American Tower Corporation (AMT) Q3 2010 Earnings Report, Transcript and Summary

Good morning. My name is Christy, and I will be your conference operator. At this time, I would like to welcome everyone to the American Tower Third Quarter 2010 Earnings Conference Call. [Operator Instructions] I will now turn today's conference over to Ms. Leah Stearns, Director of Investor Relations.

Thank you, and good morning, everyone. Thanks for joining American Tower's conference call regarding our third quarter 2010 financial results. Please note that we've posted a brief presentation to accompany this morning's call on our website at www.americantower.com. If you haven't done so already, you may want to download the presentation as we will refer to it at various times throughout our prepared remarks. The agenda for this morning's call will be as follows: I will provide a brief introduction and highlight certain key metrics from our third quarter financial results. Following this, Tom Bartlett, our Executive Vice President and Chief Financial Officer, will discuss our financial results and provide an overview of our expectation for the remainder of 2010. And finally, Jim Taiclet, our Chairman, President and Chief Executive Officer, will give closing remarks, including his current thoughts on key industry trends. After these comments, we will open up the call for your questions. [Operator Instructions] 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 2010 outlook, our stock repurchase program, our pending acquisitions 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 our 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 and those set forth in our Form 10-Q for the quarter ended June 30, 2010, and in our other fillings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances. And with that, I'd like to begin the call with some highlights from our third quarter results. Please turn to Slide 4 of the presentation, which provides a summary of our results compared against the prior year period. We reported total revenues of approximately $513 million, reflecting growth of over 15% from the prior year period. Tom will provide additional color on the core growth of our Rental and Management segment, which excludes the impact of foreign currency, straight-line lease accounting and a onetime gain from the prior year period. Our adjusted EBITDA for the quarter was approximately $350 million, which is, an increase of over 15% from the prior year. Additionally, our operating income for the quarter increased over 19% to approximately $213 million. Income from continuing operations, including income from noncontrolling interest, was approximately $94 million or $0.23 per basic and diluted common share. And now I would like to turn the call over to Tom, who will discuss our results in more detail.

