American Tower (AMT 5.85%)Q4 2024 Earnings CallFeb 25, 2025, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower fourth quarter and full year 2024 earnings conference call. As a reminder, today's conference call is being recorded. Following the prepared remarks, we will open the call for questions.

[Operator instructions] I would now like to turn the call over to your host, Adam Smith, senior vice president of investor relations and FP&A. Please go ahead, sir.

Adam Smith -- Senior Vice President, Investor Relations and Financial Planning and Analysis

Good morning and thank you for joining American Tower's fourth quarter and full year 2024 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'm 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 that will be set forth in our upcoming Form 10-K for the year ended December 31, 2024, 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 Chief Executive Officer

Thanks, Adam. Good morning, everyone, and thanks for joining the call. When I stepped into the CEO role about a year ago, I expressed my excitement about leading American Tower through its next era of growth and evolution. We have an exceptional portfolio of assets, unmatched operating capabilities, and we're in what I believe to be one of the most durable businesses, capitalized by ever-increasing mobile network demand.

Over the past year, activity across our platform has highlighted the criticality of our communications assets in meeting growing demand as carriers in our U.S. and European markets deployed mid-band spectrum assets, emerging market players densified 4G networks and began rolling out 5G, and our CoreSite data center business delivered yet another record year of new leasing. My original perspective of the 5G cycle requiring continued network investments necessary to support coverage has been realized and bolstered with incremental optimism through the next phase of AI-driven demand, which I believe will benefit our towers and data centers and unlock synergistic value between the two at the edge. Last year, I also laid out a set of strategic priorities centered on balance sheet strength, efficiency, portfolio quality, and capital allocation discipline, all meant to further enhance our customer value proposition and strengthen the durability and quality of earnings for our shareholders over the long term.

Certain headwinds in 2024 underscore the importance of these initiatives, which better prepare us to weather challenges like carrier consolidation and FX and interest rate volatility. And although these global risks persist, thanks to significant efforts undertaken by the talented members of our global team, we're entering 2025 in a stronger position, and we'll remain focused on pursuing these strategies to prioritize higher-quality earnings and sustained growth. We're currently on track to maintain our five times leverage target on a recurring basis this year, which is an acceleration from our initial deleveraging plan following our CoreSite acquisition at the end of 2021. In addition to managing our debt and capital structure, our net leverage profile was further supported by margin expansion, which we've largely delivered through systematic reduction of recurring SG&A costs.

Cash SG&A, excluding bad debt, reduced by approximately $35 million in 2024 as compared to 2023, supported by various efficiency initiatives, including the thoughtful globalization of companywide functions like finance, IT, and HR. Most recently, we appointed Bud Noel as our chief operating officer, a role that will advance our efforts in driving efficiency and margin expansion by ensuring that we effectively leverage global operating expertise, and apply the best of our processes, tools, and capabilities across all of our regions. At the same time, we were happy to further leverage our exceptional bench strength and announced Rich Rossi, who spent over 20 years with American Tower, to lead the U.S. and Canada business.

Importantly, with these changes, we aim to further elevate the quality of business functions of customer service and anticipate further enhancing our already attractive margin profile along the way. We'll use the next several months to diligently assess the optimal global operating structure and, in time, we'll communicate long-term efficiency targets. We've already made significant progress, and we have a long runway of opportunities still ahead. Over the past year, we continued to actively manage our global portfolio and forward-looking capital deployment priorities to rightsized geographic risk and ensure a strong synergistic fit between our strategy, core competencies, and assets.

Most notably, as we discussed on the third quarter call, we exited our India business and has since sold our modest land interest in Australia and New Zealand. We also recently signed an agreement to divest our South Africa fiber business and plan to close that transaction this quarter. We believe the quality of our earnings and growth profile is at a material premium to where we stood only a few years ago. In 2025, we expect our developed markets, which consist of our U.S., Canadian, and European operations, along with CoreSite, to contribute about 75% toward our unlevered AFFO, and we expect to further expand this portion through continued prioritization of capital into these developed segments.

We've also increased the proportion of global tower cash flows to top operators in each market. Combined with reduced emerging market exposure, this should translate to a more attractive and predictable return profile moving forward. Our stronger portfolio and focused capital allocation plan paired with our best-in-class global operating capabilities and alignment with market leaders better enables us to benefit from positive industry trends. Global demand for mobile data continues to climb.

The roughly 35% of mobile data traffic that runs over 5G networks today is expected to increase to 80% by 2030, prompting carriers to enhance and expand their increasingly stressed networks. Currently, with 5G upgrades, it improves spectral efficiency and subsequently with incremental cell sites that will densify their footprint in areas identified as needing additional capacity. In our U.S. tower business, we've observed four quarters of sequential acceleration in application activity over the course of 2024, exiting the year with our big three customers having upgraded an average of 65% of their sites within our portfolio with mid-band spectrum, up from just over 50% a year ago.

