American Tower Corporation (NYSE:AMT) Citi's 2024 Global TMT Conference September 4, 2024 2:10 PM ET

Company Participants

Steve Vondran - President & CEO

Conference Call Participants

Michael Rollins - Citi

Michael Rollins

Welcome to Citi's 2024 Global TMT Conference. For those of you I haven't met yet, I'm Mike Rollins with Citi Research and we're pleased to welcome American Tower's President and CEO, Steve Vondran. Steve, thank you so much for joining us.

Steve Vondran

Well, thanks for the invite. It is good to see you.

Question-and-Answer Session

Q - Michael Rollins

Great to see you. This session is for Citi clients only and disclosures are available at the back of the room next to the AV desk. And for everyone in the room, you can use the QR codes either up here on the screen or there is also some posters or documents around the room that has these QR codes to participate in our upcoming live survey questions. And your participation and submissions are completely anonymous. And we will hope that you participate with us today. So, Steve maybe just to get us started, if you could provide an update on American Tower's strategy to expand financial performance and improve the value for shareholders?

Steve Vondran

Sure. So I've been in the job about seven months now. So what I really bring to the table in terms of kind of the long tenure I've had with the company over 24 years, being part of the leadership team for the last five, is you'll see a degree of continuity with some of the things we've already been doing. So I will reiterate kind of what our priorities are kind of for the near- to mid-term. And the first priority is maximizing organic growth. It's all about sales.

And so, we are looking across our portfolio and the demand drivers that we are seeing in all of our markets. We're focused on organic growth, Number one. And the second thing we're doing is we're coupling that with select investments in our internal CapEx program to develop new assets in different markets. And that CapEx program is a little bit more weighted toward developed markets today than it has been in the past and we've talked about that on several earnings calls as we are prioritizing our investments there, just given some of the headwinds that we've seen in our emerging markets as well.

And so, we see some robust demand drivers that help us grow organically. We are seeing the inorganic opportunity to invest in our internal CapEx program. We are also focused on cost controls and we've been able to bring down SG&A year-over-year at the midpoint of our guidance. We're bringing down SG&A at about $35 million this year year-over-year. So trying to make sure that we're expanding our margins wherever we can, making sure that organic growth drops to the bottom line at a very high percentage, and then also actually making in some savings as well.

And we are also focused on our balance sheet, making sure that we have a fortress balance sheet. And that means trying to get down below our -- to our target leverage of 5.0 by the end of the year. We’ve taken a number of steps to do that, including reducing the CapEx in our internal program and we did hold the dividend flat this year as another method of doing that. And yeah, we are happy to say that we are on track to do that. We did drop below 5 for a couple of quarters. There are some one-time items underpinning that. So you probably will see that pop-up above five.

And then depending on the timing of the India close, a couple of one-time things, 12-31 could be just above or just below, but we are on track to get very close by the end of the year. So that's been a priority for us as well. And then you kind of couple that with making sure that we are implementing the best governance standards across the company. We are in the middle of some Board refreshment that we've talked about a couple of times. And just changed our Committee Chairs, added a new Board member Neville Ray. So we are excited about some of the changes there as well. So predominantly, it is focusing on that organic growth, cost-control, incremental investments, where we can, working on the balance sheet, and then finally working on the organization.

Michael Rollins

Great. Well, it gives us a lot to dig into today. And as we are getting started, getting into each of these components, we'll throw up our first survey question. So the first one we're going to go with is I'm going to ask our audience participate. Remember, you can use the QR codes, and this is all anonymous.

So do you expect domestic leasing activity to improve over the next 12 to 24 months? And we're excluding the impact from the Sprint merger, just to make it kind of simple to think about. And we'll come back to this question in a moment, but the answers are yes, with opportunities for annual organic domestic revenue growth to expand above 6%, yes to sustain a 5% to 6% range, and no expect annual organic revenue growth to fall below 5%. And by way of background, I think what the normalized number for this year is about 6% of guidance at the midpoint.

Steve Vondran

At the midpoint of the guidance, it's around that, yes.

