American Tower - Earnings Call - Q2 2025

Executive Summary

• Revenue rose 3.2% year over year to $2.63B, with property revenue up 1.2% to $2.53B; Adjusted EBITDA grew 1.8% to $1.75B, while AFFO fell 6.7% to $1.22B due to prior-year nonrecurring benefits and FX headwinds.
• EPS of $0.78 was a significant miss vs. consensus $1.66*, while revenue modestly beat consensus $2.592B*; services revenue nearly doubled year over year to $100M, reflecting near-record U.S. services activity.
• AMT raised full-year 2025 guidance for property revenue, Adjusted EBITDA, and AFFO (midpoints +$165M, +$120M, +$55M, respectively) but reduced net income midpoints (-$400M NI, -$475M NICS), citing unrealized FX losses.
• CoreSite sustained double-digit revenue growth driven by demand for AI-ready interconnection; management flagged a healthy densification pipeline and >50% YoY increase in application volume, but noted slower commencements at one U.S. customer.

What Went Well and What Went Wrong

What Went Well

• U.S. services delivered a near-record quarter; management highlighted broad-based midband upgrades and accelerating densification as key drivers.
• CoreSite posted double-digit revenue growth and margin expansion on AI-related workloads; the DE1 Denver acquisition added capacity and ~$10M in 2025 property revenue in outlook.
• Organic Tenant Billings Growth was 4.7%, and total tenant billings growth was 5.2%, supported by colocations/amendments and escalations across regions.

What Went Wrong

• Unrealized FX losses of ~$484M reduced net income 58% YoY and drove the EPS miss vs. consensus.
• Latin America remained challenged: property revenue declined 13.2% YoY; management cited increased bad debt and collection issues, elevated churn post-consolidation.
• Timing slippage on U.S. commencements for one customer modestly lowered new business OTBG and U.S. OTBG to ~4.3% (from ≥4.3% in prior guide).

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Second Quarter 2025 earnings conference call. As a reminder, today's conference call is being recorded. Following the prepared remarks, we will open the call for questions. If you'd like to ask a question, please press Star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press Star 11 again. I would like to turn the call over to your host, Kate Reeb, Senior Director of Investor Relations. Please go ahead.

Kate Reeb (Senior Director of Investor Relations)

Good morning, and thank you for joining American Tower Second Quarter earnings conference call. We have posted a presentation which we will refer to throughout our prepared remarks under the Investor Relations tab of our website, www.AmericanTower.com. I am joined on the call today by Steve Vondran, our President and CEO, and Rod Smith, our Executive Vice President, CFO, and Treasurer. Following our prepared remarks, we will open up the call for your questions. Before we begin, I'll remind you that our comments will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our 2025 outlook, capital allocation, and future operating performance, 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 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 earnings press release, those set forth in our most recent annual report on Form 10-K, and in other filings we make 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. With that, I'll turn the call over to Steve.

Steve Vondran (President and CEO)

Thanks, Kate. Good morning, everyone, and thanks for joining the call. As you can see from our results, 2025 continues to be a good year. Demand for our tower leasing, services, and data center businesses, combined with FX tailwinds, has led us to raise outlook for property revenue, EBITDA, and AFFO. These results highlight the ongoing strength of our global businesses and the durability of mobile network demand that underpins it. American Tower continues to offer a predictably compelling value proposition for investors against a volatile macroeconomic backdrop. I'll briefly share a few highlights and trends before Rod discusses more detailed results and outlook. Mobile data consumption continues to climb, driving increased demand for network capacity in every region where we operate.

We see this demand catalyze activity across our extensive tower footprint and drive network upgrades as the sunsetting of legacy radios is faster than we've seen in early G cycles. Carriers in developed markets continue to expand and mature their 5G networks as they work toward aggressive coverage and quality targets between now and the end of the decade, while emerging market players actively complete their 4G rollouts and selectively, yet increasingly, pursue the 5G cycle. In our developed tower markets, which consist of the U.S., Canada, and Europe, mobile traffic growth rates are anticipated to slightly outpace global averages over the next five years. Increasingly data-intensive and uplink use cases like mobile video, AI, and new devices will continue to stress networks and prompt both mid-band coverage and capacity-driven 5G activity across our tower footprint and rooftop sites.

In the U.S., we see the 5G cycle playing out in line with our original expectations as carriers continue site upgrade activities to work toward 2026 5G coverage goals and begin early densification-oriented colocation activity to improve network quality. We still see significant differences in mid-band rollout progress across our portfolio, positioning us well to capture substantial new business for both amendments and colocations, with the latter comprising an increasingly material share of application mix for certain Big Three customers. On a combined basis, total application volume increased more than 50% year over year, representing strong, broad-based demand for ourselves. Our U.S. services business posted a near-record quarter, propelled mainly by outsized construction services, signaling our customers' increasing recognition of the quality, efficiency, and overall value that we provide through our best-in-class offerings.

Next, our Europe business also continues to trend in line with expectations, benefiting from a healthy overall operating environment and strong customer agreements that provide both growth and insulation from various customer shifts across the region. Mid-band coverage now stands at just above 55% of the markets where we operate, which is slightly ahead of the continental average, and leaves a significant runway for more coverage-oriented activity as carriers pursue 2030 rollout targets. Additionally, spectrum extensions and related coverage obligations in Germany should unlock long-term investment and yield future growth benefits, and in the near term are bringing energy and momentum to 5G rollout activity. In our emerging markets, we've raised our outlook due to a mix of FX tailwinds and core leasing outperformance. Our Africa business continues to post robust growth results, benefiting from a stabilized, lower-turn carrier landscape, better consumer pricing in key markets, and supportive demand dynamics.

