AMT
#Good morning, everyone
The fourth quarter wrapped up another year of solid growth, complemented our nearly 8% organic tenant billings growth with well positioned acquisitions and newly constructed size, aiding over 45,000 new sites during the year
In addition, we exceeded our deleveraging targets while continuing strong growth in our dividend
As <UNK> highlighted, we once more posted double-digit growth across our key financial metrics, both in Q4 and for the full year
And as <UNK> just mentioned, what was achieved is just a latest example of our long track record of generating this type of growth
Looking ahead, we believe we are well positioned for another successful year in 2017. But before we get into the details of our 2017 expectations, let’s quickly recap our operating results for 2016. If you please turn to slide eight, we grow double-digit organic tenant billings growth internationally in 2016, and had another year of solid activity in the U.S
right in line with our expectations
This growth was supported by a record quarter of new business commencements in Q4. Our U.S
property segment revenue growth for the year was about 6.7%, which included a negative 1.3% impact from non-cash straight-line revenue recognition
U.S
organic tenant billings growth matched our expectations, is 5.8%, reflecting a slight acceleration in the back half of the year
Volume growth from collocations and amendments contributed about 4.5%, while pricing escalators contributed about 3%
This was partially offset by churn of about 1.7% on an annualized basis, of which just 30 basis points was associated with operational churn from the big four wireless carrier core networks
Demand trends in the U.S
remained steady with carriers actively spending to augment the coverage and capacity of their 4G networks
International organic tenant billings growth was double that of the U.S
, coming in at about 13.5% on a consolidated basis with all three international segments growing between 13% and 14%
This was the seventh consecutive quarter of double-digit international organic tenant billings growth, supported by significant network spending by tenants across our portfolio
Contractual pricing accelerators, driven by local CPI indices contributed about 6.9% to that growth
And volumes from collocation and amendments drove an even greater contribution at 7.7%
Other run-rate items contributed an additional 30 basis points
This was partially offset by churn of about 1.4%
Additionally, our organic tenant billings growth rate was elevated by about 30 basis points due to organic new business commencements on the new Viom assets
Our large multinational tenant base continues to make significant investments in their networks as access to advanced handsets become more attainable to an increasing proportion of their customer base
Additionally, these network investments appear to be catalyzing incremental usage, as the quality of the mobile experience continues to improve
These trends along with our high quality asset base once again let a strong international growth for us in 2016. On the inorganic side, the day-one revenue associated with the over 45,000 sites we added over the course of last year, including the Viom portfolio, contributed another 15% to our global tenants billings growth
Our new-build program also remained active, and we constructed over 1,800 towers globally this year with an average day-one NOI yield of about 10%
Turning to slide nine, we also generated strong margin performance adjusted EBITDA and consolidated AFFO growth for the year
Our gross margin percentage was over 69% despite a negative 11% impact from pass-through revenue and the addition of approximately 45,000 new initially lower margin sites
Cash SG&A, as a percentage of revenue, declined 70 basis points from 2015 levels to 7.9 %
And as a result, we generated a full year adjust EBITDA margin of just over 61%, which would have been about 10% higher excluding the impact of news sites in pass-through
In fact, if you were to exclude just the impact of pass-through over the last three years, our adjusted EBITDA margin would have been essentially flat, despite adding almost 80,000 news sites over that time, demonstrating the significant margin expansion on our legacy assets
We also generated double-digit consolidated AFFO and AFFO per share growth for the ninth consecutive year
Consolidated AFFO grew by nearly 16% and AFFO per share grew by over 14% to $5.80, while AFFO, attributable to common stockholders, grew over 13% or nearly 12% on a per share basis
Notably, both consolidated AFFO and AFFO per share exceeded the high-end of our previously issued outlook and outpaced our initial outlook provided last February by about 4%
Turning to slide 10, let’s now take a look at our expectations for 2017. At the midpoint of our outlook, we are projecting property revenue growth of over 10% to $6.3 billion
This includes a negative impact of about 1.3% from the expected year-over-year decrease in non-cash straight-line revenue, as well as a negative 70 basis point impact from the non-recurrence of approximately $39 million of U.S