Michael Rollins

Great. So we are going to come back to this as we get the responses in and just encourage everyone to participate. So just one more question sort of big picture. So the management team has been talking about focusing more on developed markets and this has been not just a recent decision, but something that's been maybe more deliberate over a longer period of time. Can you talk about what's driving the interest to focus more on the developed markets and what that should mean for shareholders?

Steve Vondran

Sure. So I'll just give you a couple of data points in terms of how that investment existed to pay over the past few years. We have invested about $25 billion over the last four years and that's been in the US and Europe. It is been the toughest deal we did in Europe, the CoreSite acquisition in the US plus InSite, and a couple of smaller acquisitions in the US as well. And we haven't done an emerging market M&A transaction during the kind of same timeframe.

And at the same time, our internal CapEx investments in developing sites has gone down from roughly 70% of that in 2021 was in emerging markets and that's down to roughly 40% this year. So when we talk about directing our investment toward developed markets, this isn't a new thing. I think we're just probably being a little more explicit about what we've been doing and what we plan to do going forward. And what's underlying that is just making sure that we are creating the most long-term shareholder value.

And so, if you think about our international investment thesis when we first decided to expand outside the US, we had a couple of components to that. The first component was that you can export our operating model and our operating capability across the globe and you get operational synergies because we consider ourselves to be a very good operator and able to tackle types of operational challenges you see when you go globally. And part of that component as well was that the demand drivers in those emerging markets would drive a lot of organic growth on the assets there because they are a little bit further behind on the technology curve. And so, there's a lot of opportunity for sales in those markets.

The second major part of the thesis was that in doing so, we could elongate our growth curve and enhance our growth curve. And what I'm happy to say is the first two have held true, absolutely. We've got a lot of operational synergies. I’ll tell you, I believe that we are the best operator in every geography we're in, and that's because we're American Tower and we know how to do this, and we've taken the know-how across the globe. And that gives us best-in-class margins. We can need to command a premium on pricing on some occasions. That is held true. The demand drivers have also held true.

If you look at mobile data growth in the emerging markets, it's as high or higher than it is in the developed markets. And if you get to an economy like Africa, mobile banking, mobile healthcare, and their necessities for their way of life. So that demand is going to continue in those markets. The second big component that's going to along in our growth curve has proven a little bit more challenging because the macroeconomic headwinds that you see in the global economy have affected those markets more than ours. And it is really -- the headwinds have come in two flavors. The first is carrier consolidation. And we certainly saw that play out in India. We had some pretty dramatic consolidation there. And we've also had some FX headwinds as we've seen some currencies devalue.

So as we've looked at the performance in those emerging markets, we have looked at that and said, there are two things we need to do. The first is we need to increase our hurdle rates because while we underwrote a degree of FX headwinds in there, quite frankly in the past couple of years, it is outpaced what we underwrote on that. And so, we've raised the hurdle rates there. And we've also said that we want to decrease the overall company exposure to that type of risk.

And so, what we said on our last call is that pro forma for India, about 25% of our AFFO per share will come from emerging markets. And as we have continued to direct more capital toward developed markets -- as we continue to do that, you should see that come down over time. And we think that is appropriate to bring that number lower over time. So that's really what's driven a little bit of the change in investment philosophy.

Number one, we can't source as many deals because returns have to be higher. And number two, we do want to decrease our investments relative to what we have in the past so that we have lower exposure to those economies given some of the headwinds you've seen.

Michael Rollins

Very helpful. And maybe we will shift gears to talk about the domestic power business and the leasing opportunity, obviously your biggest exposure in developed markets. Can you unpack the reasons that American Tower seems to be seeing better leasing activity than your competitors? And I realize it is a hard question because there's a part of a comparison in there, but what are you seeing that is benefiting American Tower?

Steve Vondran

Well, I can't talk about my competitors. I don't know what they are seeing. I'll tell you, I think I have the best assets and the best team in the industry. So I would give me more business too. But I think if you look at what we're seeing in the environment here, it is very consistent with what the carriers are saying. We said in Q1 is that our application volumes in Q1 were up 70% sequentially over Q4. That was a low base, but that's a pretty big ramp.