5G maturity remains limited in the region, with most activity focused on 4G rollouts and densification, but we do see early 5G deployments continue to progress in select urban areas, propelled by use cases like fixed wireless. Activity has improved in markets like Nigeria, where higher consumer prices are supporting better carrier economics and unlocking stronger levels of network investment. Growth in Latin America remains muted relative to historical trends, and our expectations for persisting low-single-digit growth through 2027 remain unchanged. However, consolidation has normalized in Brazil, and new activity is anticipated across the more stabilized three-player market as carriers work to fulfill regulator commitments in the region and realize better margins from higher RPs. Our outlook for the region has modestly increased, but along with some improvements in markets like Brazil, we're seeing continued elevated levels of churn as carriers rationalize the infrastructure required through consolidation activity.

Moving to our data center business, we continue to see exceptional performance from CoreSite and have increased our 2025 expectations to reflect new growth attributable to the recently acquired DE1 facility, as well as elevated demand and pricing from our broader portfolio of interconnection data center facilities. Hybrid and multi-cloud IT architecture requiring secure, low-latency interoperability remains a primary driver of demand, but early phases of AI-related workloads, including inferencing, machine learning models, and GPUs as a service, represent a fast-growing component of CoreSite's leasing. Capacity constraints from high absorption rates and continued AI-driven demand from both very large hyperscale players across the wider market and the enterprise customers that value our interconnection ecosystem are driving a sustained, favorable pricing and pre-leasing environment that we expect to continue into the foreseeable future.

These tailwinds have enabled us to remain selective in our customer mix to curate high-quality ecosystems while exceeding our initial underwriting assumptions. We plan to continue to prioritize funding CoreSite on a success basis and in line with our capital allocation strategy to refinance supply and facilitate future growth. Overall, our outlook is generally looking up as we enter the second half of 2025, but we remain focused on delivering our differentiated value proposition and staying true to our stated strategy. Our experienced team is well-versed in addressing certain ebbs and flows across our global footprint, and our strategic long-term focus enables us to benefit from the durability of power leasing and growing mobile data and computing demand trends.

Our superior global portfolio, best-in-class services at customer delivery, high-quality balance sheet, protective contracts, and highly disciplined approach to capital allocation already enable us to extract significant value from the global tower landscape, but we remain motivated to continuously improve and deliver even more compelling returns to our stakeholders. Now I'll hand it over to Rod to discuss second quarter results and our revised 2025 outlook. Rod?

Rod Smith (EVP, CFO, and Treasurer)

Thanks, Steve, and thank you all for joining the call. As noted in this morning's press release, we had a strong second quarter driven by resilient demand across our global portfolio. We are well-positioned to benefit from growing mobile data consumption and confident in our ability to sustain growth through the second half of the year. Before diving into our Q2 results and our revised full-year outlook, I'll share a few highlights. First, leasing momentum remained strong, resulting in consolidated organic tenant billings growth of 4.7%. Our U.S. services business had a near-record quarter, while application volumes among the Big Three were up over 50% year over year. This was primarily driven by amendment upgrades and a 200% year-over-year increase in colocations. CoreSite also had an exceptional quarter with double-digit revenue growth and gross margin expansion, fueled by hybrid cloud demand and AI-related use cases.

Strategically, we closed the acquisition of our DE1 data center asset in Denver and deployed over 75% of our discretionary capital in developed markets, rising to over 85% when including acquisition capital. Finally, we strengthened our balance sheet by issuing EUR 500 million in senior unsecured notes at 3.625%. Proceeds were used primarily to pay down existing debt. At quarter-end, floating-rate debt was approximately 7% of our total outstanding debt, and net leverage stood at 5.1 times. Turning to second quarter property revenue and organic tenant billings growth on slide six, consolidated property revenue grew 1.2% year-over-year and more than 3% when excluding non-cash straight-line revenue, despite absorbing more than 70 basis points of foreign exchange headwinds. Year-over-year growth was negatively impacted by 2% due to a change in non-recurring revenue in the current period relative to the prior year. U.S.

and Canada property revenue declined by more than half a percent and grew approximately 3% when excluding non-cash straight-line revenue, despite absorbing more than 100 basis points of Sprint churn. International property revenue grew approximately 1% year-over-year and approximately 3% when excluding the impacts of foreign currency fluctuations. Finally, property revenue in our data center business grew over 13%. Moving to the right side of the slide, consolidated organic tenant billings growth was 4.7%, driven by solid demand across our global portfolio. In our U.S. and Canada segment, organic tenant billings growth met our expectations at 3.7% and greater than 5% when excluding Sprint-related churn. Our international segment drove 6.5% in organic tenant billings growth, a modest step down from Q1 2025, reflecting generally consistent leasing trends paired with slightly lower contributions from escalators and churn.

Turning to slide seven, adjusted EBITDA grew 1.8% and approximately 4.5% when excluding non-cash net straight-line, despite absorbing approximately 90 basis points of FX headwinds. Growth was positively impacted by continued direct expense management, resulting in a high conversion of cash property revenue and a greater than 100% increase in U.S. services business gross profit, partially offset by the flow-through of non-recurring revenue benefits in the prior year period, increased bad debt associated with Latin America customer collections and other non-recurring and timing-related costs. Cash adjusted EBITDA margin declined 40 basis points year-over-year, partially driven by a higher contribution from U.S. services. Moving to the right side of the slide, attributable AFFO and attributable AFFO per share declined by approximately 6.7% and 6.8%, respectively, primarily due to more than $65 million of prior year revenue reserve reversals in our India business.