Thanks, Leah, and good morning, everyone. I'm pleased to report that our third quarter 2010 results came in ahead of plan as we continue to execute and close out on our strategic priorities for the year. If you please turn to Slide 5, I'd like to begin with some highlights from our Rental and Management segment. Overall, we reported Rental and Management segment revenue growth of 16.1%. Core growth in Rental and Management segment revenue was 11.6% relative to the third quarter of 2009, which excludes the impact of foreign exchange, which positively impacted our reported results by 0.8%, straight-line, which positively impacted our reported results by 5.7% and a onetime gain from the third quarter of 2009, which is related to a onetime termination fee, which we received from one of our broadcast customers. Additionally and as I highlighted on our last call, three discrete items continue to impact our results during 2010. These items include the impact of broadcast analog churn, the completion of a customer take-or-pay agreement and a customer settlement, which combined, negatively impacted our reported revenue by approximately 1.7%. Excluding the impact of these items, our core growth would have been over 13%. Excluding the impact of these discrete items, core Tower revenue growth in the United States was 10.3%, of which 7.8% was generated from sites owned during the full comparable period, and 2.5% was generated from new sites acquired or constructed since the beginning of the third quarter of 2009. In addition, during the quarter, our U.S. division continue to experience a strong leasing environment with total signed new business up by approximately 18% relative to the same quarter of 2009. Furthermore, amendment activity continued to increase, accounting for approximately 45% of our signed new business in the quarter. Our solid performance in the U.S. was complemented by core growth of 27% in revenues from our international markets, which reflects our acquisition of towers from Essar, which contributed nearly $15 million or approximately 3.5% to our total revenue growth for the quarter. And as a result of our international expansion, our pass-through revenue, which represents principally land and fuel expenses that we incur and are able to get reimbursed by our customers, has increased by approximately $9 million from the year ago period, which is primarily attributable to our growth in India. Finally, our results include a year-over-year increase of over $25 million in straight-line revenue, which is a result of our successful customer contract extensions in the United States. Nearly $21 million of the increase for the quarter was a result of a new master lease agreement with one of our U.S. customers, which was completed during the quarter. Before I move on to the rest of our financial results, I'd like to take a minute to walk you through some of the highlights of this new agreement and how it provides key strategic benefits for both parties. First, as our customers seek to add additional equipment to their existing tower sites to meet the rapidly growing demand for data services efficiently and with flexibility, our new agreement essentially provides our customer the ability to install additional equipment on their existing RAD centers in exchange for an incremental fixed annual increase in their run rate billing. Therefore, the new agreement provides speed-to-market advantages for our customer, while providing us with a committed level of annual cash revenue growth above their recent historical levels. Finally, we've extended the remaining average current term of our leases with them to 10 years, which provides further stability to our cash flows. Turning to Slide 6. Our reported adjusted EBITDA growth relative to the third quarter of 2009 was 15.1%, with core growth for the quarter at 8.4% on a currency-neutral basis and excluding the impacts of straight-line lease accounting, as well as the onetime item, which I mentioned earlier. Further adjusting for the 2010 discrete items, which negatively impacted adjusted EBITDA growth by 2.4%, our core growth would have been nearly 11%. During the quarter, our adjusted EBITDA margin was 68%, and our adjusted EBITDA conversion rate was approximately 66%, which was a direct result of the following: the $9 million increase in pass-through revenue and expense as I mentioned earlier, negatively impacted our conversion rate by approximately 10%. Additionally, since the beginning of the third quarter of 2009, we've added over 7,500 new sites to our portfolio, which currently have gross margins of approximately 57% due to their average tenancy of approximately 1.6%. As we continue to increase the utilization of these sites, we expect their margins will approach our legacy portfolio levels. Excluding the impact of both pass-through revenue and the new sites, we have added over the past 12 months, our EBITDA conversion rate would have been over 90%. Furthermore, during the third quarter, we continue to make selective investments in our regional overhead, systems and corporate functions. In addition to our ongoing costs related to certain global business development initiatives, our main focus continues to be on our key projects for 2010, including our IT initiatives such as global implementations of common financial consolidation systems, as well as our ongoing due diligence with respect to a possible REIT conversion. We have made substantial progress in these initiatives year-to-date, and we'll continue this focus for the remainder of the year. As outlined in Slide 7, during the third quarter, we continued our disciplined approach to capital allocation. Specifically, we spent approximately $96 million on total capital expenditures, including $54 million of spending on discretionary capital projects, primarily related to the construction of 196 new sites and $23 million on land purchases. In addition, during the quarter, we completed the acquisition of 81 sites in the United States and launched operations in Peru and Colombia as a result of our acquisition of 356 sites from Telefónica. Further, we closed on our acquisitions of Essar, which increased our portfolio in India by over 4,600 sites for a cash consideration of approximately $430 million. Finally, consistent with our capital allocation strategy, we spent approximately $150 million to repurchase 3.2 million shares during the quarter. Turning to Slide 8. We delivered approximately 11% growth in recurring free cash flow and approximately 12% growth in recurring free cash flow per share relative to the third quarter of 2009. The growth was primarily driven by the following: our core growth in adjusted EBITDA and lower interest expense and higher interest income, which were primarily due to lower borrowing costs as a result of our recent refinancing activities and higher cash balances, respectively. Our performance of recurring free cash flow year-to-date is on plan. And as a result, we continue to expect mid-teen annual growth in recurring free cash flow per share for the full year. These trends, along with our recent investments in attractive discretionary projects, including the acquisitions we've made over the past six quarters have resulted in the consistent improvement in our return on invested capital, which is growing to 11.3%. Turning to Slide 9. We've updated our prior outlook. We've increased the midpoint of our full year Rental and Management segment revenue outlook by $60 million and consequently, our range to $1.92 billion to $1.93 billion, which now represents year-over-year growth of over 15% at the midpoint. This increase is primarily the result of the following key items: $18 million related to strong year-to-date core growth, which is progressing slightly ahead of plan as a result of slightly higher escalations and lower cancellations, plus the early close of our acquisition of towers from Essar and our recent and pending acquisitions in Latin America from Telefónica; and $42 million as a result of the impact of straight line and foreign currency, which is primarily related to our most recent customer contract extensions and master lease negotiations in the United States. Additionally, we've increased the midpoint of our full year adjusted EBITDA outlook by $48 million. And accordingly, our range to $1.34 billion to $1.35 billion, which now represents year-over-year growth of 13.7% at the midpoint. This increase is primarily the result of the following key items: increase in our Rental and Management segment revenue, offset by costs associated with the early close of our acquisition of towers from