And we had another sequential increase in Q2 and we are expecting to see similar levels of business in Q3 and Q4. And that allowed us to reaffirm our services guide. Our services is hard to predict. So I will tell you it's – there is variability in it. But that guide is based on the conversations we have with Boots-on-the-Ground at the carriers what they are going to deploy. And if you look at what the carriers themselves are saying, Verizon specifically said they are going to take their mid-band 5G coverage up to about 70% by the end of the year. That implies a ramp-up in activity by them. Some of the other carriers have talked about other initiatives such as Joined the one OEM. There is a level of activity employed with that as well.

So we don't think that what we are seeing and saying is different from what we're hearing from our carrier customers. And if you look at the kind of midpoint of CapEx guidance from the carriers, I think they're in the kind of the $34 billion to $36 billion range and that's right in-line with what we thought the average CapEx would be during the 5G cycle, about $35 billion a year. And that is about $5 billion a year more than we saw in the 4G cycle.

So what we are seeing on the ground and what we're talking about in our results, we think is very consistent with what the carriers are saying. We think that it is right in-line with the guidance we gave at the beginning of the year in terms of our services and it's also in-line with what we thought was going to happen in the cycle.

Michael Rollins

Let's see our survey results and see what our audience expects. So 25% expand -- the annual organic domestic revenue growth rate to expand above 6%; 50% sustained 5% to 6% range, and 25% of the audience expects the annual organic domestic revenue growth to fall below 5%. Based on the activity levels that you are seeing, how do you frame the future opportunities to grow organic leasing revenues?

Steve Vondran

That's a very clever way to try to get me to give '25 guidance early. It's a little too early to give guidance for 2025. And what I’d remind everyone is that activity and property leasing revenue is a little bit disconnected with American Tower because of our comprehensive agreements. And what we've been very public about is we have two of the big three-plus DISH that our comprehensive agreements. And what those agreements do is they smooth out some of the variability is in terms of leasing that come with the activity levels in that.

So you can't read much across from the activity levels to that component of it. We do have one carrier that's not in a comprehensive agreement today. And so there is some variability in terms of the timing in which we will see the rent from them. Yeah, we feel very comfortable that we'll get kind of the same amount over a period of time. It just may be a little bit choppier. You may have a little bit more variability quarter-by-quarter than you normally would. But what we are seeing again is very consistent with what we thought -- what happened in the 5G cycle. And when we put our long-term guide, we had a certain level of activity we expected to see.

Some of it was locked in the conference agreement. Some of it was not. We knew that was going to be there and it anticipates the type of activities that our customers need to do to meet the growing mobile demand. And that is a combination of amendments to roll out 5G mid-band ubiquitously and also to densify the networks to meet demand as uptake on the network requirements do.

Michael Rollins

So for the customers that have these comprehensive deals, do you see times where they are going to spend more with you than what they commit to? And what should we be watching to see if that could be a possibility for you in the future?

Steve Vondran

So every agreement is a little bit different. So some of them just cover amendments, some cover new amendments, and some level of incremental new sites. So they are all a little bit different. And the way to think about it is, if a carrier -- we never just give all you can -- you can do everything you want on our network. So there is an anticipated activity level that comes with those agreements. And if the carrier goes beyond what we anticipated, then there could be some upside from that.

In terms of what to watch, when we see those upsides, we'll tell you. So we'll be very transparent about that. But in terms of what's underwriting those existing guides, can I give you some of the components of that, so you can see the demand drivers? So when we put that guide out, we were looking at this 5G cycle. And we have got some really smart folks on my team who -- you know what frequencies are going to be available during the relevant timeframe, you know what equipment is going to be available to be deployed, you know that mobile demand is going to increase 20% to 30% per year in the US.