On an as-adjusted basis, normalizing for the sale of India, attributable AFFO per share growth was approximately 2.4%, driven by the high conversion of cash adjusted EBITDA growth to AFFO through the effective management of below-the-line costs, partially offset by flow-through of non-recurring revenue benefits in the prior year period previously mentioned. Now, turning to our revised full-year outlook. As you will see on the next few slides, our core year-to-date results and expectations for the second half of the year are contributing to improvements across property revenue and adjusted EBITDA compared to our prior outlook. In addition, our revised FX assumptions are providing tailwinds of $130 million, $80 million, and $55 million to property revenue, adjusted EBITDA, and attributable AFFO, respectively.

As a result, we are raising our expectations for property revenue, adjusted EBITDA, attributable AFFO, and attributable AFFO per share by approximately $165 million, $120 million, $55 million and $0.12, respectively, compared to our prior outlook. At the midpoint, our expectation for attributable AFFO per share is $10.56, or approximately 6% year-over-year growth on an as-adjusted basis. Turning to slide eight, we are increasing our expectations for property revenue by approximately $165 million compared to our prior outlook, which includes $130 million of FX tailwinds, $15 million of consolidated core property outperformance, and $20 million of additional upside, consisting of an approximately $25 million increase in straight-line revenue, partially offset by an approximately $5 million decrease in pass-through revenue. Consolidated core property outperformance includes upside from international and CoreSite, including incremental contributions from our recently acquired DE1 asset.

Outperformance was partially offset by slower commencements compared to initial expectations related to a customer in the U.S., which affect organic tenant billings growth expectations that I will touch on in a moment. Moving to slide nine, we are reiterating our organic tenant billings growth expectations of approximately 5% on a consolidated basis. We have revised our expectations for the U.S. and Canada organic tenant billings growth to approximately 4.3%, reflecting slight timing differences due to modestly slower than initially anticipated pacing of new business. Importantly, while the timing of commencements could result in some quarter-to-quarter variability, it does not change our overall expectations to capture the new business.

In addition, we are reiterating our organic tenant billings growth expectations of approximately 5% for Europe, raising our expectations for Africa and APAC to greater than 12% due to solid carrier activity and slightly lower churn expectations, and raising our expectations for Latin America to greater than 2%, driven by modestly higher-than-expected contributions from CPI-linked escalators. Turning to slide ten, we are increasing our adjusted EBITDA outlook by $120 million compared to our prior outlook, driven by the conversion of property revenue, services gross profit, and FX tailwinds, partially offset by non-recurring expense items, including incremental bad debt associated with certain Latin America customers. Moving to slide eleven, we are raising our expectations for AFFO attributable to common stockholders by $55 million at the midpoint, or $0.12 on a per-share basis. Cash adjusted EBITDA outperformance and FX tailwinds are partially offset by increased minority interest and maintenance capital.

Our revised attributable AFFO per share midpoint is $10.56. Year-over-year AFFO per share growth is now expected to be approximately 6% on an as-adjusted basis. Turning to slide twelve, we are modestly revising our 2025 capital plans, which include approximately $1.7 billion in capital expenditures, down $20 million compared to prior outlook, and contemplates a 100-site reduction in Latin America and consistent data center spending. We continue to expect to distribute approximately $3.2 billion to our shareholders as a common dividend, which remains unchanged from our prior expectation and subject to board approval. Moving to the right side of the slide, our balance sheet is strong, providing financial flexibility and optionality, including $10.5 billion in liquidity and low floating-rate debt exposure.

Turning to slide thirteen and in summary, we're pleased with our results through the first half of 2025, which highlight the criticality of our assets, the resilience of our business model, and the outstanding execution of our talented employees. We are confident in our ability to deliver sustainable growth and long-term shareholder value. With that, operator, we can open the line for questions.

Operator (participant)

Thank you so much. As a reminder, to get in the queue, simply press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. Please stand by for our first question. It is from the line of Michael Rawlings with Citi. Please proceed.

Michael Rawlings (Vice Chairman)

Thanks and good morning. First, I'm curious if you could dig further into the different observations for domestic leasing. You talked about the increase in applications from amendments and colo/densification, but also the delay in commencements from one of your customers. Can you talk a little bit more about how that's affecting the second half of the year? Is that setting up 2026 to be a better year and to get some of these benefits to come through? Secondly, I was just curious if you could provide an update on the opportunities to extract an incremental layer of efficiency within the business. Thanks.

Steve Vondran (President and CEO)

Yeah, thanks, Mike. I'll take both of those. When you look at the U.S. leasing environment, what we're excited to see is the increase in application volume that we expected from the beginning of the year. That's playing out in line with our expectations. If you look across the board, we're seeing a healthy level of activity, and we're seeing continued increases in the pipeline, and we're seeing an increase in the new colocations on that. That's all very positive. We're excited to see that, and that's indicative of a very healthy leasing environment. In terms of kind of what we were expecting in our pipeline, the volume that we were expecting from our customers is consistent, and the pricing is consistent.

What has been a little bit slower than we expected is the conversion from one of our customers of that leasing into commencements, and that's a customer that's not on the holistic agreement. When we did our forecasting, we had a survey cadence that we thought that we were going to see in there, and they're just moving a little bit slower than we expected. From our perspective, you're talking a few million dollars of in-year is all in the difference, and that OTBG metric is very sensitive to the timing of commencements on it. When you look at the health of the business and the fact that we're going to get that new business, we're very confident in that. We're not seeing anything that would indicate a pullback. We're not seeing the pipeline of applications dry up. We're not seeing them cancel projects or anything like that.

