that the way -- the right way to think about this is to look at the AFFO growth and looking at the distribution we think that will outpace that AFFO growth. And there are an awful lot of things that can go on from a tax return perspective in terms of looking at what taxable income is, bonus depreciation, all kinds of items. So I think the best way to think about it is just as Jim laid out, that we would expect that the dividend to be -- our goal would be to have it be higher than our AFFO growth going forward. And we think that coupled with the AFFO growth in the business really provides an attractive return for our shareholders.

And to put a final point on the topic, David, for you is we take capital allocation very seriously, we always have here. This is another aspect of capital allocation. So as you've already have seen in 2012, we've raised the midpoint of the guidance for the dividend for the full year. So you can see that there's allocation between the outperformance of the business to funding more business growth and to raising the dividend already. So that's how again, I would philosophically look at it going forward. We're going to try to make intelligent capital allocation decisions, especially when the business outperforms.

All right. Thanks, guys.

Steve Sakwa, ISI group.

Just a couple of questions. I guess you sort of hinted at this in the back, but when you look at the SG&A and the leverage and the investments that you're making in these overseas markets, the SG&A grew about 20% and revenues grew about 24%. So where are you on the international investment side? And is it fair to assume that SG&A going forward will be growing at a slower pace than revenue in order to get you margin expansion or do you see further investments to make in these international markets which might keep margins flat for awhile?

I think it's a very fair assumption. We've made some upfront investments including the investments in Uganda that we've been building and now anticipate actually closing on those towers in the next couple of days and the venture that we're doing with MTN. So as you would expect, when you're going into the markets there are upfront costs in terms of systems and people that we need to incur. And what we would expect then going forward is we would increase tenancy on these particular towers that we would be able to expand the margins, and I think the logical place to look is at the -- what we've seen in our US market. And the ability to increase the margins in our US business with the increased tenancies and I would expect to see those same kind of trends in our international markets.

Okay. And then I guess a second question, and it relates to that point you made about increasing tenancy. And I know the domestic portfolio was somewhere in that 2.6 to 2.7, I believe the international portfolio is closer to 1.6. Can you give us any sort of data points to show how those towers are increasing, if you will, the occupancy rates? And as you think about making new acquisitions overseas, how do you weigh buying more towers with low tenants on and maybe having not filled up the older tenants? What's the -- how do those two play with one another?

I think the easiest metric to look at is what we call our organic growth rates. And if you take a look at our US market, this past quarter we talked about an 8.5% of organic. That's kind of the same tower sales, if you will, lease-up as well as amendment activity on the existing site that we had for over 12 months. And so, in our domestic market, US market was on an 8.5%, international markets it was 9.3%. So we're already starting to see an increased demand for those more single tenant towers because, as you properly pointed out, in our US market were 2.7 tenants, and I think in international markets were on average about 1.5.

So we would expect a higher organic growth rate in those markets going forward for a couple of reasons. One, is that we're creating a co-location market, if you will, and many of the countries. You look at Chile, Peru and Colombia for example, those were all single tenant towers. So we're creating that market, creating that demand, putting master lease agreements in place with all the carriers and leasing that up. As well as where they are from a technology perspective, because they're, in many of our markets, one or two technologies behind. So as they try to, in those markets, continue to expand and grow those technologies, that's another impetus for what we would hope to be a higher tenant growth rate. So we are -- we would expect a higher growth rate from those markets going forward. But I think that same tower sales or organic growth rate is probably the best metric to look at.

Jonathan Atkin, RBC Capital Markets.

I wondered if you could talk a little bit about the guidance for this year and to what extent it reflects activities from some of the projects that are in ramp mode -- so Network Vision, Clearwire, and T-Mobile. And then, with regard shared generators, can you talk a little bit about what would dictate the future pace of those deployments.

Sure, Jonathan. On the US market, for example, our guidance currently does not include any material increase at all from Clearwire and/or Sprint -- or from T-Mobile rather. T-Mobile represents 2% of our lease-up activity and it has for the last couple of years. And that's what I have in the guidance. So there is no increase there. And Clearwire is less than 1% and I haven't included any increase at all from those levels going forward. So what we have in the guidance going forward is really what we have been seeing over the last three to four months which reflects a nice increase in commitments in the first quarter over 20% in the first quarter, and we would expect on a consolidated basis that to be realized throughout the year. As you saw in the rental revenue bridges that I was trying to identify in my remarks, we have roughly $18 million of outperformance happening on a consolidated basis and that's split pretty evenly between our US and our international businesses which reflects what we've seen in the first quarter and what we would expect to see for the balance of the year.

And John, it's Jim Taiclet. The generators, it's a nice complementary adjacent business line for us primarily in the US right now and it's getting traction. We've have about 1,000 units out there. We're on track to try to get another 1,000 out in say the next 6 to 12 months. It will be a medium -- small to medium sized business line for us over time. And we're hopeful that the carriers, once they get through their large technology deployments, will pay a little more attention to the backup power aspect of it in years down the road. So it's a nice niche for us that we hope to grow.

And I might have missed it, but the guidance, both current and the prior guidance, does it include the 800 Brazil towers or not?

