American Tower Corporation (NYSE:AMT) Bank of America 2024 Global Real Estate Conference September 10, 2024 1:30 PM ET

Company Participants

Adam Smith - Senior Vice President, Corporate Finance and Investor Relations

Conference Call Participants

Dave Barden - Bank of America

Dave Barden

All right. Welcome everybody. Thank you for joining. I'm Dave Barden. I head up communications, infrastructure and telecommunications research for the U.S. and Canada for Bank of America. I'm kind of moonlighting here at Jeff's Global Real Estate Conference. But I do have the pleasure of being here with, with Adam Smith, who heads up Investor Relations and other finance duties at American Tower. Adam, thank you so much for joining.

Adam Smith

Yeah, great being here.

Dave Barden

Do you have any safe harbor that you need to rattle off?

Adam Smith

No, I don't think so. I think we get right into it.

Dave Barden

Perfect. So I want to start off by congratulating Texas Christian University and the Horned Frogs for their overwhelming underdog victory against Long Island University. 45 to nothing. How did it happen?

Adam Smith

Yeah, I can go into this in depth. But we are tied right now for the best record in college football at 2 and 0.

Dave Barden

With Wisconsin. Okay. This is a long time rivalry here.

Question-and-Answer Session

Q - Dave Barden

So I guess what I'd like to do is to, Jeff is asking us to ask all the companies, a few questions about the general kind of demand environment around real estate. And I know American Tower is not your typical real estate company, but, so I'll try to couch this question. Do you think that sector M&A will grow when the Fed cuts? Yes or no?

Adam Smith

Yes.

Dave Barden

Do you think that that would happen in the second half of this year or the first half of next year, or maybe the second half of next year?

Adam Smith

I don't know. I guess from where I sit today, sometime next year.

Dave Barden

Okay. Would you say that demand for tower space is increasing, steady or decreasing?

Adam Smith

I think this year we've seen it increasing for us 2024 versus 2023. And what I would say, and I think we'll obviously take a double click into this is, based on the conversations we're having with our customers, I think there's a very constructive dialogue that gets us pretty enthused as we look ahead towards the densification phase.

Dave Barden

And then last year the majority of companies said that they expected a ramp-up in their AI initiatives in 2024. How would you characterize your plans and your outlook?

Adam Smith

I'm trying to work myself out of the business, so I think they will just put a machine in to replicate me at some point. But -- no, I mean, American Tower's been ahead of the game on that for a while. I mean, not just AI recently, but we've actually been investing pretty significantly over the last five plus years in terms of data quality, digital twinning. I think quite honestly, it's given us a bit of a differentiated value proposition back to the customers that's been really appreciated.

We will look to expand that and enhance it. I mean, we have a lot of different offerings that solve for a lot of complex solutions for our customers, whether it's power in Africa, backup power here in the U.S., but also utilizing data to create a best-in-class experience for our customers on the leasing side. I think there's a lot more still to be done, but it's an area we're definitely focused on.

Dave Barden

I think that's interesting, because I think a lot of people think about the tower business and one of its strengths as being its simplicity. But when you dig in, you realize how not simple being a tower company is all the contracts, all the data points, all the elements of the SLAs and the agreements that you have. I mean, there's a gigantic data lake inside these companies that I imagine, could lends itself to an idea of being automated and greater efficiency.

Adam Smith

I'm not just saying this as we come up on comp season, but Steve Vondran is the IP of American Tower. I've been saying that for a long time. And Steve's been with the company for 25 years. I'd challenge anybody to find somebody that knows how to extract value from a tower better than Steve Vondran.

And when we talk about growth for the tower business and specifically for American Tower, I think when you look at our new business on a per site basis, you see pretty attractive growth for a sustained period of time. You also see growth when you go from 4G incrementally to 5G, probably about a 10% increase on average.

And it's not so much just about the contracts that we've signed over the last four or five years. It's also the contracts that we signed 10 years ago and 15 years ago and 20 years ago, and making sure that we have flexibility to monetize on every incremental generation of investments.

