美國電塔 (AMT) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the American Tower second-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the call over to our host, Leah Stearns, Senior Vice President, Treasurer, and Investor Relations. Please go ahead.

Thank you. Good morning, and thank you to everyone on the call for joining us this morning to discuss their second-quarter earnings.

Our agenda for this morning's call will be as follows. First, I will provide some brief highlights from our financial results. Next, Tom Bartlett, our Executive Vice President and CFO, will provide a more detailed review of our financial and operational performance for the second quarter of 2016 as well as our full-year outlook for the full year of 2016. And finally, Jim Taiclet, our Chairman, President, and CEO, will provide a brief update on our international business and strategy. 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 expectations for future growth including our 2016 outlook, foreign currency exchange rates and future operating performance, technology and 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, 2015, and in other filings we make 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. In addition to this morning's press release, we have posted a presentation which we will reference throughout our prepared remarks, under the Investor Relations tab on our website.

I'd like to note that we have updated the name of our run rate revenue metric to tenant billings. As we highlighted for you last quarter when we introduced this metric, it reflects the current tenant billings which are generated by our global portfolio as communications real estate. In addition in response to recently issued disclosure guidance by the SEC, after today we will no longer reference our core-growth metrics.

With that, please turn to slide 4 of the presentation which highlights our financial results. During the quarter, property revenue grew approximately 24% to nearly $1.43 billion. Total revenues grew approximately 23% to over $1.44 billion, and net income attributable to American Tower Corporation common stockholders increased by over 24% to $161 million or $0.37 per diluted common share.

Our effective tax rate during the quarter was over 18%, and included an income tax reserve related to our Viom transaction. For the year, we now expect our effective tax rate will be in the low double digits.

Adjusted EBITDA during the quarter grew 14% to approximately $869 million. And consolidated adjusted funds from operations increased by over 10% to approximately $592 million or $1.38 per diluted share.

With that, I would like to turn the call over to Tom.

Thanks, Leah. Good morning, everyone.

As you can see from the results we released this morning, we had another quarter of strong organic tenant billings growth and good margin performance across our global asset base. We also declared a common stock dividend of $0.53 a share, which was up over 20% from the prior-year period. And given the close of our Viom transaction in late April, our teams in India are now working hard to seamlessly integrate the more than 42,000 towers we added to our portfolio with that acquisition.

If you'd please turn to slide 6, let's take a look at our quarterly results. You can see that we generated strong performance, with total reported property revenue growth of about 24%. This included total tenant billings growth of over 23%, of which about 8% was organic, driven by consistent demand levels throughout our global footprint.

Our total property revenue growth this quarter included a negative 60 basic point impact from a $7 million revenue reserve related to a receivables associated with a tenant in Brazil which were outstanding at the time of their judicial reorganization filing. Based on our prior experiences with carrier bankruptcy and reorganization proceedings, we expect to pursue the full amount owed to us. Additionally, I would note that this tenant has resumed payments to us for amounts owed subsequent to their judicial reorganization filing date.

Our US property segment generated total reported revenue growth of about 3%, including a negative 1.4% impact from straight-line revenue account recognition. We did not book any decommissioning revenue this quarter as compared to about $8 million recorded in Q2 of last year, and $31 million or so booked in Q1. This negatively impacted our US property revenue growth by an additional 1.1%.

US organic tenant billings growth for the quarter was 5.6%, which again reflects organic build recurring revenue and was right in line with our expectations. Demand trends in the US remain very steady, with carriers actively spending to augment their 4G networks. Our international markets generated organic tenant billings growth of 13.7% or 800 basis points higher than that of the US.

Escalators associated with rising local market inflation contributed about 7% to that growth, while organic new business commencements were an even larger component of the growth at about 7.6%. These were partially offset by some churn of just over 1%.

There was broad strength across our international property segments, with all three posting double-digit organic tenant billings growth rates. Including 12% in Latin America, 20% in EMEA and over 10% in Asia.

Our multi-national tenant base in these markets continue to make significant investments in their networks, as more and more of their customers gain access to advance handsets, handsets at lower-per-unit costs and begin to use exponentially more data on those handsets. The benefits of the geographic, tenant and technological diversification built into our business model continues to be evidenced by the strong growth rates we are generating in our international markets.