And so, you can take that and then look back at 3G and 4G and figure out where that activity is going to occur. And that's how we create our kind of demand model. And when we do that, we look over that multi-year period of time and say, on average to meet the consumer demand, here is what they need to deploy. And that's how we constructed that. What's not in there is a 5G killer app that makes demand spike up more than 20% to 30%.

We don't have independent fixed wireless network installations in there. And we're not seeing that today. The carriers we are using existing network assets to do fixed wireless. But if that was a new use case, that could be incremental on that. We are not predicting a new carrier. So we're not predicting the cable codes or a cloud provider or someone else comes in. So that's not out there. And with DISH, we've underwritten only what's contractually committed in our comprehensive agreement. So if they've got a new customer and wanted to expand their network beyond what we anticipated or need to provide more bandwidth than we thought, that could be an upside as well.

Michael Rollins

And in terms of one of the recent trends that we've noticed is that churn has fallen to below 1% in the domestic segment if you take out that Sprint merger-related churn. What's happening to push churn to kind of below the longer-term ranges that the company previously indicated? And is this a sticky place that could also help that organic growth potentials?

Steve Vondran

So if you look at our historical churn percentage, it is been kind of 1% to 2%. And I think what we've been pretty public about is we expect that to trend to the lower end of that range as we get through some of the churn that we've had in the past and spread churn. And I think one of the things driving that is you don't have the regional carriers that have consolidated the way we did in the past. So you don't have a cricket or a metro BCS and those types of things.

Now some things that we are watching, we have US and Mobility out there. And while our overall exposure to them is pretty modest, it is less than 1% of US revenues, less than 0.5% global. Those agreements are set to renew over the next couple of years. Our average remaining terms about two years on those. So the extent of that merger gets approved and depending on how they integrate the network, there could be some elevated churn from that.

So that is one thing to watch. But overall, when you look at the rest of the ecosystem, there just aren't as many consolidations in the industry that are happening out there and that's what was driving a lot of the years where you saw that churn ticking up closer to 2%.

Michael Rollins

Let me introduce our next survey question. And so, the next one here is -- and this is some of the investor feedback that we've received has kind of raised this question of -- for our audience. Do you view American Tower as, I guess the terminology that I've heard from the buy-side is a bond proxy with share performance primarily influenced by the level of treasury rates in the market. So we are going to go to our audience, see what they think. Steve, look forward to getting your view on this as well in a moment. But maybe just finishing up the domestic conversation, so what's the potential for American Tower to get this last carrier, not on a comprehensive on a new one whereby, then you have even greater visibility across all of your customers? And can you give us an update on your exposure to DISH?

Steve Vondran

So we are always talking to all of our customers even way before something expires, they doesn't draw the contract before you start talking about new things with the customer. And we are very comfortable operating either in or outside of a comprehensive agreement. In fact, there have only been a couple of years in the last decade where we had all the carriers under a comprehensive agreement.

And what happens when you're not in a comprehensive agreement is usually there is a mismatch between what we think they're going to do and what they don't. I think all things being equal, the operational efficiencies we both get out of it, the visibility that we get into revenue, they get into expense, yeah. I think it's safe to say, we all like those aspects of it. So typically, you know when we are not in a comprehensive agreement, it's just because we don't agree on what the future holds. And we're very confident.

I've got a really good team who's good at putting together that same type of forecast I talked about for the five-year guide. We do the same thing on an individual customer basis. And so, we know what we think we are going to do over a time period. And we don't sign these agreements to discount to get into those agreements. We sign them for the operational efficiency, the customer friendliness of them, et cetera. And so we're perfectly happy to be patient and wait.

So in terms of the prospects of that, you've seen us go into periods with customer where we didn't have one and those expectations aligned and we got into one. You've seen that not happen sometimes, and I can't predict it. So we'll see how it plays out.

Michael Rollins

Let's go to our audience and see the results of our survey. So 40%, yes. They view AMT as a bond proxy and 60% no. What is your view on how American Tower views its own company in terms of the influence of rates?