And it's -- I get the question a lot, we're under comprehensive agreements with two of the big three. What's going on with the third? Are you going to get a deal done? Aren't you at a disadvantage? What's going on, is this a sign of friction?

You need to be extremely careful and clear as to how you think about not just what your exit rate is with these agreements in year 5, 6, 7, 4, whatever the duration of the contract is, making sure you're retaining a set of real estate rights that allows us to monetize when we get to 6G, 7G, 8G, and so on and so forth. And I think that's, we've done an exceptional job of that. I think our U.S. leasing team and Steve have done an exceptional job of that. Yes, it does get complex.

And to adequately evaluate what the opportunity cost is of going a la carte, you need a substantial and comprehensive data set of information. We've invested in drone flights that take millions and millions and millions of pictures of all these different assets.

We've got an extremely cons comprehensive data set that we can draw on to evaluate what on average is the customer equipment across all of our customers on every one of our sites. What are the envelopes? Where is their available space? Where do we think, ultimately, they need to kind of upgrade to adequately propagate 5G or 6G, 7G?

And that all goes into the decision-making. It's not quite as simple as just saying, all right, P times Q, this is what we ultimately want to agree to. You got to make sure you're retaining a set of real estate rights for the long term. And I think that's -- for American Tower, that's the bread and butter.

Dave Barden

So before we jump into the business-business, remind us, there's a debate out there, I think that we all maybe know that whoever wins the presidential election kind of doesn't matter to the tower industry. But what if there is a recession? What if there's hyperinflation? How does the tower sector respond to these types of variances in the economic climate?

Adam Smith

I think admittedly, and what we've seen over the last 3 years, it'd be a bit naive for me to say we're not overly sensitive to the rate environment, right? We do have long-term cash flows. We do have predictable cash flows, and movements, quite honestly, in the interest rate have a material effect on our discount rate that you're discounting those cash flows back to fair value.

As it relates to inflation, we have a set of contract structures globally, and I kind of break it down between the U.S. and that of international. In the U.S., we do have fixed escalators, kind of in that 3% fixed average range, which, honestly, as you can probably imagine, has served us exceptionally well over the last 15 years.

What we saw over the last couple of years was obviously seeing the inflation kind of exceed that of what our fixed escalators are. There isn't like an opportunity at the time to really renegotiate that. And quite honestly, I don't think we get a lot of sympathy from the carriers to come back based on the last decade plus.

And I say there's a lot of flexibility because those are terms that are underwritten in the underlying master lease agreement. The ones that we signed in 2017, '18, '19 that go for 10 to 15 years. So I get the question a lot, would you want to renegotiate to CPI? For us to renegotiate those, you're probably bringing new things to the table to renegotiate to open that up.

And I think over the long term, we still think 3% is a very compelling term and one that we have fought to maintain and one we're going to continue to fight to maintain over the long term. Now in the U.S., we mitigate a lot of that because probably our largest cost element is land rent in our direct expenses. It probably makes up around 65%, 70% of our direct expenses in the U.S., and that also has a fixed 2.5% to 3% escalator term. So we have a pretty good matching mechanism when you get down to the margin in terms of how we counter that term on the top line.

And then internationally, India is certainly an outlier. In India, we did have fixed 2% escalators, kind of a contractual norm in the market. One, to be quite honest, naively, we thought we probably could have changed over time and weren't able to. But those are the type of learnings that very much shaped the focus on executing CPI-linked escalators in other parts of the globe.

And with the exception of France, and there is a piece of Nigeria leases that are pegged to USD that have different types of escalator terms, virtually the remaining international leases are all tied to CPI. So we do have pretty good insulation there.

But getting back to the macroeconomic environment, I do think we've proven to be a bit of a recession-proof type of equity. Connectivity and the importance of connectivity to probably every economic agenda is extremely critical and top of mind. We've done a lot over the last 3 years to further strengthen the balance sheet as well.