decommissioning revenue realized in 2016. We expect consolidated tenant billings to increase by over 12% or roughly $590 million in 2017, driven by organic tenant billings growth of 7% to 8%
In addition, revenue growth associated with pass-through revenue, non-cash straight-line revenue and other non-run rate revenue is expected to be offset by our forecasted impacts associated with foreign exchange fluctuations
Therefore, all-in, total property revenue is expected to increase by just under $600 million
We expect strong organic growth in 2017 from both our U.S
and international businesses
These expectations are predicated on our sizeable new business pipeline, and our view that the positive demand trends underlying our 2016 growth will continue in 2017. In fact, in U.S
, we actually expect organic tenant billings on a dollar basis to increase by more than 15%, resulting in the reacceleration of our U.S
organic tenant billings growth rate to approximately 6% for the year
This reflects our expectation of an increase in collocation and amendment activity across the portfolio
I would also like to make clear that we have not yet included any material leasing expectations from the ongoing incentive options nor any potential impact from first-net deployments in our current outlook
In our International markets, we’re projecting organic tenant billings growth of around 10%, which includes nearly 30% increase in lease commencements from that realized in 2016. While pricing growth from escalations is expected to cline approximately 200 basis points from the prior year to about 5%
This is due to a new factors, including subdued inflation rates, primarily in Brazil, where the currency is stabilized; our U.S
dollar based contract in Nigeria, which provides us a natural currency hedge, but includes U.S
based escalation provisions; and our larger Indian business, which expects escalators around 2% to 3%
Finally, churn for 2017 is expected to be just over 2% internationally, which includes the assumption of higher churn in India, driven by carrier consolidation
We remain encouraged about our growth prospects in markets like Mexico, where we expect double-digit growth to continue, even without factoring in any contribution from a new wholesale network deployment expected to begin in late-2017; and in Brazil, where there have been some macroeconomic challenges, we are seeing indications of stabilization and potential for a reacceleration in carriers spend
In fact, we realized record setting levels of new commencements in Brazil in Q4. In Latin America, as a whole, we expect organic tenant billings growth of around 11% in 2017, down from 2016, primarily as a result of the lower CPI-based escalators; again, most notably in Brazil
Growth in our EMEA region is expected to step-down from about 14% in 2016 to around 10% in 2017. On a dollar basis, we expect volume from collocations and amendments to be consistent with 2016 levels; however, expect them to be more weighted to the second half of the year compared to 2016 where we saw commencements weighted more to the first half
In addition, our Nigerian assets have a natural currency hedge with over 50% of their tenant leases indexed to the U.S
dollar with the corresponding U.S
CPI index escalator
Given the recent volatility in Nigeria’s currency, we believe this is a favorable component to de-risk our business
Even though, it reduces growth in the country compared to what we would have achieved with local inflationary based pricing escalators
Meanwhile, we continue to expect solid tenant demand in growth in India
In fact, we expect volume growth from new collocations and amendments to be nearly 10%, which reflects the impact of new business agreement signed late last in 2016, as well as strong new business pipeline
Offsetting a portion of this growth is an elevated level of potential churn, which we expect will reduce revenue growth by around 5%, primarily as a result of the ongoing carrier consolidation activity in the market
While it creates a near term headwind, we view consolidation as a long-term structural positive for the market
And in the future, we expect stronger well capitalized tenants to support an industry where wireless competition can be incrementally more rational
And as we’ve said previously, India has always been a market where we expected a long cycle of consolidation, while the long-term opportunity remains strong
So to summarize, we expect another year of double-digit international organic tenant billings growth as a result of increased levels of collocation and amendment activity in our international markets in 2017 despite lower CPI based escalators and some increased churn assumptions
Moving on to slide 11, we expect another solid year of growth and adjusted EBITDA and consolidated AFFO per share
Our adjusted EBITDA is expected to grow by about 9% for the year
Cash SG&A as a percentage of total revenue is again expected to be under 8%, despite adding France and Argentina to our footprint, as well as increased spending on IT system upgrades in the U.S
Our consolidated adjusted EBITDA margin for the year is expected to be down around 1% from 2016 levels, but actually up from the prior year, excluding the negative impacts of pass-through and the year-over-year $72 million decline in that straight-line
