Ladies and gentlemen, thank you for standing by. Welcome to the American Tower third quarter 2026 Earnings Conference Call. As a reminder, today's conference call is being recorded.
Following the prepared remarks, we will open the call for questions. Star 1 on your telephone. You will then hear an automated message at advising your hand is raised.
To withdraw your question, please press star 1 again. I would now like to turn the call over to your host, Spencer Harris Kurn, Senior Vice President of Investor Relations. Please go ahead.
Thank you, and good morning. Welcome to our third quarter 2026 earnings call. Joining me on the call today are Steven O. Vondran, our President and CEO and Rodney Smith, our Executive Vice President, CFO, and Treasurer.
Following our prepared remarks, we will open the call for your questions. Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward looking.
As such, they are subject to risks and uncertainties described in American Tower SEC filings, and results may differ materially. Additional information is available on our Investor Relations website. I will now turn the call over to Steven.
Thanks, Spencer. Good morning, everybody. And thanks for joining today's call.
We delivered another solid quarter with our global tower leasing business performing consistently with expectations and our data center business continuing to outperform. The momentum we are seeing across the company combined with the benefit of our share repurchase activity, gives us confidence to raise our full year outlook for the third time this year. Our third quarter performance reinforces the durability of our business model and the quality of the portfolio we have built.
We are operating from a position of strength supported by resilient tower cash flows, a differentiated and rapidly growing data center platform, a healthy balance sheet, and a more focused portfolio following the actions we have taken over the past several years. As we enter the final quarter of the year, our strategic priorities remain unchanged driving durable revenue growth, enhancing operational efficiency, and allocating capital with discipline. Starting with revenue growth, our tower business remains on track to deliver approximately 4% organic tenant billings growth excluding 1-time disrelated impacts.
At the same time, CoreSite's continued outperformance is enabling us to raise our outlook for data center revenue growth to 16%. Up from our expectation of 15% last quarter and 13% at the start of the year. The long term outlook for wireless infrastructure remains very favorable.
Last quarter, I discussed 4 major catalysts that we believe can create overlapping investment cycles and support network demand well into the next decade. The evidence supporting each of those catalysts continues to strengthen. The 1st catalyst is the capacity phase of 5G.
Early deployments were primarily focused on coverage. The next phase will increasingly be about adding capacity improving performance, and densifying networks as traffic continues to grow. That requires carriers to add equipment to existing sites, and increase cell site density where demand is greatest.
And we are already beginning to see that activity emerge. Recent industry data reinforces the scale of that opportunity. CTIA reported that Americans consumed a record of 159 trillion megabytes of wireless data in 2025, an increase of >20% year-over-year. and projects total wireless demand will grow 4-fold by 2032.
These trends point to sustained investment simply to keep pace with the growing consumer and enterprise demand. The second catalyst is a new spectrum deployment cycle. Approximately 800 megahertz of additional mobile spectrum is expected to become available over the coming years.
Beginning with upper C-band in 2027, and potentially followed by additional deployments across bands such as 2.7 gigahertz, 4 gigahertz, and 7 gigahertz. Historically, new spectrum deployments have led to elevated amendment activity and equipment upgrades, and we expect the next cycle to do the same. The 3rd catalyst is the transition to 6G.
While commercial deployment is still ahead of us, the industry is increasingly aligned around network architectures that will be more intelligent, more distributed, and more reliant on edge computing. Those characteristics point to increased equipment requirements, greater network density, and an expanding role for communications infrastructure. The 4th catalyst is AI.
Which we believe has the potential to significantly reshape wireless network demand. CTIA expects AI traffic to grow 3x faster than traditional wireless traffic and account for nearly 1/3 of broadband traffic by 2034. Importantly, AI is not simply creating more traffic.
AI powered devices, agents, connected vehicles, robotics, and real time applications are expected to create traffic that is more persistent. More interactive, and increasingly uplink intensive. Supporting these use cases will require additional spectrum network capacity, lower latency, and greater density.
In our view, AI has the potential to extend and deepen the wireless investment cycle beyond what is embedded in traditional traffic forecast today. Taken together, these catalysts reinforce 1 another. The capacity phase of 5G, future spectrum deployments, the transition to 6G, and AI driven traffic growth all point to a future requiring more capacity greater density, and increasingly sophisticated digital infrastructure.
We believe that American Tower is uniquely positioned to support that evolution. We are also seeing growing interest from satellite providers seeking to participate more directly in the US wireless market. We view satellite and terrestrial wireless infrastructure as complementary technologies.
Satellite can extend coverage and support specific use cases, but delivering broad, reliable, and high capacity wireless service continues to require terrestrial infrastructure. Any provider seeking to compete at scale in the US will ultimately require a terrestrial network layer that includes towers, fiber, backhaul, power, and edge interconnection. For American Tower, the emergence of additional participants represents an incremental opportunity.
Our nationwide footprint neutral host operating model allows both existing and emerging providers to deploy quickly efficiently, and at scale. Many of these same secular trends continue to drive strong performance at CoreSite. CoreSite delivered another strong quarter.
With customer demand and pricing both exceeding our expectations. Momentum remained broad based across cloud, network, enterprise, and AI customers. And demand has continued to accelerate into the fourth quarter.