We did the CoreSite acquisition in 2021. We've since delevered from about 6.8x, basically at about our 5x target today. We've very much been focused on enhancing our quality of earnings pro forma for India, which hopefully will close here in pretty short order. We'll probably reduce our emerging market exposure probably to around 25% of our unlevered attributable AFFO.

And I think that that commitment to quality of earnings, the durability of earnings and balance sheet strength, I think, has certainly been rewarded. You might have seen we’ve actually -- I know you didn't see it because I read the transcript with Steve. But the S&P upgrade to BBB, Moody's recently extended kind of the tolerance for leverage as well. And I think all of that is a great reflection of the efforts that we've been putting in over the last 3 years, and I think it's being recognized.

Unidentified Analyst

[Indiscernible] I think 5G rollout was slower than [indiscernible]. Can you talk about --

Dave Barden

Can you repeat the question?

Adam Smith

Yes. So the question is kind of, I think, articulating the 5G cycle. How do we kind of view the 5G cycle? And I think the underlying question is really on the fundamental side, has that been a drag on the stock in terms of modernization of 5G on the tower side?

Really for us, 5G is playing out very consistently to what we thought 5 years ago. We always looked at 5G as being a decade-long investment cycle. We always looked at 5G as being 2 peaks of investment. So kind of like a sine wave.

The first peak is going to be coverage focused, carriers rapidly deploying mid-band spectrum, covering their pops. There's going to be a level of grooming. And then as you continue to see strain on the networks, you're going to see a need for densification or what we would kind of call that capacity focused investment.

I think the peak for coverage was 2022. Carriers probably invested around low to mid-$40 billion CapEx in 2022. And if you want to kind of put that in a historical context, they probably averaged around $30 billion in 4G and probably around $25 billion in 3G. So a very material step up.

We benefited. We actually had record levels of organic new business in 2023, probably commenced around $230 million of new business, which is around a little over 5% contribution to our organic growth number. So again, record level. So we were certainly able to monetize.

And again, I get that point back to our contracts and our long-term focus on how we structure contracts with upgrades in mind and being able to monetize on those investment cycles. What we're seeing in the last couple of years, I would tell you, 2023, the pullback in spend was far more abrupt than we anticipated. In the same way, we've gone through cycles where we've had to increase our services expectations, which is kind of a leading indicator for leasing. We had to abruptly pull it back last year.

We went into 2024 with an expectation for a reacceleration in activity. We looked at it through a host of lenses. One, we have pretty good visibility into how the carriers think about their networks because we're indifferent between doing what we call a comprehensive or a holistic agreement versus a la carte. But at the same time, it gives us very good visibility into how the carriers are thinking about their networks over an upgrade cycle. So we knew that there was a high need or expectation to get to kind of that 90%, 95% type of coverage or upgrade on their portfolios.

And I think when we cross-check that to just conversations that we directly had with the field teams, our historical experience, our knowledge based on the strain on the networks, and ultimately what's underwritten in these agreements, we had a pretty good expectation that we'd see a reacceleration here in 2024. And that's played out the way we anticipated. Q1, I think we increased our applications around 70% versus Q4 of last year. We saw another acceleration in Q2. And our expectation is to continue to see acceleration over the course of this year.

This is still really focused on the upgrades. We haven't really gotten to that densification phase. But I would tell you, even those customers that we have comprehensive agreements with, the conversations have become more constructive on the densification side.

And our largest customer is probably on roughly half of our sites, we -- and use that to say there's a lot of capacity for us to utilize our portfolio beyond the existing footprint and play a bigger role either in colocations or, I think, hopefully, we might find it economically attractive to play a part in new builds at some point too over the next several years.

But we're -- we've been a little bit insulated from the ebbs and flows of activity over the last 2 or so years because we have had these comprehensive agreements. Maybe just too level-set with everyone, we have an MLA with everybody. An MLA establishes what's the escalator terms, churn rights. What's the rate card? So how am I going to price any incremental square inch that you're going to upgrade on an existing site?

