美國電塔 (AMT) 2014 Q1 法說會逐字稿

Good morning, my name is Tracy, and I will be your conference operator today. At this time I would like to welcome everyone to the American Tower first quarter 2014 earnings call.

(Operator Instructions)

I would now like to turn the call over to Ms. Leah Stearns, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you. Good morning, and thank you for joining American Tower's first quarter 2014 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 and CFO, will review our financial and operational performance for the quarter, as well as our updated outlook for 2014. 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 certain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2014 outlook and future operating performance, our expectation regarding future growth of our AFFO per share, industry trends, 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, 2013, 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 first quarter 2014 results. During the quarter, our rental and management business accounted for approximately 98% of our total revenue, which was generated primarily from leasing income-producing real estate to investment-grade corporate tenants. This revenue grew 23.5% to approximately $960 million from the first quarter of 2013. In addition, our adjusted EBITDA grew over 22% to approximately $640 million. Operating income increased 18% to approximately $354 million, and net income attributable to American Tower Corporation was approximately $202 million or $0.51 per basic and diluted common share. 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. As you can see from our press release, we kicked off 2014 with a very strong quarter from both a revenue growth and margin perspective. The network investment momentum that we saw build throughout 2013 in the US continues, and we are also seeing our customers in international markets aggressively investing in their networks. As a result, we are raising our full-year 2014 outlook for all of our key metrics.

If you please turn to slide 6, our total rental and management revenue in the quarter increased by over 23% to $960 million. On a core growth 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 total rental and management revenue growth was over 30%.

Of our Q1 core growth, 11.5% was organic, and was the result of a very strong quarter for commenced new business. In fact, during the quarter we experienced an increase of over 25% in commenced new business from the first quarter of 2013. The balance of our core growth, nearly 19%, was attributable to properties we have acquired since the beginning of 2013, including the GTP and NII portfolios we acquired late last year. We estimate that our top 10 global tenants will invest more than $40 billion in CapEx during 2014 into their wireless networks, which we expect will continue to drive strong new business commitments throughout the year.

Turning to slide 7, our domestic rental and management revenue growth in the quarter was over 23%, with core growth of around 26%. Domestic organic core growth was over 9%, which consisted of over 3% from escalations, and more than 7% from existing site revenue growth, net of just over 1% from tenant churn. This organic core growth reflects our tenants' continued aggressive network investments in 4G.

Overall in the US, roughly 60% of the commenced new business activity we saw in the quarter outside of the holistic agreements was in the form of amendments compared to nearly 70% a year ago. Also our new business pipeline reflects a split of 55% amendments, and 45% co-locations. This indicates to us that the shift toward densification from initial 4G coverage is a well underway. Accordingly, we have increased our outlook for our domestic organic core growth to over 9% for 2014, up more than 50 basis points versus our prior expectations.

Domestic rental and management gross margin increased by more than 21% to over $514 million, and grew by nearly 25% on a core basis. Domestic organic gross margin core growth was 9.4%, which reflects an 84% conversion rate for properties which we have owned since the beginning of 2013. Also during the quarter, we purchased or extended the remaining term on over 350 of our ground leases, and now have an average of over 24 years remaining on our US land leases.

Finally, we generated domestic rental and management operating profit growth of over 21%, or about 25% on a core basis, which reflects our continuing commitment to property level cost controls and disciplined spending on SG&A expense. Our SG&A outperformance also included synergies above what we expected related to our acquisition of GTP.

Moving on to slide 8, our international rental and management segment generated revenue growth of about 24%, or over 38% on a core basis during the quarter. Of this core growth about 16% was organic, with the balance driven by the more than 8,000 new assets we have added since the beginning of 2013.

As I mentioned earlier, the new properties we acquired across our international markets over the past year are outperforming our original expectations, and as a result have boosted our total revenue growth. Similar to the US, we continue to see a strong demand backdrop overseas, as our tenants invest in various stages of their wireless network deployments. Telefonica, Airtel and Vodafone continue to be among the most aggressive carriers in building out their networks in our international markets.

International rental and management gross margin in the quarter grew 19% to about $198 million, while core growth in gross margin was nearly 31%. The international organic gross margin core growth excluding pass-through was about 14%, which reflects an 87% gross margin conversion ratio. Our international reported gross margin percentage excluding pass-through was 82%, which compares well to that gross margin percentage generated in our US business. Our international rental and management segment operating profit margin grew almost 24% to $169 million, while the operating profit percentage was 52%. Excluding the effects of pass-through revenue, our international operating profit margin was nearly 70%.

Turning to slide 9, our reported adjusted EBITDA growth in the quarter was over 22%, with our adjusted EBITDA core growth at more than 28%. Similar to prior quarters, our adjusted EBITDA core growth was primarily attributable to our rental and management segment, which generally represents recurring run rate contributions to EBITDA, as opposed to the project-oriented non-run rate nature of EBITDA generated by our services business.

Our adjusted EBITDA margin was over 65% and nearly flat versus the prior year period, despite the addition of nearly 14,000 new lower tenancy sites since the beginning of Q1 of 2013. Excluding the impact of international pass-through revenue, our adjusted EBITDA margin for the quarter was 71%, and our adjusted EBITDA conversion rate was 69%. Cash SG&A as a total percentage of total revenue in the quarter was about 9%.