As organizations deploy larger and more sophisticated AI workloads, They require greater connectivity between clouds, networks, compute environments, and enterprise applications. This is driving increased demand for highly connected campuses and contributing to continued growth in our interconnection business. CoreSite's unique position at the intersection of cloud, network, and AI ecosystems remains a key competitive advantage and gives us confidence in the platform's long term growth trajectory.
Given the strength of customer demand and leasing activity, we are once again raising our full year outlook. We remain confident in our ability to execute against the development pipeline that can nearly triple our current capacity. While continuing to evaluate opportunities to accelerate capacity additions where customer demand and expected returns support additional investment.
Moving to our second strategic priority, operational efficiency. Our tower operations continue to perform with a consistency that we expect. We remain focused on simplifying processes, scaling shared capabilities, and using technology to improve productivity.
These actions support our objective of expanding tower cash EBITDA margins by 200 to 300 basis points by 2030, while maintaining the service quality our customers depend on. We also continue to evaluate practical applications for AI across the organization. Our focus is on opportunities that improve decision making automate repetitive work, and make our teams more effective while maintaining the appropriate controls and oversight.
We believe these capabilities can create incremental value over time and reinforce our culture of operational excellence. Our third strategic priority is disciplined capital allocation. Over the past several years, we have reshaped American Tower around higher quality assets, developed markets, and businesses with attractive growth and return profiles.
This quarter, we took another meaningful step forward by entering into an agreement to sell our Canada business. The transaction allows us to recycle capital toward opportunities with greater potential to drive long term AFFO per share growth including investments in our tower portfolio and CoreSite, debt reduction, and share repurchases. During the quarter, we repurchased approximately $315 million of common stock.
And subsequent to quarter end, our board approved an increase to our share repurchase authorization. Together, these actions reflect our continued confidence in the value of the company, as well as the flexibility provided by our balance sheet, and cash flow generation. We continue to apply a disciplined capital allocation framework.
We will first fund the dividend and attractive organic investment opportunities. Maintain leverage within our target range, and then allocate incremental capital across share repurchases, selective M&A, and further deleveraging based on relative returns and market conditions. The result is a more focused American Tower with a higher quality earnings base, multiple avenues for growth, and the financial flexibility to invest through the cycle.
We believe that combination positions us to deliver durable, industry leading AFFO per share growth over time. In summary, I am pleased with our performance to the first 9 months of the year. And encouraged by the momentum that we continue to see across the business.
Our premier global tower portfolio, differentiated interconnection focused data center platform, strong balance sheet, and disciplined approach to capital allocation, positions us exceptionally well to capitalize on the next wave of investment in wireless, cloud, and AI infrastructure. I want to thank our employees around the world for their continued dedication and execution as well as our customers shareholders, and business partners for their ongoing trust and support. With that, I will turn the call over to Rodney to review the financial results and outlook in more detail.
Rodney?
Thanks, Steven, and thank you all for joining the call. As Steve mentioned, we have carried our strong momentum into the third quarter and increasing our 2026 outlook for the third time this year. I will start by reviewing our third quarter results, and then I will touch on our revised full year outlook.
Slide 7 shows a snapshot of our third quarter highlights. Consolidated property revenue grew ~5% year-over-year when excluding noncash straight line revenue and FX impacts. Normalized for the impact of 1-time DISH churn, property revenue grew ~7% on a cash FX-neutral basis.
Our growth was primarily driven by organic tenant billings growth of ~1%, or ~4% when normalized for the impact of 1-time DISH churn, complemented by data center cash revenue growth of ~16%. Adjusted EBITDA grew more than 2% when excluding net straight line and FX impacts. Normalized to the impact of 1-time DISH churn, adjusted EBITDA grew >5% on a cash FX neutral basis.
Cash adjusted EBITDA margins declined ~50 basis points year over year primarily due to DISH related churn and lower services contributions. Excluding DISH related churn, cash adjusted EBITDA margins grew 10 basis points year over year. Attributable AFFO per share grew >1% when excluding FX impacts.
Normalized to the impact of 1-time DISH churn and excluding the impact of refinancing costs, attributable AFFO per share grew ~6% on an FX-neutral basis. Moving to Q3, organic growth and data center growth on slide 8 across each of our tower segments organic growth was in line with the expectations we laid out earlier this year. Supported by solid demand across our global portfolio.
In the US and Canada, organic growth was flat and ~4% when excluding DISH churn, consistent with our expectations for durable growth in the mid single digits. We remain confident that 2026 represents a trough year for US and Canada organic growth and continue to expect organic growth to accelerate in 2027. In Africa and APAC, organic growth was over 8%.
Modestly ahead of our expectations for organic growth of 7% in the second half of the year, In Europe, organic growth was >4%. And in Latin America, organic growth declined ~2% primarily driven by elevated churn in Brazil consistent with our expectations laid out at the start of the year. We remain encouraged by the prospects of an earlier than expected market repair in Brazil and the forthcoming acceleration in Latin America organic growth in 2027.
Finally, on the right side of the slide, data center property revenue growth was >16% when excluding non-cash straight-line revenue. As Steve mentioned, this quarter marked another very strong quarter of new leasing activity for CoreSite, and we remain on track for 2026 to represent another year of record leasing activity. Now let's turn to our revised full year outlook.