Essar and operating expenses and initial start-up costs associated with our new towers in our new Latin American markets, which brings their contribution for the purposes of our 2010 outlook to near zero. Turning to Slide 10. We've provided an updated year-over-year bridge of our Rental and Management segment revenue growth based on our new outlook. Looking forward to 2011, while we will provide detailed guidance when we release our full year 2010 results, we wanted to provide you now with some expected trends related to our Rental and Management segment revenue core growth. Our contract escalators should continue to contribute approximately 3.5%. We currently expect that the leasing environment will be at or above comparable levels with 2010 based on trends such as our U.S. customers seeking to deploy initial 4G networks while continuing to aggressively invest to improve the quality of their 3G networks. This demand will be complemented by investments by our customers in our international markets who are seeking to roll out new spectrum. And we expect that our annual churn rate will attenuate and return to normalized levels between 1.5% to 2%. Finally, we expect that our organic growth will be complemented by new tower builds. We also intend to pursue further acquisitions opportunities in both the U.S. and select international markets. Turning to Slide 11. And as I mentioned previously, we have increased our 2010 outlook for adjusted EBITDA by $48 million at the midpoint. 2010 has been a year of significant investment for American Tower as we've sought to further our global presence and uniquely position ourselves to capture a portion of the growing global demand for wireless services. As we have successfully entered new geographies, we have spurred revenue growth, while also incurring initial start-up costs. In addition, we have ramped our spending, particularly in new regions such as Africa where we currently have no operations. We believe that the current levels of development spending will position us well for future growth, and we are pleased that despite this incremental spending, we've been able to maintain our adjusted EBITDA margins at 68%. Turning to Slide 12. I'd like to highlight our current investment profile for 2010. Through the combination of our outlook for cash provided by operations and incremental borrowing required to end the year at about 3.5x net debt to last 12 months adjusted EBITDA, we would expect to have access to over $1.7 billion of capital to invest in 2010. Consistent with our capital allocation strategy, our primary objective will be to invest this cash back into our current portfolio through our annual capital plan, which is currently expected to be between $300 million and $320 million. This includes the expected construction of between 1,000 and 1,200 new sites, and the purchase of approximately $60 million of land under our towers. In addition to CapEx, we will continue to seek new assets to our portfolio by pursuing select acquisitions. We've spent $665 million year-to-date. Finally, we expect to continue returning our excess capital to shareholders via our stock repurchase program. Year-to-date, we have spent approximately $346 million on our share repurchase program. With our target of about 3.5x net debt as of year end, we currently estimate that our remaining capacity for investment in 2010 is approximately $390 million, which we intend to utilize in line with our capital allocation strategy. Turning to Slide 13, I would like to take a moment to discuss our recent development activities in our international markets. During the quarter and continuing the momentum of our recent market launch in Chile, we further expanded our Latin American presence with the launch of operations in both Peru and Colombia. As of today, have closed on a total of 231 towers in Peru and 610 towers in Colombia. In addition, we expect to acquire an additional 1,300 towers in our existing markets in Latin America by the end of 2010. Combined, these acquisitions would bring our Latin American portfolio to a total of over 6,500 towers. I'd also like to take this opportunity to update you on our progress in Chile, where our team recently completed an agreement with the new market entrant VTR, a subsidiary of Liberty Global. Since our launch of operations in June, our team has worked with our new customer as they plan the deployment of their recently awarded 3G spectrum. We expect VTR will utilize our towers as they pursue their nationwide rollout, plus we have agreed to acquire approximately 140 of their existing towers, which we would expect to complete during 2011. Our local teams and our new markets are off to a fast start, and we're very pleased with their progress so far. We believe that our development activities in Latin America have further illustrated our ability to be patient and disciplined as we seek to enter new markets. Our ability to leverage local teams to extend our existing relationships with our current customers and follow them into new markets provides us an unrivaled opportunity for growth in the region. Separately and as we've announced this morning, we've also launched operations in South Africa with the pending acquisition of up to approximately 1,400 towers from Cell C, the third-largest carrier in the country. Pursuant to this agreement, we may acquire up to 1,800 additional sites that are currently under construction or are slated for development over the next two-plus years. We are excited about the expansion of our operations into these new markets, and I'd like to take a moment to highlight some key reasons for investment in Peru, Colombia and South Africa. First, each of these markets represents a strong macroeconomic environment, providing us a solid foundation in which to invest. Second, the wireless markets in these geographies are competitive, with at least three main carriers operating competitively and a possibility of new entrants arising. Third, in both Peru and Colombia, there has been strong support from government entities to increase mobile broadband access throughout these nations. This support has been exhibited by recent 3G spectrum auctions in Colombia and possible auctions occurring in Peru in the near future. Both markets have been aggressively focused on increasing the quality of voice services provided to subscribers. As a more mature wireless market, South Africa has experienced strong demand for voice and advanced data services. As a result, we believe this market provides us a strong foundation to selectively grow from in sub-Sahara Africa. Overall, we believe that these new geographies will be a strong complement to our existing markets and will drive strong growth for us in the future. Turning to Slide 14. And in conclusion, I'd like to summarize a few key takeaways for the quarter. Our third quarter results were solid with our performance supported by year-over-year improvements in commenced new business and our customer contract negotiations. We remain disciplined and consistent with respect to our investments in capital allocation strategy. In the third quarter, we added approximately 5,300 new sites to our portfolio, primarily in India with the closing of our acquisition of towers from Essar. We continue to seek opportunities to expand our asset base, including in those markets which we currently operate. As we've previously mentioned, we expect to close on additional acquisitions in Latin America in the fourth quarter, which we anticipate will be accompanied by further growth in the U.S., as well as our markets in Asia and EMEA. We have development teams located in various geographies who continue to explore acquisition and build-to-suit opportunities that we believe will add significant value and growth opportunity to our current portfolio. With respect to our balance sheet, we currently have approximately $1.2 billion of liquidity and expect we will continue to utilize a portion of our current financial capacity to manage the pacing of our share repurchase program, which may fluctuate based on our current acquisition pipeline as we work our way towards our year-end target of 3.5x net debt to adjusted EBITDA. Further during the quarter, we completed our offering of the 5.05% senior notes due 2020 with the principal amount of $700 million, which provided us the ability to repay a portion of our revolver and increase our total liquidity. Finally, we will continue to monitor the capital markets to seek opportunistic transactions that lower our cost of debt in latter and extend our maturities. With that, I'd like to turn the call over to Jim.