This strong EBITDA performance resulted in solid AFFO growth, which increased to $439 million, or about $1.10 per share. AFFO and AFFO per share growth were both over 22%. Core AFFO growth was more than 28%, reflecting significant organic new business growth, coupled with the addition of a number of AFFO accretive acquisitions. Our adjusted EBITDA to AFFO conversion during the quarter was about 70%. As we have said, we continue to target at least mid teen core AFFO per share growth, and believe that we are well-positioned to achieve our goals of doubling 2012 AFFO per share by 2017.

Turning to slide 10, as in the past, we remain very disciplined with regards to our capital deployment strategy. Our goal is to simultaneously fund growth, return cash to our stockholders, and maintain a strong balance sheet. In the first quarter, we declared a dividend of $0.32 per share or approximately $127 million, spent about $214 million on CapEx, and paid down roughly $160 million in debt.

Subsequent to the end of the quarter, we acquired about 60 towers in the US, which are currently utilized mostly by radio and television broadcasters. This transaction accounts for much of the $450 million in total consideration that we have spent on acquisition so far this year, and includes the assumption of about $197 million in secured debt.

We expect that our primary method of returning capital to stockholders for the rest of the year will be through our redistribution. The amounts and timing of our dividend payments are at the discretion of our Board, but our goal continues to be to deliver annual dividend growth of over 20%.

Since the end of 2013, we have lowered our net leverage by nearly half a turn to 5.5 times on an LQA basis. This result was driven by the increased adjusted EBITDA, and a debt repayment during the quarter. We continued to maintain a long-term target range of between 3 to 5 times net debt to adjusted EBITDA, and expect to be back around 5 times within the next year, through a combination of continued debt repayment and adjusted EBITDA growth.

We have maintained significant liquidity, and as of the end of the quarter had more than $300 million in cash on hand, and about $2.8 billion in capacity under our credit facilities. With our average remaining term of debt at about 5.5 years, at an average cost of approximately 4%, we remain committed to having a solid balance sheet.

Turning to slide 11, based on the strong customer demand trends we are seeing across our footprint, coupled with the recently closed US Tower acquisition, we are raising our full-year 2014 outlook for rental and management segment revenue by $70 million at the midpoint, to $3.94 billion. About $7 million of the increase is attributable to organic revenue outperformance in our domestic business, with an additional $28 million or so driven by the recently closed US acquisition. The balance of the increase is being driven by our international operations, including $6 million attributable to organic revenue outperformance, $10 million increase in past-through revenue, and an anticipated benefit of approximately $19 million from foreign currency relative to our prior outlook.

We are raising our domestic organic revenue core growth expectations for the year to over 9%, an increase of approximately 50 basis points from our prior outlook. In addition, we now expect our international organic revenue core growth to be around 13% for the year, an increase of 200 basis points from our prior outlook. The M&A transactions we closed prior to 2013 are contributing meaningfully to this organic core outperformance.

For example, assets we acquired from Telefonica in Mexico generated organic tenant revenue growth of nearly 39% in the first quarter. Similarly, assets acquired from Telefonica in Brazil generated organic tenant revenue growth of 26%. So our strategy of acquiring less mature, higher growth assets in international markets continues to significantly boost our organic growth rates.

In addition, the portfolios we have acquired over the last year are also outperforming expectations. Lease-up on the US GTP assets for example is coming in stronger than originally expected, and in fact outpacing the growth we are seeing on the rest of our domestic towers.

We are also increasing our outlook for adjusted EBITDA by $50 million at the midpoint. This includes an expected $20 million contribution from the recently of acquired US Tower portfolio, and about $15 million from other domestic and corporate outperformance, including greater than expected synergies from our GTP acquisition. In addition, about $15 million of the increase is attributable to our international business, including about $10 million due to foreign currency. On a consolidated basis, we now expect core growth and adjusted EBITDA for the full year to be over 24%.

Finally, we are raising our full-year AFFO outlook at the midpoint by $35 million, reflecting the increase in core adjusted EBITDA, partially offset by the incremental cash interest expense we have assumed with the recent acquisition. We now expect to generate AFFO growth of nearly 19% for the year, or over 22% on a core basis.

So turning to slide 12, and in summary, we have started the year off strong. Organic core revenue growth in the US continues to benefit, as our tenants expand and densify their networks. Our international segment continues to generate organic core revenue growth rates, several hundred basis points above the historically strong US rates, driven by tenants like Airtel, Vodafone and Telefonica who are making significant investments in their networks.

We saw strong lease-up on our newly-acquired GTP portfolio in the US, and also have been very pleased with the leasing momentum on our newly-integrated NII assets in Brazil and Mexico. We added more than 650 new assets during the quarter through our build-to-suit program, and also picked up 60 high-quality US towers in early April to further cement our leading tall tower position in the US. We expect that these types of towers may also be a platform for fixed broadband wireless video in the future.

We also maintained our strong track record of growing adjusted EBITDA and AFFO per share, with both growing over 22%. In addition, we declared a dividend of $0.32 per share or about $127 million, representing our ninth straight quarter of dividend increases, an increase of more than 23% as compared to the first quarter of 2013. And we were able to achieve these strong results while reducing our leverage ratio from 5.9 times to 5.5 times during the quarter, keeping us on track to return to our target leverage ratio range in early 2015.

We believe we are well-positioned to sustain this momentum, and as a result are raising our 2014 outlook across all of our key metrics. Customer application levels for space on our towers are at record levels, giving us tremendous visibility into new business growth on our existing assets throughout the rest of year. At the same time, we continue to actively evaluate incremental acquisition opportunities, which we would fund in an essentially leverage neutral manner, maintaining the integrity of our balance sheet. And with that, I will turn the call over to Jim for some closing remarks, before we take some Q&A. Jim?