Finally, on a total-property basis, the day-one revenue associated with the nearly 57,000 sites we have added since the second quarter of last year. Including the Viom, Airtel Nigeria and TIM Brazil portfolios and roughly 3,400 new builds contributed another 15% to our total tenant billing's growth in Q2 bringing the total growth to the nearly 23%. Our new-build program remains active, and we constructed nearly 400 towers this quarter, with an average day-one NOI yield of over 10%.

Moving on to slide 7, the combination of solid revenue growth and tight cost controls led to strong margin performance across our business. Gross margin in the quarter remained strong at over 68%, despite a negative impact of over 10% from pass-through and a negative impact of 4.6% due to the addition of new sites which have lower initial tenancies and margins.

This was supported by strong conversion of revenue-to-gross margin on legacy sites during the quarter. While our reported conversion of revenue-to-gross margin was around 49% as a result of the previously mentioned negative impacts of pass-through revenue and lower tenancy new sites which on a combined basis, negatively impacted the reported conversion ratio by about 50%. Our ability to convert revenue-to-gross margin on our pre-existing sites remain strong and in line with historical norms of well over 90%.

Finally, our adjusted EBITDA margin was about 60% for the quarter. Which includes a negative impact from pass-through of about 9%, this also includes about 4.3% of margin dilution associated with new sites brought into the portfolio since the start the second quarter of last year including Viom. Cash SG&A as a percentage of revenue was about 8.1% in the quarter, and is expected to be right around 8% for the full year.

Our adjusted EBITDA and consolidated AFFO growth in the quarter is detailed on slide 8. Adjusted EBITDA grew 14% to about $869 million as a result of our top-line growth, coupled with the diligent operational-expense management.

Our solid adjusted EBITDA performance drove growth in consolidated AFFO as did slightly lower-than-expected capital improvement capital expenditures. This led to growth in consolidated AFFO of over 10%, and growth in consolidated AFFO per share of nearly 10%. The global operational efficiency initiatives that we've put into place continue to result in strong profitability for the business.

Moving on to slide 9, we remain committed to maintaining a strong balance sheet, with financial policies designed to support this objective by managing risk across the capital structure in support of our investment-grade rating. In the second quarter, we pursued several financing initiatives directly supporting these policies.

First, we raised $1 billion in 10-year senior unsecured notes at a historically low coupon rate for ATC of 3 3/8%. This opportunistic transaction increased our liquidity and turned out a significant portion of our floating-rate debt.

Next, we assumed nearly $800 million of rupee-denominated debt in connection with our acquisition of a majority interest in Viom. We immediately commenced a multi-year process to refinance the existing loans locally at more attractive rates than the initial 11% average coupon, and have already decreased average cost to about 10.3%.

These actions highlight our excellent access to diversified funding sources. Including the investment-grade bond market, as well as an ability to maintain a substantial base of liquidity to support our solid balance sheet. As a result, as of the end of the second quarter, our net leverage ratio was 5.3 times net debt to annualized Q2 adjusted EBITDA, with liquidity of over $3 billion. We continue to expect to end the year at 5 times net debt or below, and longer term, our target leverage range remains between 3 and 5 times.

Turning to slide 10, given our solid performance in first half of the year, continued improvements in foreign currency exchange rate forecasts and underlying trends that are consistent with our previous assumptions, we are raising our full-year guidance for 2016. At the midpoint of our outlook, we are increasing our expectations for property revenue by $10 million or about 0.2%, resulting in projected reported growth of 21% or so.

The increase is being driven by a $14 million increase in straight-line revenue, and $7 million in favorability and organic tenant billing revenue across our property segment. This favorability is being partially offset by about $7 million from the reserve book this quarter in Brazil, as well as about $4 million associated with lower expected pass-through revenue.

The positive impact of foreign currency fluctuations versus our prior outlook for revenue was just about $1 million, given that the devaluation of the naira is offsetting the strengthening of the majority of our other currencies. Also, our revised outlook does not contemplate impacts from any of our pending transactions that have yet to close.

Within our total-revenue projections, we expect in the US organic tenant billings growth of about 5.5 % to 6% for the year. This reflects a steady demand environment, similar to what we have seen year to date, and anticipated acceleration in our growth rate in the second half of the year, as a result of a more even spread of new business commencements compared to the prior-year period.

Internationally, we expect organic tenant billings growth of nearly 14%. Supported by especially strong trends in markets like Mexico, Nigeria and Uganda, where new business commencement activity is incredibly strong.