It's just a little bit slower cadence in terms of signing the leases, getting them back, and getting the equipment installed. From our perspective, there's nothing on that that indicates anything other than a robust leasing pipeline. We'll leave 2026 guidance to 2026. If you think about kind of the variables going into 2026, a good pipeline is important, and that's what we're seeing is a pipeline that's kind of supportive of our long-term guide that's there. We do have less contracted revenue going into the next couple of years than we had the prior years, so we are more dependent on that activity-based revenue commencement. We are excited to see that pipeline continue to build. That's a positive for us. We are still expecting churn to trend down. Now, that's not considering the UScellular transaction, which has now been approved.

That's going to be a lot of chance of variables looking into the next couple of years to see how that's going to affect it. Overall, I'd say the pipeline is healthy, and we'll wait to give guidance on 2026 when we get there. As for your second question, in terms of the extracting value, I've given Bud close to the end of the year to give me guidance on that. The efforts are progressing very well, and we've had some very good receptivity across the globe to our globalization efforts, and the team is seeing opportunities there. Just to kind of set expectations in terms of what that's going to look like, we're looking at our total addressable spend. That's including direct expenses, O&M, SG&A, growth CapEx, supply chain, all those different areas in it.

The overall goal that we've set ourselves is to have a continuously increasing gross margin in our tower business. You probably shouldn't expect to see a huge decrease in direct expenses. Some of that is just the cost of doing business. The goal is to bend the curve down so that those are growing slower than our revenue in every geography on a consistent basis. As Bud works through what this looks like, it'll be kind of a multi-year goal that we set out to bend that cost curve down to give us better margin expansion than what we would see otherwise on that. We'll continue to work through that. Again, I'll convey to you guys by the end of the year, we'll get some targets out there. So far, everything is kind of aligning up with what we thought we were going to see when we started this journey.

We feel very good about that in terms of what we're going to be able to create in terms of value creation over time.

Rod Smith (EVP, CFO, and Treasurer)

Hey, Michael, this is Rod. Maybe I can add just a couple of quick points here for you to follow up on Steve's comments. Regarding new business, all the things that Steve mentioned around timing in the U.S., you'll see that play out in our numbers, primarily in new business in organic tenant billings growth. We were at a projection of about $165 million, $165 million or slightly better for new business. With this revised timing of the pacing of some of the deployments, that number is expected now to be more like $160 million. It is a timing-related issue, as Steve mentioned. What that does is it affects OTBG in a very modest or subtle way. Our original guide was equal to or greater than 4.3% in the U.S.

We've adjusted that to approximately 4.3% just to reflect the fact that we could be at 4.3% or slightly below because of this mild timing. Just to give you a little bit of numbers there, and then I would just make one quick comment on SG&A for the full year of 2025. We expect to be roughly flat on SG&A, excluding the bad debt. That's after absorbing things like a few legal fees for some of the customer issues that we have in Latin America, as well as managing through the very robust business in CoreSite. There is some added SG&A there to support that double-digit growth. You'll see us absorbing that and also keeping SG&A flat with a few other kind of timing issues in there. Thanks very much.

Thank you. Our next question comes from Ric Prentiss with Raymond James. Please go ahead.

Ric Prentiss (Managing Director)

Hey, good morning, guys.

Rod Smith (EVP, CFO, and Treasurer)

Morning, Ric.

Steve Vondran (President and CEO)

Hey, Ric.

Ric Prentiss (Managing Director)

A couple of questions. Follow-up, Steve, you mentioned. UScellular T-Mobile deal now is approved. Can you frame for us what that USM exposure you think might be and the timing for that? Obviously more speculative, just maybe an update on DISH, what you're seeing there and what the exposure is there.

Steve Vondran (President and CEO)

Sure. With respect to UScellular, in absolute terms, not the overlap, but the total amount of new business we have with UScellular, it represents about less than 0.5% contribution to our property revenues, our global property revenues, and less than 1% to our U.S. and Canada property revenues. It is relatively small exposure overall. If you look at that portfolio, what we do not know yet is what T-Mobile plans to do with those sites. As we are looking at over the next couple of years, a lot of it depends on what their plans are. We have not been able to have discussions on that because the deal was not approved yet. That is kind of a worst-case scenario. We certainly would not expect to lose all of that.

There will be some of that that they are going to want to turn off as part of their synergies, and we will work with them on that similar to the way we have in the past. As that closes and we have those conversations, we can give you guys a little bit more visibility into it over time. By the way, those percentages are of total revenue, not new business, that is total revenue, that less than 0.5% of property revenues and 0.5% of U.S. and Canada revenues on that. With respect to DISH, we continue to watch the situation like everybody else does and to see what is happening there. We think there have been a few positive developments in terms of some of the things they said publicly that they are doing. We feel pretty good about that.

The overall exposure to DISH is they represent about 2% of our global, over 2% of our global revenues, slightly over 4% of our U.S. revenues. That is, again, total exposure for that portfolio. What we are seeing is the same thing you guys are seeing. The headlines are slightly positive lately. We are optimistic and hopeful that they will work through their situations and continue to deploy.

Rod Smith (EVP, CFO, and Treasurer)

Hey, Ric, if I could add—

Ric Prentiss (Managing Director)

Go ahead, Rod.

Rod Smith (EVP, CFO, and Treasurer)

Sorry, just regarding the churn, since you brought up churn, I've been looking forward to saying this for a few years here, but just to remind everyone that we are in our final year of the Sprint churn. So when you think about the churn percentages for Q3, we were at a little over 2, maybe 2.3%. Total churn in our U.S. business. As we work through the churn this quarter for Sprint, it won't be in our Q4 numbers or any numbers beyond that. We expect churn as a percent to drop down to about 100 basis points or maybe even below for Q4. Then probably stay in that lower end of our range between 1 and 2%. As a churn number, kind of staying at the lower end of that, closer to 1% for a little while, excluding the things Steve just talked about in terms of UScellular.