Thanks, Tom, and good morning to everyone on the call today. I will continue our practice of focusing on a specific theme that provides a deeper perspective on a key aspect of our business. As you may recall during the fourth quarter, recall we provided an in-depth update on our long-term strategic plan, and key aspirational goals for the Company over the five-year period.

Today I will focus on the strong domestic wireless investment environment, and the resultant performance of our US operations. During our second quarter call later this year, I will cover a similar update on our international segment. Then on the third quarter call, our focus will turn to fundamental trends in wireless technology, which we believe will continue to drive network investment and ultimately long-term growth for the tower business.

So as of the first quarter of 2014, our US leasing business comprised about two-thirds of our total revenue, and nearly 75% of our total operating profit. With aggressive investments in domestic 4G deployments continuing, we remain focused on optimizing our high-quality asset base, and enhancing our strong customer contracts and relationships. These operational initiatives are designed to maximize the generation of consistent organic growth, while we simultaneously continue to pursue AFFO accretive acquisitions and construction projects in the US.

So today I will specifically cover how our domestic organic growth has historically correlated to US wireless industry investments, how current to consumer technology and industry trends will continue to support continued robust wireless industry investments over the next decade, how American Tower is new uniquely positioned to capitalize on these domestic trends because of our high-quality portfolio and strategic approach to structuring our master lease agreements. And finally, we will review the performance of our recently acquired GTP portfolio, which is already, as Tom said, pacing ahead of our internal initial expectations.

So let's start with underlying investment trends we have seen in the US wireless industry, and how our business has benefited from those. Over the past several years we have experienced a fairly strong correlation between domestic carriers' aggregate CapEx, and our level of organic growth in American Tower. For example, from 2010 to 2012, we saw aggregate spend on wireless CapEx of about $25 billion to $30 billion, supporting our organic core growth rates in the range of 7% to 8% during those years.

Beginning in 2013, we then saw wireless CapEx spending ramp up to nearly $35 billion a year, and has since experienced elevated levels of organic leasing growth beyond our target range in the area of 9%. In fact, during the first quarter our domestic segment once again outperformed our own expectations generating organic core growth in the quarter of 9.2%. This growth, which was 120 basis points above the high end of our long-term targeted range of 6% to 8%, was driven by a combination of contractual escalators, co-locations, amendments and payments tied to our holistic master agreements, and all net of churn.

This correlation is possible due to two key benefits associated with our holistic MLAs, churn mitigation and the preservation of incremental growth opportunity in cases where our tenants find the need to make additional investments to support network demands beyond what they had originally anticipated. As a result of these two key factors, American Tower is uniquely protected against volatility in revenue growth.

For example, since implementing these holistic agreements, we have reduced our annual domestic churn rate by an average of over 50 basis points, and the contribution from our tenants' enhanced equipment investments has steadily increased over recent quarters, and added over 70 basis points to our organic growth during Q1. As a result, we are uniquely positioned to capitalize on the investments that wireless carriers are making in their networks as a result of our holistic agreements.

We believe that these investment trends will continue for at least the next several years, since subscriber adoption of 4G devices and advanced wireless services is outpacing the capabilities of today's wireless networks, and the industry is still in an early stage of the 4G upgrade cycle. According to reports from Cisco, as of year-end 2013, 4G handset penetration in the US was still only 26%, and it is projected to increase to about 33% by the end of this year.

Looking forward, the number of the US 4G smart phone connections is projected to then double between 2013 and 2018, with 4G tablet connections expected to triple between those years. Furthermore, additional devices such as 4G smart watches, Google Glass and other wearables are just beginning to hit the market. All told, devices per capita are expected to double by year-end 2018, and we think that will be accompanied with ongoing significant demand for leasing on our towers.

Compounding the level of strain that accelerating subscribe adoption places on networks, is the rapidly expanding network demand per device, as consumers engage in high-bandwidth applications such as video, music and gaming. At year-end 2012 average data usage on smart phones was approximately 880 megabits a month, which then rose by almost 40% to more than 1.2 gigabits per month in 2013. Similarly, tablet data usage increased by over 50%, to more than 2 gigabits per month from 2012 to 2013. Consequently, when you combine the additional devices and the additional usage per device, aggregate wireless network utilization is quickly increasing. So the combination of increasing numbers of high-end smartphones and tablets, significantly higher utilization per unit, and a consumer focus on quality of service, is in turn requiring carriers to continuously augment their networks. As a result, carrier wireless capital spending in 2014 is once again expected to exceed historical ranges significantly, at nearly $35 billion.

In American Tower, we are seeing firsthand how this ramp-up in carrier spending is translating into significant leasing activity on our sites, and our operations teams have been busier than ever processing applications associated with these rising levels of new business. In fact as you heard, our domestic application volumes in the first quarter were up 51% versus the first quarter of 2013.

Now one of the most critical challenges to wireless networks is the impacts -- the ever-increasing bandwidth requirements for mobile video provide. While in 2013, mobile video as a percentage of total data usage was 56%, by year-end 2018 this is expected to rise to nearly 70%, while overall, Cisco projects that mobile data usage will in turn grow by nearly ten-fold over this time period, and that is going to place tremendous demands on existing networks.

Our analysis indicates that nearly 80% of this rise in traffic will be carried over the macro network, which is primarily composed of towers, like the nearly 28,000 we have across the US. While we expect macro supplements such as small cell technology to help our tenants alleviate network burden in specific locations, primarily in dense urban areas, it is important to remember that 83% of the US population resides in suburban or rural areas, which are almost exclusively served by tower-based macro sites. We therefore anticipate that the classic cell tower will continue to serve as the core infrastructure to effectively deploy 4G services nationwide.

