American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower fourth quarter and full year 2020 earnings conference call. As a reminder, today's conference call is being recorded. Following the prepared remarks, we will open the call for questions. If you'd like to ask a question, please press one then zero. I would now like to turn the call over to your host, Igor Kislovsky, Vice President of Investor Relations.

Please go ahead, sir. Good morning. and thank you for joining American Tower's fourth quarter and full year 2020 earnings conference call. We've posted a presentation, which we will refer to throughout our prepared remarks under the investor relations tab of our website, www.americantower.com. Our agenda for this morning's call will be as follows. First, I'll quickly summarize our financial results for the quarter and full year 2020. Next, Tom Bartlett, our President and CEO, will provide a strategic update on our long-term growth trajectory. And finally, Rod Smith, our Executive Vice President, CFO, and Treasurer, will discuss our 2020 results and 2021 outlook. After these comments, we will open up the call for your questions. Before I begin, I'll remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our 2021 outlook, capital allocation, and future operating performance, our expectations regarding the impact of COVID-19, our expectations regarding the impacts of the AGR decision in India, our expectations regarding our pending Telseus transaction, and any other statements regarding matters that are not historical fact. 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 earnings press release, those set forth in our Form 10-K for the year ended December 31, 2019, as updated in our Form 10-Q for the three months ended March 31, 2020, 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. Now, please turn to slide four of our presentation, which highlights our financial results for the fourth quarter and full year 2020. During the quarter, our property revenue increased 10 percent to $2.1 billion. Our adjusted EBITDA grew by 13%, nearly $1.4 billion. And our consolidated AFFO and consolidated AFFO per share increased by 8.9% and 8.8%, respectively, to $936 million and $2.10. On an FX-neutral basis, growth rates for property revenue, adjusted EBITDA, and consolidated AFFO per share would have been 13.4%, 15.9 and 11.9 percent, respectively. Finally, net income attributable to American Tower Corporation common stockholders decreased by roughly 35 percent to $365 million, or 82 cents per diluted common share. The decrease included the impact of approximately $181 million in impairment charges in the quarter across several markets as well as the non-recurrence of certain income tax benefits in India from 2019. From a full-year perspective, our property revenue increased 6.5 percent to nearly $8 billion. Our adjusted EBITDA grew by 8.7 percent to approximately $5.2 billion, and our consolidated AFFO and consolidated AFFO for share increased by 7.6 and 7.5 percent, respectively, and nearly $3.8 billion and $8.49. On an FX-neutral basis, full-year growth rates for property revenue, adjusted EBITDA, and consolidated AFFO per share would have been 10.8%, 12.3%, and 11.6% respectively. Finally, net income attributable to American Tower Corporation common stockholders decreased by about 10.4%, to $1.7 billion, or $3.79 per diluted common share. Again, impacted by the impairment charges in the fourth quarter and the non-recurrence of certain income tax benefits in India from 2019. And with that, I'll turn the call over to Tom.

Thanks, Igor. Good morning, everyone. As you just saw from our posted results, we finished 2020 with another strong quarter and have solid momentum heading into 2021. Globally, the secular trends in mobile that we've leveraged to deliver sustainable long-term growth are firmly intact, as advancing mobile technology modernizes economies, transforms the lives of billions of people, and connects us during an unprecedented pandemic. Our extensive communications real estate portfolio is well-positioned to serve as the fundamental backbone of today and tomorrow's modern wireless networks, and we're excited about our path forward. But before I get into our future expectation, I want to first briefly summarize our last five years of performance and highlight the key drivers of those results as a form of a backdrop to what we expect going forward. Turning to slide six of our presentation, you can see that from 2015 to 2020, we generated an 11% CAGR for consolidated property revenue, adjusted EBITDA, and consolidated AFFO per share. These results were supported by attractive organic tenant buildings growth rate, which averaged 6% in the U.S. and 7% internationally. Additionally, over the last five years, we have meaningfully enhanced our global new build program, creating a platform that enabled us to construct nearly 5,900 sites just this past year and almost 17,000 sites since the start of 2016. Our focus on new site construction, together with our proven discipline M&A strategy, has resulted in the addition of nearly 100,000 new sites over the last five years, further lifting our returns and growth trajectory. Concurrently, we grew our annual common stock dividend by more than 150%, from $1.81 per share in 2015 to $4.53 per share in 2020, adding another attractive element to our total return formula. The consistency of our performance over these last five years speaks to the fact that our stand and deliver strategy is working. The four pillars of this strategy, operational efficiency, growing our assets and capabilities, extending our platform, and driving industry leadership