Thanks, Tom. Today, I'll focus my remarks on our strategic planning assumptions that will serve as the foundation for our 2011 guidance, which we'll lay out for you on our next quarterly call. Our future plans and expectations are predicated on three major assumption sets: First, that advanced data deployments in the U.S. will drive demand for infrastructure, that level's commensurate with what we have experienced over the past number of years; second, that key international markets are also poised for advancements in wireless communications that will also generate demand for additional infrastructure; and third, that American Tower will effectively apply our operational expertise and financial strength, both domestically and internationally for the continued benefit of our shareholders. So let's start with the phenomenon of wireless data in the U.S. market from where American Tower derived 80% of its Tower revenue in the third quarter. We hold three basic hypotheses about the U.S. mobile data phenomenon: First, that consumers want this product, and just as in the previous decades, nearly every one at the U.S. subscribed to wireless voice service; and that over the course of the current decade, we believe that nearly everyone will subscribe to high-speed mobile data service too. As a result of this adoption curve that we expect, increasing data usage for subscriber and higher transmission speeds, we anticipate that mobile data consumption will double every year for at least the next four years. Our second hypothesis is around the U.S. wireless data phenomenon that the leading U.S. wireless carriers are fully committed to launching robust 3G and 4G data services, and that these companies are growing both revenue and operating profit as a result. Thereby, that will further justify ongoing investment by them. For example, AT&T just announced wireless service revenue growth in the third quarter of over 10%, nearly 3/4 of which was driven by data. Moreover at AT&T's wireless operating income increased by 15% and therefore, half again faster than revenue growth. Consequently, AT&T has shifted its investment priority meaningfully towards wireless. Its year-to-date wireless CapEx was up over 55%, and the company is on a pace to invest $8 billion in wireless capital expenditures this year. Now second example is Verizon whose wireless service revenue growth in Q3 was about 8%, all of which was attributable to data. Also at Verizon, wireless EBITDA grew at over 11%, half again above the revenue growth rate. Therefore, Verizon's also shifted its investment priority meaningfully to wireless. Its year-to-date wireless CapEx was up over 20%, and it's also on a pace to invest $8 billion in wireless capital expenditures this year. Our third hypothesis regarding the U.S. is that the market is so large and competitive that all major wireless service providers must eventually offer their customers a robust data product in order to be successful. Each carrier will have to overcome whatever challenges that may be facing to deliver high-grade 3G and/or 4G services, while at the same time, carefully managing churn risk out their existing customer base. And for both Sprint Nextel and T-Mobile USA, spectrum availability is a critical component to sustaining their current customer bases while preparing to deliver data services that will ultimately be able to compete with Verizon and AT&T's 4G service at 700 megahertz. Currently, two entities control the spectrum that could make these competitive services a reality. One is Clearwire, with over 100 megahertz of spectrum. The other is LightSquared with about 60 megahertz of spectrum. While there are a few possible combinations and permutations here, we believe that some or all of these 160 megahertz of spectrum will be utilized by Sprint Nextel and/or by T-Mobile for advanced wireless data services. While specific outcomes are not yet known, the possibilities include a sale of some portion of Clearwire spectrum, a further investment by Sprint or public investors in Clearwire or a joint venture of wholesale arrangement between one or more carriers in LightSquared. Therefore, we do believe that both Sprint Nextel and T-Mobile will ultimately get access to sufficient spectrum, and that they'll further invest in next-generation data services to remain competitive in the U.S. market. Any of the aforementioned outcomes here would then be a positive for the tower industry in the U.S. Moreover, MetroPCS, Leap, U.S. Cellular and other regional carriers will also need to garner access to spectrum or service for 4G and make the necessary investments in data to also stay competitive. So the synthesis of all of this in our planning process is that we expect solid new business opportunities for us in the U.S. going forward, and that churn rate should be manageable, especially with analog broadcast churn behind us. We see our company stepping up its ongoing CapEx investments somewhat in the U.S. We also plan to bump up our traditional pace of new tower and indoor DAS system builds. We'll also advance our investments in our newer products expansions such as outdoor DAS and shared generators, so these types of products will still be considered a niche in the broader scope of current network deployments. We also maintain our interest in acquiring assets in the U.S. where we can find opportunities that meet our valuation standards. But when those are not available, we have other investment opportunities internationally as you've heard, as well as our share repurchase program that's already in place. Let's now turn from the vibrant U.S. market to our second major planning assumption, and as the key international markets are also poised for advancements in wireless communication. And as a result, we expect strong demand for communications infrastructure in these markets that will be faster in rate and/or longer in duration than even in the U.S. Through our multi-year investments in regionally deployed teams and business processes in systems development, we feel that American Tower is uniquely positioned to leverage our existing international assets and to make effective new investments in three target areas: Latin America, South Central Asia, primarily India; and select countries in sub-Saharan Africa. In each of these targeted areas, we intend to have one or two anchor stores and then to bolt on, choose an adjacent markets to gain customer and operating synergies. Given our 10 years operating in the region, Latin America is the furthest advanced in respect to this approach. Our two anchor stores, Mexico and Brazil, have mature business systems, long-standing customer relationships and experienced and capable management teams. In 2010, we achieved our objective of launching operations in all of our currently targeted bolt-on markets in the region: Chile, Peru and Colombia. In all three of these new markets, we have common customers from our anchor stores. We've ceded U.S. and regional management into key leadership positions, and we're utilizing common companies systems and shared services from our anchor stores. With additional voice penetration to come in many of our Latin America markets, new spectrum and data services being deployed in all of them and a competitive wireless market of at least three carriers in each country, we see excellent prospects for leasing up the assets we own and that we have under contract, as well as strong potential for new asset acquisitions in the region going forward. 2010 was also the year that we achieved our original strategic objective in India, reaching sufficient scale of the market to be a meaningful supplier to our customers and to reach our initial internal financial targets for EBITDA contribution and return on investment. We still view India as the fastest-growing major wireless market in the world. With just a bit over 50% voice penetration in India as of mid-2010, this market has plenty of upside at voice subscribers, which will take years to fulfill. Moreover, both 3G and fixed wireless spectrum auctions were held recently in India. And as a result, the development of both mobile and fixed wireless services will accelerate in a country that lacks an extensive existing cable or DSL wire data network. Not only has India found a substantial wireless, voice and data growth, but it's wireless carrier market is also very competitive, with 12 to 14 service providers in each region of the country. We fully expect that there will be carrier consolidation in India. However, we do anticipate that this will take some time to play out, and in the end, there is still likely to be at least six or seven players per region. And as a reference point today, approximately 90% of our revenue in India is from the seven largest carriers. In 2011, our major goals for our India operation are to drive leasing activity on our base of approximately 8,000 towers including those recently acquired in the Essar transaction, also, to pursue an active program for building additional towers and to seek and evaluate any additional complementary assets that would enhance our tower portfolio footprint. We're also very pleased to announce the launch of our first market in the Europe, Middle East, Africa or as we call it, the EMEA region. Similar to Brazil in South America and India in South Asia, South Africa is the obvious anchor store market for sub-Saharan Africa. South Africa firmly meets our country-level qualification criteria for developing market investments and has a competitive wireless carrier environment with three established carriers today, and other entrants expected as well. We, therefore, view South Africa both as a highly attractive market in and of itself, and as a solid platform from which to closely evaluate our very short list of other specifically targeted markets and counterparties in that region. In summary, our international expansion initiative has always been designed to add diversified sources of growth to complement our foundational U.S. business from which we also expect strong growth. We're now succeeding in this endeavor on three dimensions: in Latin America, in India and now in Africa. So we're very excited about what this will mean in terms of total company growth in 2011 and beyond. Finally, our planning assumptions include our demonstrated ability to drive operational excellence in our existing and new markets, to maintain a strong balance sheet that provides access to capital for our expansion initiatives and to continually optimize our corporate structure. All these designed to maximize benefits to our shareholders. As to operational excellence, we've made advanced investment in people and financial resources over the past three years to pursue business development opportunities in new markets and for product expansions such as outdoor DAS. We believe that those investments are about to pay off in terms of future revenue and operating profit growth. In addition, during this period of time, we've improved or maintained our company's operating margins and simultaneously expanded our return on invested capital as Tom's pointed out. Our goals are to continue to deliver this type of performance on each of these key metrics as we integrate the many acquisitions and newly built towers from 2010, while perhaps adding even more assets as we go along. We'll also plan to maintain a strong balance sheet with financial leverage within that 3x to 5x EBITDA range. We continue to believe that this range does provide us with the optimal mix of enhanced shareholder returns, maintaining our broad access to capital of relatively low cost by our investment grade credit rating too. So many of the transactions that we're signing and closing this year, in fact, resulted from discussions that were either initiated or sustained during the financial crisis. By credibly maintaining access to capital during that period, we preserved our ability to initiate or sustain new market entry and acquisition projects with counterparties. Also within our planning horizon is optimizing our corporate structure. As we've mentioned previously, the company is actively working to fully understand, evaluate and prepare for a potential conversion to a real estate investment trust or REIT. While there has not yet been a decision to take this step, we are taking actions that we believe are needed to keep this option available to us. Before we move on to your questions, I would like to take a moment to recognize our dedicated employees throughout the company who work together to deliver the type of performance that Tom described in such detail, while also driving forward the many growth initiatives that I have outlined for you today. While we do celebrate our success, I can assure you that we're not all at all complacent. We're all looking forward to a strong finish to this year, thereby generating strong momentum into 2011. So thanks to everyone for joining us on the call today. And now, operator, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of Gray Powell of Wells Fargo Securities.