We are raising guidance for property revenue and AFFO per share while maintaining our adjusted EBITDA outlook reflecting consistent growth across our global tower portfolio data center outperformance and capital allocation decisions. Starting with property revenue outlook on Slide 9, we are raising our outlook by $55 million at the midpoint, representing an increase of ~1% relative to our prior outlook. Our revised outlook now implies >4% year-over-year growth when excluding non-cash straight line revenue and FX impacts.
Normalized for the impact of 1-time DISH-related churn our outlook implies nearly 7% growth on a cash FX neutral basis. The increase to outlook was primarily driven by ~$10 million of data center outperformance and $45 million from other items. Including pass through and straight line revenue.
We are reiterating our organic growth assumptions across all regions and continue to expect organic tenant billings growth of ~1%. Or ~4% when excluding DISH churn and raising our outlook for data center growth to ~16% year-over-year. As Steve mentioned, we recently entered into an agreement to sell our Canada portfolio for approximately $2 billion, which is expected to close in the fourth quarter.
At an implied multiple of approximately 26 times 26 expected EBITDA, the transaction underscores the significant value embedded within our North America tower portfolio. Combined with the opportunity to recycle proceeds into share repurchases debt reduction, and other higher growth investments we expect the transaction to be immediately accretive to AFFO per share while enhancing our long term AFFO per share growth profile. Consistent with our outlook policy, the impact of the transaction will be reflected in outlook once it closes.
Our 2026 outlook, therefore, includes full contribution from our Canada portfolio including $13 million of revenue, $8 million of adjusted EBITDA and $8 million of AFFO. Moving to adjusted EBITDA on Slide 10, we are holding our adjusted EBITDA outlook flat to our prior outlook. Compared to our prior outlook, outperformance of ~$10 million in data centers and ~$5 million in other items, including straight line, was offset by approximately $15 million of lower network services contribution.
Reflecting timing shifts in certain customer projects that we had expected to commence in the second half of the year. Our outlook continues to apply >2% growth year over year excluding noncash net straight line and FX impacts. Normalized for the 1-time impact of DISH related churn our outlook for adjusted EBITDA implies >5% growth on a cash FX neutral basis.
Turning to AFFO on Slide 11. We are raising our attributable AFFO outlook by $0.02 per share primarily reflecting share repurchase activity during the quarter. Our revised outlook now implies growth of >3% year over year.
Normalized for the impact of 1-time DISH-related churn and excluding the impact of refinancing costs, our outlook for attributable AFFO per share growth implies approximately 0% growth, on an FX neutral basis. We continue to expect our services business growth to represent an ~1% headwind to attributable AFFO per share growth this year. Similarly, we expect debt refinancings to represent an ~1% headwind to attributable AFFO per share growth this year.
We continue to believe this year represents a trough for attributable AFFO per share growth. Heading into 2027, we are confident that we can deliver a meaningful inflection in growth and return to our long term expectation of AFFO per share growth in the mid to high single digit range. Turning to capital allocation and our balance sheet on Slide 12.
Our capital allocation strategy remained focused on balance sheet strength. Disciplined investment and long term value creation. In 2026, our growth capital plan remains largely consistent with our prior outlook, We continue to expect to spend approximately 85% of our discretionary capital within our developed markets platforms.
Including >$700 million in success-based investments in our data center portfolio to replenish elevated levels of capacity. Purchase of land beneath our tower sites, and continued investment in our European newbuild program. Relative to our prior outlook, we are reducing discretionary capital spending by approximately $40 million primarily reflecting the timing of certain international tower development projects.
This adjustment does not reflect any change in our long term investment priorities or demand outlook. As Steve mentioned, during the quarter, we entered into an agreement to sell our Canada business as we continue to simplify our portfolio and support our strategy of recycling capital into higher growth opportunities across the business. We also repurchased approximately $315 million of American Tower stock during the quarter, plus an additional $68 million through October 20.
Bringing our total share repurchases since we started buying back stock in Q4 of 25 to >$950 million. And as Steven mentioned, subsequent to quarter end, our Board authorized an additional $2 billion under our share repurchase program, bringing remaining repurchase capacity to approximately $3.1 billion. The actions we have taken over the last several years have positioned us with significant financial flexibility.
We ended the quarter with leverage of 4.9x, comfortably within our target range of 3 to 5x. While maintaining the highest credit rating among our peer group. As demand for digital infrastructure continues to grow, our balance sheet remains a key strategic asset that enables us to pursue opportunities from a position of strength.
Turning to slide 13. Our third quarter results reflect the durability of our business model and the execution of our strategy. We continue to see favorable demand trends supported by rising mobile data usage sustained investment in communications networks, and the increasing need for critical digital infrastructure.
Together, with our high quality portfolio, disciplined capital allocation strategy and financial flexibility these trends reinforce our confidence in our ability to generate durable growth and create long term value for our shareholders. With that operator, please open the line for questions.
Thank you. As a reminder, to ask a question, please press To withdraw your question, please press 1 again. And our first question comes from Batya Levi of UBS.
Your line is open.
Great. Thank you. Can you provide a bit more color on the application volume you are seeing in the US today?
It was a bit of a step down in new leasing in the quarter. What would you attribute that to? And how should we expect new leasing to pace as we exit the year and into 2027?
And maybe another question on. I know we have had a lot of discussions on potential Starlink wireless network build. Can you provide maybe a bit more color in terms of the level of engagement you are seeing from them today?