At a consolidated level, organic tenant billings growth is expected to be nearly 8%. Newly acquired and built sites are expected to contribute the balance of our anticipated tenant billings growth for the year or just over 14%. This growth has resulted in the continued expansion of our base of non-cancelable tenant lease revenue, which now on a consolidated basis stands at nearly $32 billion with an average remaining lease term of about 5.6 years.

We are also raising the midpoint of our outlook for adjusted EBITDA by $15 million. This reflects cash SG&A as a percent of total revenue of right around 8%. Our increased adjusted EBITDA outlook is driven by an $8 million benefit associated with increased net straight line, $17 million in FX favorability and about $6 million in out-performance in the underlying property business relative to our previous expectations.

This is being partially offset by a $7 million receivable reserve booked in Q2, and about $9 million in lower expected contribution from our services segment versus our prior outlook where the pipeline of project-based activity has slowed. Given that substantially all of our Nigerian OpEx and SG&A expenses are denominated in local currency and that over half of our revenues are denominated in US dollars, the impact of the Nigerian naira devaluation I referenced earlier to EBITDA is minimal.

Finally, we are raising our outlook for consolidated AFFO by $15 million at the midpoint or about 0.6%. This is being driven primarily by the $7 million increase in cash EBITDA, just discussed, plus roughly $13 million due to lower net cash interest expense expectations.

This increase of $20 million is being partially offset by about $5 million resulting from higher expectations for corporate capital expenditures, primarily associated with IT spending to support our global operations. Assuming an average diluted share count of 429 million shares, this implies consolidated AFFO per share of $5.69 at the midpoint, reflecting a per-share growth rate of about 12%.

Before we move on, I'd also like to note that factoring in the July month-to-date actual FX rates and holding current spot rates constant for the rest of the year would result in additional upside of about $33 million for property revenue, $18 million for adjusted EBITDA, and $14 million for consolidated AFFO or about $0.03 per share relative to the midpoints of our current outlook.

Turning to slide 11, we remain committed to our capital deployment strategy and continue to focus on our goal of simultaneously funding growth, returning cash to our stockholders, and maintaining a strong balance sheet. To this end, we've declared nearly $500 million in common and mandatory convertible preferred stock dividends, spent approximately $1.2 billion on accretive acquisitions, and deployed nearly $330 million in CapEx so far this year. Which includes nearly $76 million spent on ground-lease purchases.

In fact, since 2011, we've deployed over $500 million for ground-lease purchases in the US. While increasing the percentage of towers on land we owned or control for over 20 years from about 55% in 2011, to nearly 67% today. And extending the average remaining term on our leased land from just under 22 years to nearly 25 years.

This activity further secures our long-term recurring cash flows, while generating margin improvement and enhancing the operating leverage of our business through land/rent expense reduction. We expect to continue deploying capital for land purchases over the long term, and are targeting to have 80% of our towers in the US on land that is either owned or leased for more than 20 years by 2020.

We believe that our disciplined capital allocation strategy will enable us to deliver the combination of growth and consolidated AFFO per share. And consistent return of capital to stockholders through our REIT distributions, and drive compelling total returns for many years to come. In 2016, this includes expected growth in our dividend, subject to Board approval of at least 20%.

Turning to slide 12 and in summary, we have enhanced our strategic positioning so far in 2016 by continuing to employ a comprehensive multi-prong strategy. First, we further diversified our international presence by acquiring a controlling stake in Viom Networks in India. We believe mobile networks there are poised for significant 4G investments in urban metros, and for continuing deployment of coverage in initial data services in the suburban and rural areas where over two-thirds of Indians live.

Second, we've continued to drive operational excellence through our business while focusing on the integration of our recently acquired portfolios in several key markets. Third, we've remained focused on strengthening our balance sheet through opportunistic refinancing and selected debt repayments. Fourth, we have simultaneously maintained strong growth in our common-stock dividend.

As a result, we are well positioned to finish this year strong. Driving compelling growth in revenue, net income, adjusted EBITDA, consolidated AFFO, while returning significant cash to our shareholders through our common-stock dividend. This is all made possible by our unmatched global scale, experienced regional leadership teams and disciplined capital allocation strategy, which we expect to remain consistent for the rest of this year and well into the future.

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, similar to prior second-quarter earnings calls, my comments will focus on American Towers international operations.

As you just heard, our Asia, EMEA and Latin America segments all generated another strong quarter of operating results in Q2. Once again, serving as a turbocharger for our market-leading domestic business.