No, that was incremental. That was again a transaction that has resulted out of the relationship that we had, and so we've been able to develop that and we're able to close that at the end of the quarter.

Great, thank you very much.

Brett Feldman, Deutsche Bank.

Just two, and one is to hopefully finalize this dividend discussion. Just so we're clear, it sounds the two reasons why you expect to grow the dividend faster than the AFFOs is because in the near-term for the next few years, you can apply your NOLs and then there's also the impact of the depreciation. How do we think about the depreciation? Is that something that's going to run at a level for a certain period of time and then just fall off once you fully depreciate the portfolio a certain number of years out? Or does it scale down over a period of time? And just in general, what is this time period where depreciation is helping you out in terms of taxable income growth and therefore dividend growth? And then the second one is you're a little below the midpoint of your targeted leverage. I'm just curious, have you had any discussions with the rating agencies, if you wanted to go towards the high end as close to 5 times maybe to fund a large domestic acquisition, would that put your investment grade rating at risk? Thanks.

Brett, a couple of thoughts. First of all, on the depreciation. For tax purposes, our towers are depreciated over 15 years. And we have had them for and have been building them up over the last several years, but have had them for several years. So what we would see over time is a step decline, if you will, on the depreciation and the tax shield associated with those assets, and that's several years out. With regards to the leverage, we ended at 3.7 times. Our targeted range is in the 3 to 5 times. And so what I -- where Jim and I like to keep our balance sheet where we think is the sweet spot for us is in that 3.5 to 4 times. And so we think that we're pretty much right where we would like to be from a targeted capital structure perspective.

With regard to discussions with agencies, as I've said, we've been at that -- we are still within that stated 3 to 5 times. And I think to the extent that we went north of that 5 times, it didn't have a window to be able to bring your leverage down below the 5 times. I think the agencies would look at that very carefully. And so from our standpoint, as I said we think that we maximize the value of the firm in that 3.5 to 4 times. And would we go higher than the 4 times? Yes, sure we would and we have. We did at the end of last year. And the good news is that the assets that we're buying all come along with cash flow so that we can work our way back into it. And to the extent that there's a transforming type of a transaction, sure, we would be looking at that too and be willing to go high end into the forest to the extent that it made sense, but clearly with a visible path to be able to get down -- back down to our 3.5 to 4 times.

Thanks. And just to clarify on the depreciation one, it sounds like the answer is the depreciation runs at a certain level for a couple more years and then there will be a cliff at some point? And I believe this is all your domestic depreciation that matters, is that correct?

Yes, but it's several years and we acquired and picked up those assets over time, right? So they didn't all come onto our portfolio at one point in time. So it is a little bit gradual. But yes, they are depreciated over 15 years and at that point in time they're fully depreciated, and that shield you no longer have for purposes of computing what your taxable income is. It's just kind of the math.

Great, thanks for clarifying.

Rick Prentiss, Raymond James.

Couple questions. You guys have done an admirable job of growing the international portfolio. Sometimes I can't keep my pencil as fast as you guys are writing it out. Could you remind us what you said about Brazil? I don't remember talking about it last quarter, the relationship allowed you to get it but it closed in 2Q. Is there is a CapEx number because when you were talking about the second quarter capital, I don't remember that being in there?

Relative to capital, it's within our original guidance. So our original guidance of $500 million to $600 million -- it cares for the CapEx. That's what you were referring to --?

Yes.

-- for 2012. With regards to the purchase price, that was actually $150 million was paid in Q2, and that's in the bubble chart that I had in the presentation which talked to all of the acquisitions. I think it was $600 million to $650 million of capital that we anticipate for actually all of the acquisitions in 2012, including the 1,300 pending acquisitions which we're contracted to close, which we expect to close sometime during the year, but we've excluded those 1,300 from actually our revenue and income forecast because we don't know exactly when they're going to close during the year.

Sure. That fits great into my next question. I think in your prepared remarks you mentioned that the 1,300 towers that are not in guidance would be about $150 million -- I was trying to look at my notes. Can you refer back to what you said about the 1,300 that are not in guidance?

The 1,300 are around $150 million in terms of purchase price. And relative to revenues, it's about $15 million in EBITDA for a full year basis. But again, not knowing exactly when they will close, Rick, we didn't include them. We just wanted to give you a sense what the annual impact would be had we had them for a full year.

That makes sense. And $150 million, that was $30 million in annual revenue and $15 million in tower cash flow, that was Brazil I guess?

No, different. The Brazil is actually included in the $40 million increase in revenues that we have talked about in terms of increasing guidance for the newly acquired sites. That and the impact of our investment in Uganda largely makes up that $40 million of revenue.

Okay. And then the second question on the leverage side. Jim, I think you mentioned that the REITs, that you're in their universe now are much higher levered. According to our sheet, it looks like REITs are more like 6.5 times levered. How does that make you think about your target leverage sweet spot of 3.5 to 4 when your competitors are higher levered? Can they get capital cheaper? Are you leaving money on the table to get that external growth? Just how do you think about it vis-a-vis the REITs?