Ric Prentiss (Managing Director)

A lot of discussion lately about direct-to-device satellite connectivity. You guys own a piece of AST SpaceMobile. Update us a little bit about what you're seeing in direct-to-device and what you think it might mean U.S. versus international.

Steve Vondran (President and CEO)

We continue to see direct-to-device as the complementary technology to the macro cell networks. Delivering bandwidth via macro towers continues to be the cheapest way to deliver bandwidth to the customers, no matter where they are. We do not view it as a threat at all to our business in the U.S. or internationally, quite frankly. The places where satellite is going to be ideal are places that have lower population densities than what the carriers would like to cover through macro towers. When you think about the Grand Canyon or rural Montana, those are places where that is going to be an excellent way to provide coverage.

We do not have towers there. Frankly, I do not want to build towers there because there is not a good business case for doing that. Same thing internationally. If you look at Sub-Saharan Africa, there are going to be places that are much better served by satellite. Again, we do not have towers in those areas and do not want to build towers in those areas. Overall, we believe it is complementary, not competitive. If you think about where the satellite coverage is optimal, it is less than 100 pops per site per some of the research that has been cited out there. We view it as a nice niche market. We are happy with our investment in AST SpaceMobile. We are really happy with the ringside seat that we have to see how this plays out. It is all playing out just the way we thought.

No threat and complementary and might make a nice little profit on our investment there.

Rod Smith (EVP, CFO, and Treasurer)

Great. Thanks, guys. Thanks, Rick.

Thank you. One moment for our next question, please. He is from the line of Nick Del Deo with MoffettNathanson. Please proceed.

Nick Del Deo (Managing Director)

Hey, morning, guys. Thanks for taking my questions. First, just to dig in a bit more into your prior comments, Steve, regarding the customer that's moving a bit slower than you had expected. Just to be clear, is this just a lengthening of the book-to-bill cycle? So they're kind of applying and signing leases as expected, but it's just dragging it in terms of when they get on air. Or are you seeing the applications come in with a bit of a delay?

Steve Vondran (President and CEO)

No, it's exactly what you said. It's the book-to-bill cycle is a little bit longer. The application pipeline continues to be healthy. It's just not moving along as quickly as we anticipated it to do.

Nick Del Deo (Managing Director)

Okay. Okay. So it's in your backlog. It's just purely timing then.

Steve Vondran (President and CEO)

Exactly.

Nick Del Deo (Managing Director)

Okay. Great. Maybe switching to CoreSite. Could you talk a little bit about CoreSite's position in the supply chain and kind of the risk management strategy you have in place? In particular, I'm thinking with the jump in demand for a lot of key components to support big projects from both established and new players. I'm curious as to whether it's becoming at all more challenging for CoreSite to kind of keep its place in line.

Steve Vondran (President and CEO)

A lot of the supply chain challenges really started during COVID. That whole supply chain process lengthened several years ago, and we had to adjust our strategy then. We started pre-buying those long lead time items several years ago. The way you secure your place in line is you got to pay, so you put a deposit down on that equipment. We have been very proactive in looking at that over time and securing those places. The other component that we're watching very closely, like everyone else is, is the effect of potential tariffs on some of those supplies because a lot of those components can only be sourced overseas.

What we're doing to protect ourselves there is building a contractual mitigation so that if there are an increase in costs when we're doing the pre-leasing, we have a mechanism to adjust that to make sure that we're getting that mid-teens stabilized yield that we're underwriting on things. I feel very good about the actions the teams have taken to be able to secure that. For all of our kind of development pipeline that we have in view and the things that we've planned out, we're secure on that. It may make it challenging to accelerate things from the pace that we originally wanted. We'd like to accelerate some of this development because the demand environment is so healthy right now. It does make that a little bit more challenging, but we are finding ways to do that in some circumstances as well.

Certainly a challenge out there that we're all facing, but something that I've talked to the team has done a good job of getting ahead of.

Nick Del Deo (Managing Director)

Okay. Great. Sorry, can I ask one quick housekeeping item on the CoreSite front as well? Anything you can share about the inorganic contribution from the Denver DE1 facility acquisition, both financials and what it may have meant for interconnection ads, which looks like they may have had an inorganic bump?

Steve Vondran (President and CEO)

Let me talk about the acquisition kind of more broadly, and then I do not know if we have any financials that Rod can share at hand right now. That building was one where we already had a presence. It was a leased facility for us, but we did not have the whole building. We had the opportunity to buy the whole building. If you have a chance to take that interconnection, have it make owned versus leased, and pick up some incremental new business and incremental interconnection along the way, that is always a good thing to do. We are very happy that we had the opportunity to do that. It is the most highly interconnected site in that Denver area. It gives us another kind of feather in our cap in terms of that portfolio.

Rod, I am not sure if we put any public numbers out on the acquisitions or something you want to share on that or not.

Rod Smith (EVP, CFO, and Treasurer)

Yeah, just a couple of points that I would make for you, Nick. We did close on the DE3. We have it in our outlook. I think I made a couple of comments in the script there, but you can assume that there's roughly $10 million in property revenue in our updated outlook coming from DE1.

Ric Prentiss (Managing Director)

Okay. Great. Thanks, guys.

Thank you. Our next question is from Jim Schneider with Goldman Sachs. Please go ahead.