Beginning with American Tower's first international investment in Mexico in 1999, we've methodically expanded our geographic scope and scale based on a set of fundamental tenets. First, we recognized that the power of the Tower business model that had first been developed in the United States should equally apply an additional countries that presented the right operating conditions. It is our experience that due to a number of common factors, the fundamental drivers of tower demand are consistent across our selected geographies.

First, consumers everywhere have a huge appetite for mobile technology and service. Moreover, the underlying physics of radio-wave propagation, usable spectrum bands and the 2G, 3G and 4G technology standards all apply globally. Plus, the network equipment OEMs, the handset manufacturers such as Apple, and the chipset developers like as Qualcomm sell their products all over the world.

Second, we understood from our US experience that by buying towers from mobile operators we could transform single-use, non-performing, cost-center assets into high-performing multi-use commercial real estate. Consequently, sale-leaseback transactions for these assets provided an additional source of capital to mobile operators so they could more rapidly deploy their active networks and grow their core business. Again, since these common-sense economics apply across multiple countries, we have been able to pursue the same strategy successfully to date in Latin America, Africa, Germany and India.

And third, we recognized that we could dramatically increase our growth opportunities, while at the same time benefiting from the diversity across various markets. Using standard portfolio theory, we expected that by selectively diversifying our asset base, we could also reduce fluctuations in our cash flows. Thereby delivering elevated, extended and more stable growth trajectory over a very long period of time.

The results we have generated in our international markets confirm these principles. For example, on sites outside the US that we have owned since beginning of 2010, our US dollar-equivalent NOI yield as of the end of the second quarter was more than 30% as compared to around 18% on that vintage in the US. These results include both sites that we have acquired as part of our disciplined asset acquisition strategy, and sites that we have constructed for our carrier customers.

Meanwhile, international site data between 2010 and 2013 are already yielding around 12% today. With sites added over the last [two] years already yielding an average of about 10%. While the yields on our younger international assets are solid, we believe the real opportunities to make value on these newer assets lies ahead.

Our two decades of experience in the tower business have clearly illustrated that the longer we have assets in our portfolio, the more revenue and cash flow they generate. This is especially true outside the US, where more of our newly added sites have been single tenant at the time of acquisition or construction.

Given that we have generated double-digit international organic tenant billings growth on average over the last three years and expect to continue to drive these types of solid growth rates going forward. We believe we have a tremendous opportunity to drive significant NOI-yield accretion on our international assets over time. Consequently, we have positioned the Company for continuing long-term success with our combined domestic US and global asset base.

MIT researchers Eric Benyolfsen and Andrew McAfee have identified three key elements to building competitive advantage in the digital age. Physical capital, intellectual capital and organizational capital. On all three of these dimensions, American Tower now has built a sustainable, global, competitive advantage in telecommunications real estate which we believe would be difficult to replicate.

First, is there is our physical capital. The 140,000-plus towers and small-cell systems that we have constructed and acquired. Their high structural capacity, premier locations and existing and future cash flow generation potential. The depth, diversity and global reach of this physical capital are in our view, unmatched. And we believe that replicating our portfolio while achieving similar economics in the future would be a very formidable task.

Second is the intellectual capital we have cultivated at American Tower since the mid 1990s. The systems and processes that we've developed, refined and optimized to be able to support tens of thousands of properties spanning five continents, and it positions the Company for further asset growth in the future.

I actually believe that ATC is world class in the most critical operational skills in this business. Formulating highly complex master-lease agreements tailored to our customer's needs, coupled with the ability to manage literally hundreds of thousands of individual tenant and ground leases every month.

Third is the organizational capital that has been nurtured and developed at all levels in this Company. I believe we have the most capable senior management team in the industry who have in turn built high-performance organizations in our key functions across all of our geographies.

Our retention of highly-skilled executives, managers and employees has been excellent, resulting in an experienced workforce today. Additionally, as a recognized global leader, American Tower's brand enables us to recruit outstanding talent to support the rapid growth of the business. We have also developed comprehensive training and development programs targeted to continually improve our capabilities and proprietary skills, such as structural engineering and lease contracting.

So as a result of building our physical, intellectual and organizational capital methodically over the past 20 years, we have attained a leadership position among fully independent tower companies in each of the leading three market democracies on the five most populous continents in the world. While creating a cash flow engine that continues to gather momentum. With our unique and dynamic position in the telecommunications real estate business, we expect to provide an attractive combination of growth and yield to our investors for many, many years to come.