The margin is also being negatively impacted by the full year inclusion of the Viom portfolio in 2017, as well as the non-recurrence of about $39 million in 2016 decommissioning revenue in the U.S
We expect our legacy business, exclusive of the items I just mentioned, to actually drive margin expansion of round 90 basis points in 2017 as compared to last year
Meanwhile, consolidated AFFO and consolidated AFFO per share growth are both expected to be over 10% for the year
In addition to our operational efficiency, this reflects our active balance sheet management
We expect consolidated AFFO per share in 2017 to be $6.40 at the midpoint of our outlook
This reflects the expected resumption of our sharing purchase program in the near-term
Relative to FX impacts, we’ve used our historical approach to forecast the impacts of currency fluctuations
If the spot rates as of Friday held for the balance of the year, our AFFO forecast would increase by about $38 million or about $0.09 per share
As you can see on slide 12, our outlook for total 2017 capital expenditures is $850 million at the midpoint
This includes $160 million in non-discretionary CapEx, primarily related to site maintenance
The remaining $690 million or so is related to discretionary CapEx, including about $160 million for new site construction
During 2017, we expect to build around 3,000 sites primarily in our international markets or around 1,000 more than we built in 2016. As a result of ongoing carrier investment, we expect new site construction to accelerate compared to the prior year across nearly all of our international markets, particularly in India, Mexico and the Brazil
Historically, sites we’ve constructed in our international markets have delivered highly favorable returns with our most mature vintage of those sites now delivering NOI yields of approximately 38%
Even on sites we built since 2014, NOI yields were already in mid-teens
We expect that price constructed during 2017 will deliver similar returns overtime and further enhance the growth and yield of our global asset base
Turning to page 13, you can see that we’re entering 2017 with a tremendous amount of financial flexibility
During 2017, we expect to generate cash from operations in excess to the $2.7 billion we generated in 2016, and expect to have around $900 million in incremental debt capacity to maintain current leverage levels
As a result, we expect to have more than $3.5 billion available to deploy during the year; applying 20% growth rate to our 2016 common stock dividend results in a projected payout of $1.1 billion in 2017, subject to our Board’s discretion
We also expect to spend about $87 million of preferred dividends and about $850 million in CapEx with just $160 million of that being non-discretionary
Additionally, earlier this month, we deployed around $500 million to fund our acquisition of FPS Towers
After accounting for these items, we expect to have over $1 billion of excess cash available to the either reinvested back into the business or returned to shareholders
Given the expected strong growth in our business over the long-term, driven by the secular trends in the global wireless industry and resulting pending investments needed to support that growth, we believe our stock is fundamentally undervalued today
Accordingly, given the accretion opportunity to buying back shares currently offers is potentially compared to our other options, we would expect to reengage our share repurchase program shortly
As always, we continue to evaluate acquisitions in the event those opportunities offer a better strategic and long-term AFFO accretion profile, we would adjust the pacing of our repurchases to accommodate
In either case, we expect to utilize our substantial expected excess cash to create value for our shareholders
Moving on to the slide 14, we expect to utilize our financial flexibility and disciplined capital allocation strategy to drive growth and improve yields across the business
As you can see, our track record speaks for itself
We have significantly increased our asset base since 2012, positioning us as the global leader in our industry, while continuing to invest in our existing business and fund our growing common stock dividend, which is more than double since its inception in 2012. Our disciplined investment methodology has enabled us to expand and diversify our asset base across key wireless markets around the globe, resulting in sustained growth and key financial metrics, including significant recurring free cash flow generation
Turning to slide 15, and in summary, we generated strong operating results in 2016, highlighted by our seventh year of double-digit growth and property revenue and adjusted EBITDA, and our ninth consecutive year in double-digit growth in consolidated AFFO per share
At the same time, we enhanced our Company’s long-term strategic positioning in key markets through selective acquisitions while reducing our SG&A, as a percentage of revenue to under 8% and growing our common stock dividend by about 20%