Carriers have begun to highlight the commercial benefits associated with their 5G investments, translate to enhanced network quality, customer retention and stronger ARPUs with commentary suggesting another active year of network investment in 2025. In fact, although we're between the two peaks of the 5G investment cycle, coverage, and capacity, the 2025 outlook for wireless capex spend is expected to return to higher levels again, totaling approximately $35 billion, which is roughly $5 billion above the average annual spend during 4G. Now as Rod will speak about in a moment, although we anticipate the positive momentum in U.S. activity to continue into 2025 with a solid pipeline supporting it, our outlook for organic tenant billings growth in the U.S.

and Canada steps down modestly compared to 2024. This is a function of the cadence of our contracted use fees and also the commencement timing associated with noncontracted new business, such as new colocations outside of our MLAs or a customer that may not be under a comprehensive agreement, not a softening in demand. So far, the 5G investment cycle is largely in line with our expectations with recent carrier commentary, dialogue, and activity further reinforcing our conviction in sustained higher capex needs moving forward. Over the next five years, underwritten by projected total mobile network traffic growth of over 15% annually given the existing service terms, we expect the required network capacity to more than double with more connected devices, data-intensive applications, and growing uplink transmission requirements placing significant strain on the networks.

Today, we'd expect roughly half of this incremental capacity need to be solved through current spectrum holdings and realized spectral efficiency. That leaves a sizable capacity gap that can only be resolved through densification, additional spectrum coming to market, or a combination of both. In addition, mainstream use of new applications such as multimodal AI could further exacerbate capacity shortages and prompt even more activity. Taken all together, we see an attractive addressable market that our portfolio is well equipped to accommodate with equipment upgrades, colocations and selective new site development over the next several years and beyond.

Similar trends generally hold true internationally, where true 5G mid-band coverage continues to progress each year and stands at roughly 45% in Europe, 15% in Latin America, and 10% in Africa. Data consumption has grown at a CAGR of around mid-teens to roughly 20% across these regions since 2020, and we've seen a corresponding increase in cell site density that complements existing site upgrade efforts. Importantly, these mid-band coverage stats illustrate the need for continued investment over the next several years. As we anticipate similar annual data growth across these same geographies, carriers will continue to utilize the most cost-effective ways to bolster their network capacity and coverage, which will include a mix of macro towers, rooftop sites, small cells, and in remote areas where terrestrial networks are not economically efficient, satellites.

In our CoreSite business, the team delivered a tremendous quarter of results to round out another exceptional year. These results reinforce the strength of the demand and pricing durability for interconnection-centric retail-oriented colocation. And while we continue to evaluate hyperscale, we remain convinced of our core business model and the tangible demand catalysts we see today, including AI-related demand. This allows us to stay disciplined in our lease-up approach to ensure a high-quality customer mix at the right economics and supports our continued long-term expectation of mid-teens or higher stabilized yields.

To build on this momentum in 2025 and beyond and continue to meet the growing needs of our customers across our global platform, we'll maintain the following priorities. First, we continue to evolve our value proposition to our customers and our investment opportunity to our shareholders. I firmly believe that we're the best operator of towers and distributed real estate in the world, which allows us to pass along certain benefits and efficiencies to our customers, including power as a service, security and monitoring, data and asset quality, customer service delivery, speed of deployment, and a suite of services capabilities. Additionally, I recognize that investor attraction to American Towers equity option requires that we operate the highest quality portfolio with strategic fit among our geographies, demonstrate trustworthy stewardship of shareholder capital through disciplined investments, and leverage an operating structure that yields outsized efficiency, margins, and returns.

We have an incredibly talented team that lets us do that. And further globalizing our organization will drive additional economies of scale, centralization, and global automation drive savings across multiple business functions, ensuring that we're able to continue demonstrating synergistic value creation across our 20-plus markets at an exciting time in global connectivity. Next, and as Rod will discuss in more detail, we'll continue to actively manage our capital to prioritize funding of opportunities that yield the most attractive risk-adjusted rates of return over the long term. We're continuing to direct most discretionary capital toward our developed market platforms, including over $600 million for data center development on existing campuses underwritten at mid-teens stabilized yields with some optionality to pursue smaller tuck-in inorganic opportunities where appropriate and also the construction of 600 tower sites in Europe, where we anticipate low double-digit day one yields.

At the same time, we're reducing emerging market discretionary capex to just over $300 million in 2025, a reduction of over 60% from 2021 and over 15% compared to 2024. Spend across our Latin America and Africa and APAC segments will be primarily focused on the construction of about 1,650 previously committed tower sites for strategic customers underwritten at mid-teens day one NOI yields. We expect this number to come down over time as we satisfy those commitments and redirect new discretionary capital to developed regions. In conclusion, macroeconomic uncertainty persists across the global landscape, but consumer demand for connectivity and bandwidth-intensive applications and the associated network requirements remain resilient.