Jim Schneider (Senior Equity Analyst)

Good morning. Thanks for taking my question. Maybe just a quick follow-up on the data center business and then wanted to ask about Latin America. On the data center side of things, DE1, $10 million of property revenue this year. Is that a good run rate to use for next year, or can we expect a bigger kind of run rate contribution for the full year of 2026? And maybe just kind of talk about directionally, whether you expect the overall CoreSite business to sort of grow the same, better, or decelerate next year relative to this year on an organic basis.

Rod Smith (EVP, CFO, and Treasurer)

Yeah. Thanks for the question, James. So the $10 million is the in-year number. That reflects the fact that we completed the acquisition earlier this year in Q2. With that said, there would be a full year impact next year. You'd want to pro-rate that. I don't want to get into any more details around what the exact impact would be for next year. Regarding CoreSite, you can pick up in Steve's comments, his prepared comments, as well as mine. The CoreSite business continues to perform very strongly with revenue growth up in the 13, better than 13% for the quarter. We expect a very similar number of revenue growth for the full year. That double-digit growth also extends down into interconnection growth, which is a key element of that business. We expect interconnection to grow, interconnection revenue to grow by double digits.

We also are seeing margin expansion in the business. As I mentioned earlier on this call, we have a little bit higher SG&A in CoreSite to support the demand that we're seeing and all the new business that we've booked. You'll see a slight bump up in SG&A, but our operating profit margin is also expanding year over year this year by about 100 basis points. The business continues to perform exceptionally well. Based on the last several years of either near record new business or record new business as we had in 2023 and then again in 2024, we expect that double-digit growth to continue for the next couple of years based on kind of exhausting that backlog and delivering all those new business contracts. We couldn't be more pleased with the performance of CoreSite, not just the last several years, but going forward as well.

Jim Schneider (Senior Equity Analyst)

Thanks. As a follow-up, maybe if you can kind of talk about the Latam business, sounds like things are stabilizing or potentially improving there. Are we at a point where you can call a bottom in Latam? To what extent could you expect some significant acceleration heading into 2026? Thank you.

Steve Vondran (President and CEO)

Yeah. We're still anticipating to have low single-digit growth for the next couple of years there. Through 2027, we're going to continue to deal with the dynamics of that market where you have higher churn. We've had to take a little bit of a reserve on some collections issues there as well. As that market continues to go through the challenges of consolidation and what's happening there, it's going to be a challenge for the next couple of years. It's all the things we've talked about, things like Oi in Brazil and some of the consolidation in some of the other markets there. You should expect to see that continue to be a challenge for the next two years. We think that the inflection point's really going to happen in 2028. That's when we see things getting significantly better for us there.

Jim Schneider (Senior Equity Analyst)

Thank you.

Thank you. Our next question is from Michael Funk with Bank of America. Please proceed.

Michael Funk (SVP)

Yes. Hi, good morning. Thank you for the questions. Just coming back to the conversion from leasing to commencement from the one customer, just wondering if anything in your experience in the past could inform our view on the timing and what might move that forward.

Steve Vondran (President and CEO)

It really just comes down to their priorities and what they're trying to accomplish and how they're incentivizing their teams. There is nothing specific that I would point to in this circumstance. When you looked at kind of the relative positioning of the three major carriers, we have one that's got about 85% of our sites are upgraded to mid-band 5G, one's at about 70%, and one's still at about 50%. That implies quite a bit of work to do to get to that kind of upper 90% percentage, which is where we think we'll end up with mid-band 5G on the sites. When we were doing our forecast at the beginning of the year, the way we construct that is we're going based on what the pipeline looks like, what we're hearing the priorities are from the people in the field.

You're only talking about a relatively small slowdown in that conversion rate. There is not a major catalyst that we're seeing on it. I do not want to speculate as to the reason because no one's given us a reason for it. I think it could just be the pace at which they're doing the deployments. There is nothing in this from kind of a prior G or prior deployment that I would look at and say there's a comparison of this. It's just a little bit of a slow start to the year, quite frankly.

Michael Funk (SVP)

Okay. So nothing to point to either on the labor side, equipment provision, or if it's simply a capital budget decision, nothing to really point to there.

Steve Vondran (President and CEO)

There's nothing pervasive. I mean, I'm sure every site has its own story, but there's no kind of general trend there.

Michael Funk (SVP)

Okay. I think of comparative marks, you mentioned some comments about Europe, which you're actually unchanged. I thought you mentioned Germany. Can you dig in a bit more on what you're seeing in Europe and expectations for that region?

Steve Vondran (President and CEO)

Sure. I'll touch on that, Rod, if you want to jump in. We continue to see the European carriers steadily deploying mid-band 5G on their sites. There is kind of a mixed bag in terms of how far along they are in that. There are some targets in the EU to get to a certain % of mid-band 5G deployment by 2030. There is still quite a bit of work left to do there. What we're seeing on that front is we're seeing our anchor tenants continue to do amendments to get there, and we're seeing some continued deployments by other carriers. There is some consolidation that's happening in a few markets. Our exposure, that's relatively modest. It's not zero, but it's relatively modest in terms of what that consolidation churn could be. That will slow down some of those carriers and their deployments a little bit.

Overall, the leasing pipeline there is consistent with what we had in our underwriting for the deal originally. It's consistent with our kind of mid-single-digit organic growth in Europe that we're expecting to see. Overall, it's kind of right in line with what we thought. None of the consolidations or kind of other news in the market is concerning us at this point.