So what kind of multiples are you paying for assets in Latin America? And then, with the potential of 3G build in Mexico, what kind of impacts on growth do you think that could have in 2011?

With regards to some of the multiples, I think it's probably a better sense to take at look at some of the IRRs that we're focusing on down in the region. We continue to look at kind of build-to-suit IRRs collectively consolidated in the mid-teen range. We look at acquisitions in the kind of the low teens, kind of the 12% to 13% range. Where we do invest offshore, we are risk-adjusting those returns for country risk, if you will, in those particular markets. So in many of the international markets, we're looking for returns significantly higher, if you will, than our consolidated ones. Hopefully that helps.

And on the Mexico growth question, Gray, it's Jim here, as you know, the auctions were completed. They're still under challenged legally in Mexico. And so, as we've said all along, we do expect there to be some growth opportunity for us in Mexico as a result of that but in 2011 and then beyond. We do think it will be helpful, but these auctions do have to get formally cleared before investments are going to be made.

And then, is it safe to assume that growth in Mexico is kind of low single digit this year?

The way we tended to describe our international market growth is compared to our core U.S. business, and we've said -- and that remains true for this quarter. Mexico growth has been below kind of the standard U.S. level. And if the auctions get approved, we think it will grow above the standard U.S. level next year and beyond that.

I think you mentioned that tenant augmentations were 45% of demand this quarter. Just where do you see that going in 2011?

Probably pretty consistent, Gray, going forward. And given the level of activity and the build that we see with 4G, a lot of amendment activity, that will continue to change as there's new fill-in needed, new splitting going on in the industry. So I think we'll see that going through a couple of different cycles. But my sense is that particularly, in the United States, we'll probably see consistent run rates.

Your next question comes from the line of Jason Armstrong of Goldman Sachs.

It's Jonathan Hong on for Jason Armstrong. I just wanted to cover two topics, the first one being Clearwire. Last night, they announced some cash conservation measures. I just wanted to see what this impact would be on AMT going forward and how we should think about this. And then also, just on REIT conversion. Recently, there was some bonus depreciation legislation passed and how that impacts are NOL utilization and how you're thinking about timing around REIT conversion.