Steve Vondran

Well, rates are the only factor I'm working too hard. I'll say that. I think that there is a lot to be gained in terms of running the business really well. But clearly rates do have an impact on it. I would mention in case anyone missed this, we did get an upgrade in our debt ratings recently. So we are happy about that. And we're a REIT, and REITs do have some correlation to the bond market. So I can understand why people think that way. But I will assure you, we work really hard to make sure that our performance commands a premium over what you are seeing in the bond market by making sure that we are. Again, my teams have tired of hearing me say this, you might get tired of too, maximizing organic growth and minimizing costs. And that's going to be a focus as long as I'm in that share.

Michael Rollins

And you mentioned the upgrade. So is there any evolution in your view will kind of skip ahead on just the capital allocation side since you mentioned it? Does that influence where you see target leverage for the company? Or how you would approach shareholder returns?

Steve Vondran

I think I don't think the changes anything in terms of our view of what our priorities are and how we are planning the business. It is certainly nice to get -- to get the recognition that the work that we've been putting into the business, in particular focusing on quality of earnings. You've heard Rod talk about it and you heard me mention it. And when we talk about decreasing our exposure to emerging markets, part of that is increasing the quality of earnings. And we do think that justifies a better debt rating and frankly, a higher multiple on the company as a whole.

And so that -- we think that the upgrade that we got was a recognition that by divesting the market in India, by focusing on de-levering, by focusing our CapEx in developed markets, but that improves the quality of earnings and makes us a more reliable partner and worthy of a premium. And I’d argue it's both on the debt and the equity side.

Michael Rollins

Right. And that actually just brings us to our last survey question. And we get this question from investors. So I thought it would be helpful to ask our audience this question of should American Tower simplify its asset mix? And the choices we are offering are no. The current asset mix should generate the best long-term value for shareholders. Yes, divest international assets become a domestic-only tower and data center provider. Yes, become a domestic-only tower provider, divest all other assets, or yes, divest data center assets and just become a global tower operator.

So we'll see what our audience thinks of this, but maybe we can just start talking about discussing some of these segments. So what have you learned maybe migrating over to data centers for a moment of owning CoreSite? And how do you view this platform expanding over time?

Steve Vondran

Look, we are really excited about the performance of CoreSite. And again, I'll kind of remind everyone of the investment thesis there. So we believe that over time, there will be a convergence between wireless and wireline networks. And we didn't buy CoreSite to buy a data center company. We bought CoreSite for the interconnection ecosystem that they have there because as we start thinking about what that convergence looks like over time, it is critically important that if you do start putting compute toward the edge of the networks, it has to connect back to all the other users.

And to do that, you have to land it in an interconnection ecosystem. And if you are just dropping a cabinet and running a fiber back to a data center, there is some value there, but the cross-connect environment is where the real value is created. And so, what we saw the opportunity is that if we want to be a major player in the edge when it unfolds eventually, which it is not here today, but when it does, we need to control the interconnection ecosystem.

That was the strategic thesis for why it made sense. But the business we bought was a fantastic business and we knew that. So we didn't underwrite any of that edge revenue in the underwriting. We looked at CoreSite and said, we can create more value in the current asset, operating it and changing a little bit of the investment thesis they have in terms of providing a little bit more capital.

And we've also got the benefits of having a robust demand environment there that's really more than what we thought when we originally bought it. So when I look at that acquisition, it is performing extraordinarily well. We've had the opportunity to increase prices, which has helped us actually underwrite higher yields than what they were writing previously. And that's let us invest capital in the US in a way that's going to create mid-teens yields, stabilized yields once you kind of fully lease up the facility to a stabilization rate. We think it is a great use of capital.

So we are excited about the way the business is performing itself today. And we also believe that this long-term thesis will play out. But in the meantime, we have a great asset that's growing really well.

Michael Rollins

It kind of brings us to another question that we are asking a lot of the companies here this week. How can the emergence of GenAI help revenue, as well as cost for American Tower? And which is the greater opportunity between these two for value-creation for American Tower?