Today the macro tower portion of our business generates over 95% of our revenues, and we expect our towers to capture the lion's share of the projected growth in mobile data. In addition, our nearly 300 distributing antenna systems in the US, which include approximately 9,000 active nodes, as well as our other small cell initiatives allow us to provide those supplemental solutions, in indoor and dense urban locations that require a highly targeted capacity and coverage augmentation.

We anticipate that a number of additional drivers will further support strong domestic organic growth during our five year planning period. For example, the deployment of voice-over-LTE service or VoLTE is one of the technology trends that we have highlighted in the past, and we anticipate that this will result in continued strong demand for tower space. Verizon and AT&T are already planning their VoLTE rollouts, with commercial launches expected to begin within the next 12 months.

In our analysis, to ensure the same quality of service, voice calls that travel via data packets over the internet necessitate greater cell site density, compared what is required to support classic circuit-switched voice calls. It is our belief that in order to roll out VoLTE effectively, carriers will both eventually need to increase the density of their networks by up to 20% to 30% over time.

In addition to VoLTE, we expect that a build-out of the public safety network will generate incremental leasing opportunity on our sites over the five-year period. With either a dedicated network or with existing carriers deploying additional spectrum for the purposes of FirstNet, we can capture incremental revenue opportunities via this public safety network, probably during the latter half of this decade. Similarly, we also anticipate a future roll-out of [this new] spectrum to be a revenue-generating event for us over the long-term, whether it is through collaboration with an existing carrier, or through an independent build-out as a new wireless entrant, perhaps in league with another company such as Google or Microsoft.

Furthermore, phenomena such as multicasting and machine-to-machine technology are also expected to create additional sources of network demand for many years to come. Through multicasting, data and video can be transmitted to multiple recipients more effectively, making it easier to send high-bandwidth services such as streaming media through the airwaves. Additional applications of machine-to-machine wireless communications are also becoming more prevalent. Of the millions of machine-to-machine connections already that exist today, the vast majority of these are running on 2G and 3G network technology.

Wireless contracts with users of these embedded M2M devices, for such applications like tracking shipping containers, managing package delivery fleets, and monitoring utilities, typically involve very long-term multi-year service contracts. Consequently, we anticipate that wireless carriers are going to have to extend the life cycle of the legacy 2G and 3G technologies, and the continued installation and operation of a substantial amount of legacy antennae and other hardware will remain on our sites.

It is also important to note how machine-to-machine technology is becoming increasingly complex. With services like the connected car, and eventually the autonomous vehicle in the pipeline, the reliability and efficiency of the next-generation of network will need to support these services, and the additional use of these capabilities will generate will be very significant. Our domestic tower portfolio and master lease agreements have been deliberately developed over the years to optimize long-term revenue growth, while containing churn risk and controlling operational expenses and redevelopment CapEx.

So today our domestic tower sites have an average tenancy of 2.5, average height of 210 feet, and the structural capacity to hold on average between 4 to 5 physical tenants. Therefore, we have nearly half our tower structural capacity, and plenty of height available for new platforms and equipment. Moreover, our existing domestic towers have virtually no reserve rights, due to asset acquisition or lease sublease contractual requirements that would further limit this available capacity. We also own the land underneath, or have ground lease terms for at least 20 years associated with 60% of our properties, and we have a goal of increasing this metric up to 80% within this next five years.

As I discussed on our fourth quarter, our US portfolio largely consists of assets built by American Tower or those we have strategically acquired from select sources, which are primarily engineering-driven companies such as AirTouch, Alltel, Nextel, SpectraSite and GTP. The properties we acquired from these major sources were built to accommodate the structural demands of anticipated additional equipment, and we have therefore have historically needed minimal CapEx to support additional revenue on our sites.

In fact, over the last four years, we have only spent an average of approximately $1,000 per site per year on redevelopment CapEx. Our ability to offer sites with existing capacity to our tenants as they have aggressively worked towards 4G upgrades, has been a strength for the business.

At American Tower, it is our operational objective to continue to serve our tenants with the best asset base we can, and to be the preferred provider of communication real estate. A crucial aspect of our ability to achieve this is our unique approach to restructuring our master lease agreements. In 2010, we pioneered the first holistic MLA, and today we have three out of four of our major tenants operating under this type of contract.

Through these arrangements, we have not only established a guaranteed increasing baseline of new business annually, and benefited from enhanced equipment rights requested by our customers on a substantial number of sites, we have also insulated the business from major churn events such as Sprint's iDEN decommissioning. By strategically mitigating this risk, we have been able to defend our baseline level of business, and focus our efforts on the upside opportunities resulting from the strong 4G leasing activity. It is our view that American Tower's relatively higher portfolio quality, combined with our disciplined approach to structuring MLAs, has enabled us to achieve industry-leading organic core growth in 2014.

We continue to supplement our solid organic leasing growth with additional investments in new sites that have shown immediate accretion to AFFO. Our recent acquisitions of the GTP portfolio is a prime example of how we have been successful through our selective M&A activity. Today, we are largely complete with the integration of those assets and operations, and GTP's performance is already pacing ahead of our expectations.

As we have previously discussed, the GTP sites are a strong complement to our legacy asset base, including in top 10 markets such as LA, Atlanta and Chicago, where our combined portfolio has the strongest presence. Together, the location characteristics and structural robustness of the sites we acquired from GTP, which were originally built for co-location, have already enabled us to generate strong leasing activity, and we believe that GTP assets will contribute meaningfully to our ability to generate substantial organic core growth for many years to come.

