American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower second quarter 2022 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 10 on your telephone keypad. I would now like to turn the call over to your host, Adam Smith, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining American Tower's second quarter 2022 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks under the investor relations tab of our website, www.americantower.com. On this morning's call, Tom Bartlett, our president and CEO, will provide an update on our international business, and then Rod Smith, our executive vice president, CFO, and treasurer, will discuss our Q2 2022 results and revised full-year outlook. After these comments, we will open up the call for your questions. Before we begin, I'll remind you that our comments 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 2022 outlook, capital allocation, and future operating performance. Our expectations regarding the financing plan for the CoreSight acquisition, including the closing of our Stone Peak minority investment in our U.S. data center business. our expectations regarding the impacts of COVID-19, 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 earnings press release, those set forth in our Form 10-K for the year ended December 31st, 2021, 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. With that, I'll turn the call over to Tom.

Thanks, Adam, and good morning, everyone. In line with our historical practice for our second quarter earnings call, my comments today will be focused on American Tower's international business. Before diving into the trends that we see driving a long runway of growth in our international segment, I'd like to take a moment to review the principles that have underpinned our international expansion strategy over the last two decades. Since we first started expanding outside of the United States, entering Mexico and Brazil in 1999 and 2000, respectively, we've been guided by the belief that the secular demand trends and fundamentals of the tower business model that would drive tremendous value in the U.S., over a multi-decade period would be replicated internationally. Central to this thesis was that the anticipated proliferation of wireless networks and resulting rapid growth in mobile data demand would necessitate neutral host shared wireless infrastructure across the globe. We also believed that by leveraging our core capabilities developed here in the United States, we could position American Tower as a premier global provider of communications real estate and a prime beneficiary of these trends. Further, given the relative lack of fixed-line infrastructure, accelerating population growth, and earlier stages of network technology evolution in many parts of the world, we believed we could both augment and extend our overall consolidated growth trajectory. So we set out to construct a geographically diverse platform of communication assets in the world's largest democratic economies, while establishing relationships with the leading global wireless carriers achieved primarily through the acquisition of high-quality portfolios with compelling underlying organic growth and risk-adjusted return profiles. We then sought to leverage our scale, customer relationships, and capabilities execute on high-return new build opportunities and innovative solutions like Power as a Service that have strengthened our competitive positioning and supported our customers in meeting their network needs, all while driving increasing shareholder value. As a result of these efforts, today our global platform includes an international portfolio that sits at over 178,000 sites and contributes approximately 45% of our property revenues and approximately 36 percent of our property segment operating profit. Focusing in our international new build program for a moment, we've constructed approximately 40,000 sites since launching our international operations over two decades ago, with just over 22,000 of those sites being built since the start of 2018 alone. We credit this recent acceleration to our enhanced market positioning ahead of major network deployments demonstrated operational capabilities, and strong cross-national M&O partnerships, all afforded through previous strategic M&A expansion initiatives. In total, these 40,000 American tower-built sites are driving an attractive NOI yield of 25%, owing to the strong demand we've seen for our infrastructure and the operating leverage inherent to the shared tower model across the globe. As such, looking forward, we'll continue driving toward our ambition to add another 40,000 to 50,000 sites to our international portfolio over the next several years. With that, let's take a few minutes to discuss each of our international regions and the key trends developing across our footprint. First, I'll touch on Europe, where we have a portfolio of over 30,000 sites and strong scaled positions in Germany and Spain, which are benefiting from many of the same trends driving strong growth in the United States, including the early stage of 5G rollouts and a new entry. As many of you know, we've taken a consistently measured approach to achieving scale in the continent. We started through a modest acquisition in Germany in 2012. We then spent the better part of the following decade evaluating various opportunities through our disciplined approach to capital allocation, which led to our entry into France in 2017 and later a small-scale entry to Poland. However, it wasn't until the Telsius transaction in 2021 that we found an opportunity to add significant scale to a portfolio that met the standards of our global underwriting framework. These characteristics include high-quality, strategically located assets that stand to benefit from continued