And how would you characterize how you are positioned to capture this opportunity? Do you anticipate new business to follow all the tower companies in The US or maybe be positioned to 1 or 2. And when would you expect that opportunity to be meaningful?
Thank you so much.
Hey, Batya. Good morning. This is Rodney.
I will take the first part of that question, and then Steven will address the second part relative to Starlink. So in terms of our new business level, you are correct in seeing that our new business contribution numbers have stepped down in Q3, and I will talk about that in just a bit. I would first highlight that the activity level that we are seeing and the new business levels that we are seeing for the year remain at very healthy levels.
We continue to see the carriers deploying 5 g kind of the late stages of 5G, and they are also transitioning to the early stages of network densification. I would also highlight that not all carriers are active at the moment. And I would highlight here that means that what you are seeing is that the new business as it paces through the year, is front end loaded, and we are experiencing a step down in the second half of the year.
That is entirely consistent with the outlook that we put out at the very beginning of the year. it is in line with our expectation without a doubt. And it also for the full year, new business is expected contribute about 250 basis points towards organic tenant billings growth in the US. And that is consistent with the level of new business contribution to organic tenant billings growth we saw in 2025 ex DISH.
So there is an element of consistency there regarding the new biz as well as its contribution to organic tenant billings, growth. With that said, we are firmly on track regarding the full year OTBG in The US that we expect as well as, again, that new business contribution. And that puts our US full year OTBG outlook at about 50 basis points.
And I will just highlight that includes about 400 basis points of headwind, from DISH churn. Relative to going forward, I am not going to address 2027 specifically at all, of course, as you would expect. But looking beyond 2026, we do expect OTBG in the US to increase to more normal levels as we move forward.
This is primarily 2 broad reasons. 1 is the elimination or the nonrecurrence of the dish churn. And the corresponding headwind it has on OTBG as well as we anticipate increased carrier activity in an environment going forward where all carriers would be active in the future as well as some of the catalysts that Steven mentioned earlier in the call and in the prior call that could be catalysts for upside from that. So as a result, you put all this together, we are confident that 2026 represents a trough year for both organic tenant billings growth as well as AFFO per share growth and that our portfolio global portfolio of tower assets and data center assets are well positioned to have an inflection point up in both of those metrics going forward.
Yeah. And, Batya, I would just add, you know, when you kind of zoom out and think about the carrier environment and what is going on today, I focus back on the mobile data growth that you are seeing in the US. And when you look at those numbers that are coming out of CTIA, and the growth that we saw year over year in total mobile data growth consumption going up 20% year-over-year this year and projecting that to accelerate even further in the next few years.
That really tells you that the carriers will have to continue investing in their networks to provide more capacity. And that is exactly what we thought we would see at this stage of that evolution. And we are seeing them start to evolve more into a capacity play.
We are seeing all the carriers becoming more interested in densification, adding more sites, And so we believe that we will see the back half of 5G play out just as we talked about in the past on that. And then when you think about the other catalysts that could accelerate that even further, you have got the spectrum auctions that are coming up. And the deployment of that spectrum Plus there is some other spectrum kind of out there being held in private hands that could come into play as well.
So you have got a lot of spectrum that could come on board. Traditionally, more spectrum means more equipment. And more leasing for towers.
And then pretty soon, we are going to be talking about 6G transitioning into that. And we have not even started seeing, you know, a lot of equipment going on sites yet for AI. And we think as AI becomes more prevalent, you are gonna see an uptick in that as well.
So when you kinda zoom out as to what is going on, you know, going on in the overall ecosystem, there are a lot of positive tailwinds that really make us feel confident that you are gonna see that new leasing environment continue to be as healthy as it is today, but actually increase over time as well. And then I will address your questions on Starlink. We are really excited about the prospect of maybe having a new customer at scale in the US.
And we are really encouraged by their public statements and what they are saying that they plan to do. And also by the concrete steps that they are taking to build that layer cake of spectrum. That you need to be a viable, player in the US market.
So those are all really encouraging signs that we are seeing there. It also reinforces what we have been saying all along. Which is satellites are a complementary technology to terrestrial networks that you need a terrestrial presence if you are gonna try to operate in the wireless space in the US.
And so this is again, it is playing out the way we thought it was going to. You are seeing some positive momentum there. In terms of specifics with us with Starlink, we are not gonna get into any specific discussions that we are having, But you should assume that anybody that wants to build a network in the US at scale is gonna come to American Tower as 1 of their premier tower vendors, if not the premier tower vendor.
We have an unmatched portfolio in the US in terms of where our sites are located, the quality of those sites. And we can get them on air faster than anybody else. So we should be the first call everybody makes.
So you should assume that is kind of what is happening there. And again, we are we are excited about the prospect and in terms of timing and things like that, we will let them speak to what their network plans and their deployment cadence would be. Thank you.
Thank you. And our next question comes from Prentiss of Raymond James. Your line is open.
Good morning, Ric. Hey. Appreciate the questions.
First, hey. I wanna follow-up on Batya's comments a little bit.
How many sites did you guys have of the 24 thousand sites that DISH has on air Yeah. We are not going to put out specific numbers on that. We were a significant player in their build.
And break proud of our contribution to that. And it was a significant piece of that, but we are not gonna put out specific numbers on that.
Use your revenue maybe as a guide that you have already kind of reported when you took DISH out? We got a bunch of sites, Ric.