In 2017, we are focused on strategic priorities which support our vision of being the premier independent owner, operator and developer, of communications real-estate globally, while continuing to drive strong financial results
We expect to evaluate accretive investment opportunities, explore additional avenues to drive future growth, and use our significant internally generated investment capacity to do so
We’ve expanded our presence to currently 15 countries, having substantial scale and significant capability to adeptly serve the biggest global companies in the largest free market democracies in both developed and emerging markets around the globe
Operationally, we remained focus on efficiently integrating our new assets, while driving strong growth across our existing asset base and leveraging the scale we’ve built across our global business to drive expanding margins and growing cash flow
We are well positioned to support our customers as new technologies and networks are deployed, particularly in the U.S
, with the potential FirstNet opportunity, as well as in Mexico with the awarding of a new wholesale network buildup, which could provide upside to our plan
Further, we are now back within our target leverage range and a substantially increased financial flexibility to pursue large accretive acquisition opportunities and resume our share repurchase program
As a result, we expect to drive strong total shareholder returns, both in 2017 and beyond, as we continue to provide solid underlying growth in our business with an increasing yield
And with that, I’ll turn the call over to the operator so we can take some Q&A
Question-and-Answer Session
I mean, the overall tenant billings growth is about 37% in the market and the organic tenant billings growth is in the ---+ the international growth is 10%
India is probably in 8% to 10% range
No, that includes the churn
The actual co-lo amendment growth is 10%
It’s difficult to say
If you take a look at the major consolidation that we ---+ going on right now with the major carriers
And even though there are rumored, RIc, it’s probably upwards of 10,000 tenancies over couple of year period, two to three year period for us
And so that could be upwards of say 1% about consolidated revenue, probably in those, and it’s very difficult to predict
We have lock-in periods for all those carriers as well
So, it’s really difficult to predict that there’ll be settlements along the way or the extensions, or how that will impact
As we said all along when you take a look at this major consolidation, it goes around the globe and we’ve got a lot of experience within the U.S
We’ve always found in the U.S
with the major consolidations, it’s actually been a net positive for us
Its carriers are overbuilding their networks and positioning and integrating their business
And in India, there is such significant growth
We’ve talked about the new build-to-suit programs that we have
We’re building 150 to 200 sites there a month in over the last couple of years
And so when you take a look at the amount of white space in the market, just in terms of coverage issues that they have, and now where the prices are in handsets and the new spectrum that’s being deployed in the market, we’re really bullish in terms of the type of growth we’re seeing going forward
So, it’s really difficult to impact what the churn is
I know what the overlap is, if you will, between the carriers
But it’s difficult to predict just how much of that will actually result in churn
In terms of the new assets billings, don’t forget that last year we had an additional quarter of rolling over from 2015 of the Verizon portfolio
So, that’s what really drove a lot of the new asset billings last year
This year we’ll continue with our build program and we’ll probably build 50-60 sites, if you will
So, that will be the major contributor of new asset billings, as well as the site builds that we did last year that are rolling over into 2017. So, that’s a reason for that particular decline
And your second question again, was…
No, absolutely not
I mean the escalator assumptions continue to be right around that 3%
But remember from an overall waiting perspective, they declined slightly as a result of the escalator that was underwritten in the large portfolio from Verizon, so that drove the overall of that a little bit
But the overall is right at 3%
We have very few have asked this question before
So, I mentioned, less than 5% of our sites actually are CPI based in the United States, so 95% of them are on fixed escalators of some type
First of all, it’s the fact of our pipeline and the conversations with that with all our customers in terms of their expected activity for 2017. Then it’s just the ongoing expectations of that 30% to 40% growth in data traffic and the unlimited plans
And all the things that <UNK> talked about in his piece in answering a question just not too long ago
So, it’s all of those <UNK> that are really driving that increased demand
As I said, underpinned by what we physically have in the office in terms of driving new co-lo and amended business, which is really what’s driving the activity