Now subsequent to the end of the first quarter, you heard from Tom that we also completed the acquisition of a marquee portfolio of 60 primarily broadcast communication sites from Richland Towers. This transaction not only reinforces our position as a leader in the US for tall towers, but also enables us to begin aggressive marketing of the acquired properties to our wireless tenants. We believe that the growth potential on the wireless side is strong, and because of the structural nature of the tall tower portfolio, minimal CapEx will be required to accommodate new tenants. As a result, the Richland portfolio is not only immediately accretive to AFFO, but also provides us with significant opportunity for additional cash flow generation. As we look forward to the robust demand trends in the US, we fully expect these newly acquired sites to drive incremental growth and AFFO per share for the Company.

So to summarize, the constant demand environment we are experiencing today in the US is one of the strongest we have seen. Numerous factors indicate that these favorable trends are poised to continue for many years to come, as a result of the expansion of 4G mobile broadband. Over the coming years, we believe that the resulting [top] growth in tower leasing, will be augmented by additional opportunities including VoLTE, the public safety network, multicasting and expanding machine-to-machine services. We expect that in combination, these strong demands drivers, coupled with our quality US portfolio, and solid contractual arrangements, will help us to continue generating at least 6% to 8% organic core growth in our domestic business during our current planning period.

Our international segment continues to grow at an even faster pace. And during our second quarter call, we will delve into greater detail on what is driving the growth in our markets outside the US. We expect our combined US and international businesses will generate the consistent strong cash flow growth required to meet our aspirational goal of again doubling our 2012 AFFO per share by the year 2017. And with that, operator, let's open the call for questions.

(Operator Instructions)

Our first question comes from Jonathan Atkin with RBC Capital.

Yes, good morning. So I was interested in the increase in your domestic organic core growth guidance, and what specifically are you seeing at the carriers, and what types of projects are seeing that are driving the higher outlook? And then on the international market, I wondered if you could maybe just kind of hit the high point of what you are seeing, in terms of leasing drivers on both legacy and newly acquired sites in Mexico Brazil, as well as in India? Thank you.

Sure, Jonathan. It is Jim. So some of the major current drivers in the US include Verizon transitioning from its coverage phase to its densification phase, of its 4G LTE rollout, and we are seeing increasing co-location application from Verizon network converting to contracts during the current year, at a greater pace than we have had in the past. So that's one piece.

AT&T is also continuing to build out across markets, both on the amendment side, and in some cases on the co-location site now. And we are also building a high number of towers as an example for AT&T, as they fill in other white spaces. So AT&T is also been very active. And then Sprint and T-Mobile have contributed meaningfully too, mainly on the amendment side, but also through some of the enhanced rights that they are asking for an specific sites that go over and above the holistic agreement. So it's really across the board, all four national carriers are active in contributing in the US.

And then, just turning to international, just to give you a couple of highlights. And for example Mexico, this continued 3G rollout by Telefonica, Axtel has become more active, and Nextel is of course, continuing its network transition, and very much on our sites are those projects. Brazil, similar with sort every carrier out for 3G deployment, and some initiating 4G as you know. [Vivo] is really stepped up. That is the telephonic subsidiary in Brazil, and has tried to I think really enhance its pacing of 3G deployment. But at the same time, Nextel is active and Telecom Italia as well, over the say last quarter or so.

And then turning to India, it is really stabilizing as far as the regulatory environment, and therefore the major carriers have ramped up their build plans again. So Bharti Airtel was one of our biggest customers in the first quarter, IDEA, Vodafone et cetera. So it's a big incumbents that are taking their new spectrum, and their understanding of how the market is going to play out, and are starting to reinvest more heavily in their networks. So that's kind of the major landscape. All the countries in the business, either hit or exceeded the plans that we had for them in the first quarter. So it's really in Africa, it is Latin America, and it's in Asia, carriers are stepping up and deploying these 3 and 4G networks.

And then, Jon, just on the US. We increased, as I mentioned about 50 basis points. And it's a function of just higher levels of applications, as we mentioned they are up 50% versus what they were last year. So application volume is just very, very high. And it is also the mix. It is a little bit more quick mix than I originally thought in terms of moving to co-los and amendments. In amendments, it's a good solid revenue, and the kind of average amendment in the US in the 600 to 700 range, but it's over three times or roughly 3 times on co-location. So it is a function of both mix and just volume, which is driving the increase in the organic core growth

And if I could follow up briefly on DAS, which you mentioned, are there particular regions and venues versus outdoor versus indoor does that kind of strike you as kind of having the most opportunity?

Well domestically in the US it's mainly indoor right now, Jonathan. There are upgrades going from 3 to 4G in a lot of the big properties like casinos and some of the major malls, that is driving a lot of it. AT&T and we are collaborating on new properties to try to figure out what's the most attractive place to do build-outs and serve them in that way. So it's mainly the 3 to 4G upgrade in indoor, along with new properties that were building out at this point in time.

And Jon, just adding to what Jim had said, on the indoor side, we are seeing kind of north of 2 tenants per tower by closely to 2.4 tenants, versus the outdoor which are in a 1.4, 1.5. So our focus on the indoor DAS is where we want to be.

Thank you very much.

Your next question comes from Batya Levi with UBS.