But then I could elect to do what we call a comprehensive or holistic, usually shorter term, shorter duration because it's focused on a network need at the time. So if a carrier needs to upgrade and go from 0% to 90% over a 5-year period, we kind of price that out. We're not going to leave anything on the table.

They like the speed-to-market advantage. It's administratively easy, enhances the customer experience. We're all for it. But it does give us a very high degree of visibility to what the growth path is going to be. And when you see a little bit of a pullback or acceleration in spend, we have still a high degree of visibility into exactly what that growth is going to be regardless.

So over the last couple of years, we've largely had comprehensives in place with the big 3 plus DISH. One of those agreements rolled off at the end of 2023, so that customer is actually going to a la carte. But we still have a high degree of visibility. And I think if you kind of think about those agreements, focusing on upgrade, we've retained the monetization opportunity when you get to densification when that time comes, which we're enthused about.

Unidentified Analyst

[Indiscernible] dropped off, now it's picked back up. Do you have any visibility into '25, '26, where are we in --

Adam Smith

I think there's still a lot --

Dave Barden

Just to repeat the -- what's the outlook, the rate of growth that we think might happen in 2025, coming out of 2024?

Adam Smith

Yes. So there's still a lot of work to be done just on the upgrade cycle. So I, personally, from where I sit, I don't see the densification taking scale in '25. I think there's green shoots that kind of start to show that acceleration. Internally, we've kind of thought about that second peak, the capacity focus peak, to probably be more '26, '27, '28.

And while the pickup in activity this year, it's not really influencing our leasing revenue because we do have these comprehensive agreements, it's a very positive sign. We saw that abrupt pullback in 2023. And obviously, a lot of questions are, is this a priority for the carriers? Is 5G going to follow the same type of cadence as 4G?

What we're seeing now is I think it continues to reinforce our initial outlook on 5G. I mean maybe there were other reasons for priorities in 2023, but I think we're seeing a reacceleration in that commitment towards what's been consistent in what we've observed in 3G, 4G, and ultimately reinforcing how we thought about 5G.

And so as we look to 2025, we still have a very high degree of contracted visibility into growth even with 1 customer off the comprehensive. We are working through our final tranche of Sprint churn. So we have kind of accelerated the impact of Sprint churn, and that was really underwritten in our T-Mobile MLA executed a few years ago. So we'll do about $70 million of annualized churn in Q4 of this year.

So that will have a year-over-year growth impact, everyone should be aware of that, for 2025. So I kind of think '25 will probably be a relatively similar profile to what we see here in 2024. And I think over time, we'll continue to see a bit of a shift between the upgrade and more into the densification as we get kind of to the later end of that multiyear guide that we put together.

Unidentified Analyst

A follow-up question from me. You mentioned the idea that you -- it wasn't just new contracts new benefit from the upgrade of the old ones as well. And I guess my assumption would be that that's -- every time you touch a tower or put out new equipment, that's how you protect yourself.

I'm just wondering, could you talk about how when you're writing new contracts, kind of set the table for the move to 6G, 7G, 8G how do you protect your those differences? Is it simply every time they touch it and any time they put more equipment on, I guess, [indiscernible] equipment's small, or how does that --

Adam Smith

Yes. Every contract -- okay, I've got to repeat the question. So the question is, how do we kind of maintain the ability to optimize the monetization of our sites through incremental investment cycles?

And every contract is going to be a little bit different. I think one of the things that American Tower has really benefited from is how we've built a portfolio in the U.S. over the last 2 decades. We have largely -- we have 43,000 sites in the U.S. and Canada. A lot of it's come through the form of acquiring developer portfolios, third-party independent portfolios, and then strategically adding in alignment with a customer like Verizon. And we did that portfolio back in 2015.

But it allows us to kind of aggregate a developer third-party type of portfolio that probably comes with a level of monetization in the underlying contracts and then we're able to kind of bring it into the American Tower system, whether we kind of roll it into another MLA with the likes of T-Mobile, AT&T, Verizon.