Yep. Okay. Cool.
Who owns that DISH equipment that is sitting on the towers?
Obviously, the DISH had it. Terminated the agreement, then it got in bankruptcy court. Has it been officially abandoned, and could that be of interest to some potential players, the equipment that is on the towers?
Because we think the 800 spectrum might actually already be on some of them. There is an abandonment order in the bank So, yes, we own that equipment.
As of the date of that order. As to the interest, the other people may have in that equipment.
I will let them speak to what they want to do with that. But we do own it, and we can provide access to that to all interested parties. Great.
That makes sense.
And as we think about your earlier comments that, you know, satellite providers need terrestrial We have seen a lot of satellite companies. Amazon has their LEO. ASTS.
You have got even Rocket Lab buying Iridium, ASTS. Are you having discussions with a broader universe of satellite companies that might want terrestrial beyond just what is kind of been mentioned about Starlink SpaceX?
Ric, you can assume that anybody who wants to play in the wireless space is exploring all their available options, including, you know, building, buying, or renting a network and that we are talking to all those parties. So anybody who has wireless ambitions is probably somebody that we are talking to. Great.
And last 1 for me. Obviously, the data center business continues to outperform. You raised guides because of data centers.
Revenue growth rate there. Can you help us understand a little bit about the return on capital that you are seeing from spending that almost $700 million to continue to increase the supply out there?
Yeah. Thanks, Ric. I will touch on some of the demand drivers and if Rodney wants to get into any specifics he can on this.
But when you think about that CoreSite business, you know, again, I want to distinguish it from other types of data centers. It is an interconnection platform that brings together clouds, networks, enterprises, and now AI companies so that they can communicate together. And what that allows us to do is be very specific in curating our customer mix, but it also gives us the ability to price the way we need to continue to underwrite mid teens or better stabilized yields on the incremental capital that we are investing.
And so we continue to underwrite that quite frankly, we are outperforming it. In many instances. But that is the. that is the kind of baseline assumption that we have for all the capital that we are deploying in CoreSite is kind of in that range for all of our organic builds.
And, Ric, I would just add a couple of metrics. You have seen our double digit revenue growth that we posted for the quarter. And the outlook continues to look at double digit revenue growth expectations for CoreSite.
That also comes with expanding margins and some really interesting results in cash mark to markets, which is also double digit, which is a significant increase from the traditional 3 to 4% increase. So we are having a fantastic Q2 and Q3 relative to cash mark to market. I would just caution you that for the full year, we do expect that to be more in the mid single digit range, in the 6% range.
We are also we were experiencing low churn in the second half of the year here. And the business is performing exceptionally well. And just as Steven said, the capital that we are putting out in this business, we expect mid teens stabilized returns.
And as the environment. If the environment continues to drive the way it is and stabilize deals, we get beyond that and have more utilization and continue to have the pricing leverage, there is certainly upside from there.
Great. Thanks, guys. Appreciate it.
Thank you. And our next question comes from McVeigh of Morgan Stanley. Your line is open.
Hi. Thank you. Just had a couple.
First, on the US services, so there was a 15 million headwind to EBITDA this year versus the prior outlook. Can you just give any more color on the timing shifts you had mentioned? And I might have missed it, but is there a services revenue outlook?
And then secondly, on the CoreSite cross connects, it looks like there was a step-up in cross connects this quarter. Is that just lumpiness? Or do you think AI is driving an increasing level of cross connections going forward?
Thank you.
Morning, Cameron. Thanks for joining the call. I will start with the services piece.
As you see in our outlook, we did update our outlook that reflects now a modest pullback in services revenue down to about $220 million of revenue. The first thing I would highlight is that number is still a very compelling strong number up against historical standards. It was not that long ago that our services revenue was typically in the $100 million range.
The pullback itself is related to the timing of certain activity projects from a certain customer that we now expect to be delayed and not happening in Q3 and potentially not in Q4. So that $220 million pullback in revenue, it does have roughly a $15 million reduction in the EBITDA levels that within our outlook. The 1 thing that I would also highlight here is that the services revenue pullback is not directly related to any organic new business reduction.
Those 2 metrics at this point really are decoupled, and the services is activity exactly at the site Services work where our new businesses more tied to terms and conditions within holistic agreements that we have in other MLA types. Over the years, we have expanded our network services operations to now include end to end solutions, including zoning, permitting, and construction management, And the increase in revenue that we have seen in the service business over the years really reflects and demonstrates the value of our network services capability to our customers in terms of helping them get new equipment deployed on our sites efficiently and quickly.
And just touching on the interconnection, we are absolutely seeing an increase in interconnection kinda quarter over quarter. I do not think it is lumpiness. Think that you are seeing a different demand characteristic.
And it is it is definitely driven partially by AI but it is not just AI. You are seeing an increase in these ecosystems where more and more customers are talking to each other. And so it is cloud, it is enterprise to AI, it is AI to cloud. it is network to AI. it is really all of those different components are seeing an increase in cross connects.
Thank you.
And our next question comes from Michael Rollins of Citi. Your line is open.
Thanks and good morning. Just a few follow ups, if I could. So first, Rodney, going back to some of your comments on domestic leasing.
So if it is 250 basis points of core leasing, contribution this year. You take that against the nearly $5.1 million you ended with last year, about a $127 million. And you $93 million to date.