Clearly in 2017, we expect about 15% growth, as I mentioned in my prepared remarks, relative to increase in co-los and amendments as compared to 2016 in organic tenant billings
So, that’s really what’s driving the growth
I think last year is the CapEx budgets are actually deployed by the carriers
There is still a slightly more back half loaded deployment in activity for tower companies or ourselves included, I don’t know if that’s significant, it's probably pretty even
But I would just expect that there is a slightly more back half loading
I think in certain markets, as I mentioned in EMEA, for example, outside of United States we’re going to see a little bit more back half loading than front half loading that we had last year, which is partially driving what the decline is in the tenant billings growth
And relative to FPS, it’s in the $55 million range revenue and $40 million, $45 million for EBITDA
Let me answer that one
We’ve very disciplined capital allocation process within the business
We’ve talked about that before
I mean it’s all mass
It’s where we’re going to be generating the most value on an NPV basis, as well as on ongoing basis from an AFFO accretion perspective
So, we’ll continue to evaluate transactions on a global basis
There is a lot of activity no doubt around the globe
We’re very selective when we’re looking at those particular acquisitions
And as I mentioned in my markets, I do believe that our stock is fundamentally undervalued today
And so, I think it affords us an opportunities, given the position that we’re now in
We’ve got additional financial flexibility to flex our muscles a little bit and to go into the market
And as you’ll recall, prior to the two large transactions in United States, we were ---+ even though we were paying a growing dividend, we were still active in the market in terms of buying back shares
With those two acquisitions, it took our leverage up into the 5.5 plus range
And so it was very important for us to get that back down south of 5, which is where we are today
And so that affords us the opportunity to really look at that program, as well as continually look at acquisitions
So, we’ll continue using the approach that we’ve used
If you take a look at the results, I think the record speaks for itself, and we’ll use that model going forward
<UNK>, on the buyback, it’s really difficult to say just how much is going to be used in 2017 relative to buying back shares
We will put our typical process in place and run programs throughout the year
And depending upon where the volume this year is, we’ll pick it
We’ll pick up the pacing in
And it will also, as I said if and when we’ll continue to look at M&A throughout the year
And to the extent that we determine that there is an M&A opportunity out there that’s strategic and is more accretive than buying back shares, then that will probably prove to be the spot where we will be investing the cash
So, it’s really difficult to say exactly
I can’t tell you that hopefully in short order we’ll have that program back on and we’ll continue to be able to reinvest back in the business and return cash back to shareholders wherever we can create the most value
On the SG&A question, we continue to drive that down
If you take a look at the legacy business, there’s continued improvement in the overall SG&A as a percentage of revenue
This particular year, we also have bringing on people in Argentina and people bringing on in France, it's probably 200, 300 people between the two markets, as well as I mentioned before, we’re making some incremental IT investments in our ERMs in the United States
But going forward when you take a look at our conversion rate shows when you pull out straight-line or not straight-line pass-through revenue, you’re up
And then at the gross margin level, you’re up in the 90% range, and at the EBITDA level you’re up in the 80% range
So, given that kind of conversion ratio on our legacy business, you would expect to see some sizable, I think, reductions in overall SG&A as a percentage of revenue
What we continue to do is we continue to walk [indiscernible] at the same time, so we continue to invest back into the business to be able to drive growth to create a long-term sustainable path for our shareholders
But I think if you take a look at the one of the charts that we had in the PowerPoint presentation today, you can see the incremental SG&A margin that’s been driven in the business, and that’s largely through reduction in SG&A as a percentage of revenue
As we take a look at, <UNK>, just looking at the total property revenue versus AFFO per share
First of all, it’s always our goal
I mean it's our objective to have double-digit AFFO per share growth, going forward
I mean that’s really is driving our business in the investments that we’re making in the business
I think if you take a look at ’17 versus ’16, you take a look at pass-through revenue, for example
I think the increase in pass-through revenue is just as a result of bringing on the additional quarter of Viom, is probably driving that property revenue, whereas it's not driving to that nor AFFO per share
So, that would be one of the reconciling items to be able to connect the two
