美國電塔 (AMT) 2012 Q2 法說會逐字稿

Good morning, my name is Summer and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower second quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. I would now like to turn the call over to Leah Stearns, Director of Investor Relations. Please, go ahead.

Thank you, Summer. Good morning, and thank you for joining American Tower's second quarter 2012 earnings conference call. We have posted a presentation which we will refer to throughout our prepared remarks under the investor's tab on our website www.americantower.com. Our agenda for this morning's call will be as follows.

First, I will provide a brief overview of our second quarter and year-to-date results. Then, Tom Bartlett, our Executive Vice President, Chief Financial Officer, and Treasurer, will review our financial and operating performance for the 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-Q for the quarter ended March 31, 2012, and in our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances.

And, with that, please turn to Slide 4 of the presentation which provides a summary of our second quarter and year-to-date 2012 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenue. Which were generated from leasing income producing real estate primarily to investment grade corporate tenants. This revenue grew 16.9% to nearly $682 million from the second quarter of 2011.

In addition our adjusted EBITDA increased in 19.7% to approximately $466 million. Operating income increased 19.8% to approximately $270 million and net income, attributable to American Tower Corporation, was approximately $48 million or $0.12 per basic and diluted common share.

During the quarter, we recorded to significant items which negatively impacted net income attributable to American Tower Corporation by approximately $128 million or $0.32 per share. These items included the unrealized non-cash losses of approximately $115 million, due primarily to the impact of foreign currency exchange rate fluctuations related to over $1.6 billion of inter-company loans which are denominated in currencies other than local currencies which we have utilized to facilitate the funding of our international expansion initiative and general operations.

For accounting purposes, at the end of each quarter these loans are re-measured based on the actual FX rate on the last day of the quarter end. As a result of a stronger US dollar as of June 30, 2012 compared to March 31, 2012 the re-measurement of these loans generated non-cash losses for accounting purposes.

In addition, during the quarter our tax provision reflected a non-cash $48 million valuation allowance on deferred tax assets, which includes amounts that were attributable to net operating losses generated by our international segment. These losses were generated primarily as a result of depreciation and interest expense deductions associated with our foreign operations. As a result of ongoing significant non-cash items reflected in our income tax provision we have adjusted our definition of AFFO to reflect cash taxes paid. We believe that this revised methodology more accurately reflects the ongoing cash obligations of our income tax liabilities.

Turning to the results for the first half of 2012. Our rental and management revenue grew 20.9% to approximately $1.366 billion for the first half of 2012. In addition, our adjusted EBITDA increased 21.1% to over $928 million. Operating income increased 22.7% to approximately $545 million and net income attributable to American Tower Corporation was approximately $270 million or $0.68 per basic and diluted common share.

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

Thanks, Leah, and good morning everyone. I am pleased to report that we continue to build on our first quarter momentum and were able to deliver another solid quarter of results. Our strong performance during the quarter was driven by continued solid leasing trends throughout our served markets.

In addition, we completed the construction or acquisition of over 2,400 communication sites globally. As a result, we have reaffirmed our outlook our total rental and management revenue and increased our outlook for adjusted EBITDA and AFFO even as we face foreign currency headwinds. This morning, I will begin with more detail on our second quarter financial and operational results and conclude with a discussion of our updated expectations for the full year.

If you'll please turn to Slide 5 of our presentation. You will see that for the second quarter our total rental and management revenue increased by nearly 17% to $682 million.

On a core basis, which we will reference throughout this 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 almost 23%. Of this core growth, over 10.5% was driven by core growth from existing sites which we refer to as core organic growth with the 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 11,700 new sites we have constructed or acquired in our international segment since the beginning of the second quarter of 2011. During the quarter, revenue growth from our legacy properties across our global footprint reflected strong new leasing activity. With approximately 60% of consolidated signed new business attributable to new leases and the balance coming from existing lease amendments.

Our core organic growth of over 10.5% was complemented by over 12% core revenue growth from new properties as a result of our continued expansion initiatives. And, reflects the impact of our acquisition or construction of over 12,200 new communication sites globally. And, our acquisition of approximately 1,800 property interests under third-party communication sites since the beginning of the second quarter of last year. Over 95% of our new communication sites are located in our international markets where we expect to see continued demand as new technologies are deployed, new spectrum is issued, and wireless carriers support the growing demand for wireless data on their networks.

Turning to Slide 6. During the second quarter our domestic rental and management segments revenue growth was primarily driven by an increase in cash leasing revenue from out legacy properties with reported revenue growth of over 11% to approximately $473 million and core revenue growth of about 10%.

During the quarter, our domestic core rental and management segment organic revenue growth was over 7% which reflects new cash leasing revenue on existing sites in the United States. This leasing activity continued to be primarily generated by three of our largest tenants as they continue to expand their 4G footprints.

The remainder of our core growth, nearly 3%, was generated from the over 500 new sites we have acquired or constructed since the beginning of the second quarter of 2011 in addition to the approximately 1,800 property interests under third-party communication sites which we acquired in 2011. Also, in the quarter, our domestic rental and management segment gross margin increased approximately $48 million, or over 14%, representing a year-over-year conversion rate of about 99%, which reflects our strong ongoing property level cost management and the impact of the acquisition of nearly 1,000 properties under our existing tower sites since the beginning of the second quarter of 2011. As a result of our growth in gross margin, operating profit increased approximately 14% to over $364 million.

Turning to Slide 7. During the quarter, international rental and management segment reported revenue increase over 31% to $209 million meeting our expectations by overcoming not only foreign currency headwinds of approximately $9 million relative to our established outlook rates, but also a later than anticipated closing of our Uganda sites, which, if they had closed in line with our original expectations, would have contributed an incremental $8 million in revenue during the quarter.