With regards to Clearwire, it's obviously very difficult to get a sense in terms of the impacts for what they're going to do for deployment in 2011. From us, they're a very significant customer, don't get me wrong. But relative to our overall volume, our overall book, they're not that big. I mean, particularly now, when you take a look a lot of the international investments we've done, international expansion, that gives us additional places from which to grow. So we don't think it will impact our growth rates in 2011. With regards to the REIT and the bonus depreciation, that is an opportunity for us. I mean, we've been able to take advantage of bonus depreciation in prior years. Given our level of capital deployment, we're looking for additional depreciation probably, bonus depreciation in the area of $30 million to $40 million to kind of $50 million, if you will, of additional depreciation. So it doesn't really change significantly our overall NOL profile.

Your next question comes from the line of Ric Prentiss of Raymond James. Richard Prentiss - Raymond James & Associates: Wanted to talk a little bit about Africa. Obviously, interesting region. Pretty growth area down there. Millicom had their analyst day a while back showing off that region. Can you tell us a little bit about South Africa towers that you're buying? It's kind of a more European contract I guess than African country. What's the tenants per tower you're getting there? And of the purchase price, is that just for the 1,400 Towers? In other words, who would pay for the 1,800 Towers that are planned to be built?

Greg, it's Jim. I'll start off and Tom can add some details if we need to go there. Africa, you start at the highest level. It's a region that looks a lot like South America in a way, and Brazil as our anchor store in South America as to South Africa being that anchor store in Africa. The transaction that we've done gives us the launch platform to pursue a similar strategy. And then, we'll incrementally move forward or not as the opportunities present themselves. But to the specific transaction, the number you see in the press release is all inclusive of the expected 3,200 towers over a two- to three-year period of time. You could do some proportional math and figure out what the first 1,400 would be costing us, and that will be a ticket that will probably be paying in the early first quarter when these close. Richard Prentiss - Raymond James & Associates: And as far as how many tenants per tower, just trying to think of how the model works in Africa. How was co-location been embraced down there so far in South Africa?

I don't think, Ric, at this point, we're going to give the tenancy. In terms of some of the maturity and some of the growth profile existing tenancies, I look at it kind of like Mexico. And I look at some of the margins in Mexico, some of the lease rates in Mexico, and to me, it has a lot of the similarities and feel of that particular marketplace. So perhaps, that helps. Richard Prentiss - Raymond James & Associates: Yes, it does. And then, in India and other places you've had the pass-throughs, I'm thinking of any pass-throughs in the African, South African market.

Yes. There's few. So there is some pass-through in that particular marketplace. Richard Prentiss - Raymond James & Associates: And then, on the lease modification, just want to be clear. Within the third quarter, should we assume -- I think I heard, was it 20-something million that was really the additional straight-line impact within the quarter versus what we might have been thinking of last quarter?

That's right.

Your next question comes from the line of Simon Flannery of Morgan Stanley.

Tom, I think in the past, we've talked about the REIT timing, one of the potential opportunities was the May 11 shareholder meeting to potentially vote on this before perhaps converting in 2012 or even '13. I wanted to know if that was still something that you are focused on and where you see the NOLs expiring at this point.

I mean, the May time period would make sense, Simon, candidly, from bringing it forward just because it's a time when we are all together looking at the proxy. So we are looking at that particular time period as potentially a time to bring this one up for a vote. But there are a lot of things that still need to happen between now and then, including completing all of the homework that we've been doing and continuing through the process that we're going through on the PLR process and evaluating the pre-election accumulated earnings and profits, and looking at operational readiness. But yes, that seems to be an appropriate time. But all those things have happened between then. With regards to the NOLs, the NOLs in terms of utilization is clearly, one of the elements that we would look at that would drive the timing of it. The NOLs can be used even as a REIT. So it's not that we would actually lose those NOLs if in fact, we are REIT. But we need to kind of bake that into the overall timing. And again, assuming all of the homework gets done and the Is are dotted, we're still looking in that 2012 kind of time frame.

Your next question comes from the line of Jonathan Atkin of RBC Capital Markets.

First, can you talk a little bit about the expense and head count impacts of going into South Africa and some of the continued expansion in Latin America and Asia, particularly given the big tower acquisition that you're planning before year end in Latin America?

Sure, Jon. It's Jim. If we break this up into South America, Brazil first, we've got sort of fully staffed team. If we add any sites in that market, that team, with all the incremental head count and SG&A expense, would be able to manage that. We placed our management teams in the other three South American countries this year, so there'd be some growth to those costs, but that growth would be far overshadowed by the revenue growth that those countries will bring because we're going to be leasing the Towers, and we're also going to be adding new assets as we go. Turning to South Africa, it's brand new. You'll hear more about the SG&A cost and other costs in Africa based on 2011 guidance when we do that in a few months. We're going to pick up probably 50 to 60 employees early on as we get these Towers ready to market and purchased. But then we'll have more clarity to the final numbers early next year.

And then on the lease extension renegotiation, is there a cap on the number of sites or the number of RAD centers that the carrier can modify or can it basically put additional equipment at every existing RAD centers that it currently occupies?

Theoretically, they could put it at every existing RAD center as soon as they're ready. But there are operational constraints to that. There's purchasing equipment, there's installing and there's scheduling construction crews. We want to get closer to this particular customer as we do with many others. And to have them relying on our sites for all technologies, including the newest, we like being the first provider of the infrastructure for those new technologies, and this brings us closer together. So don't be up pacing to it, it'll take some time to get the targeted sites covered. But we want to open up our portfolio to this customer of ours on a basis where the time to get their signal on air is as fast as it can possibly be. Speed to market has always been our operational execution mantra, and it's been the thing that we've invested in our Six Sigma program for is to get cycle times down, speed to market for the customer up. And this actually really complements that nicely.