Thank you for joining our call this morning, and operator, please open it up now for questions.

(Operator Instructions)

Amir Rozwadowski.

Thank you very much, and good morning, folks.

I was wondering if we could dig a bit deeper into US properties a bit here. As you mentioned, Tom, your guidance factors in what I believe you characterize as an anticipated acceleration of new business.

While I realize giving carrier-specific detail is not where you may want to go, perhaps you can give us color on what initiatives you are seeing and how you think the trajectory of the business should pan out over the next 12 months? Within that, during the quarter, I feel like there has been a lot of questions or conversations about how to think about future escalator rates in the US, with, perhaps, some of the carriers expressing some consternation about how the compounding growth outlook of that cost structure would be for them. Maybe you can provide us with some insight on what you are hearing from your conversations with carriers and whether you believe there is either a risk or perhaps some middle ground going forward? Thanks a lot.

Amir, this is Jim.

Why don't I take the second part of your question, and Tom can go to the more quantitative side after that. As you know and as you said, we do not comment on specific customer negotiations, discussions or their plans. But what we can do is provide you facts for the big four US national carriers in aggregate, and these are average remaining term and domestic churn excluding our non-national customers. Now we can see the trend of the business as far as duration and fall off. So, for 2016, our expected remaining term for the four nationals is 6.6 years, and the churn is only approximately 0.2%.

So we feel very confident about the stability of our US domestics or big 4 asset base or revenue base right now. The other piece of that is the escalator, which across the US on average is still above 3%.

So I will turn over to Tom.

Amir, I think coupling what Jim had just said, if you take a look at what our pipelines support. We've talked about this momentum kicking it in the second half. And we also as a result, see that about 47% of our total organic business generated in the first half with 53% in the second half.

So I think that also reflects my remarks and Jim's remarks that we continually see this growing pipeline of co-location amendments. In the United States, I think you are well aware that over the last three quarters it's been a large piece of amendment activity continually to filling in and meeting that capacity. And so, as we've always talked about, we see this amendment in co-lo activity in the form of sign waves.

So we fully believe that all of the carriers are generating their own sign wave in terms of new business, grooming, co-los and amendments. And I think as I mentioned, we see more momentum coming even to the second half of the year, which we think will position us well, then, for going into 2017.

Thank you very much for the additional color.

Sure.

Batya Levi.

Great, thanks. A question on Brazil. Can you remind us what your outlook for growth in Brazil is for this year?

There have been dramatic changes in carriers' CapEx guidance that were laid out in the most recent earnings. Can you talk a little bit about if you're seeing any slow down in the level of carrier activity? And how should we think about growth in that region?

Thank you.

Sure, for the overall for the region, I think I mentioned in my remarks, I want to say it's in that 12% range. In that particular market, it has been pretty steady, Batya. It is really interesting with all of the issues that they have in the marketplace, we have seen quite steady performance this year.

It is down from where it was last year, clearly. And in addition, as I mentioned, we took that additional reserve this particular quarter just from a total revenue perspective. But the level of activity in the market has actually been quite steady, and expect to see that same level of activity for the balance of the year.

Okay, thank you.

David Barden.

Hey, guys. Thanks for taking the questions. Two if I could.

Maybe this is for you Jim, or Tom just following up on the earlier question. T-Mobile and AT&T I think have pretty explicitly gone out there and tried to solicit alternatives for macro cell sites that have been compounding for maybe 10 or even 20 years. There is conceivably a window for economic substitution for new tower builds.

Could you talk about what you see is the vulnerability of AMT's domestic portfolio in terms of long-term leases that have compounded with terms of leases that are expiring with alternative sightings that may be nearby? It does not seem like it could be very big, but I am wondering if you see it at all as a potential vulnerability at this stage?

Second, in India, obviously Bharti Infratel has been talking about the potential for resetting lease -- pricing lower at the end of the term of some of their main shareholder leases. Obviously, with Viom you're going to have a larger overlap with them. I was wondering if you could talk about the outlook for market lease pricing in India going forward? Thanks.

Sure, David, it's Jim. What I would say about potential substitution anywhere for towers is that just remind you all of the functional inputs of the franchise value of the tower.

So first of all, any change of equipment from one tower to another one, assuming you could even build it nearby, is fairly costly for any operator. So that is something they would have to put into their equation. Also, the longer the site has been up, the more equipment tends to be on it, et cetera, and the more embedded it is in the network.