Rod Smith (EVP, CFO, and Treasurer)

Yeah. Nick, maybe I'll just add. Sorry Michael, I would just add a couple of comments around the stability of the revenue growth expectations and particularly the organic growth. It is a solid, kind of steady, mid-single-digit organic new biz, let's call it, and around 3.5% contribution to organic tenant billings growth comes from that new biz. That is pretty consistent with where it was last year. I think across most of the markets there, we have CPI-linked escalators that add a little bit more to that, another 2.5% or so. One of the other very important elements is that the churn percentage is historically pretty low. The way that our contracts work, particularly with one of our largest customers, we expect that churn percentage to be below 100 basis points going forward. It has been there for a couple of years since the acquisition.

You put all those things together and you get a very reliable and durable organic tenant billings growth in the mid-single digits, again, in a very high-quality market, high-quality economies there with high-quality counterparties. The acquisition that we did in Europe and our general Europe business is very steady, very solid, and of a high quality.

Michael Funk (SVP)

Very helpful, Cutter. Thank you.

Thank you. Our next question is from Eric Luebchow with Wells Fargo. Please proceed.

Eric Luebchow (Director and Senior Equity Analyst)

Great. I appreciate the question. Rod, I think you talked about a 200% increase in colocations year over year. I'm just curious what the mix is in your guide for this year, how that might trend after 2025. I wanted to touch on capital allocation as well. With leverage kind of around five times now, how are you thinking about buybacks versus M&A going forward? Maybe just a quick review of what multiples and what regions you might be interested in. Thanks.

Rod Smith (EVP, CFO, and Treasurer)

Yep. Sounds good, Eric. Regarding the colocation increase in terms of its contribution, I would start off by saying colocation contributions continue to be relatively small in the grand scheme of things. Let's call it just over 10% of our applications that have been coming in are colocation applications. Now, that's up from where it was in the recent past here. We are seeing a shift towards colocations, but it's on small numbers. To put it in the grand scheme of things, if you think about applications being up in the 18,000 range or even a little bit higher, you're talking a few thousand, a couple thousand colocations, 2,500-3,000 colocations kind of in total. We are seeing hundreds of additional colocations, but it's not thousands yet.

I would put it in the category of we're seeing the beginning of a shift towards colocations, the beginning of an increase towards colocation as a bigger contributor to our new business. This may be the beginning of densification, but it's still early days. With that said, I wouldn't want to predict where that's going to go in 2026 or beyond. We'll just have to wait and see what the carrier plans are, when they get to full 5G kind of across the board, and when they may actually turn to more densification.

Steve Vondran (President and CEO)

Before we go to the next question, I would just jump in and say, just refer back to the percentage that I gave earlier of about 50%, about 75%, and about 85%. They are already at a mid-band 5G. That still implies a good-sized pipeline of amendments. We would expect amendments to be a large portion of our pipeline going forward. We do expect this continued trend of more colocations to continue to accelerate. We do think densification is starting. I talked about this on our last call. The conversations we are having with carriers and the data requests that they are putting in are definitely supportive of the idea that we will continue to see densification as they continue to flood their networks and they become stressed.

Rod Smith (EVP, CFO, and Treasurer)

Yep. And then Eric, regarding your question around capital allocation, you are correct in pointing out that we're about 5.1 times leverage for the end of Q2. We still are marching towards 5.0 or below by the time we get into the second half of the year. We're on pace with that. The plan there is unfolding perfectly fine. One of the elements of being at 5.1 now is with the strengthening euro up against the US dollar. That did drive an increase in our European, the amount of US value in our European debt, which does impact leverage slightly. We're at about 5.1 times. We want to push that down to 5 or below. Once we are there, and I would say we're close enough to be there that we've already regained some financial flexibility, let's call it full financial flexibility.

With that said, let me highlight what our capital allocation priorities are. First and foremost, we fund the dividend. That dividend in the last couple of quarters has represented a 5% growth rate. We've talked in the past that we would expect, because we're a REIT, that our dividend growth will largely be in line, on average, over multiple years with our AFFO growth. You can think of that, the context there. We do expect to fund the dividend with a growth that's sort of in line with our AFFO growth on average. That's priority number one. Number two is we have a CapEx program with internally generated projects that we prioritize because we like the returns, the contribution to the business, the long-term value that that capital can drive for our shareholders. We invest this year about $1.7 billion.

It's been between $1.5 billion-$2 billion over the last few years. We expect that to continue as we have a robust pipeline of places to put that capital. Again, we think it's a compelling use of capital to drive shareholder value. Beyond that, we have options to either reduce debt and delever well below five times, or we could deploy that capital towards more inorganic growth through M&A. I think you know our priorities there around looking to expand and increase exposure to our developed markets, which are US, Europe, and CoreSite as well. Beyond that, share buybacks are an option. We will always be toggling between and evaluating reducing debt, M&A, and share buybacks with an eye towards making the decisions really on a quarterly basis and annual basis that drives the most shareholder value that represents the best opportunity at that time.

You may see us kind of bounce back and forth here and there. We've talked many times about the capital programs, but I also want to highlight the fact that within our capital programs, that $1.7 billion actually represents some of our priorities where we've decreased the amount of capital investments in some of our emerging markets at the same time that we've increased capital investments in the U.S., in our data center business, and even in Europe. You see our priorities showing up within our capital spending. What I would say in the final comment here is everything's on the table for us. We will be making decisions in the best interest of our shareholders over the long term. That certainly could include share buybacks, delevering, or when and if we see compelling M&A, we'll certainly look at that.

Eric Luebchow (Director and Senior Equity Analyst)

Great. Thanks, Jaz.

Thank you. Our next question is from the line of Benjamin Swinburne with Morgan Stanley. Please proceed.

