Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong second-quarter performance driven by resilient demand for assets.
- Consolidated organic tenant billings growth of 5.3%, demonstrating robust business fundamentals.
- CoreSite achieved double-digit revenue growth and record cash backlog.
- Positive collection trends in India, allowing for revenue reversals and improved financial outlook.
- Effective execution on balance sheet initiatives, including issuance of EUR1 billion in senior unsecured notes at a favorable rate.
Negative Points
- Exposure to financial risks in emerging markets, particularly due to global macroeconomic factors.
- Continued elevated Sprint churn impacting growth rates through Q3 of next year.
- FX headwinds negatively impacting property revenue, adjusted EBITDA, and attributable AFFO.
- Incremental costs associated with the pending sale of the India business.
- Potential for modest churn from US Cellular due to market consolidation, which could temporarily pressure growth rates.
Q & A Highlights
Q: Steve, can you give us an update on how you're seeing the opportunities to do additional M&A in the US, Europe, and other developed markets?
A: (Steven Vondran, CEO) There are some rumors of portfolios coming available, but we are focused on our current capital allocation priorities, particularly delevering below 5%. We haven't seen anything compelling enough to take us off those priorities. Any acquisition would need to be better than buying back our own stock. We are always evaluating opportunities, but nothing today looks compelling.
Q: Can you unpack what you're seeing in the US leasing environment with respect to geography and types of activity?
A: (Steven Vondran, CEO) 2024 is playing out as expected with a modest increase in application volume in Q2 over Q1. The main driver continues to be carriers building out their 5G networks, largely amendment-driven. Over half of our sites are now upgraded with mid-band 5G, but one carrier is ahead of the other two. We expect continued growth and eventual densification.
Q: What is your current view on dividend policy exiting 2024 and how should it relate to AFFO per share growth over time?
A: (Rodney Smith, CFO) We held our dividend flat in 2024 to favor balance sheet strength and operational growth. Going forward, we target our dividend distribution to equal about 100% of our pretax income. We expect pre-tax income to grow in line with AFFO and AFFO per share over time. We anticipate resuming dividend growth in 2025.
Q: Can you provide an update on the status of the India collections process and the approval process for the sale?
A: (Steven Vondran, CEO) We are still waiting for approval and anticipate closing in the second half of the year. Once approval is received, closing should occur within four to six weeks.
Q: What are you seeing in terms of 5G deployment internationally?
A: (Steven Vondran, CEO) It varies by region. Europe has deployed 5G to a large proportion of the population, but there's still room for mid-band deployment. Africa is still focused on 4G, with some 5G in major cities. Latin America is further behind, with some 5G in Brazil but generally delayed due to spectrum auctions and carrier integration.
Q: How are site decommissionings contributing to cost management?
A: (Steven Vondran, CEO) We are decommissioning underperforming assets to save OpEx. This is part of our broader cost management strategy, which also includes lower land rent escalations and property tax reductions.
Q: Can you discuss the demand backdrop for CoreSite and whether it's driven by larger footprint opportunities or traditional enterprise workloads?
A: (Steven Vondran, CEO) Demand is broad-based, driven by scarcity of supply and hybrid cloud deployments. We are selective in leasing to customers that help build the ecosystem. We are seeing some demand from AI, particularly in the inferencing layer.
Q: What are the key variables you will consider when deciding on buybacks in 2025?
A: (Rodney Smith, CFO) We will look at AFFO yields versus implied cost of capital, long-term growth rates, and overall capital allocation options. We aim to create more shareholder value through buybacks than through other investments or delevering.
Q: How do you define and measure scale in international markets?
A: (Steven Vondran, CEO) Scale means being strategically relevant to customers, ideally being the number one or two independent tower company in a market. We leverage regional scale and operational efficiencies to maximize returns.
Q: Are there opportunities to implement comprehensive MLAs internationally?
A: (Steven Vondran, CEO) We have discussed this with international partners, but there is some hesitation. We are hopeful that they will embrace it as it creates value for both parties.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