Thanks. Just follow up on the level of activity you are seeing from Sprint and T-Mob. Are they spending beyond their holistic MLAs today? And does your guidance include any activity on T-Mo's 700 day block which would close soon, and Sprints 2.5 deployment which I believe they expect to pass100 million-plus by year end? Thank you.

What we call over and above activity, expanded requests for additional rights in both those cases, Batya, T-Mobile has probably been a little more active. As you have heard as recently as this morning and last night, they have had a lot of success in subscriber growth, and are therefore meeting that growth with more network investment, and we are helping them with that. As far as the 700 megahertz, that is probably going to be more of a 2015 active field deployment if you will, so the planning is going on now. But the lease commencements are likely to kick in more in the 2015 calendar year.

And then Sprint 2.5 is starting to roll out, but it is a very, again very complex project is going on simultaneously with the not yet completed 1.9 original network Vision project. So it's all incorporated, but the 2.5 gigahertz deployment will last for a number of years, and really ramp up probably more next year. But one other point on the 2.5, we are estimating that in addition to the 38,000 network vision sites that are kind of on the docket with Sprint, they probably need another 30,000 to 40,000 transmission locations ultimately, to have 2.5 coverage match the 1.9 network at the end of the day. So it should be a long-term as I said, multi-your project to get that signal out there.

Okay, great.

And your next question comes from Simon Flannery with Morgan Stanley.

Hello. This is Arindam for Simon I just wanted to get your take on future acquisitions, and how you balance that with your leverage target? Are you thinking of any new or existing markets to enter? I know the slides mentioned a strong M&A pipeline internationally. Thank you.

We are continuing to seek new assets in all of our served markets, and some that are adjacent in the territories in the regions that we have deployed, just like we had before. So our deployed management teams in the regions are continuing to meet with counter-parties and customers, and get involved in due diligence and exploration of new assets. At the same time, we are cognitive of our leverage glide slope that would like to be on. So I will basically say, from a strategic side, it's business as usual and American Tower and domestically and around the world. And I will let Tom give a couple of comments on how we will manage the leverage through that.

Yes. I mean, as I mentioned we ended the quarter at 5.5 times net leverage on a LQA basis, down about half a turn, from the 5.9 level as of the end of the year. And our goal is to be able to delever back down to that 5 times, over the next 9 to 12 months or so through a combination, as I mentioned of expected EBITDA growth and selective debt repayments. And we continue to value our investment grade rating and balance sheet flexibility, and overall believe that our balance sheet strength is clearly a competitive advantage. So to the extent that were able to leverage our active deal pipeline to find accretive acquisition opportunities this year, it will fund them in a manner which will enable us to hit our year-end in the early 2015 leverage targets. And we have a number of different products that we can use to do that.

Thank you very much.

Sure.

And your next question comes from Michael Bowen with Pacific Crest.

Okay. Good morning, thank you. Question with regard to the GTP portfolio, you mentioned that lease-up was stronger than anticipated. t was wondering if you could give us any incremental detail around that, and how much you, depending upon what detail you can give, how much of the increasing organic core growth with international, was the result of the GTP tower portfolio? Thanks.

Yes. I mean, the international portfolio was none really. I mean, e have Costa Rica and Panama, but there was no real increase relative to that organic growth. On the US side, keep in mind that we now have 5,000 towers that we are able to put in front of all of our customers. And so, the 9.2% organic core growth that we saw in the US is probably in the high 9%s relative to GTP, as I mentioned before outpacing the overall growth of the legacy US portfolio. So we remain really excited about the portfolio. We also -- I mentioned that the synergy levels are higher than we originally thought, and we are originally had talked about a $10 million synergy number for 2014, and we are looking upwards of $17 million to $18 million. So much of the SG&A outperformance that we see for the balance of the year is really due to the GTP incremental synergies, which is really driving to that 9% of SG&A. And keep in mind, that our organic core growth doesn't include any revenue contribution from sites that we have acquired in 2013. The way we calculate organic core growth are on those assets that we have owned for at least a year. And so, the GTP and the NII sites are largely going to be driven in the overall core growth metrics that we talked about.

Okay. And then, quickly with regard to AT&T, you mentioned on the call that you are building towers for AT&T. I think they said, they had added about 1,000 macro towers. Can you give us any feel for you know the relative benefit your seeing from AT&T with regard to that tower build versus the other two tower companies?

Well, just overall, it is important to point out, deployment for carriers are largely in the form of co-location, right? So if it's 1,000 per carrier that put out new cell sites, the vast majority of those tend to be on existing towers in the industry. So that's the first reminder. Secondly, we don't really speak to specific volumes per customer, for what is built-to-suit or co-location with them. But what the trend, what is important to remember here, is, carriers are need to deploy sites to make their networks more dense, because they need higher signal-to-noise ratio, a higher signal strength in the network deliver the new services, and also the capacity is really kind of requiring additional sites and equipment for the transmission. So those are the two themes to remember, and far as specific customers, we tend not to speak to the numbers related to each of those.

Okay. Thank you.

And your next question comes from Ric Prentiss with Raymond James.

Thanks. I will try to be brief, it's a busy earnings day. First very exciting organic growth. Appreciate you laying out all the details there. I wanted to touch a little further on the external or the M&A growth. On Richland, can you tell us what the annualized effect would be? I know you shared with us as, far as the change in guidance, but don't want to annualize incorrectly, because we don't know the actual close date. Nextel, you still have some -- maybe about 1,000 towers all told between Mexico and Brazil you have not closed yet. Do you still expect to close those? And the final M&A question is, as you look at balancing the risk. You have got a very visible business, FX has some volatility. How do you kind of balance that basket of international for future growth?