have continued to pay dividends across our global asset base. We firmly believe that the continued implementation of these strategic priorities will result in sustainable long-term growth generation, and that remains our focus. In other words, while we are obviously mindful of and realize the importance of our quarterly numbers, the way that we run the company is fundamentally designed to optimize returns over a much longer planning horizon. And we believe our results speak for themselves. This philosophy is evidenced by, among other things, our strategic long-term contracts, such as the T-Mobile agreement that we signed in September. In the immediate term, that deal will result in some elevated churn. But over the longer term, we expect it to create tremendous value for our stockholders while helping to secure a significant share of industry leasing activity in our sites and supporting the deployment of 5G across the country. Our recently announced Celsius transaction is another good example of our stand and deliver construct in action. Our financial strength, proven capital allocation strategy, and objective of gaining scale in the most attractive markets globally enabled us to identify what we believe to be a unique opportunity for long-term value creation in Europe. And overall, as we expand our global platform, As is typical with our investments, this transaction is expected to be immediately accretive to consolidated AFFO per share. However, most of the accretion in shareholder value will be realized over time as we generate LISA, construct additional sites to round out the portfolio, and drive higher margins. Additional future upside may come, we believe, from our platform expansion initiatives, particularly in markets like Germany. where we anticipate that edge computing will be important for carriers and enterprise accounts themselves as they seize the benefits of 5G. And the ability to be in a unique position to be able to provide a global platform of well over 200,000 sites in over 20 countries pro forma for Celsius to global MNOs, hyperscalers, enterprise accounts, and data center companies should drive additional value over time. Our Stand and Deliver commitment also drives our focus on industry leadership, particularly in the area of ESG, including, among other things, our increasing use of renewable energy, reduction of our emissions, and numerous human capital initiatives designed to ensure that we remain as not only a preferred employer, but also a positive driving force in our communities. This was particularly relevant this past year as we enhanced our commitment to diversity throughout the company committed funds to help counter social injustice and structural inequities, and sought additional opportunities to make a positive impact, including initiatives to help bridge the digital divide through programs like our digital villages. Our culture at American Power is extremely important to me personally, as well as the rest of our executive team. And while we clearly have more to do, I'm proud of the tremendous strides we have all made together over the last few years. Looking forward, we expect our continued execution of Stand and Deliver to result in similarly attractive long-term sustainable growth for American Power and compelling total returns for our stockholders. Moving to slide seven, you can see that the U.S. and Canada organic tenant fillings growth will continue to be a critical component of our long-term success. Having said that, as I just mentioned, We will have elevated levels of U.S. churn beginning in the fourth quarter of this year, and particularly in 2022, which will result in average U.S. organic penne fillings growth rate of around 2% across the next few years. This is due to the legacy sprint network being substantially decommissioned by T-Mobile, and the fact that unlike our peers, we have been able to eliminate churn to date as a result of previous master lease agreements. Adjusted to exclude these cancellations, our expected U.S. organic pentafillings growth through 2022 would average around 5%. As part of that growth, we expect our gross new business commencements to accelerate beyond 2020 levels, given the deployment of new technology, new spectrum, and new market entrants. What's even more interesting for us, in line with our focus on long-term growth, is the organic trajectory beginning in 2023. As you can see in the slide, from 2023 through 2027, we expect organic tenant fillings growth to accelerate to, on average, at least 5% on a reported basis, and at least 6%, excluding the impact of the remaining legacy spring churn. Importantly, much of this growth is contractual, in part driven by escalators on existing leases, which will continue to average more than 3% per year and in part represented by future new business that we have locked in through contractual framework like our agreement with T-Mobile. Said another way, the majority of our expected baseline future organic growth in the United States through 2027 is contractually guaranteed today. This is further supported by our expectations that churn in the U.S. will be lower than historical levels once the legacy sprint leases fully roll off in 2024. The non-contractually guaranteed components of these projections are based on the assumption that annual wireless capex in the U.S. will be slightly higher than current levels through 2027 as 5G deployments take hold and as new spectrum, like C-band, is deployed. This, in many ways, mirrors what has occurred in the past with new technology rollouts, where CapEx levels have risen with each new G. We continue to believe that the carriers have a