But one of the critical focus items, and when we sit at the investment committee and review a portfolio, is understanding what are the underlying contracts and what are the real estate rights over the long term. And when you kind of give up those real estate rights -- and granted, you would value those differently. Not to say you can't make money.

You just have to underwrite them differently. And I think one of the frustrating things probably from our seat is, on the investor side, maybe you say, all right, well, that looks like a cheap deal, that looks like an expensive deal why -- that was a low multiple, why did you acquire that?

Unless you really know the underlying terms and conditions, was it a fixed escalator at 1%? Are there no real estate monetization capabilities? Are they restricting colocation and lease-up, right? That's going to be a lower multiple deal versus something that actually you're able to monetize.

But we take a very long-term view. I mean there's probably an opportunity to maximize 2025 growth or 2026 growth, but it can't come at the detriment of giving away real estate rights longer term and prohibiting us from ultimately leveraging our capabilities as an operator, and from a legal perspective. And I think that's a lens that we've taken over the last 15 to 20 years.

And that's probably one of the most critical elements to evaluating whether or not you go a la carte or you go comprehensive with a customer. You need to -- it's not just about what's the exit rate in 5 years to their monthly run rate. It's also, have we maintained a level of optionality and flexibility based on a prospective of what 6G, 7G and 8G.

We don't know exactly what it's going to look like. But that's also why these comprehensive agreements are typically shorter term in nature as well because you want to focus it a little bit more on what's the task at hand.

If an underlying master lease agreement is 10 to 15 years, a comprehensive is usually 3 to 5 years. And that's because both parties want to focus on a task at hand. So if you kind of go back to 2018, 2019, 2020 when we signed a lot of these, we knew mid-band spectrum was going to be rolled out, so there was very much a very tangible what's an upgrade cycle going to look like and do we want to touch 90%, 95% of the sites.

But colocations would largely be outside of it. Neither party really wants to sign up for a use-it-or-lose-it use fee in 2029 associated with the colocation, right? You want to make sure it's kind of focused on what I have visibility into today and maintaining a level of flexibility for the future. Customer A doesn't want to pay for a colocation if they don't see the densification need yet.

In American Tower, we don't necessarily want to give up monetization of a colocation if it means AI to the device is going to drive significant amount of new bandwidth, FWA is kind of a dedicated CapEx deployment for the carriers. These are all things that you want to maintain a level of optionality and flexibility. And it kind of extends not just to the underlying existing contracts, but how we think about monetizing that new wave of leasing as well.

Unidentified Analyst

I guess part of what I'm asking for is, is there a mechanism by which -- discuss philosophically how you approach these in terms of value? But just what are the mechanisms that you --

Adam Smith

Yes. We haven't gotten into the mechanisms, right? I mean, that's something -- and quite honestly, it's going to vary by customer. Every contract is a little bit different. We're very careful not to get into the details of our specific customer contracts. But I mean, it's a very detailed and intensive effort.

I mean even if an agreement expires 2 years from now, you can probably assume we're sitting down with the customer going through that agreement, how are they progressing with their network deployments, what's kind of that anticipated exit rate, and what's their view for new opportunities in the future. And it's constantly evolving. And I mean, at the end of the day, we --

Dave Barden

Maybe in that question, too, I think, is there technology risk that threatens the inherent value of relationship between the tower company and the wireless company?

Adam Smith

Yes. I mean no crystal ball. But I think the reason we want to do shorter duration contracts as it relates to a comprehensive is certainly to retain a level of optionality. I mean I can't tell you is there going to be a new technology 10 years from now that materially changes the footprint on a tower? But from where we sit today, I mean, when you look at a 10- to 15-year contract, I mean, I think it gives us pretty long visibility into the importance of the macro tower and the installations that they have on it.

Dave Barden

And I also think that -- so let's just zoom out a little bit, right? So number one, is there's only 3 ways to create wireless capacity. So if you make an assumption that wireless needs will grow, there's 3 ways to do it. You've got technology, X, Y, Z, you've got the number of cell sites, and you've got the amount of spectrum. And the most efficient way to broadcast wireless spectrum is probably satellite, but the next most efficient way is the tower.