So there are some network difficulties and economic costs to doing a switch. But as you know, the other part of the franchise value is that most municipalities try to manage the number of structures in their jurisdiction and would take that into account.

Thirdly, we continually try to reach mutually beneficial arrangements with our customers that can ameliorate the impact of specific high priced sites as far as the contract. So, we will continue to help them as we can in that way, as well.

So I do think that having some metrics for you to track over the years will be a useful way to keep track of all of this. And that is why I wanted to put out to you what our average remaining term is for the big 4 in aggregate, and also what the churn rate for the non-national assets of the big 4.

Excluding the non-national, the assets for the big 4 are. And as I just said, it was 0.2%. Again, so far with the industry conditions, we expect to continue. It is very, very low as far as actual churnoff. But we will keep providing you those metrics as we go forward in time.

Great.

Secondly, on the Indian market, it is a critical difference to be a truly independent provider of siting in any country versus a captive provider of siting. In other words, you are a subsidiary or and affiliate of the mobile operator itself.

Those contracts I don't want to speak to, but I can speak to our contracts with all mobile operators in India, as being market based. Therefore, arms length and certain provisions that may apply to captive contracts may or may not apply to ours. I guess I would set the foundation there. Because again, we do not talk about specific contracts or discussions or negotiations in any of our markets.

So I think that is I think a fundamental way to look at it is how do independents deal with mobile operators and how do captives deal with mobile operators. Again, you can track our metrics over time in that regard.

Thanks, Jim.

Jonathan Schildkraut.

Great, thanks for taking the question. I just was hoping that maybe you could provide a little color, Tom, in understanding the change in the organic growth metrics that you delivered and help bridge the gap. I know when I look back at the first-quarter numbers, the total organic growth was 7.9%, this quarter it is 7%.

And I know those may actually be very close to the same numbers, just based on differences in calculations. So if you could give us a little bit of a look under the hood, it might be hopeful.

Thanks.

The definitions, John, are in the release and in the back of the slide that we have here. But the fundamental difference in the organic, we're really trying to, as we talked about, really trying to give a true run rate. A recurring run rate of billed revenue.

So the tenant billings, if you will, is that recurring revenue that is constantly being invoiced to customers. Outside of that, which then gets you to the reported are things like pass-through and straight-line and all those other elements, which had a lot of volatility from quarter to quarter.

And then on and organic basis, what we're really trying to do is, again, give you that recurring revenue that we have from co-los, amendments, plus escalators, less churn to give you a true view in terms of what additional activity is happening on all of the sites that we have. So if you take a look at, for example, the US in this particular quarter, if you exclude, again the decommissioning revenue, which was again, that volatile, you are right in for the US. It's in the mid 5%s, right at around that 5.5%, and versus the organic number that we talked about now under the tenant billings methodology of 5.6%. So it is very, very similar in terms of what the rates were that we talked about last quarter and that we would see in Q2.

Similarly, for international, if you looked at the core organic growth, we are talking about 13.7% on the tenant billings organic basis, which is the number we just referred to. On the international side, again, if you backed out the impact of Oi, we'd be right at 13.5%.

So again, what we're trying to do is we're trying to just reflect what that real run rate recurring billing stream would be. So very, very similar; just a couple of nuances in terms of the differences between the organic core growth and the tenant billings. The real differences being that decommissioning revenue in the US, which would be the major element to reconcile it to, and the reserve that we took on the Oi, or on the Brazilian business in Brazil.

Thanks, Tom.

Simon Flannery.

Great, thank you very much.

Tom, you talked about the capital allocation portion a couple of times. I remember when you became a REIT you set a fairly low payout reflecting in part the NOLs. Can you just update us on the NOL status, the AFFO payout. And how should we think about dividend growth? At some point, the 20% number is going to come down to more match your overall growth. So what should we be thinking about there?

And then, there's been a lot of comments over the last little while about various outdoor small cell strategies and municipal pushback and so forth. Just wanted to get your perspective on that market at this point.

Thanks.

Simon, I'll take the first and Jim take the second part.

On the dividends, as you are absolutely accurate. We started out being a REIT. We had a sizable amount of NOLs at that time, and we've utilized those largely over the last three, four years.