Ric, let me start off on that one. For purposes of Richland, the total annual revenue, it is just under $40 million. I think, $39 million of revenue and $30 million of TCF. So hopefully that gives you a little bit of a sense on that particular portfolio. And with regards to NII, you are right. We had -- we have about another 1,000 or so sites that we have yet to close, and they are subject to due diligence and customary closing conditions. So the timing on all those is uncertain. And we obviously, have not included any impact from potential subsequent closings in our current outlook numbers.

Right. So, Ric, there is things like landlord consents and permits and other important aspects of individual sites. We have just got to work our way through them through the rest of year.

So you still expect to close us by the end of the year though?

We are working towards that. Typically, not all sites in a portfolio end up closing, but the majority of them do. So I think that is our best way to look at it. And then, as far as the sort of global risk balancing if you will, let me to start off, Ric, with the original numbers, from the prepared remarks, which is the US is our base business. It's two-thirds of the revenue line, it's probably 70% to 75% of the non passthrough revenue line, and it is 75% of the operating profit.

So the US is the base business, and our international is meant to complement and diversify that, right? And what's interesting about how -- the way all the math will work over a five or ten year time horizon, is the US will continue to grow robustly as we have kind of outlined today. And on top of that, we have even got a faster growing albeit from a smaller base international business. So remember the purpose of international is to accelerate growth, diversify the sources.

And so, it is inherently in our view, a risk mitigating strategy. Within the international then, we are further mitigate the risk within that segment, by diversifying internally to international, a number of dimensions, right? So we don't put too many eggs in any one basket, whether it's a continent, whether it's a country, whether it is a counter-party, whether it's a technology or technology cycle of timing. So we have got for example, activity in 2G in places like India and Uganda. We have got activity in 3G in Latin America, India, and throughout Africa. We have got activity in 4G in Germany and the US, and now in India.

So we diversify across technologies. We diversify across continents. We are on five continents now. And what is really important, is when we diversify across customers, those customers are in multiple countries. These are the multi-nationals, Telefonica, America Mobile, MTN, AirTel, those kinds of companies create an interesting fabric, if you will. Which is we try to pick countries, which again we have risk-mitigated, and we pick counter-parties that we try to weave across those countries to create a really strong fabric. And that is kind of the other concept of risk mitigation. So those are kind of key dimensions that I would offer, Ric, and again, each and every deal and build-to-suit inside or outside the US is scrutinized substantially, by both the regional team, and here the executive team, and if it's of size, by the Board. So we feel we have got a lot of risk management applied to both, frankly the domestic and the international business.

And as Jim alluded to, we expect much higher rates of return coming from these markets on a risk-adjusted basis. So we are looking from anywhere from kind of a low double-digits teens in the LatAm, up to some markets that we have in Africa, up to 18% to 20%. So we do risk-adjust them, as you all know as well

That's great. I appreciate the way you are giving guidance is year. I would like to see the Brazilian real there around BRL2.35 in the guidance. That seems to be nice and conservative still.

Great, thanks, Ric.

Thanks. Have a good day.

Your next question comes from Phil Cusick with JPMorgan. The Mac

Hello, this is Richard for Phil. Want to get a sense -- I don't if you have it offhand -- but the overlap exposure you have now between Sprint and T-Mobile?

Sure. It is Jim. We have got 5% total revenue on our rental management segment, overlap on towers for T-Mobile and Sprint are both present. That's about 5000 sites. What's important about that overlap, is the remaining term which averages between the two companies at seven years. So we renegotiated holistic agreements as you will recall with both Sprint and T-Mobile over the last couple of years. Those had sort of nine to ten year tails on them when we negotiated them, and there is seven years left. So it's a modest, manageable and distant in terms of time overlap.

And just as a reminder, as we have analyzed previous mergers in the industry, whether this one is consummated or not, we have real data on those that have been consummated. And in all three cases, whether it was Sprint Nextel, Verizon, Alltel or AT&T Wireless and Cingular, our pre deal revenue streams increased by on average 25% post-merger. So these trades, if they do happen are driven by a need to further invest in a network, and two parties often times feel that they can do that more effectively together than apart. And so, it's usually constructive for the tower industry in the end.

And to clarify on earlier statement you made, I guess, there is 30,000 network vision sites to mesh the 1.9 with the 2.5 -- are you saying Sprint needs an incremental 30,000 to 40,000 sites?

Well, that is a theoretical construct, where if you wanted to have the same coverage on 2.5 Gs as you did -- as you do on 38,000 network vision sites at 1.9, then you are going to have to have an incremental 30,000 to 40,000 sites. It's a theoretical construct, if you want to have the same signal strength and coverage as you do on network vision, our technical assessment is you have to have significantly more sites. I am not sure Sprint is ever going to go that far, but if they wanted to, that is the order of magnitude of my take.

Great. That should probably help drive you for a while. Thank you.

Your next question comes from David Barden with Bank of America.

Hello, thanks for taking the questions. Just two if I could. First, I guess for you Tom, just on the Richland acquisition. Could you kind of share what incremental kind of revenues/EBITDA contributions that contributed to the guidance change for the year? And then, just second, maybe Jim on your comments about, obviously the current strength in the business core business, which appears to be growing in the US over 9%. Some of the commentary you laid out about the drivers in the next couple of years, but then your kind of long-term growth of 6% to 8%. Could you kind of talk about how you see the current 9%-plus growth in the current environment, kind of stepping down to that 6% to 8%, and over what time frame, and kind of what leads to that? Maybe it's just law of large numbers over time, but it feels like all the drivers right now, would lead you to believe that maybe the next couple of years are higher than 6% to 8%. But I would love your perspective on that? Thanks.