So the economic reality of the situation kind of hinges on this idea that there's rising wireless demand. There's finite ways to address that demand. And towers are the most economic way to address that demand. And you own the largest portfolio of domestic towers worldwide, publicly-traded company. China has probably got something to say about that.

But I think that that's where the inherent real estate value comes from, is that the amount of people, tenants that are going to be wanted within these very finite number of beachfront sites around the country is going to rise.

And so then the question -- another question would be, to what degree do you believe you have defensibility around the fact that there's 125,000 freestanding metal structures in this country, why are there not 250,000? Why aren't there 0.5 million? What's going to happen there?

Adam Smith

I mean, look, I think it's -- I think we kind of look across the landscape and I think there is going to be a need for incremental infrastructure when we get to a densification. I mean I think for us, scale is extremely important. There is a very clear value in terms of having a nationwide portfolio of 43,000 sites getting into the system of long-term comprehensive agreements. And I think just recognizing the disruption that goes along with actively moving antennas within a network.

And I think you cross-check that up against the network needs that the carriers are working through today. And I think historically, like -- obviously, there's a cost for anything, like I think if lease rates get wildly spread and there's a delta like there's obviously a breakeven cost to moving.

But between zoning, permitting and the regulations that you have in the U.S., and cross-check that up against I think the level of service that American Tower gives our customers, I think we routinely get very high grades in terms of the eyes of the customer as well as you can kind of get on a landlord-tenant relationship, there's always some healthy tension there. But we very much pride ourselves.

I think what we've invested as a company into our operational capabilities also provides a level of stickiness in terms of operating with American Tower as well. But obviously, there's a competitive moat when you think about the stickiness of a network, the disruption of a network to really augment the RF design and try to move it.

Obviously, there's a degree to which -- I'm sure there's a price at which it becomes economically unattractive. But I think having nationwide scale in a leading portfolio of assets, I think, gives you a lot of optionality to kind of solve those type of disruptions longer term.

Unidentified Analyst

Just a quick question on the fiber transactions recently between Verizon and others. Any thoughts about how that -- why they're doing these fiber transactions and fixed wireless and impact on tower?

Adam Smith

Yes. So the question is weighing in on the Verizon acquisition, and maybe more broadly, fiber in general among the carriers, and kind of the importance and the implications on towers.

I'll leave it to Verizon and others to kind of talk about the strategic importance. I mean I think for us, convergence represents an expanding playing field for infrastructure, I think, across certainly the U.S. And our long-term guide certainly doesn't consider any sort of emergence of cable. And quite honestly, it doesn't really consider any emergence of fixed wireless either.

I think we certainly observe the deployments that the carriers have done to date. And I think it's where typically you see a level of fallow spectrum. So I can't sit here and tell you that there's an inflection in our growth associated with FWA. Most of that is probably covered within the comprehensive agreements that we have today because they're existing installations.

I think the big question for us is, is it economically viable to begin dedicating capital intensification to monetize FWA? And I think the carriers have put out probably collective targets of 11 million to 13 million subscribers in 2025.

And I think from where we sit, we kind of think that can be accommodated with the spectrum that's available today. I think from where we sit, we'll be paying close attention to any revisions to those targets longer term. But certainly, we hope it could be one of many catalysts that ultimately could drive a level of densification over the long term.

So I think it's always a positive when you see a level, I think, of convergence and new opportunities for other players to maybe play in the backyard of others, and whether or not distributed infrastructure, 43,000 points of presence could be attractive to an operator. So I think we're kind of in wait-and-see there.

And I think as it relates to our long-term expectations, we've kind of been in wait-and-see mode on FWA in general. I think we're cautiously optimistic, but we'll be waiting to kind of understand how the targets kind of evolve among the carriers. We'll leave it to them.