International core growth was nearly 56%. And, international core organic growth was over 22% which is primarily driven by stronger than anticipated activity from tenants such as Telefonica and American Mobile in Latin America, Vodafone and MTN in South Africa, as well as Vodafone, Bharti, and Aircel in India.

For the first time in our history, our international segment generated more incremental commenced new business during the quarter than our domestic segment. In addition during the quarter, we recorded about $5 million attributable to the reversal of a revenue reserve relating to a customer in Mexico.

While we initially expected strong growth in our international segment during 2012, year-to-date leasing activity by our tenants has exceeded our expectations across many of our served markets. And, we expect leasing to remain strong through the second half of 2012. We continue to make significant investments internationally.

During the quarter we constructed 500 sites, primarily in India. And, at the end of the quarter we closed our acquisition of 962 sites in Uganda and an additional 700 sites in Brazil. In total, we have added approximately 11,700 communication sites to our international portfolio since the beginning of the second quarter of 2011, contributing nearly 34% to our international core growth and driving our international revenue to over 30% of our total consolidated rental and management revenues. As we add new sites to our international portfolio our pass-through revenue continues to increase as we are able to share a portion of our operating costs with our tenants.

During the second quarter, our international pass-through revenue was about $55 million which reflects an increase of over $15 million from the year ago period. From a reported gross margin perspective, our international rental and management segment increased by approximately 28% year-over-year to $136 million reflecting a 60% gross margin conversion rate. Excluding the impact of pass-through revenue, our gross margin and gross margin conversion rate would have been 88% and 87% respectively.

Further, our international rental and management segment SG&A expense, decreased by approximately $2 million from the second quarter of 2011. This decrease was attributable to the reversal of about $4 million in bad debt expense associated with one of our tenants in Mexico. And, was partially offset by costs associated with establishing our presence in our new markets including Uganda as well as investing and 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 exceeded our expectations increasing almost 38% to $116 million. Our international segment operating profit margin was 56%, excluding the impact of pass-through revenue exceeded 75%. Operating profit out-paced our internal expectations for the quarter despite FX headwinds of approximately $5 million relative to our outlook rates as well as a $3 million impact to operating profit as a result of our delayed acquisition in Uganda.

Turning to Slide 8. Our reported adjusted EBITDA growth relative to the second quarter of 2011 was nearly 20% with our adjusted EBITDA core growth for the quarter at just over 24%.

Adjusted EBITDA increased by approximately $77 million primarily as a result of an increase of about $100 million in total revenue of which approximately $15 million was attributable to an increase in international pass-through revenue related to the addition of new sites. Direct expenses, excluding stock-based compensation expense, increased by approximately $21 million of which $15 million was the corresponding increase in international pass-through cost and about $5 million was attributable to other costs in our African markets which we launched in 2011. Finally, SG&A, excluding stock-based compensation expense, increased about $3 million from the year ago period.

For the quarter, our adjusted EBITDA margin increased to nearly 67%. Excluding the impact of international pass-through revenue our adjusted EBITDA margin for the quarter was over 74% and our adjusted EBITDA conversion rate was above 90%. And, during the quarter, AFFO increased by approximately $38 million, or over 14% relative to pro forma AFFO in Q2 2011. Core AFFO increased by over 23.5% which excludes the impact of one-time startup CapEx as well as the impact of foreign currency exchange rate fluctuations.

As outlined on Slide 9, we deployed about $105 million via our capital expenditure program in the second quarter, split about evenly between our domestic and international rental segments. We spent about $49 million on discretionary capital projects associated with the completion of the construction of 564 sites globally. Of these new builds, 64 were in the US with the remainder throughout our international markets. We continue to utilize our discretionary land purchase program in the US to acquire land interest under our existing towers.

In the second quarter we invested about $12 million to purchase land under our towers. And, as of the end of the quarter we owned, or held through long term capital leases, the land under about 29% of our domestic sites. Over the past five years we have purchased land under 2,400 of our properties and extended the lease term on an additional 2,600 by an average of approximately 20 years.

We will continue to selectively acquire land when we can beat our risk-adjusted hurdle rates while also proactively extending our end of term maturities. And, we currently have less than 3% of our domestic sites with ground leases that come up for renewal over the next five years.

Our second quarter 2012 spending on redevelopment capital expenditures, which we incur to accommodate additional tenants on our properties, was $18 million. Redevelopment spending continues to be slightly higher than historical levels due to spending in our legacy Latin American markets where 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.

Finally, our capital improvements and corporate capital expenditures have increased in tandem with our increase in tower assets in addition to the startup maintenance CapEx in Ghana and Colombia we discussed last quarter. In aggregate, these capital expenditures came in at about $25 million during the quarter.

From a total capital allocation perspective, year-to-date we have deployed over $1 billion including distributions of about $170 million to shareholders through our first two regular dividends, over $225 million on capital expenditures, and over $650 million for acquisitions. Finally, we spent about $11 million to repurchase shares of our common stock pursuant to our stock repurchase program. And, we will continue to expect that we will manage the pacing of our stock repurchases based on market conditions and other relevant factors.

During the second quarter, we acquired 45 communication sites in the US and 1,820 communication sites internationally including 962 in Uganda and 700 in Brazil. As I mentioned earlier, both of these transactions closed at the very end of the quarter. And, therefore, their contributions to our second quarter financial results were minimal.

Turning to Slide 10. As we've highlighted in the past, we are extremely focused on deploying capital while simultaneously increasing AFFO and return on invested capital. Since 2007, we've invested over $9 billion in capital expenditures, acquisitions, and stock repurchases. Concurrently, we've increased both our pro forma AFFO and pro forma AFFO per share on a mid-teen compounded annual basis.

In addition, from 2007 to the second quarter of 2012 we've increased our return on invested capital by over 200 basis points to 11.2%. We've been successful with driving this growth through our disciplined capital allocation strategy.