network investments in attractive contractual terms and conditions, such as CPI-based escalators, which act as a natural hedge against local inflation, along with a low churn profile, which taken together drive compelling risk-adjusted returns for American Tower and our shareholders. From a timing perspective, we couldn't be happier with our acquisition of the Celsius Tower portfolio. Across Germany and Spain, we've seen several quarters of accelerating activity as carriers begin lighting up low and mid-band spectrum with new 5G equipment. while continuing to invest to support growth data consumption on their existing 4G networks. At the same time, in Germany, new entrant 101 is rolling out a Greenfield 5G network, and we believe our portfolio of nearly 15,000 sites, primarily located in urban centers across the country, is in a strong position to support their network build. Earlier this year, we signed a framework agreement with 101, through which we can provide value to the carrier while benefiting from incremental growth associated with the relationship for many years to come. As a result of these factors, we're seeing strong leasing activity on our assets, as well as demand for new builds, particularly in white and gray spot areas where carriers are working to meet coverage requirements and provide critical connectivity in areas that have historically been underserved. In 2022, We plan to double our previous record and build approximately 400 sites across Europe. And we expect this trend of elevated new build activity to continue, thanks to the demand driven by such initiatives, the pipeline secured through the TELSIUS transaction, and our position as a leading independent tower operator on the continent with a global reputation for operational excellence. With that, let's turn to our regions that are in relatively earlier stages of network technology. and where we see an opportunity to capitalize on a strong, persistent demand environment for an extended period. There's probably no region where the benefits of local scale and the operational expertise gained as a premier independent operator are more pronounced than in Africa, where we're seeing these benefits play out across essentially every facet of the business. In recent years, we've seen the proliferation of affordable smart devices and consumer uptake of mobile application use cases drive outsized growth in mobile data usage. And our multinational carrier customers across the region have been working to roll out and enhance their 4G networks in response. For ATC Africa, this has resulted in average organic tenant buildings growth in the high single-digit range over the last several years, coupled with five consecutive years of record new build activity. This trend has continued unabated into 2022, And as a result, we built over 1,000 sites across Africa in the first half alone, up over 30 percent compared to the first half of 2021, and nearly double the volumes achieved in the same period in 2020. These sites continue to demonstrate very attractive average day one NOI yields, with our year-to-date builds producing more than 13 percent. And we expect to continue to execute on opportunities to add critical scale and earn strong returns in key markets throughout the region over the next several years. While the trends supporting a strong growth environment in the region are expected to persist, there are operational challenges that create unique opportunities in the African market, particularly in the context of the global supply chain disruptions, power grid availability and reliability, and ongoing macro volatility. It's here that the scale of our African business, the shared learnings of a global organization, and an entrenched culture of innovation have resulted in a resilient, differentiated business across the region. For example, we've been able to leverage global supply chain learnings from the peak of the pandemic, as well as the resources afforded by our investment-grade balance sheet and strong international cash flows to produce materials for our new build programs several quarters in advance. Not only does this result in cost savings in an inflationary environment, but it also de-risks operational challenges in a core sector of high-yield growth for American Tower, while bolstering our reputation as a preferred partner who is capable of delivering new sites when we say we're going to. This forward-thinking approach to the procurement of critical resources has also been applied to an area of our Africa business that we are perhaps most proud of, our power program, where we've accelerated our innovative efforts across the region in recent years. To date, we've deployed roughly $300 million in the region to equip nearly 16,000 sites with the capability to source power from renewables and more energy-efficient resources, including lithium-ion batteries and solar arrays. And in a new build program, where we're working toward making the majority of our newly constructed towers operationally zero or near zero greenhouse gas emission sites. In fact, as of the end of the second quarter, we've installed lithium ion batteries and solar panels at nearly 70% and over 40% of our sites in the region, respectively, which has driven a reduction in our reliance on fossil fuel power generators accommodated our potential to increasingly rely on intermittent renewable sources, and supported our progress toward meeting our GHG emission reduction targets. More recently, we've been able to leverage our position in the region to form a strategic partnership with a vendor in our energy supply chain. This alliance brings product assembly to the region as we look to augment our delivery of environmentally and economically sustainable power solutions at our sites. where power availability