Benjamin Swinburne (Managing Director)

Thanks. Good morning. Steven, wondering if I know you get this question a lot, so I figured I'd ask it given just the performance of CoreSite continues to be impressive and accelerate. Just the strategic lens that you guys look at this business within American Tower, particularly as you talk about kind of value maximization. Does the fact the business is performing better make you more or less interested in exploring strategic options, or just any change in your philosophy as you watch the business perform well would be helpful to hear as you guys think about maximizing value on this business?

Steve Vondran (President and CEO)

Sure. Just to remind everyone, the reason that we bought CoreSite was because we believe that. When you look at where the skate to where the puck is going, to use the Boston analogy on that, we think that edge compute is a huge opportunity to drive value to our tower portfolio over time. We believe that owning the access to the interconnection environment that that edge has to be connected to gives us a right to win in that space. Our initial timing on that was a little bit off. It is developing slower than we thought it was going to. We are confident, and probably more confident today than we were even back then, that the edge is going to develop the way we envision that doing.

One of the ways that we are seeing that is the wireless carriers are now talking about edge and doing a local breakout that is actually appearing at the edge. You are starting to see them express more interest in the space. We still think that that strategic reason for buying CoreSite holds true. When you look at the asset itself, the way we underwrote that investment is we underwrote it as a standalone. Meaning we were not putting the value of the edge into the value of the asset when we bought it. We were just looking at the underlying business and said, can we make that work on a business case? We were confident that we could. In a way, the edge was kind of going to be the gravy on top of the investment, but it was the strategic reason for doing it.

The asset is performing better than our underwriting. Some of that is derived from AI and what is happening in the whole ecosystem where it is taking up a lot of the capacity there. That has driven up pricing, which has helped us to underwrite better yields and continue to curate our customer mix the way we like to, but actually at least faster. It is performing exceptionally well as a standalone asset. That does not really change my assessment of what we are going to do with the asset over time. It really comes down to what is going to create the most value for our shareholders. We still think the edge is a compelling play that will develop over time. If for some reason that does not, then we will make the assessment about what to do with CoreSite.

Our focus in the meantime is to maximize the value of CoreSite. We continue to invest what we need to invest to maximize that value. We set up a private capital partnership to give us flexibility in terms of how we finance it. There is never a situation where CoreSite feels like it cannot do what it needs to do to maximize that growth. We think that we are doing all the right things to create the most value for the shareholders, regardless of what the ultimate decision with CoreSite is down the line.

Benjamin Swinburne (Managing Director)

Got it. That's very helpful. Just maybe one more. I thought it was interesting last week, AT&T, I thought, sounded more excited about fixed wireless than I'd heard them in the past. Their growth in that business is accelerating and talked about opening up more mid-band for that product. Are you seeing, I know, again, you don't see that directly in the business, but any sense in the application activity or anything else with AT&T or your other carriers on fixed wireless starting to be a more clear tailwind towards capacity needs for your customer base?

Steve Vondran (President and CEO)

At this point, all of our customers say that they're using fallow capacity in the network to support fixed wireless. There's nothing that we're seeing that differs from what we're hearing from the customers publicly on that. I think where you would see that over time is if you start seeing real sites that typically did not get multiple amendments in the 4G cycle get multiple amendments in the 5G cycle, that might be an indication. We're not seeing that yet. We're not seeing any standalone fixed wireless installations at this point. However, as you point out, all the customers are becoming more bullish on it. I'm very bullish on it. I come from a rural area where you do not have good broadband, so I'm actually excited to see it expand in my home state.

I think that if you look at the number of subs they've got, the ARPUs they're getting, to me, that's indicative that they could make this a separate business that could support incremental investment. If and when that happens, that's incremental to our base case in terms of what we would see in terms of the activity on our site. That could be an upside for us. We're not seeing it yet, but I do hope that we do see that over time.

Benjamin Swinburne (Managing Director)

Yeah. Great. Thank you.

Thank you. Our next question is from Ari Klein with BMO Capital Markets. Please proceed.

Ari Klein (Director of Equity Research)

Thanks and good morning. Maybe just on the services business, which has been quite strong. Curious if you could talk to what's been underpinning that because they're having higher periods of activity with slower services levels. Is there anything new there or different that you're doing, and where do we kind of go from here? Thank you.

Steve Vondran (President and CEO)

No, the services business, it's indicative of two things. The first is a robust application pipeline. There is a segment of our services that we do for all of our customers kind of nationwide. That is things like acquisitions, owning, and permitting, engineering services, things like that. That component is really volume-driven. We see the application volumes go up. That gives a good tailwind to the services business there. There is another piece of it that is a little bit bigger chunk of the pie this year, which is construction management, which we do not do everywhere. We do not do it for everyone. It is very much a niche business that we do where we have really capable teams in place and where our customers are asking for that turnkey service because it lowers their total cost of ownership. It increases the value proposition there.

That is a little bit bigger piece of the pie. What you should read in terms of our services business this year is it gives us the indications of a healthy pipeline and that we are getting some good business in construction management. Now, that construction business comes in a little bit lower margin. You will, over time, if that continues to grow, see some compression in the margin on the services business. It is all still a very healthy business, and it is good for us because it is some incremental cash flow, but it also increases customer satisfaction and stickiness.

Ari Klein (Director of Equity Research)

Thank you.

Thank you. This concludes our Q&A session for today. I will turn the call back for final remarks.

Kate Reeb (Senior Director of Investor Relations)

Thanks, everyone, for joining the call today. Please feel free to reach out to the investor relations team with any questions. Thanks.

Thank you. This concludes our conference for today. Thank you all for participating, and you may now disconnect.