And is there a services element to the new MLA where installation costs are somehow bundled in or there's a commitment here on the part of the customer?

Not necessarily. There are certain select services we do like structural engineering, et cetera, which will flow through. But this is really about speed to market, increasing our new run rate of additional business over the historical run rates at the same time and lengthening the total contract relationship with the customer out to 10 years again, and that's really the primary drivers of this.

And if I read correctly there's not as much of a prepayment component to this agreement as there was with Crown Castle. Is that correct?

We're not familiar at all with the contract specifics of any of our competitors' arrangements with customers. But what I can say about our particular arrangement is that we have an annually-used right to provide this speed-to-market advantage to our customers again that we think exceeds the historical rate of what they'd be doing with us in terms of new business, and what we would have modeled without this project, this program coming together. So that's how ours is structured, and it'll give us really nice cash growth over the next number of years.

Your next question comes from the line of Brett Feldman of Deutsche Bank.

Just a follow-up on the same topic, and make sure I understand the agreement on the lease extension and modification. Basically, this customer is sort of paying you a fixed rate now for those RAD centers, and that gives them the ability to I guess fill the center, and there's seemingly an escalator built in. That's kind of the idea here, right?

There's the fundamental escalator that exists within the agreement, which is unchanged. And then, each year, we will get an additional right-to-use fee, and for that, they will be able to put their equipment on their existing RAD centers.

It seems like this is becoming a bit of a theme, and that crowded something that's conceptually around the same idea. Are you thinking about extending this to sort of all your customers and maybe just reshaping the way your lease agreements are structured and the pacing of cash flows?

Brett, it's Jim. The answer to that is not necessarily. Every customer relationship is specific, different, has its own attributes. And this particular arrangement, we felt was exactly right for this particular customer, and that may or may not translate over some period of time to others that fit that model or don't fit that model. So this is specific to the customer we're talking about. It's a way we think we can drive a lot of value. And in fact, part of the reason we can is because of the scale of our company. With over 20,000 sites in the U.S., we have a top-shelf relationship with these big customers, and we can tailor with them to their budgeting rollout and other needs a specific program that suits all those needs.

And then just to sort of follow up on the Clearwire question before, everyone read in the news sort of doing their scenario analysis. I mean, I realize that as an aggregate customer, they're not significant. But is there anyway you can put some level of quantification around what your exposure to Clearwire is, even if it's like less than x percent of our business is from Clearwire?

It's less than 3%.

Your next question comes from the line of James Ratcliffe of Barclays Capital.

You'd mentioned previously that as part of the Verizon 4G buildout, that some of the amendments were zero revenue and as a result, the actual revenue for amendments was actually revenue with higher incremental. When do you think you are sort of moved through that function and start to see most of the amendments, they're actually having the normal run? And secondly, just any thoughts on impact of the elections on the business either indirectly by the STC or directly potentially impact structure.

Yes, sure, James. We have about 20% of Verizon Wireless's network on our towers. That's many, many thousands of RAD centers. Each one has a configuration that may differ from others, and there's no just sort of point in time where the zero amendments will disappear. However, as we've talked about, the average with Verizon is in the $300 range. So whether it's a wider belt curve or a narrower belt curve around that, we don't think the average is going to be all that much different going forward. As far as the election goes, it doesn't, we think, really impact our business. We have two priorities in Washington which we hope will continue to make progress. One is to get co-location by right as we call it, meaning that have those zoning barriers to co-locations or augmentations on existing towers. That's something I think all tower companies can agree on and all carriers can agree on as a good thing. And then second initiative, which again we're hopeful that we'll come to fruition, is that the public safety network, the spectrum and the leadership that needs to come around the for it to get deployed. And I think the election doesn't necessarily adversely affect either of those, and hopefully it possibly won't affect some.

Your next question comes from the line of Michael Rollins of Citi Investment Research.

You mentioned that you thought the leasing environment for 2011 I think would be at least as good as it was in 2010. Can you give us a little bit more color by geography? So if you look at U.S. maybe versus rest of world, how you would look at the co-location environment. And specifically, how funding for -- I know you talked about 4G in terms of overall exposure, but does the 4G funding situation for some of the emerging companies have a meaningful impact in the way you look at leasing activity for 2011?