So is it is your indication that these dollars are expected to bounce back towards that $34 million level just by that math. That you saw quarterly in the first half of the year? And then I will just, after that, follow-up with a couple of others if I could, please.
Yes, Michael, thanks for the question. I would just highlight kind of that the new business is in line with our expectations. You know, you are correct in terms of the math that you are that you are laying out when you look at the new business numbers in our full year expectations.
So we continue to believe that we will be broadly in that range of the 2.5% contribution from new business. In terms of the actual new business, number for Q4, I mean, you know, we have kinda moved away from guiding to a new business dollar amount, but we do expect that new business to be consistent in Q4 as we as we saw it in Q3. And that is where it is consistent with our original outlook that we provided, which is we did expect the second half to be lower than the first half.
Appreciate the extra color on that.
Secondly, was just curious if there is more of an update on just some of the litigation processes that you are going through. So the situation in Mexico with AT and T Mexico and if the pending divestiture by AT and T has any impact on that process. And then, also, in terms of the potential mediation that you are in with DISH, is there just a range of outcomes that you can update us on, like, you know, in terms of, like, what the high watermark is and, like, maybe where the downside risk is just sort of range bound, what could develop on that front?
Sure. Well, there is really not much new to report. So we did as we had told you guys, we had the arbitration hearing in Q3.
We do not expect a ruling on that until 2027. Early 2020. And so there is really no update on that.
And the potential sale of that business does not really affect that at all. In terms of DISH, you know, there is a mediation which is common. In these types of scenarios for that to happen.
I am not going to speculate on a range of outcomes on that. You know, I think the range of outcomes is kind consistently been you know, the same options that are out there. I will just remind everyone that we have derisked our business by taking DISH completely of all of our numbers and projections and things like that.
And so, you know, whatever happens there would be incremental to any of the projections and the numbers that we have we have given you guys. And, you know, just a reminder to everyone, the dish churn that we saw this year is what has been weighing on OTBG. And so that will be gone next year.
So we will see an inflection in growth next year as a result of the non recurrence of that churn. And so those processes will just keep playing out and know, when there is a resolution, we will let you guys know.
And, Michael, I would just ask you to keep in mind too that relative to AT and T in Mexico, we did have. May a reserve of about $30 million in 2025 up for the revenue. There.
In 2026, we are currently reserving $8 million to $10 million per quarter. Think about 2026 as adding about $40 million to that reserve. So at the end of this year, we expect revenue reserves regarding AT and T Mexico to be at about $70 million.
So you can think about that in terms of run rates and eventual resolution here. And how that may fit into the picture.
that is helpful. And 1 last 1, if I could, please. And this may be a tougher question.
But appreciate the opportunity to ask it. So you mentioned earlier that part of what was happening with the services business was delay from a customer. And another tower company talked about customer delay where that customer was purchasing low band spectrum that process got delayed in terms of approvals.
Is that the similar delay that you are experiencing And does that also then infer some conviction on the ramp for 2027?
If we get too specific about our customer builds, they get very grumpy with So we are not gonna touch too much on what that was. But what I will say is the delay that we are seeing is just a change in timing, not a change in expectation. expectation. So we fully expect to get that business both the services and the rental revenue associated with that when the customer bills, not if the customer bills.
Thank you so much.
Thank you. And our next question comes from Nick Del Deo of MoffettNathanson. Your line is open.
Hey, good morning guys. Thanks for taking my questions. Good morning, Nick.
Hey. First, you have been experimenting with some smaller, multi-megawatt purpose built data centers at some of your tower sites. 1 of your peers has talked about potentially supporting deployments in order of magnitude smaller as maybe a couple hundred kilowatts or so per site. I guess, have you received any interest from potential customers about the latter concept?
And how would you view its appeal versus the model that you have been developing in recent years? Yeah, thanks for the question, Nick. We are excited about everyone getting excited about Edge. it is something that we have been working on for a few years now and edge means something different.
To every person you talk to. And so there are a number of proofs of concepts that are going on with various parties and various sizes. So, yes, we are seeing interest from various parties for smaller deployments on sites as well Our Raleigh facility, which is the kind of the first that we have built of its kind.
I am happy to say that the first megawatt leased up already and we are about to go live on the second megawatt, and it is almost completely leased up as well. So we are absolutely seeing demand for a little bit larger scale deployments as well. At the edge, as well as the smaller scale deployments.
And so when you think about the edge ecosystem, momentum is very positive. And that is something that we are excited about. We think the TAM is expanding because there are multiple parties interested in different models there.
And we continue to believe in our thesis that connecting those edge data centers back to CoreSite gives us a right to win in that space. It makes us a more interesting partner. So we will continue to iterate on that And when there is there is something more material to announce, we will tell you guys that, and we will keep you up to date on our efforts with Raleigh And if we decide to build a couple more of those small ones to iterate on that concept, We are confident those are gonna lease up as well because we are seeing a lot of demand in that space.
Okay. that is great to hear. Maybe pivoting a bit to capital allocation. You have always been leaning more heavily into share repurchases.
I think, for reasons that you have described in your past calls. Guess I was wondering if you have been seeing any changes in seller expectations in the M&A market given rising interest rates and whatnot that might suggest that the relative positioning of opportunities to put capital work might be shifted at all in your priority list?