Hello, Dave. On the first question, relative to the original acquisition -- of the $70 million increase in our rental and management revenue, Richland represented $28 million of that, and of the $50 million increase in EBITDA, Richland represented $20 million of that, and is largely driving the incremental AFFO by about $5 million. So very accretive for us in 2014.

And as I suggested in the prepared remarks, regarding growth rates and industry CapEx, the aggregate industry CapEx if it stays at the $30 billion to $35 billion a year level over the few years, we think of course, would support greater than 6% to 8% organic revenue growth for us. And so, that is our best barometer, and we are going to work closely with the carriers, but at the end of the day, they are going to decide what their CapEx budgets and their roll-out deployment plans are. And again, that is another reason for diversification outside the US is, because if there ever is attenuation below the 9.5% or 9.2% in the US, that will be about the time that 4G is kicking in some of our other markets, so that would help boost the total company growth rate, if it ever happened that way.

Great, thanks. And then, Tom if I could just do a quick follow-up. So I think the revenue for the first quarter seems to have come in maybe $10 million stronger than what people expected. So rolling that through the year, that is a $40 million revenue beat. And then, this acquisition at Richland is $28 million. So we get to $70 million. We go some foreign currency tailwinds on the new expectations, which even take us north of there. So it kind of feels like, based on the commentary, that you are kind of teeing up fairly conservative revenue implications inside the guide, for the second, third and fourth quarters? Or is there some other headwind that is going to come into play here, that we should think about?

No, I mean it's -- I kind of walked you through, David, in terms of what the kind of four pieces were, the FX being $19 million, passthrough of [$9 million], Richland at [$28 million], and the outperformance of [$14 million], kind of $7 million in the US, and roughly $7 million in the international markets. The first quarter, we do have some escalation impacts from some of the holistics, and some of those types of things. So I think that right now, is a fair cut at what we would see the year to be at. And to the extent, that we see any more activity obviously, we will continue to update the guidance as we move throughout the year.

Got it. All right. Thanks.

Our last question comes from Amir Rozwadowski with Barclays.

Thank you very much. And I was wondering if we could touch upon sort of the margin trajectory from your international business. I mean it does seem as though while you folks are looking at healthy other opportunities in those markets, a lot of the investment has gone into expanding the footprints in those markets where you see the best opportunities. We would love to get some insight, in terms of how we should think about sort of the trajectory that of the business, as you start to build up additional co-location, and some of these seeds that you planted in some of these markets begin to bear fruit?

Yes, Amir, I mean it's really a function of our continued investment in those markets in the form of new acquisitions, versus the kind of growth of these legacy businesses. I mean, if in fact we just stopped investing in those markets, I think that you would see the same kind of trajectory, as you would see in our US businesses. I mean, the core organic core growth gross margins without the passthrough is about 87%. So we are seeing really solid conversion rates, in those legacy international markets consistent with what we would see in the US, which in the kind of 85% level, at the gross margin level. But we do continue to invest in those markets. So the average tenancy is about 1.5, versus the US which is about 2.5. So it's a mix -- we like to be able to walk and chew gum at the same time, in terms of driving the top line growth rate, as well as being able to create a real long-term sustainable path for ourselves. But longer-term, there is no reason that they shouldn't be able to get to the same -- the same kind of path as our US operations.

Amir, this is Jim. Just to put a point on that, if you go back to the analogy of vintages of towers like fine wine, the older the tower, the more leasing it is going to have, the higher the margins are going to be. Our return on invested capital in towers we have owned in say even in Mexico, for the past ten year time frame, those are north of 20% -- return on investments kinds of sites. And the operating -- the gross margins are going to be outside of passthrough in the 90% range. So as Tom said, basically it becomes [isotonic] to the US level as the international markets grow and mature.

That's very helpful. If I may, one quick follow-up. Switching back to the US, you folks in your prepared remarks, spoke about some of the initiatives ongoing with the carrier such as VoLTE, which are -- which seem to be driving some densification opportunities. In your discussions with those folks, how much of this is a priority for the carriers? And the reason I ask, is it does sound like if there is an opportunity to free up voice spectrum to utilize for data, getting there sooner rather than later maybe opportune for them, given what we re seeing in terms of rising traffic? And I am wondering if that potentially could accelerate densification investments, or how we should think about that

Yes, I think that logic tree is exactly what's going on, Amir. Whether the carriers are seeing sort of the burgeoning data demand coming through, led by video and other applications that are high-bandwidth like music and games and things. And so, they would like to move some of the voice-dedicated spectrum of the 3G spectrum over to 4G, where it can be used for -- by LTE -- it can be used for voice and for data in a very efficient way as you said. So the trade-off then is, what is the densification of the infrastructure rate that I need to get the spectra moved over, and maintain my quality of service all for data and for voice? And to replace a circuit switched network, that is traditional sort of signal path from one voice user to another, to replace that with an internet-based packet network, you just have to have higher signal-to-noise ratio in the airlink part of that call. And to have that higher signal-to-noise ratio, you have to have sites closer to your handset and more dense therefore. Those are the equations that these guys are calculating, and trying to figure out what the right rate of migration is going to be for each company.

Thank you for the incremental color.

Yes.

And with that, operator, we can end the call. Thank you, everyone, for joining.

Thanks for joining, everybody. Have a great week.

And that does conclude today's conference call. You may now disconnect.