We have $50 million of NOLs or so. And as a result, our payout has been down in the 30%, 35% range, which is where it exists today. We fully expect that as a result, no longer having those NOLs and having assets that are further being depreciated that over the next couple of years, we would start to see payouts in the 45% to 50% range of AFFOs.

So there is no doubt that we're going to be paying a larger piece of that AFFO, clearly as a result of not having those NOLs available.

So does that allow you to keep the 20% for a couple more years?

Again, it is all subject to Board approval. We are looking at 2000 -- we'll take a year at a time. But we would expect that the -- I would expect that growth rate would be able to continue for the next -- yes, couple of years.

Great, thank you.

Simon, it is Jim.

Regarding our small cell strategy overall, we have chosen to focus on indoor data systems and ultimately small cell systems as where we think the best returns have and can be attained.

We're also actively exploring innovative ways to achieve tower-like returns on other, what we call macro supplement types of assets. And that could be outdoor small cells, and other technologies that can better serve the high-density venues.

I think the classic tower or the macro tower is going to serve its purpose for the foreseeable future. Because what we are really in the business of in the macro tower world is providing mobile service in suburban largely and transportation corridor and rural environments. And where a lot of the small smell demand is coming, as you hear for the carriers and others, is in the really high-density locations, such as urban centers, where towers don't have much of a role to play anyhow.

So this would be a complementary business for us if we could figure out how to scale it. But importantly, how to scale it with tower-like returns. And that is what we are really aggressively exploring today, although I have to admit we have not solved the problem quite yet.

And I think already you are seeing that part of the issue with urban small cell deployments is the municipalities, again, have a big role in what gets built on their jurisdiction, and how it gets built, and if it is shared or single use. So there are some municipal delays on some of the projects going on by all of the industry today. And we want to continue to work out all those issues as time goes on and figure out if we can get tower like returns from these kinds of projects.

So it is going to be a long-cycle approach. 5G, even the standard won't be set till probably 2019, 2020. And then that will start to be deployed in some of these dense venues.

In the meantime, 4G is the go-to technology for at least the next 4 or 5 years, and then another 5 to 10 and beyond it as you migrate to 5G. So I think we have time to figure this out. But it is a knotty problem and we hope we can figure out a way to get tower like returns on the complementary assets someday.

Ric Prentiss.

Thanks, good morning.

Hey, Ric.

First, appreciate you guys for providing AFFO both on a consolidated and a proportionate basis. For the quarter, I must admit I've had several earnings already this morning. Did you provide that AFFO proportionate or to common shareholders for guidance?

Ric, what we are guiding to is that consolidated AFFO that's what our guidance has been based on. As you well know, over the next several years, we have the opportunity to be able to secure more ownership of that Viom asset. And we fully expect that the incremental dollars associated with obtaining that and the cost thereof, will be offset by incremental synergies as we are able to secure and merge more of our businesses together in that business.

So that's why I continue to look at the consolidated AFFO, because I think that's a better benchmark for us going forward. And so that's what 2016 based upon the numbers that I just talked about a few minutes ago, that's what our outlook is based on.

Okay. But in the quarter, it was about a $0.05 difference between consolidated and proportionate?

Yes, that's right.

And is that something we should assume could be extrapolated out over the year, that same level?

Yes, it's fair.

Okay. And the second question is, get into the weeds a little bit here. There was a fairly noticeable change in your straight line adjustment for 2016 guidance from the previous guidance to now. I think now you are looking for maybe $124 million of straight line adjustment versus what was more like $109 million, $110 million previously.

What happens there? Is it new contracts, or what would cause it to swing that much in annual guidance?

There are two things really. One is the addition of Viom in terms of fine tuning that outlook, and understanding, again, the specific terms underneath those specific leases in terms of what would be straight lineable or not. So that is the most significant difference between the two.

And then ongoing, Ric, there are certain elements and contracts that when you actually -- when the site comes up for renewal, it automatically extends for a longer period of time. So that also becomes straight lineable. But the most significant piece was the Viom transaction.

Right. So there is not really any new MLAs or anything like that in the US?

That's right

Okay, thanks.

Tim Horan.

Thanks.

Jim, can you give us little more color on India, what' going on from a technology perspective, volume perspective and pricing? It sounds like your pricing is well below the captive tower companies. Any color there would be great.

Sure, Tim. First of all, I will speak to technology and volume and pricing last.

But the technology deployment and India is [pergoining]. We have got a new entrant just on the cusp of launching a national 4G network, which is going to in some ways leapfrog what is available today. And also, motivating the other market leaders to invest in 4G, as well.