Steve Vondran

Well, clearly the revenue side, I think is going to be the biggest opportunity, and I'll tackle it from both the data center perspective and also the tower perspective. It is creating opportunities today in the data center world and that's coming in a couple of flavors. Now we're not the right environment for large learning models. That's going to be a hyperscale campus somewhere else. That's not our business. We are an interconnection hub. But the way we all interact with that large learning model is through what they call the inferencing layer. If you need a distribution channel for that and, of course that's a perfect place for that.

So we do see interest in that. We are writing some business for the inferencing layer. We are being very selective on that because there is a lot of AI companies bringing up and we're not going to take counterparty risk where we don't have to. So we are not doing that. But we are seeing demand there and it's driving up prices in the ecosystem in the markets as well. But the other area of demand that we're seeing from generative AI is kind of tied to our bread-and-butter business, which is hybrid cloud deployments by enterprises because as enterprises want to take advantage of these large learning models, they don't want to put their data out in a kind of a public environment.

So they are creating their own large learning models connected to a cloud to unwrap. And again, we're the perfect place to do that. So we are seeing the enterprise customers that have been our bread and butter for a long time, expanding some of their installations to take advantage of AI as well. Now flip to the tower side. You are starting to hear, talk about putting AI on the phones and using the networks for it. I think it is too early to tell exactly how that's going to play out.

The way -- you know, at least the way I use my phone today, if I'm using ChatGPT, it's either text or a photo probably just playing out the photos saying, make me look like Arnold Schwarzenegger or something. But in the future, I think you will see video applications there are being done mobile.

And that's where the real demand is going to come on the wireless network. And just like when social media when it was just text or still photograph, it wasn't -- it was some uptake, but it wasn't a huge demand of the networks. But when you went to video, things like Facebook Live and TikTok, things like that, that is the hockey stick of demand that we've seen for a decade now. And when you look at AI, when you start seeing things like video applications, that's when you're going to see a lot more demand on the wireless networks. There is some other stuff like facial recognition, you know that requires low-latency, kind of high bandwidth streaming, things like that. Those types of applications as well are going to put demand on the network. So I think it is too early to tell exactly when that happens, but I think you'll clearly see the video applications coming out.

Michael Rollins

And can you give us an update on what's happening with India right now in terms of timing to potentially close the transaction as well as do you have a view now of where the monetization is ultimately going to end up when you tally up all the parts to it?

Steve Vondran

Sure. So we received approval from The Competition Commission in India and that was the regulatory hurdle that we needed to achieve to close it. So now it is just working through customary closing conditions like any deal, the lawyers have to spend through that. And so, we are very confident in our ability to close it by the end of the year as we stated previously. And we probably won't get any more specific than that until it actually closes and we'll give you guys a disclosure than when it happens, also includes some financials that give you a little bit more visibility and kind of some pro formas on that.

So in terms of the proceeds for, I will just kind of remind everyone that the total value that we expected to get was about $2.5 billion. That comes in a couple of flavors. There is an enterprise value of about $2.1 billion, then there was the optionally convertible debentures, OCD that we had, which we have now converted and sold. And there were some receivables we retain the rights to and then there is also a ticking fee in the agreement.

And at this point, we have exercised and sold the OCDs and we've repatriated about $325 million of cash out of that. There is another $20 million-ish there that we should repatriate this quarter. And so, then when you think about that, then the proceeds of closing should be another, call it, $2.1 billion to get us to the $2.5 billion.

Michael Rollins

Very helpful. And maybe taking a step back across the broader international arena, FX has been something you have been dealing with since you broadened outside of the US. And I think in a recent discussion, you were describing how you're moving towards CPI escalators in a number of markets. Where are you on that front in terms of -- in the international arena trying to reduce the FX risk? And if you look back historically, is that a very effective way to manage that currency risk?

Steve Vondran

Sure. So imagine a couple of ways. So CPI linked escalators have been something that we've done in every market except for India and then in France. We have a fixed escalator in France. But even in our deal, it's a seat escalator, no ceilings, no floors. That's important for us in all those markets. But that's not the only way we manage it. We also have a large portion of our cost based pass-through in those markets.