The strategy is simple. First, seek to return capital to shareholders through our dividend to ensure we maximize the tax efficiency of our REIT structure. Second, we seek to invest capital into our business through our capital expenditure program. Third, we further allocate capital to acquisitions both in our existing and potential new markets. And, finally, we deploy excess cash flow through our stock repurchase program.

We manage the entire capital allocation process within the construct of both our required return hurdle thresholds and our targeted capital structure. Historically, 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 shareholders.

Moving on to Slide 11. We are reaffirming our outlook for total rental and management segment revenue as a result of our strong core business results which are about $46 million ahead of our prior expectations. But, have been offset by approximately $38 million attributable to foreign currency exchange rate headwinds which we now forecast to occur through the second half of 2012 and $8 million attributable to the delayed closing of our JV in Uganda.

The $46 million of stronger business results that we expect will offset these two factors as a function of $10 million attributable to lower than expected churn. And, stronger existing site revenue performance in the US and $36 million attributable to our international segment, reflecting our recent acquisition of sites in Brazil the revenue reserve reversal in Mexico, stronger new business performance in India, and across our served markets in Africa. Therefore, we continue to expect to grow total rental and management revenues over 16% year-over-year at the midpoint however our core growth expectations have increased to well over 20% for the year.

Turning to Slide 12. We are increasing both our outlook for adjusted EBITDA and AFFO by $10 million at the midpoint. Our adjusted EBITDA outlook reflects the reduction of $24 million attributable to ongoing foreign currency exchange rate headwinds and $3 million attributable to the delayed closing of our joint venture in Uganda.

We expect that these two factors will be more than offset by $13 million attributable to stronger existing site revenue performance and ongoing site level and overhead cost control in our domestic segment, $5 million of incremental operating profit attributable to our services segment, and nearly $20 million attributable to our international segment reflecting our recent acquisition of sites in Brazil, the revenue reserve and bad debt reversal in Mexico, and stronger overall business performance throughout our served markets. As a result, we are now expecting adjusted EBITDA to increase to $1.83 billion at the midpoint driving reported growth to nearly 15% and core growth to nearly 19%.

Year-to-date we have generated strong margins which have been driven by our focus on site level cost management as well as the impact of the first quarter one-time US customer billing settlement and the second quarter revenue and bad debt reversals in Mexico.

Looking forward, we expect margins to decline slightly in the second half of the year. Primarily as a result of the impact of our launch of operations in Uganda. Which includes significant pass-through revenues and primarily single tenant sites.

Consequently, we would expect full year 2012 adjusted EBITDA margins of about 65%. And, as we have seen in other markets, we would expect that as we begin leasing our recently acquired tower sites in Uganda operating profit margins could improve ultimately over time to near US levels excluding the impact of passthrough.

Turning to AFFO, we would expect the full increase in our adjusted EBITDA outlook to translate to incremental AFFO. As a result, we are now expecting AFFO to increase to nearly $1.2 billion at the midpoint driving reported growth of over 13% and core growth about 17%.

Turning to Slide 13. In 2012 we will continue to pursue our disciplined 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. Year-to-date we've spent over $650 million on acquisitions and are currently projecting total expenditures for acquisitions for the full year between $700 million and $750 million.

This includes spending through the end of the second quarter plus the payment for the 700 sites in Brazil, which we acquired at the end of the second quarter and paid for in July. As well as additional capital we have committed to fund the acquisition of approximately 800 sites we believe will close by year end. Considering these investments, and coupled with our expected build program, on a pro forma basis we expect to have a total of over 51,000 sites by year end.

Finally, in 2012 we continue to project that our primary method of returning capital to shareholders will be our regular dividend. Which, for the full year, we now expect will be between $0.87 and $0.90 per share or approximately $350 million at the midpoint reflecting an AFFO payout ratio of about 30%. In addition, year-to-date we have spent about $11 million on our stock repurchase program.

Turning to Slide 14 and in conclusion, we had a very successful first half. And, we believe we have built a strong foundation for the balance of the year. We delivered strong growth in revenue, adjusted EBITDA, and AFFO for the quarter. As a result of robust leasing activity throughout our served markets.

Our international segment continues to perform ahead of our expectations which have out-paced the foreign currency exchange rate headwinds we've experienced year-to-date. We expect these trends to continue and concurrently we will continue to pursue the acquisition of high quality assets globally.

We're also focus on disciplined cost control within our business and are expecting cash overhead costs to decline year-over-year as a percent of total revenues. Overall, and as we have experienced historically, our existing sites should continue to generate incremental cash flow conversion rate in excess of 80% driving longer-term improvement in our consolidated gross and adjusted EBITDA margins.

We continue to seek to optimize our balance sheet to enhance our financial operational flexibility and ended the quarter with approximately $2.5 billion in the 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 out our debt maturities and have no significant refinancing requirements until mid-2014.

We continue to diversify our sources of capital and most recently raised $750 million through a term loan. We believe our balance sheet strategy has positioned us well to continue to meaningfully invest in our business on a sustainable basis. And, through our dividend program, we are able to maintain what we believe to be an optimal US tax strategy while also providing our shareholders with a growing dividend stream.

In closing, we believe that the combination of our recent investments, the underlying leasing trends we have discussed, our solid balance sheet, and our disciplined managing capital and costs have positioned us well to finish 2012 on a high note and continue to deliver strong results going forward.

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

Thanks, Tom, and good morning to everyone on the call.

With 23% tower revenue growth and over 24% core adjusted EBITDA growth during the second quarter our dual strategy to maximize the performance of our US asset-based while expanding in to high growth international markets continues to deliver truly compelling growth for our company. Our top priority remains to deliver superior expansion and AFFO plus meaningful and growing yield, all of which is built on a strong foundation of continuous risk management and mitigation.