We don't change our financial policy in this regard, Rick, based on the recomparisons because of the reasons we're at 3 to 5 to begin with are lowest cost capital in our opinion, best credit rating, tradeoff, and flexibility to make M&A deals especially in difficult capital markets. That's the strategy of the Company. It will stay the same. And I think it's a benefit for us to have lower leverage than the average REIT and the other side the average tower company because it gives us more flexibility to act in the asset acquisition market than anyone else.

Great. Thanks, guys.

Jonathan Schildkraut, Evercore Partners.

Most of my questions have been asked and answered, but I was wondering if you could talk a little bit about income coming from the international or the taxable properties? I think that Leah mentioned that the effective tax rate was going to be a little higher than initially anticipated as you've seen maybe some stronger income out of those properties. So I was wondering how the Company thinks about that and how you can manage across the portfolio? Thanks.

Hi, Jonathan, it's Tom. There are a number of tax strategies that we have put in place historically and we continue to look at going forward to minimize the cash tax impact in those markets. One is leverage, and we continually look at leverage there. We're managing through all the thin cap rules, but increasing unit leverage at the local market to provide additional expense at that market to help do that. But there are also a number of other tax strategies that we continue to look at and we're managing and we'll be implementing over the next 12 to 24 months. But we have taken some steps, and we're, as just as I said, just managing this process going forward.

Lukas Hartwich, Green Street Advisors.

Tom, I think this is a question for you. 2012 seems like a relatively big year on the ground lease renewal front, and I was just curious if you could provide some color on how the negotiations are unfolding and whether you're seeing any pushback from land owners or if the economics are changing at all? Thanks.

Thanks, Lukas. The capital that we anticipate spending at least within our own guidance is in that $100 million range. It's a little bit higher than we had spent as part of our CapEx program acquiring land in the United States last year, I think maybe $5 million to $10 million. And we look at the land just like we look at any other asset that we are acquiring or investing in, and it's a very disciplined DCF-type of a model. And to the extent that it makes sense for us to acquire the land and we hit our hurdle rates versus just put out on another 25 year lease or whatever it would be, we'll move forward and buy it. We're actively looking at land that's three to five years out in terms of it coming up for renewal. We have in the United States I think on average 80 parcels that are coming up for renewal on an annual basis. And we have a team dedicated to doing nothing but looking at acquiring the land where it makes sense going forward. And as I said, we continue to use the disciplined approach to doing it. So we're not going to be paying more than it might be worth.

Right.

Lukas, this is Jim. I think for real estate investors ground leases are an important topic and just maybe add a little bit more context and additional facts for your review. As you know, we have about 21,300 sites in the United States. We have ownership, as Tom said, under our capital lease about 28% of those are towers. The land underneath is fully secured through those mechanisms. The ongoing program adds about 3% a year to the 28 for example. So that's the pacing of the $90 million to $100 million investment that Tom mentioned, okay? That 80 ground leases per year that are coming up for renewal over the next few years annually, that's only 0.4% of the total number of towers in the US at any given year that come up for renewal. So again, very manageable. We do take it quite seriously. We go out 3 to 5 years at least, as Tom said, and go out and get those, but it's a very modest exposure to renewal each year going forward. And that's really just some the context I think will be helpful to real estate investors to gauge our -- we manage the land tightly and we're increasing our ownership as we go.

That's helpful. I'm just curious, in the cases where you don't choose not to buy the land, do you see pushback on rent that you're getting charged on that land? Are the economics changing at all? I think historically it's been 15% of revenue goes towards ground lease payments. I'm just curious if that number is increasing at all?

Again, it's Jim. Lukas, I'll speak to that. There is back and forth in any renegotiation of whether it's a customer lease or a ground lease. And, we tend to have again a long lead time before the final renewal date comes. We have the ability if we choose to move the customer contracts onto another land parcel and reconstruct the tower. That argument tends to get people to be reasonable, and we have very manageable growth we think in our leasing -- land lease costs over time. And with the higher escalator we have in our customer leases and the organic growth we get on our towers on that land, I think you'll find over the years that our revenue growth will be in excess of our ground lease flow.

Phil Cusick, JPMorgan.

Hi, this is Richard for Phil. Earlier in your original statements, you said that new leases were 60% of business versus amendments. Was that for the overall Company, and if so what's the split in the US?

That was on a consolidated bases. It was 60% for new leases and 30% for amendments. In the United States, it's about 45%, 55%, and internationally it's up in the 80%, 20%.

And then I guess in staying with the US, in terms of the construction versus M&A environment, should we expect similar numbers to last year as they may -- why we're getting better, worse?

And really difficult to predict in terms of where it would be. Pipelines are active. We're looking at a lot of different things on a global basis including that in the US, and it's very difficult to suggest what will or might get closed throughout the balance of the year.

Our construction rate will be at the same ballpark as last year though.

Right.

Great, thank you.

Okay, I think that concludes our call. I really thank you for your interest and we've actually gone a little longer I think than the hour. So I appreciate your interest, and if you have any further questions give Leah or myself a call. And again, we appreciate your attention. Thanks very much.

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