So if you think about Africa, power is really the major cost piece and we pass that through and that's, call it, 75% of our cost base in Africa. In Latin America, land is our biggest cost base and that's again in that kind of 70-ish range of expenses. We passed that through as well. So you get a little bit of a natural hedge on that because you are passing through your cost base on it. We've also used some dollar pegging mechanisms.

A market like Nigeria, where we have a component of the rent that's pegged to the dollar. So we have used a number of different mechanisms there. And in terms of kind of going forward, we view CPI-linked escalators as table stakes in the emerging market or any international market, not just emerging markets in terms of how we would look at that.

We haven't historically used derivatives to hedge. It is something we look at -- we've talked about it. It's just – it is complicated. It doesn't always make sense to do that. But we've also used local borrowing in a place like Europe where we borrowed -- we've got some borrowings in euros that helps hedge any currency risks there as well.

Michael Rollins

And just thinking about this international arena, maybe you could just take us around the world briefly and give us a fundamental update. So the regions and markets that are performing well and you're seeing maybe accelerating trends and maybe those where things may not be where you want it for whatever reason you can share with us.

Steve Vondran

Sure. So I'll start in Europe. So Europe is doing very well. We're seeing an uptick in new business there as well. And so, if you look at kind of our guidance, we've been ramping that up a bit. And it's a combination of two things. One is that our customers continue to build as we're seeing some amendment activity there. It is also an increase in our operational capabilities in a place like Germany where quite frankly, it was pretty hard to deploy sites at first. And we've gotten better at that. We parachute our teams across the globe. And it kind of fixed some of the challenges there.

And we are also building more sites in Europe. So we are expecting to build about 500 this year, that's up from about 400 last year. So Europe is performing very well. In Africa, on the demand side, we are seeing a lot of lease up. So from a sales perspective, it's very healthy. We're seeing a lot of activity by our customers there, a lot of new leases and a lot of amendments. We did modify an agreement, you might have seen an announcement by MTN, where we had an agreement before that was going to supported by about 2,500 sites. That's down to about 2,100. But it's a higher percentage of those are going to be co-locations now versus new sites.

So that is very much in-line with our goal of going a little bit capital-light in those markets and focusing on the organic growth. So that's a good opportunity for us. But on the demand side, Africa is doing really well. The challenge in Africa has really been FX and some of the devaluation in Nigeria and other markets there. That is been the challenge.

Latin America, growth is a little bit more muted and that's predominantly because of a couple of factors. The first is, they have been a little bit slower to roll out 5G. In Mexico, 5G spectrum has not gotten into the hands of the carriers as quickly as we would like to have seen it. In Brazil, there's some 5G rollouts going on, but the major carriers in Brazil are busy integrating Oi. And the three main carriers there bought Oi's assets. And as they're integrating those assets, they're not as focused on building because they are still trying to optimize their network.

And then we are seeing churn in Latin America because of the Oi transaction as well. And that comes in a couple of flavors. Oi is both the wireline and a wireless company. On the wireless side, we're seeing some churn this year. We expect some additional churn that will bleed over the next couple of years on the wireline side. There is a traditional process similar to a bankruptcy and we did see some churn this year and we modified our agreement with them and it expires in 2027. So when you look at Latin America, we are expecting our growth in Latin America to be pretty muted and being in the low-single digits for the next several years because of that.

Having said that, the dynamics in that market are still the same as they are anywhere else. Mobile data usage is going up 20% to 30% a year, the networks are getting strained, they need to invest in their networks. And so, what we are expecting to see is when we get through this period of consolidation churn that you'll have fewer carriers, but they are going to be more financially stable, you have increasing demand by the consumer. So we think we are going to see that return to a healthy level of growth once we get through that. But today, it is more muted in Latin America and we already talked about the US and how well things are going here.

Michael Rollins

Good. Are you ready to see the results to our survey?

Steve Vondran

Sure.