Over the past few years hear at American Tower we've developed two primary core competencies. The first is effectively operating and growing revenue on multi-tenant communications assets based on our US experience and expertise. The second is applying this skill set globally. Taking advantage of both our US knowledge base and our decade of experience in Mexico and Brazil.

We pursued our international expansion in a disciplined fashion assessing each potential market using a comprehensive three-step analysis. The first step is a thorough review of the countries fundamental investment characteristics. We specifically evaluate a target markets macroeconomic conditions such as expected GDP growth and inflation. Political stability of fair business environment, a rule of law based legal system, and favorable policies regarding foreign direct investments are also important factors we evaluate to determine whether American Tower can successfully implement our business model over the long term.

Next, we evaluate the dynamics of the countries wireless industry. We specifically seek three or more independent and competitive wireless service providers in a market. We also look for additional attributes that can encourage ongoing network investment such as recent or future spectrum auctions.

For example, our expansion into Colombia came on the heels of a 3G spectrum auction. For the three major incumbents pursued the spectrum necessary for their initial deployment of wireless data networks. In addition, a government owned carrier, UNE, is actively deploying a wireless broadband network in Colombia providing even more long-term demand for tower space.

So, looking 12 to 18 month out we expect the government will again auction spectrum. Seeking to encourage an additional market entrants to further drive competition in their wireless market. Which can develop into yet another contributor to our business growth down the road.

Finally, when we identify a country with qualifying political and economic fundamentals in a favorable wireless industry environment, we evaluate potential counter-parties attractiveness in terms of operational strength and the financial viability. And, this applies to the US as well.

To this end, we have focused our expansion efforts around high-quality, well-established, multinational wireless industry leaders as transaction counter-parties, venture partners, or site leasing customers. In certain cases, our existing relationships have provided us with opportunities to pursue acquisition transactions and match the lease agreements across various countries and even continents with these customers.

For example, we have acquired thousands of tower sites from Telefonica in both North and South America, established commercial leasing agreements with Bharti in India and Africa, and engaged in joint ventures with MTN in two of our three markets in Africa. Beyond our international expansion efforts, we pursued additional avenues for growth through towers and through adjacent communications property classes, including land interest, distributing a tenant systems, roof top management, shared generators, and power management. Further, we are now exploring the extension of multi-tenant leasing to small cell architectures which will be complementary to our other business lines since 95% of our US towers cover areas where small cell architectures are technically, or economically, infeasible.

Most of these the property class extensions are initially developed in the US and taken to relevant international markets. But, we're excited to have begun seeing idea generation globally and cross border collaboration now on multiple dimensions within American Tower. Each investment decision we make, whether it's in the US or overseas, from the launch of a new market to the acquisition of a large or small portfolio of towers is managed through our global investment committee process.

The investment committee here rigorously evaluates each investment opportunity, big or small, to determine the appropriate risk-adjusted hurdle rates required to compensate us for the transaction specific risk. This evaluation involves an analysis of the tenants credit quality, the lease structure, as well as the operating costs, redevelopment costs, and other characteristics relevant to the proposed investment.

We continue to believe that our international, domestic, and adjacent property class expansion strategies can be sustained within our REIT restructure. And, that by utilizing taxable REIT subsidiaries we have the flexibility necessary to sustain our growth trajectory far into the future. In other words, our growth is not limited by our REIT status.

Matching our dedication to striving for growth is our commitment to providing a meaningful and growing dividend to our shareholders as summarized by American Tower's recently adopted model, growth plus yield. As a REIT, we have established a regular dividend program and our current dividend yield of 1.3% is consistent with other high revenue growth S&P 500 companies.

Furthermore, we intend to grow our dividend at a rate that will exceed our expected AFFO growth. We plan to deliver attractive dividend growth while simultaneously deploying the substantial cash generated from the business into further accretive investments. As a Tom mentioned, we funded our first half dividend with about 30% of our AFFO leaving 70% to invest in the business.

To ensure we have a solid foundation from which we can grow both our AFFO and our dividend we continually challenge our own fundamental business assumption and then seek to proactively manage and mitigate risk throughout our company. For example, while we strongly believe that our US tower leasing business will experience consistent incremental demand from our tenant base well into the future, we to continuously monitor key US wireless industry metrics.

And, we take tangible steps to guard against any unanticipated contingencies. Among our fundamental assumptions that support continuing strong demand for US tower space are first, that rapid consumer adoption of advanced data services is going to continue. That this will translate into higher profitability for the carriers, who will then in turn be incentivized to continue their wireless network capital investments. And, most importantly, to lease additional tower space from us.

Our thesis continues to be supported by the strong operational metrics which are being demonstrated by our major customers as they continue to increase the penetration of smartphones and tablets. AT&T and Verizon recently reported second quarter results with record EBITDA margins as data revenues continue to drive the vast majority of their top line growth.

Verizon Wireless also highlighted that as subscribers migrate from 3G to 4G devices, Verizon will benefit from improvements in both operating and capital efficiency as a result of the lower cost 4G platform. We think that will keep motivating Verizon and others to keep investing in their networks.

Furthermore, each of the four largest US wireless carriers, that include AT&T, Verizon Wireless, Sprint, and T-Mobile USA, have publicly committed to achieve nearly nationwide 4G LTE network coverage somewhere between the 2013 to 2015 time frame. Once full coverage is in place for each of these carriers, at the conclusion of their first appointment days we anticipate that each will further use cell splitting and site augmentation during the typical phases two and three of such deployments, and, that those phases will run out many years into the future.

In spite of all the supportive evidence for increasing demand for tower space in the US we also take active steps to help ensure steady, robust revenue growth and to essentially protect the company against even a modest or temporary downside risk to the expected upward revenue trajectory.

For example, we've established a comprehensive master lease agreement structure with two of our largest customers in the US which seeks to eliminate our exposure to any significant potential future downside risk with those two customers. These new MLA's typically include 10 year contract extension and they eliminate all churn or decommissioning risk.