So we see, as Tom said, an up cycle in technology investment and India at a scale that may never have been done before given the population in the country. Now that will be over a few years, which was positioned us I think really well with the Viom acquisition as we tuck it in now to ride that wave of technology investment.

And there are some great companies involved here. These are significant multinationals like Vodafone, as well as Bharti Airtel, as I mentioned Reliance Industries, there's also Reliance Telecom. There's going to be some real competition from really moving quickly through 3G into 4G technology territory.

And as we all know, specification and siting equipment needs go up as you go into that higher technology stack. So we are very optimistic about the technology roadmap for the country.

As far as volume, what was interesting about the Viom merger with ATC India was that our major customers happen to be the partners in INDUS. So they're again Airtel, Vodafone, Idea, are very large customers of ATC. Proportionately not so much actually of Viom, where, of course, Tata was the core customer there.

So we got a very complementary opportunity when we put these two assets together to drive volume in both directions. Which I think is really going tot be great for leasing for our market, again, over the next number of years it will play out. And then finally, pricing. I think it's miscasting that our pricing is lower than the [CAB] as our pricing we tend to drive as high as we can without being tethered to the parent. And that's been a fairly successful endeavor.

But we do have to stay in the context of the overall market, and certainly don't overprice. But I would say we are probably on the upper end of pricing, given our independence and the quality of our assets. And finally, our ability to do construction jobs quickly and in difficult places.

Historically in India, as you've added more cell sites, prices have come down. Do you think overall prices can be stable or growing or shrinking? Just some color on that.

Well we've talked already probably enough about pricing. Those are individual negotiations ultimately with carriers. But there's going to be more of equipment on towers, there's going to be more of them.

And the outsource model, I think with our buy-on acquisition. And actually the increasing independence of the captives over some period of time, as they go public or float more shares and get more mature will probably be ultimately constructive to that.

Thank you.

Spencer Kearns.

Thanks for taking the question. You've had your perch in Europe for quite a while and we've been seeing tower M&A activity increasing.

It does not seem like you've been very involved. I'd love to understand why you have not been very active, and if there are there any specific reasons why European tower assets have not been appealing to you? Thanks.

It's Jim. We've been extremely active in business development in Europe for probably 10 years. What has not occurred is the asset trading price meeting our investment criteria. At happened once in Germany, where we do have a really great base with the KPN assets in now part of Telefonica.

So we think we are firmly positioned with a great beach head in the continent and continually strive to work negotiations so that we can get our investment criteria met and invest more in the region. So far, that combination -- we have not been able to secure. It mainly has to do with asset pricing and the characteristics of the market and the returns that you will get.

So we are poised to -- just like with small cells, and aggressively pursue assets that meet our investment criteria. If we can locate or determine those, we will act quickly and decisively. When we don't, we will avoid investing in what we would consider at the time to be lower return opportunities, frankly.

Great, thank you.

Michael Rollins.

Thanks for taking the question.

I was wondering if you could talk a little bit about as you look at the industry and see more small cell activity, whether it's your in-building gas or outside small cell (inaudible). There seems to be a more upfront revenue component, which then converts into deferred revenues and call it prepaid rent.

How do you look at this category in terms of the impact to revenue, how it affects cash flow? And how you would think about devaluation of assets and the return on your assets between the cash versus some of the non-cash contributions of income statement? Thanks.

On a pure ROI basis, Michael, in terms of just the economics of whether a project makes sense or not, the capital coming in from a customer is clearly going to have an impact in terms of what that ROI is ultimately going to be. That's just a discount of cash flow.

From a P&L perspective, I think you can see from the release and from our supplemental that you recognize just how that revenue is being recognized. And it's being recognized over the balance of the lease. And you can see that even on a quarter-over-quarter basis, I think the number is around $20 million, it was almost identical to what it was the same quarter of last year.

So that number continues to be fairly consistent on an annual basis. There is not a lot of volatility, not a lot of growth, not a lot of decline in it. As we continue to invest in those types of systems, we're actually getting capital contributions.

So I look at it from two perspectives. One is just the ROI, whether the transaction makes sense, it goes into the math to determine whether a particular project meets our internal thresholds to be able to able to move forward with it. And then the recognition of that particular revenue is done over the remaining balance of the lease term.

Thanks.

Operator, any more calls?

There no further questions at this time.

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