and access to efficient and reliable sources can often be a challenge. Additionally, this local partnership will facilitate the acceleration of our progress toward meeting our emission targets, reducing our supply chain risk, lowering the overall carbon footprint and cost of our procurement process, and supporting the local economy and the communities we serve, which we are particularly proud of. Now, let's turn to Latin America. which was our first region of international expansion, and where we've seen upper single-digit average organic tenant billings growth over the last several years. On a consolidated basis, our nearly 49,000 sites are earning a double-digit NOI yield. In our earlier vintage in the region, which consists of assets built or acquired prior to 2010, we're seeing a U.S. dollar yield of over 40%. Today, MNOs in the region are in advanced stages of 4G and in the early innings of 5G network deployments, which is driving a significant need for additional cell sites. As a result, we continue to see solid activity on our existing sites, as well as growth through new infrastructure to improve both coverage and capacity. Although we expect to see the ongoing effects of industry restructuring impact net organic growth in the midterms, We believe the portfolio we've developed across the continent over the last two decades will be critical for our customers as they continue to invest in their networks. Looking at Brazil specifically, our largest market in the region in terms of site count revenue, we're seeing the final stages of a consolidation process that has resulted in the transfer of network assets into the hands of large, multinational operators. With the capabilities and financial firepower to build out enhanced next-generation networks on a nationwide basis. Further, with the 5G auction now complete, our local scale positions American Tower as a strategic partner to our customers as they transform their networks, while allowing us to maximize the opportunities provided by consolidation and increased carrier investment obligations. Although we're at the very early stages of a network upgrade investment cycle, We're already seeing incremental demand for infrastructure, capturing a large share of the initial urban amendment cycle. We expect this amendment cycle to be followed by a period of new site deployments aimed at improving capacity and performance, similar to the cadence we anticipate in the U.S. over the course of the next decade, which should translate to solid growth for American Tower in the region over a multi-year period. Finally, let's turn to Asia Pacific. Our portfolio in the region predominantly consists of our scaled footprint across India, as well as our more recently established presence in the Philippines and Bangladesh, where we've leveraged our management and site deployment expertise to prudently evaluate opportunities in the region through high-yield build programs, resulting in over 400 sites being constructed across the two markets combined year to date. In India, we continue to be encouraged by the improvements in market structure carrier health, and government reforms aimed at easing the near-term financial burden of operators and ensuring a multiplayer competitive ecosystem, all of which is driving incrementally constructive trends across the communications infrastructure landscape. And with the carrier consolidation cycle and associated elevated churn largely complete, our full-year outlook includes an expectation for positive organic tenant billings growth in the region and for the first time in several years. While challenges certainly remain in the market, and we could see some variability in growth from period to period, our optimism around the longer-term opportunity presented in India remains. With an attractive backdrop of a growing population of over 1.4 billion people, it's driving accelerated mobile data usage, and a government that's demonstrating a commitment to a digital transformation of the economy We see a need for thousands of new cell sites to serve 4G and eventually future 5G networks. We expect these catalysts to drive a period of sustained attractive growth as well as a continued acceleration of our new build program, where we're seeing low to mid double-digit day one NOI yields on average. And taken together with a moderating churn environment, we remain optimistic that India and the Asia Pacific region can be a solid contributor toward achieving our longer-term growth targets on a consolidated basis. In summary, we're encouraged by the trends we're seeing across our international footprint, with an acceleration in mobile data consumption driving sustained customer investments on current and next-generation networks globally. Over the past two decades, we've followed a consistent and disciplined approach to market and asset selections, demonstrated a consistent track record of operational excellence, and developed a scaled presence and strong customer partnerships across a geographically diverse and globally distributed footprint, which we believe places us at a distinct competitive advantage in a 5G world and beyond. While we'll continue to evaluate opportunities to further enhance our scale through the same discipline lens, we remain focused on leveraging our position and capabilities to drive incremental value across our served markets. We believe our well-balanced international platform, combined with our highly complementary foundational U.S. business, provides American Tower with an unmatched global portfolio that's optimally positioned to benefit from multiple network technology evolutions and digital transformation opportunities for many years to come. With that, I'll turn it over to Rod to take you through our latest quarterly results and updated outlook. Rod?