Mike, it's Jim here. We'll start with the U.S., and some of the robust sources of next year's new business that we're anticipating -- and again, we'll come up with the actual guidance for you on the our next call. But AT&T is moving strong ahead with both 3G bolstering that network, which is again, 3G is the primary network for all the carriers today that the high-speed data that we're all using and experiencing is coming from. So that 3G network we think will remain an investment priority for AT&T and others. And they're going to start their initial LTE deployments too. There'll be some cell splitting we think by that company as it adds more and more heavy-use devices well. Verizon and other national carrier, again, has to keep developing. We think it's 3G network into next year. They're all further advanced on the schedule of their LTE deployment and have a robust plan publicly stated for next year as well. So the two largest national carriers in terms of subscribers we think are going to do as well for us next year as they've done for us this year. And then T-Mobile, I think, will also be a major participant next year, probably, hopefully, more so than this. And Sprint Nextel, same situation as they kind of move into high-speed data projects as well. When it comes to Clearwire, LightSquared and others, as I said in my prepared remarks, that spectrum that they control is highly valuable. And if it comes online a quarter plus or minus, or it's public or its private investors that help get it out there, or it's a JV or a wholesale agreement, it's going to happen and it's going to benefit the tower industry. So again, through the course of 2011, we think that those companies are, if not both at least one, will be able to keep that form. So the U.S. should be a good market for all the tower companies that participate in 2011. Moving into Latin America, as we've talked about, there've been spectrum auctions in almost every country that we have assets in now. And that's up to five countries in Latin America, Mexico, Brazil, especially since we have large portfolios there with established customer contract relationships. Again, I think if you compare this year to next year, they should be at higher run rate, the new business, than the standard U.S. rate over the years. And that's growing from a little bit weaker the last year or two as the spectrum auctions were happening. India is in the midst of I think some pent-up demand. It's going to be released in 2011. Again, spectrum auctions occurred. Funding is needed to come in behind it for the network build. That's starting and has happened. And there's also been some equipment security issues that are being cleared, as our understanding, and there'll be some pent-up demand released from those issues in 2011 as well. And in South Africa, I think one of the questions earlier mentioned, really high-growth market. South Africa is pretty developed, which we see as a good thing. But there's lots of upside on data deployments in South Africa, a new entrant coming in. And one of the things that we're striving to do in all of these places that we've been talking about today, these new countries for us, is really drive and introduce the co-location business model to places where it really hasn't been used before. And so, South Africa offers us some upside there. And if we can demonstrate success there, there'll probably be a couple of other countries that, that model will fit as well.

And just two follow-ups. One is you mentioned that the core U.S. growth rate was 7.8%. But some of that incremental broadcast churn I think that's embedded in that 7.8% is in the U.S. So what would that number be if it was more normalized for a more normal year of churn? And then the other follow-up, forgive me if you said this, if you look at all of the acquisitions that you've announced pending, done, as you look at whatever that be period is when everything is closed in 2011, what percent of revenue will international now roughly represent?

I mean, in terms of the normalize growth rate, Mike, I think the 7.8% is the normalized rate that you should be thinking about. I think if you take a look then at our overall kind of core growth on a consolidated basis, that's where we're looking up in the kind of the 12%, kind of 13% kind of rates. With regards to international, this year, this particular quarter, we're up in 35%, 40% kind of growth rates, in internationally core growth in the 25%, 27% range. So I would expect, with the kind of development, deployment that we're doing in those particular markets, we should continue to see some very, very nice healthy growth going forward.

And we'll give you the percentages, Michael, specifically when we give the guidance early next year.

Your final question comes from the line of David Barden from Bank of America.

Two if I could, just following up on a couple of big themes this quarter. I guess first, Tom, kind of looking at last quarter's 2010 outlook revenue bridge and this quarter's updated 2010 outlook revenue bridge, we lowered the high end of the new business revenue opportunity, but we've added presumably incremental revenue opportunity from this mystery customer and the new contract there. I was wondering if you can kind of square that. Should we be expecting it to be an incremental contributor as soon as the fourth quarter? And if so, what opportunities went away relative to what could have been there? And then the second question is on the REIT conversion topic. Obviously, it's important to I think a lot of investors. It seems like you guys have been moving towards it, and people, each step of the way, are concerned that whether it's a tax law change or some other thing that it's going to get pushed out and deferred and kicked down the road. Could you kind of walk us through what are the actual things that would change between here and say, your course and speed running out of NOLs in 2012, that would really impact your thought process about the timetable for REIT conversion?

Yes, firstly, just on the kind of the new business, we did increase the update for new sites, as well as for escalations, and lower for cancellations. I think on the new business, we just kind of honed it in a little bit. We have more clearly visibility in terms of looking at the fourth quarter given that now we're at the end of the third quarter, and halfway even through the fourth quarter. So we just kind of honed in and tightened, if you will, the range on new business. No, don't take from that any indication in terms of how we're looking at new business or growth from the year. We still think it's a terrific year. We had commenced revenue in the third quarter of over 40% greater and signed up 15% to 20% greater. So we're very optimistic in terms of 2010 and how we're going to finish strong for 2010 and what that means for 2011. With regards to the REIT, given the size of our business, there are very few tax law changes that are going to significantly impact how we're thinking about the overall timing of it. It can change a little bit on the edges, if you will, kind of the bonus depreciation, those types of things. But that's not going to change really significantly at all in terms of the timing. It's really a function of us being ready. It's a function of us getting all the approvals that we need. It's a function of us getting through all the evaluation that we have to do in terms of looking at our portfolio of products and services and how we're going to structure that and how we'll get comfort from that relative to discussions that we're having with the IRS. So I don't see any tax law changes candidly on the horizon that's going to significantly impact the way we're thinking about it, the timing. And again, I'm still looking in that 2012 time frame.

Quick follow-up on that, Tom. Just anything about the timing, the pace and the magnitude of your international or domestic build or M&A program that could have a real big impact on that?

No.

And we have reached the allotted time for questions. Are there any closing remarks?

Sure. It's Jim Taiclet. Thanks again for everybody that joined our call. Hopefully, we laid out our strategy clearly, to you. Extremely pleased with the results that this organization put together in the third quarter, and we'll be going hard at it for Q4, and we're looking going forward to speaking to everyone early in 2011 about guidance.

This concludes today's conference call. You may now disconnect.