mandate to deploy 5G as quickly as possible, given it is the most cost-effective way for them to address the tremendous growing levels of mobile data traffic streaming across their networks. As a result, we expect to see meaningful incremental densification and amendment activity for the foreseeable future driving strong growth. Importantly, we've not layered in any material assumptions around a potential new entrant outside of DISH, and we have assumed only modest contributions from edge computing and other platform expansion initiatives within these numbers. We are working diligently to unearth additional meaningful opportunities that can drive further upside to our growth rate. Turning to slide eight, We are also reiterating our aspirational goal of delivering average annual double-digit consolidated AFFO per share growth for the next seven years, including initial guidance of around 8.5% growth for 2021. We expect the U.S. organic growth I just referenced to be an important component of our AFFO trajectory. In addition, similar to what we have seen in the past, Our expectation is for international organic kind of buildings growth rates to be at least 200 basis points higher than the U.S. over the long term, further enhancing our consolidated AFFO share growth. Many of our international markets are in earlier stages of technology development, have little to no fixed line penetration, and require tremendous incremental investment in their wireless network infrastructure to support future densifications. The criticality of wireless in these locations has been further highlighted during the ongoing pandemic, as have the limitations of current network infrastructure. As a result, we expect that as carriers ramp their network investments, our emerging market organic growth rates will continue to be very attractive. Meanwhile, in more advanced markets like Germany, we are now seeing early stages of 5G buildups. which we believe will result in a long pathway of attractive growth as well. Importantly, we expect organic growth in Germany to accelerate meaningfully over the next several years. Furthermore, we expect recent and future M&A, together with our accelerating new build program, to drive additional value. This includes our pending Telstra deal, several recently closed transactions in the United States, as well as the nearly 5,900 sites we constructed in 2020 and the roughly 6,500 sites we expect to build in 2021. In fact, based upon the demand we are seeing for new sites across our international business, we are targeting the construction of 40,000 to 50,000 new towers over the next five years, with day one NOI yields continuing to be extremely attractive. And on the M&A side, we expect there to be numerous additional opportunities for us to deploy capital towards high-quality assets with attractive counterparties and favorable economics. As in the past, we expect M&A to be a key piece of our future growth story. Enhancing operational efficiency, another pillar of Stand and Deliver, will also be a key area for us as we seek to drive continued double-digit growth and consolidated AFFO share. As we incrementally globalize the business, we are creating shared service centers, optimizing various back office processes, sharpening our pencils on site-level services like energy provision, and focusing resources on further enhancing and improving our customers' experience with us. Utilizing drone technology and our instant colo initiatives are examples of how we are both scaling more efficiently and increasing the value proposition for our customers. We remain laser-focused on driving margin improvement throughout the business, which should translate into continued high conversion rates of adjusted EBITDA to consolidated AFFO. Finally, we continue to believe that our leading investment-grade balance sheet is a key differentiator for the company and expect that it will be an important component in achieving double-digit consolidated AFFO per share growth The investment-grade debt markets remain extremely attractive from both a rate and access perspective, and we feel good about our ability to not only complete value-additive refinancing transactions, but also to fund accretive M&A in the future. We remain fully committed to our investment-grade credit rating and expect it to be an important element of our future success. In conclusion, we believe that we are exceptionally well-positioned to extend our long track record of driving strong growth and attractive returns, particularly at a point in time when mobile broadband connectivity globally has never been more critical. We have tremendous visibility into our future baseline growth trajectory, including having roughly $59 billion in contractually committed revenues supported by long-term, mutually beneficial, comprehensive master lease agreements with key tenants. We also expect to have some interesting opportunities to further enhance that baseline through platform expansion initiatives like edge computing, power as a service, and other potential sources of upside. Moreover, we believe that our unmatched geographic diversification of distributed sites has the potential to set us apart from the competition, particularly in the context of an increasingly global tenant base, cross-border infrastructure deployments, and an even more connected and digitally driven world. We firmly believe we have the right strategy, the right macro tower-oriented asset base, and the right management team to move American Tower forward into the 5G era and beyond. With that, let me turn the call over to Rod to go through our 2020 results and the details of our 2021 outlook.