Michael Rollins

Okay. So the question is, should American Tower further simplify its asset mix? 14% no, the current asset mix to generate the best long-term value for shareholders, 57% divest international, and become a domestic only tower and data center provider; zero for yes, become a domestic-only tower provider and divest all other assets; and 29% divest data center assets and become a global tower provider. So a range of perspectives. You have been at the company a long time, a key part of the strategy, leading the company now. How do you look at the asset mix? And what can create the most value for shareholders?

Steve Vondran

Look, I'll just reiterate what I said on our last earnings call. And that is that we are looking at our global portfolio where we sit today, and we are trying to figure out what creates the most long-term shareholder value with each segment that way. And so as we look at those various segments, we're looking at the performance we see today, the types of improvements we can make, things like margin expansion, cost control, things like that, what the alternatives would be.

What I would tell everyone is that the Board and our management team are always looking at all the alternatives. And those strategic options that are out there is something we talk about regularly. And so the decisions that we make are geared toward that long-term shareholder value creation and we'll continue to do that. So as I look at the portfolio today, I think there's a lot of opportunity for us to continue to improve the things that aren't performing as well as we'd like to see and that we can maximize the ones that are performing well as well.

So that's kind of what we're focused on today. But we'll continue to evaluate the portfolio, and if we ever think it's going to create more value to do something different, we will.

Michael Rollins

When you take your 2024 guidance at the midpoints, is there a way to unpack that to just, if you kind of look past the Sprint churn, look past some of the rates that you have had to absorb, and then the divestitures, the de-leveraging? Is there a way to unpack what that underlying AFFO per share growth is? And then the follow up to that would be, does that -- should that inform us of the type of growth American Tower can achieve in the future?

Steve Vondran

Yeah. We haven't been explicit about putting a number on that, but what we have tried to do is in our supplemental provide enough information that you guys can put kind of your own calculations on that. So we think we kind of give you the piece parts, but we haven't really put a number out there yet that gives you a specific number on that.

Michael Rollins

Do you still believe that International should grow faster on average than domestic?

Steve Vondran

Once we -- so let me start with the growth algorithm and I'll answer as part of that. So if you think about our long-term growth algorithm, so what we believe is our developed markets should grow mid-single-digits. So that's the US, Canada and Europe. That once we get through the care consolidation churn in the emerging markets that we're seeing today, they should grow a couple of 100 basis points faster. So yeah, the answer is yes. Over time, they should grow faster. Today given the carrier consolidation churn we are seeing, they may not grow faster, at least not consistently as we get through that churn.

And then CoreSite, we expect to grow upper-single or lower double-digits as well. And then you add into that the additional revenue we can generate from our CapEx program by investing in new assets, again predominantly in developed markets. And you couple that with cost controls and an expanding gross margin. And we think that's a recipe to see mid to upper single-digit growth, even absorbing some of the headwinds that you have to factor in like refinancing costs. There will be some headwinds there.

We've put our -- in our supplemental, we've put our debt stack out. You can see the maturities and the rates and make your own decisions about what the refinancing costs would be lower since we got an upgrade, but there will still be some refinancing costs and then make some FX assumptions on that as well.

Michael Rollins

And within that context, talking about capital allocation earlier, as you look at getting to this debt leverage target of five times or below, is there a significant opportunity to ramp that development program as you look out over the next couple of years?

Steve Vondran

There is. And the way we will look at it when we get to the 5 O is that opens up the realm of possibilities on where that next dollar of capital goes. And the way we will evaluate that is we'll look at share buybacks, incremental development CapEx in our current programs, M&A, further de-levering or raising the dividend. And the way we're going to make that decision, it's going to be a math-based approach and we are going to figure out what gives us the greatest long-term shareholder return based on all the variables that goes into that. And that's really how we think about capital allocation going forward is that long-term -- look, I'm a big shareholder. I care what happens long-term on the stock price. So that's how we're going to make those decisions. That's what creates the most value for all of you guys over time.

Michael Rollins

Steve, thank you so much.

Steve Vondran

Thanks.

Michael Rollins

Thanks.