Dave Barden

And I would maybe just throw out there that Sampath, the CEO of Verizon Wireless Consumer, last week at our conference, highlighted that when they have a fiber connection, the wireless churn is about half what it would not -- what it would be without the fiber connection, which I think, if the question is, does this newfound interest in fiber distract the wireless players, for instance, from spending on the mobile networks, or -- I think the answer is no.

I think what the interest in doing this is to make the wireless business more valuable and it accrues more value to the mobile, which gives them more resources to invest in the mobile business. And I think that that's really what the impetus of that is. It's not a distraction from the mobile business. It's actually part of being interested in being a successful mobile operator.

And what's interesting about that is that the more fiber that we put out there, does that put more pressure on the cable industry to maybe take this idea of building out their mobile networks from an owner's economic standpoint more seriously? They have not really taken it very seriously. But that's potentially super interesting.

We only have 3 minutes left. What do you want to talk about? So I think maybe just while we wrap up, real quick with American Tower's pitch on the data center business. Because we're going to be talking to the data center companies later. We'd love to hear your perspective on how business is going, what is the opportunity? And how much of your resources now that you're reaching your leverage target are you prepared to commit incrementally to the data center business?

Adam Smith

Yes. So CoreSite has been performing exceptionally well since we acquired it at the end of 2021. I would just remind everybody the rationale for CoreSite. It's not a diversification play for American Tower. I think if you followed AMT for the last 5-plus years, and this precedes Steve, it goes back to Tom. It actually goes back to Jim Taiclet, kind of this thought of how can we utilize our distributed points of presence to play a larger role in a 5G ecosystem.

And one of the clear opportunities in our mind, as we continue to see latency sensitive use cases and applications evolve, would be this idea of the mobile edge. We own the land under -- or have perpetual leasements under 35% of our sites. We largely have fiber. We largely have adequate power. We have distributed points of presence. And it's always kind of appeared to be a natural synergistic opportunity for AMT.

We did a couple of, call it, pilots preceding CoreSite. And I think what it really kind of told us is, if you can't solve for interconnection, you really don't have much of a value per opposition. It's kind of like owning a piece of property along the highway and just hoping a tower lines up there someday.

So if you go read the tender offer documents from CoreSite, you can see that actually our relationship started with us talking about partnership. And you can assume we had a lot of those types of conversations. But I would really highlight not all data center companies would have made sense for us. It really does require an interconnection hub like CoreSite that kind of has that campus hub-and-spoke model that we can really kind of extend out to the distributed points' presence.

We underwrote it on a stand-alone basis. We thought it was largely underfunded. So giving them a level of financial flexibility was certainly an upside. But what we've seen to date is really phenomenal new leasing across the business. We had record sales in 2022. Broke that record again in 2023. And I think we're on a great track here in 2024.

We've largely raised the capital we're putting towards it. I think we probably underwrote around $200 million to $300 million of annual capital when we did the deal. We probably raised that up to north of $500 million. And I would probably anticipate that will kind of stay elevated in the next couple of years. But it's really success based.

And I think an interconnection hub like CoreSite is it's playing a really valuable role in terms of performance and latency-sensitive applications today. But I think as we get into an AI environment, I don't think the language -- large language models today necessarily fit. They're putting a lot of strain on the overall ecosystem. But I think when you start to get to AI inferencing, that could certainly be either an opportunity within CoreSite, or I think as we kind of play out this edge thesis.

In the near term, I think we're very happy keeping an elevated profile in terms of capital spend at CoreSite. These are mid-teen type of yields that we're underwriting. It doesn't necessarily change how we view whether or not we want to materially expand the data center platform. I think investors, they can do their own diversification. They don't necessarily need American Tower to.

This is an enhanced option for American Tower to play a larger role at the edge. And I think over the next several years, we'll continue to try to use this enhanced positioning to kind of prove out that 1 plus 1 equals 3 value proposition. And in the near-term, we're really excited about giving CoreSite and opportunity to continue to grow and enhance that value.

Dave Barden

It's a great place to leave it. Thank you so much, Adam. Thank you everybody for joining. Appreciate it.

Adam Smith

Thank you.