Turning to our international expansion efforts, our primary risk mitigation characteristic is that we are simply extending and adapting our well-established and time tested business practices and our intellectual property from our US and our legacy Latin American markets to additional geographies. American Tower's corporate staff and regions are solely and completely devoted to the business of multi-tenant communication site leasing. It's all that we do.

And, in entering a new market we transfer experienced management talent, long-established operational processes, and highly customized IT systems to that market naturally mitigating new country risk right from the start. Plus, we focus on well regarded multinational telecom leaders as our customers and counter-parties in those international markets.

Moreover, heavy emphasis on securing assets at reasonable purchase prices based on our risk-adjusted return criteria and that applies to acquisitions in the United States as well. Another important part of our risk management program is our approach to balance sheet management and financial leverage that Tom was describing.

We believe our ability to continue our growth momentum, even in periods of global economic uncertainty, results from our disciplined approach to the company's capital structure. We maintain committed to our stated target leverage range of 3 to 5 times net debt to annualized EBITDA.

And, we believe that maintaining our leverage within that range maintains our access to high grade, low-cost credit markets. That, in turn, enables us to have access to capital to pursue strategic growth initiatives throughout the business cycle in good times and bad. We found that investments which we make during such periods of uncertainty in financial markets can yield the greatest opportunities for superior returns in our business.

In closing, both our domestic and international segments core business performance continues to exceed our original expectations for 2012. These strong results, along with the impact of recent acquisitions, are more than offsetting the foreign currency effects that we are forecasting for the full year. We've consciously positioned ourselves to maintain our strong growth trajectory post re-conversion.

And, this is important. We have positioned ourselves to maintain our strong growth trajectory post re-conversion by the following three actions.

Number one, we've established an early presence in high-growth international markets that we believe cannot be duplicated by any other tower company.

Two, we focused on driving substantial AFFO growth from both our domestic and our international operations which will enable us to meet our REIT dividend requirements while continuing to invest significant cash back into growth for the business. And third, by maintaining a strong balance sheet that's going to continue to provide us access, we think, to investment grade credit markets into the future.

As a result of these three attributes, we feel we're well positioned to deliver strong performance throughout 2012. And, continue to drive our growth strategy into 2013 and beyond even as a REIT. We are striving to deliver superior growth plus yield over the long-term all on a solid foundation of active risk management and mitigation.

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

(Operator Instructions)

Batya Levi, UBS.

Thank you, so much. First off, if I could ask about your level of discussions with T-Mobile. Your peer announced a deal with them. How do you think about signing up a new master lease agreement with them? And, if you would -- if these discussions are based on the prior two MLA's that you've signed with the two carriers? Or would you consider to do a deal as such as you go?

And, second question I had was if you could delve a little bit into the organic growth in the US. I think you had mentioned that it was about 8.5% in the first quarter and now it looks like it's about 7%. Do you expect that to a accelerate going forward given the strong demand? Or how should we think about it going forward? Thanks.

Batya, this is Jim, and I will turn over the second question to Tom. Regarding our commercial arrangements with T-Mobile or any other customer, I think you know we don't comment on a potential ongoing negotiations with any specific customer. But, our history has been that we've been able to find common ground with our major carrier customers that are entering large deployments. And, we will expect to be doing that with T-Mobile as well.

And, Batya, on the US side on core growth we would expect for the full year in that 9% range. So, pretty consistent with where we are from the first half. And, relative to core organic growth which is that growth coming from existing sites we are about just over 7% in the second quarter. And, I would expect that to be at the same level in the third and fourth quarters.

Okay great. Thanks.

Sure.

Simon Flannery, Morgan Stanley.

Thank you, very much, good morning. Tom, you talked about the dividend growth and the dividend payout ratio. Can you just update us where we are with the NOLs and feathering that through? And, how should we think about the next two or three, your dividend policy and how you use the NOLs?

And then, there's been a lot of headlines out of India about regulatory issues, license, re-auctioning, and so forth. Perhaps you could just update us on what's been going on there? Obviously, you've had some very strong leasing activity there. But, just give us some sense of what the current status is as it regards to your business in India. Thanks.

Yes, sure, Simon. I'll take the first one and then Jim can take the second one. With regards to our dividends, as you saw in my script and Jim referred to it as well, we're looking in 2012 a payout between $0.87 and $0.90 per share. About $350 million.

We entered the year with just over $1 billion of NOLs. And, I would expect that we won't use -- we'll use less than $200 million of NOLs and 2012. And, keep in mind, I will caveat that by saying there is still half of the year to go. And, there's still a lot of things that can go on within the second half of the year. But, my current forecast is that we will use less than $200 million.

You can continue that forwarded and get a sense of what future years might bring. It may accelerate a bit. But, our overall dividend path remains the same. That we would expect it to grow faster than our AFFO growth. Which we are targeting to our goal to have that continue at that mid-teen growth over time.

Thank you.

Yes, Simon, it's Jim. Specific to India, again, to put our international markets in context, we have a diversification -- a global diversification strategy in place. So, just to provide the baseline, India is about 10% of our towers, it's about 7% of our revenue. And, is performing quite well this year, as Tom indicated.

Based on that context, we are well aware of the developments going on in India from a regulatory perspective. And, actually planned for not exactly this, but something like this to happen. Meaning that the large incumbent carriers would drive the business over time in that country. So, we started out in India focusing on those large incumbent carriers.

And, today, they generate over 90% of our revenues. The licenses that are expected to be re-auctioned are almost exclusively with smaller new entrant carriers. Our exposure to the carriers that we don't think will rebid and re-stand up their license is less than 0.5% of American Tower's revenue base.