What I would say is we have not seen material opportunities where had a willing counterparty, the constructive regulatory environment and the economics all came together for us. And you really have to have those 3 for more material M&A. In some of the smaller tower deals in the US, we are seeing a little bit of rationality in some of the multiples, but nothing that is been of scale and nothing that we have actioned on. Recently of any kind of scale in that space.
So I would say that there are opportunities out there. There are people talking about things. But we have not been able to bring those 3 components together on anything material.
And, Nick, I would just add to that and maybe update the listeners here on our overall capital allocation strategy and approach. And I think that entire process is underpinned by management. Steven and I and the executive team as well as the board being very disciplined in terms of our approach to capital allocation, and I think you have seen that.
First and foremost, we do allocate capital towards our dividend. As a REIT, we are required to dividend out about 90% of our REIT tax income. We choose to dividend out about 100%.
Think that is most efficient for our shareholders, and we enjoy returning capital to our shareholders. Next, we look at internal capital programs, and you see us this year in between $1.8 billion and $1.9 billion pretty consistent level. Within that, 85% of it is being allocated towards developed markets, which is exactly in line with the strategy that Steven outlined a couple years ago in terms of leaning into developed high quality economies with high quality counterparties, which gives us some more stable return outlook and an easier, clearer path to value creation.
For our shareholders. Next, we look at M&A. And in the US, we are doing some small M&A. You will see that tucked into our cash flow statement and our balance sheet. But nothing material.
But we do look at M&A in the US and in Europe and CoreSite and towers. But we are very disciplined, we do not feel a need to jump in a way that would be undisciplined. We do not mind allocating capital towards continued debt reduction in this environment, and we also do not mind buying back shares.
We actually like and at certain times, it can be it can be the best use of capital depending on all the factors that come into play. So we are constantly scanning the dashboard when it comes to capital allocation. Being very disciplined.
You know, we have multiple levers to pull, so that is good. We have a lot of flexibility, and it allows us to make really good decisions on behalf of our shareholders. With that said, even with the nearly a little over $900 million that we have allocated back to share repurchases, $1.8 billion to $1.9 billion that we look to deploy in internal CapEx this year as well as $3.3 billion we are dividending back to our shareholders We have an incredibly strong balance sheet, stronger than all of our peers.
We have a BBB plus credit rating, the lowest leverage out there, and we do that as a strategic asset. That puts us in a really strong position to be flexible and opportunistic as we go forward. Alright.
Thank you. And our next question comes from Michael Funk of Bank of America. Your line is open.
Yes. Good morning, guys. Thank you again for the question.
So, you know, I wanted to go back to a potential LEO terrestrial build and get your thoughts on time required to build out nationwide network using existing equipment if possible versus doing more of a greenfield build Just using your expertise to think about timing around that. And then you know, looking at the cost line in the services business, did not come down as much as I would have expected given the drop off in revenue there. So what does that tell us about anticipation of maybe, you know, increased work in the services side?
Sure. I will take the first part, and, Rodney, you can take the second part. We do not want to speculate on what the scope of what people are gonna do in terms of their network.
So it is very hard to guess at what a timeline would be for deployment on that. So, again, on that, I think I have to direct you back to the parties who might build it. there is just too many variables for us to start speculating on timelines What I can tell you is that American Tower can get them on air faster than anybody else, and we can offer end to end services. Which kind of leads into your second question.
You know, part of what we do for our customers is take them from application and zoning all the way through construction. And that will lead right into the second question with Rob.
Yeah, Michael. The. What I would say about the services is that you really have to consider the mix, and I do not wanna get into too much detail there in terms of all the different end to end services that we provide in the different margins.
But, of course, you can imagine construction management is a much different margin profile than the zoning and permitting we do or the engineering. So it is a. it is a mix of the services revenue and particularly where the reduction came primarily. And I would just highlight that we now have construction management runs at about half of our overall services revenue.
So that is been increasing quite a bit, and you will see that reflected in the overall margins from services, the gross margins, which are running now, you know, north of 40% from a from a level that used to be around 50%. That is primarily the mix and the increase in volume that we are seeing in the construction management.
Thank you. And our next question comes from Richard Choe of JPMorgan. Your line is open.
Great. I wanted to follow-up on the data center opportunity. What are you seeing in terms of your pipeline of deals And then in terms of the renewals, you mentioned the 6% mark to market, but are you seeing different customers asking for different things in terms of terms and conditions that you think is a good sign going forward.
For your existing base?
Sure. Well, the demand is really higher than we have ever seen before in terms of CoreSite. And that. that is giving us a lot of flexibility in terms of curating the customer mix, and making sure that we are optimizing the yield on those assets.
The mark to market is. And remember, that is on top of kind of annual escalators. That we get in that business.
So that is just a reflection of pricing in the industry going up, which is a factor of the supply and demand dynamics that are there. And so when you look at our pipeline, Richard, it is very robust. And again, we try to curate that customer mix.
We want people who build the ecosystem, who have a lot of cross connects, who are gonna be there for the long term, And because of the demand cycle that we are in, we are able to be very selective on our counterparties and curate that customer mix even better than we have in the past. So we are very confident in the long term and the durability of both that revenue and the ability to grow it. When you think about the growth that we are seeing, what we have been very confident in saying is we still see double digit growth for the foreseeable future in terms of revenue in CoreSite.