And, we already reserved for that in the first quarter. So, we don't have exposure to the re-auction. In fact, when the spectrum gets recast to new bidders we think it will actually help our business going forward. Because those bidders will have the financial wherewithal to actually deploy it.

Thank you.

Sure.

James Ratcliffe, Barclays.

This is Sandy [Gutethep] for James Ratcliffe. Just more a strategy question. One of the manufacturers of base station equipment recently said that they are now shipping more micro base stations then macro base stations. This is the first time in the history of wireless. Could you comment on what does that mean for the tower business and how do you view that?

Sure, Sandy, this is Jim. That is not a surprising statistic at all given the very small radii and much lower costs for these types of base stations. At some point they're going to be more prolific just because of the low cost and again small radii.

But, that doesn't necessarily affect the macro network at all. As I pointed out in my remarks 95% of our towers are outside of urban and near urban environments which are really the only ones that make sense technically and economically for a carrier to deploy such small micro-sites. So, we see this as something as actually helpful.

So, that the carriers can handle the cost requirement of serving really, really dense urban markets where we are just simply not providing towers at this point. That will enable the carriers to be able to care for the whole network both inside and outside cities more efficiently. So, we actually applaud these kind of products coming on the market.

Got it. Thank you.

Jason Armstrong, Goldman Sachs.

Thanks, good morning. Maybe a couple of questions. I will take a crack at the T-Mobile question, maybe from a different angle around the MLA. Just maybe stepping back, generally when you're negotiating an MLA with a carrier that has been an M&A target before, I guess my question is are you more focused on getting paid for the upside as it relates to amendment activity?

Or are you more focused on protecting your downside risk from decommissioning? Just maybe help us with what the framework is. And then, second question, just as it relates to global macro volatility. We've obviously seen some pretty big FX fluctuations, some pretty large country volatility.

Does this change your appetite from here for international expansion? Or should we assume that the majority of your expansion really continues to be international? Thanks.

Jason, it's Jim. On negotiations, again, with any individual customer we don't necessarily get into the details of that. But, what I can say is that a carrier that has been, or may in the future be, a merger acquisition target as part of a theoretical industry consolidation we would actually try to optimize between the upside on growth and preventing all, or close to all, of the potential downside of any merger or other type of churn event.

So, I think that is one of our core competencies, frankly. Is we have had a track record of finding a pretty good place to balance between achieving upside and essentially eliminating downside. And, that's both inside and outside the US. And, that's what we're going to continue to do.

On the second question, Jason, we remain incredibly excited about what we're seeing in the international markets. What we saw in terms of foreign currency impacts in the second quarter, again, largely translation impacts coming through on inter-company balances. That's how we principally fund our international investments.

And, we are even able to offset the impacts of the strengthening of the dollar in the second quarter. And, we continue to believe we will do that for the balance of the year. And so, if you take a look for the last couple of years in terms of where the dollar and local currency was it goes the other way.

So, we believe that we continually invest the money that we're generating in international markets back into the international markets, the revenue and expenses are in local currency. And, we're really excited about, love the trends that we're seeing in terms of new growth, in terms of new market entrants, continued deployment of new technologies, and the rapid demand by which our counter-parties are building out their networks.

And, as a final reminder, Jason, we risk adjust up from the US baselines all of our hurdle rates outside the US. Based on things like historical foreign currency volatility. And so, those inputs will be adjusted appropriately. And, we'll have to hit those hurdle rates to make further investments.

Okay, that's helpful. Are there any structural considerations as it relates to REIT and for the TR structure that these assets sit in that would slow international growth or are we a long ways from that?

No, as Jim mentioned, the construct of the whole REIT environment gives us flexibility in terms of what we have in the REIT and what we keep in the taxable REIT structure. And, as we mentioned in the past, what we have in taxable restructure is real estate.

So, to the extent that we ever did start to trigger some of the asset tests that we have within the REIT structure, we would be able to move the TRS's or the assets internationally into the REIT. We would then be looking to distribute out the taxable income, 90% of the taxable income, in those that's generated from that asset we brought into the REIT out to our shareholders.

But, it would continually give us head room to continue growth in our international markets. And, that's how many REITs manage their international structure. Most of the REITs that have international assets actually have those assets in the REIT itself. And so, that is definitely a part of the strategy for us to the extent that, as I said, we trigger some of those tests.

Great. Thanks guys.

Jonathan Atkin, RBC Capital Markets.

Yes, good morning. Couple of questions. I wondered in your international markets, in which regions would your M&A pipeline most likely be weighted as well is your new tower construction?

I think you indicated earlier some of the new construction that might be more Latin America. And then, with regard to India, I wondered if there is any color you can provide on the power issues of just this week? And then, how that might be affecting the business, if at all, on the cost side?

Jonathan, it's Jim. The M&A pipeline is active in all of our markets. The timing and probability of each potential deal of course varies. But, we've got the same level of emphasis internally on each region. Now, having said that, Latin America we do have sites with Millicom Tigo in that market that we expect to close over the course of this year.

That's in the presentation that Tom mentioned earlier. And, we've got irons in the fire in every other region as well. So, there's really not much specific to say because we don't comment on any speculation regarding specific transactions that might be in progress, whether that is the US or overseas. But, the emphasis is there, the liquidity is definitely there, that Tom pointed out, and we are active and interested.

On the construction side, India has provided a lot of opportunity for what we think will be lucrative construction opportunities. The big carriers like Vodafone and Reliance are pushing most of that. And, we're building towers for them and others as well. Latin America, pretty active and less so in Africa. But, we're ramping up our build-to-suit program there.

I would put the batting order at the moment as being India, secondly Latin America, third EMEA outside the US. And, we also are going to be building a few hundred towers inside the US. On the power issue, we are focused and actually have centers of excellence in South Africa and in India on power management. Which is, again, I think becoming one of our core competencies for the company.