And that is not coming at the expense of the quality. We are increasing the quality of the earnings there. We are putting better counterparties in.
So I would say it is a very healthy environment and, you know, we are excited to be to be growing and investing in that business.
And 1 follow-up on the interconnection side. You talked about it a little bit, but how are you seeing interconnection kind of evolve or connectivity evolve in a with your more AI kind of centric customers or enterprises that are adopting it, is there some question on how many cross connects would it end up taking? How would you monetize it?
Can you give us a sense of what you are seeing?
We are just seeing an explosion in growth You know, when you when you. There are massive cross connects to people who are operating LLMs. But it. it is really the way to think about it is everyone's becoming more connected to each other. And so you are seeing these cross connects between parties that historically did not cross connect in the past because they are transferring petabytes of data back and forth And you just cannot backhaul that across the country over the Internet and things like that.
And that is really what is driving demand. People wanna be in a neutral host colocation facility next to other people where they can get direct cross connects. And that is really what is speeding this ecosystem growth and the cross connect growth.
Great. Thank you.
Thank you. And our next question comes from Brendan Lynch of Barclays. Your line is open.
Rodney, you remain confident that 2020 is going to be the trough year in organic growth and also mentioned that AFFO per share should be accelerating in 2027. Is that dependent on contribution from the satellite operators that could deploy traditional networks? Or would that be incremental?
Yeah. Thanks for the question, Brendan. I would say let me step back and just look at our AFFO per share growth algorithm that we have laid out in prior calls.
I will start by just highlighting that this year, for 2026, in our most recent outlook, that has a 3% AFFO per-share growth rate. On an FX neutral basis, that is much tighter to 0% That includes contributions from DISH headwind of about 400 basis points. It also includes about a 100 basis points of headwind from refinancing costs and the services step down is another 100 basis points of headwind.
So if you look at that, you know, approximately 0% FX neutral reported AFFO per share growth for 2026, and you look at DISH, churn as being nonrecurring, that adds 400 basis points of going forward on a average kind of run rate. Basis. We are moving through the refinance curve, and the refinancing headwind is becoming muted relative to where it was a couple years ago, so we are growing into the higher interest rate environment, but that is another 100 basis points.
And then the services reduction is another 100 basis points. That puts us at an AFFO per share number equivalent to ~7% if you think of those items as nonrecurring and going forward. So outside of those items, our global portfolio of assets is really well positioned for that.
Mid single to better than mid single digit AFFO per share growth. And that comes with a few distinct expectations. 1 is the developed market markets, both US and Europe. We expect revenue growth in the mid single digits from those businesses very high quality economies, very consistent activity levels.
We expect higher growth from our emerging market tower businesses, and we expect double digit growth from CoreSite as we move forward into the next few years. You combine that revenue growth with our high operating leverage, our high financial leverage, and very smart capital allocation and disciplined capital allocation. That makes it very attainable to have an AFFO per share growth in that mid to upper mid single digit rates before you account for the impacts of FX and interest rates.
So that algorithm is fully intact. And I would say when you think of satellite players, we are not really building any of that into the long term, so there could be some upside there. If that is modest, I would not expect a lot of changes to our overall algorithm.
But depending on the nature of those investments and the ambition of any particular satellite carriers, some of that could certainly represent upsides.
Great. Thanks for walking us through those dynamics. And Steve, just to follow-up on your comment about the DISH equipment.
I understand that you own it now. But is there any dispute about that in the legal proceedings with DISH, or are you free and clear to sell that equipment to whoever you choose right now?
Nope. We are good. We can do whatever we want to with it.
Great.
Thank you. Our last question comes from Eric Luebchow of Wells Fargo. Your line is open.
Great. Thank you. Wanted to touch on the data center CoreSite business a little bit.
Maybe you could talk about any steps or things you are evaluating to get the, you know, the higher multiple data center business even more reflected in your stock price today. Are there opportunities to ramp CapEx spending even further as we look into 2027 or 2028? Are there any inorganic opportunities out there, whether it is portfolios or specific assets that could drive an even higher contribution to your attributable AFFO.
Sure. Thanks for the question. We are continuing to look for opportunities to invest in CoreSite.
And if you kind of reflect back on what we said about our pipeline, you know, we have line of sight into almost tripling the megawatts under service that we have today over time. We will continue to look at adding scale there. We are exploring some new market entries there from an organic build perspective.
We have not announced any yet because we are still working through the process of making sure that we got all the entitlements on those before we announced that. But we do think that is an avenue We will continue to invest in our existing campuses We are pushing the teams to accelerate that build pipeline. We have all the entitlements we need for our near term build.
But as you may have heard, it is a little bit difficult to accelerate some of the timelines where you do not have permits. So we are working hard on that. We have got a 30 year track record on the tower side of navigating those headwinds.
So think we are better positioned than anybody else to do that. But we are trying to accelerate that investment. We do think that will be something that gains a little bit more attention for CoreSite.
When it comes to inorganic opportunities, you know, like we would do on the tower side, we will always evaluate what is out there. And if we can find an opportunity that makes sense, then we will we will take action on it. But nothing to announce on that front today.
But we certainly believe in the business. We believe in the connection between towers and data centers and we think that is gonna continue to evolve and become more apparent. We think it is a great asset that we intend to continue growing.
Thank you. Thank you. This concludes our question and answer session in today's conference call.
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