We don't have any reports from our team of issues with our power system because we have backup power at every site in India. Those tend to run at least part of the day. And, we are positioned to make sure that that continues. So, from a cost perspective that is essentially passed through to the customer in India. So, it won't affect us directly.

Great, thank you. And then, can you remind us the bad debt expense this quarter and how that typically has ranged in prior quarters? And, there was -- the exposure that you currently have that will be recognizing for bad debt, in which regions is that most attributable?

There is no significant changes in this quarter versus prior, in terms of bad debt. I did mention that we did have the reversal of that one bad debt item down in Mexico relative to a reserve that we had created a number of years ago. When that particular customer was going through a restructuring. It was both an expense and a revenue impact. Other than that, nothing.

Jim had mentioned in India that we've actually cared for the four carriers there that we don't believe we will be continuing to operate in that particular market. And, that overall, had a revenue impact the year between $3 million and $4 million which, as you mentioned, we've largely cared for already in the first half. And, is obviously part of our ongoing forecast.

And then, finally, if you could maybe just update us on your distributed antenna system initiatives for both indoor and outdoor?

Sure, Jon. Quickly, the indoor program continues a pace -- I think we're up to 250 locations now in the United States. And, we have got half a dozen or so up and running in Latin America. And, we're starting to implement a few in both India and Africa. So, that is maintaining our industry leadership. And then, on the outdoor side we've got about 400 nodes in the US.

And, we've added about 20% to the portfolio this year. We will keep pacing that as well. We maintain our disciplined view of, again, any asset investment. And, outdoor dash fits squarely into that disciplined view. Which is we'll build them when we think we can hit the return or exceed it. But, we are also careful about over building and we avoid that.

Thank you.

George Auerbach, ISI

Great, thanks and good morning. Tom, you mentioned on the call that, in your prepared remarks, that the adjusted EBITDA margin is going to decline a bit to about 65% for the full year. Can you just give us your thoughts on how that rebounds going into 2013 and beyond?

Yes, a couple of thoughts. I think It's also a function overall of the conversion rates. We're engaged in a major area of expansion at this point in time. And, I think the conversion rates going forward at the gross margin level, particularly when you take out passthrough, will be in that 80% to 85% range of increasing.

And, EBITDA margin rates continually at the rate that we are expanding I would say in the mid to upper 60%s. I believe that SG&A expense, as I've mentioned in the past, peaked at around that 10% level of cash SG&A costs last year. And, we will see a decline in that this year as a percentage of revenue.

And, as we continue to add to the revenue stream I think we've built a foundation to be able to see and enjoy continued declines in SG&A -- cash SG&A as a percentage of revenue. So, I think that will help drive up the margins longer-term to North of the 65% range.

Okay. And, are you talking about the dollar amount of the Brazilian acquisition that I guess closed at the end of the second quarter? And, how should we think about your -- how you will fund that acquisition?

It's already been funded. As a result of the structure that we've had in place we have a pretty significant amount of liquidity in the form of revolver is in place as well as a term loan that we just put in place. So, that deal has been funded really from cash on hand. And, as I mentioned before, we closed in the second quarter and as you identified we actually paid for it in July.

And, what was the total size of that acquisition?

Around the $150 million range. Slightly less.

Great, thank you.

Sure.

Kevin Smithers, Macquarie.

Thank you. Can you discuss for a moment your capital allocation strategy? Your leverage has followed to about 3.7 times. And, obviously the Journal article last night suggested that Crown was the front runner for the T-Mobile assets.

If they do acquire these properties, should we expect you to resume the buyback? Or would you rather continue to delever the balance sheet or should we expect other large deals in the pipeline?

I'll just refer back to the comments I made in my remarks, Kevin. Our capital allocation strategy has been consistent since the day I arrived here and was in place prior to that. And, it is first looking back to reinvest back into our business. We have a required dividend that is our principal way of returning capital to our shareholders.

We will continue to look at acquisitions wherever they may be. Globally in the US as well as international. And, we have our buyback program. We're doing everything within the construct of our risk adjusted hurdle rates as well as our capital structure.

And, we're very committed to our 3 to 5 times net debt to EBITDA. We have a tremendous amount of liquidity that we have available to us. And, to the extent that there aren't opportunities to invest in the form of acquisitions going forward that meet our risk adjusted hurdle rates, then we will look to returning cash back to shareholders using the share repurchase program. It's pretty simple.

Just as a quick follow-up, obviously, your cost of funding in the debt market continues to fall to record levels. And, your competitors have seemed to take up leverage towards the high end of their targeted range. You are going to be -- you are below the midpoint of it and could be toward the low-end within a couple quarters. How do you feel about taking on more leverage given how robust the credit markets are for you both secured and unsecured right now?

Kevin, this is Jim Taiclet. We don't vary our leverage target based on financing costs. We work within our range and we consistently do that. And, we've got a 5 to 10 year time horizon for that range. And, the reason the range is set where it is, is so that we can implement our growth strategy at the appropriate time with the appropriate transaction.

And, that may be in a tight period of credit markets as we talked about. So, driving leverage to the high end of our range when we don't necessarily need to doesn't really fit within our strategy, simply because the rates are cheap. But, what I will say, is the global opportunity set that we can offer by having capabilities to transact really anywhere in the world allows us to pick and choose when we invest.

We don't have to stretch in any market, for example the US, for a big or a small deal because we've got a global aperture and we can look at opportunities anywhere. And, we've executed on those in four continents now. At the end of the day, if we are coming through a period of time where the opportunities aren't that robust, at least the ones that meet our hurdle rates, we will buyback stock.

And, Tom are ready mentioned that, I want to reiterate it. But, it's based on, again, on optimization -- it's essentially an ongoing optimization of the opportunity set, our leverage, and we do take financing cost into consideration as part of that. It's really an integrated capital allocation strategy. And, it doesn't hinge on one thing like interest rates.

Thanks.

Lukas Hartwich, Green Street Advisors.

Thanks. Jim, can you talk about how you think about the risk that network sharing becomes a bigger deal here in the US?

Network sharing is part of our risk assessment of every market. And, based on regulatory requirements for auctions and allocated spectrum, based on the competitiveness of the major carriers, and based on the short and unsuccessful history of attempts to do this in the past in the US, we don't see it as a high level risk for our company. In fact, I would put it not material area given what we know today.

Can you maybe comment on why it's seems to be different in Europe?

Europe's a different situation than the United States. Probably one we don't have time to cover today, Lukas, so why don't we take that off-line and we can do a comparison for you. But, the headlines are that Europe is an over built network situation versus the US which is an under built network situation. But, we can offer more color if you want to get back to us after the call.

Thanks.

Michael Rollins, Citi.

Hi, thanks for taking the question, good morning. If I look at the slide on the total rental and management revenue guidance and I compare it to the last quarter, what I found really interesting was the internal existing site revenue growth guidance improved roughly 25%. And, I was wondering if you could talk a little bit about what drove that incrementally relative to what you would've thought three months ago?

Because I think of this business as a very visible business based on your history over the years. And, I'm curious if you could just break that down between what you saw incrementally in the domestic segment versus the international segment? Thanks.

Sure, Mike. You're exactly right. Looking from outlook to outlook we are probably up by $25 million or $30 million in existing sites and up to $10 million to $15 million in new sites. So, that's principally driving what my remarks that I made before in terms of the out-performance driving the FX impacts and the delay, if you will, at Uganda light -- Uganda late closing.

The international piece -- let me start with the US piece. The US piece probably makes up about one-third of that or about $10 million. And, that's a function of a couple of things, one is the pipeline of activity that we see and the leasing activity that we see in the second quarter, as a result -- in addition to some churn that we actually expected early in the year which we are now -- is pushed out later in the year.

So, that's going to drive $10 million plus of it. On the international side, we do have the 700 additional sites that we picked up in the acquisition in Brazil. We do have out-performance in Asia as well as in Africa, both in South Africa and Ghana that are helping to drive that.

We also have the reserve in the company in Mexico that we reflected in the second quarter that is now a part of our overall guidance. So, overall we have about $45 million, $46 million of incremental new business that is offsetting the FX impacts in that Uganda late closing. And, as I said before, it's 25% is in the United States with the balance happening outside of the United States. Hopefully, that helps.

If you look at this over a multi-year period are we seeing a new level of internal growth for you? Or do you think that there is some one-time or timing benefits that this year might be receiving?

I think longer-term, as we've said in the past, we would expect our international core organic growth to increase. One of the ways that we show it is showing organic core growth a function of sites that we acquired more than 12 months ago. Many of the sites now are starting to come into the existing site organic growth. So, where the US is in, as we talked about before on a question, in that 7%, 8%, 6% to 8% range.

I would expect the international to be up in the 10% to 13% just because of the newness of the markets, new technology being deployed. And, the fact that they're either one or two generations of technology behind the United States, that's what make them so exciting for us. So, perhaps the ongoing core organic growth should increase a bit. And then, the new sites is a function of acquisitions that we have in the pipeline and that's very difficult to project.

Thanks, very much.

Sure.

Rick Prentiss, Raymond James.

Thanks, good morning. Thanks for getting me in under the wire. Two quick ones, if I could. First, Tom, I think you said on the EBITDA guidance update that about $20 million from the international side. It was, I guess, $9 million from the Mexican reserve reversal. And then, was the $11 million -- the other $11 million from the Brazil 700 sites?

Let me just go through that again, Rick. What we're saying is we're raising the overall EBITDA guidance by about $10 million. And, we are eating through $24 million of additional FX headwinds, and about $3 million as a result of the delayed closing in Uganda.

So, about $27 million. So, overall we are increasing our core EBITDA by about $37 million, if you will. About $13 million of that is coming from our domestic rental and management segment. We have about $5 million coming from our services business. And, the balance is coming from across the board from our international segment.

The piece that you mentioned in terms of the reserve on the company in Mexico is a piece of that. But, we are also seeing incremental activity from our other markets as a result of out-performance in addition to the activity in Brazil as a result of the recent acquisition.

And then, the second question, the land CapEx guidance was down I think about $20 million from the prior view. Is it getting cover to get the land? Just, what would cause the land program to diminish a little bit? And, remind us do you have any of those land deals out there -- or not land deals but do you have any of your tower deals out there that have tails at the end of them as far as having to take out the sale leaseback component with a future payment?

Rick, good morning, it's Jim. On the land CapEx the best way to characterize it is a mix variation. So, some quarters our teams are can have more success on the extension side of things which is not going to show up in CapEx. Other quarters, they're going to have more success based on the landlords they have to talk to that quarter on an actual sale of the land to us which will show in CapEx.

So, as Tom was saying, we've done altogether 5,000 extensions, or purchases or easements, over the past couple of years and that mix can change quarter to quarter. And, that's why you see the variation there. As far as sale leasebacks that we have done as a Corporation we have one with SBC.

Now AT&T that we brought on with the SpectraSite acquisition. We've also got Alltel that is now of course to owned by Verizon. And, we have AirTouch also owned by Verizon. There are three of those, I think the total tower count is about 4,200 across those out of the 22,000 or so we have in the United States total.

Is there an MPV of what the current payment is? It's probably like 20 or 30 years out.

It is. On the Alltel sites it's about $100 million. And, on the AT&T sites it's about $500 million.

Great. Thanks a lot, guys.

Okay, with that I think we are finished and can conclude for the day. I really appreciate your attention this morning. To the extent that anybody has any further questions please give Leah or myself a call, we will be here. And, again, really appreciate your attention. Thanks, very much.

Thanks everybody.

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