The macro tower remains the most cost-effective manner to deliver gigabyte of mobile data, and our global portfolio of assets and leading capabilities exceptionally equips us to support our customers' multiyear investment needs. Further, we've taken appropriate steps to ensure a higher degree of durable growth and returns generated by our leading business. I'm confident that our focus on operating and actively managing the highest quality global portfolio of assets, offering best-in-class customer service and delivery through our experienced global teams and leveraging our investment-grade balance sheet positions American Tower to profit from attractive long-term secular demand trends across the wireless and technology industries that drive sustained quality growth and returns for our shareholders over the long term. Now I'll turn it over to Rod to discuss full year '24 results and our 2025 outlook.

Rod?

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Steve, and thank you all for joining the call. We had a strong close to 2024, supported by the execution of our strategic priorities, as Steve highlighted in his remarks. Before I review our 2024 performance, which was in line with prior outlook and expectations for 2025, I'll touch on several highlights from the quarter. First, demand for our assets remain solid.

In the U.S., while fixed use fees in our comprehensive master lease agreements mean that new business growth is somewhat independent of actual carrier activity levels, we were encouraged to see the sequential acceleration in applications continue through Q4. We view this as critical evidence of the importance of mid-band spectrum and our customers' commitment to achieving portfolio coverage. In fact, Q4 volumes more than doubled year over year, reinforcing our conviction that our customers will continue to deploy 5G on their existing sites and densify their networks over the next several years to meet surging data demands. Internationally, consistent organic new business contributions were complemented by the construction of nearly 1,000 sites with strategic anchor tenants, which includes record volumes in Europe.

In our U.S. data center business, demand for our interconnection campuses and associated new leasing remained elevated, resulting in fourth quarter revenue growth of nearly 10%. Next, consistent with past quarters, conversion of consolidated cash top line growth was bolstered by vigilant cost management, supporting year-over-year cash adjusted EBITDA margin expansion of over 200 basis points. As I'll touch on in a moment, our focus on driving cost efficiencies across our global business remains a critical priority and evident in our 2025 outlook.

Finally, we continue to strengthen our investment-grade balance sheet. In Q4, we opportunistically addressed a portion of our 2025 debt refinancing needs, successfully issuing $1.2 billion in senior unsecured notes at an average coupon of 5.2% and average tenor of 7.5 years. Furthermore, our 2025 plan is in line with our net leverage target. And we began the year with a strong liquidity position and reduced floating rate debt exposure, providing flexibility and optionality as we address 2025 maturities.

Also, in January, we amended and extended our bank facilities with a leading banking syndicate, which improved our applicable margin pricing by 12.5 basis points on drawn debt to 100 basis points, further optimizing our cost of capital. Moving to Slide 6. I'll first remind you that property revenue and adjusted EBITDA exclude discontinued operations associated with our India sale in both the current and prior year periods. Property revenue growth for the year was nearly 1% and 3% on an FX-neutral basis.

Performance was supported by organic tenant billings growth of over 5%, the construction of nearly 2,400 sites and U.S. data center growth of over 10%, partially offset by a 2% negative headwind associated with a reduction in noncash straight-line revenue. Adjusted EBITDA growth was approximately 2% and over 4% on an FX-neutral basis. Growth was negatively impacted by 3.5% associated with a reduction in noncash straight line.

As we have communicated throughout the year, focus on cost management supported a reduction in cash SG&A, excluding bad debt, of approximately $35 million as compared to 2023, contributing to cash margin expansion of 140 basis points to 66.8%, demonstrating our commitment to driving efficiency throughout our global organization. Finally, attributable AFFO per share of $10.54 represented nearly 7% growth year over year and over 9% on an FX-neutral basis. I'll now summarize a few key points and themes to contextualize our 2025 outlook. First, the drivers supporting our plan are generally consistent with the preliminary indications we provided on our Q3 2024 earnings call.

As you'll see on Slide 7, solid reoccurring revenue growth with elevated conversion rates to AFFO through strategic global cost management initiatives spanning operating expenses, SG&A, maintenance capex and cash taxes fundamentally position our 2025 plan in line with our long-term growth algorithm, partially offset by FX devaluation and interest costs associated with refinancing needs. Although FX and interest rates have proven to be volatile and unique considerations could move results above or below our mid- to high single-digit growth rate target in any given year, we believe our business is positioned to deliver solid, durable reoccurring AFFO per share growth and attractive returns, and we're committed to actively managing the portfolio to ensure that expectation is achieved. Next, as Steve mentioned, we recently signed an agreement to sell our fiber assets in South Africa, which we assume to close on March 1 in our outlook, highlighting another step toward enhancing our portfolio quality and focus. Annualized contributions from the South Africa fiber business were approximately $25 million and $20 million in property revenue and adjusted EBITDA, respectively.

Turning to Slide 8. Our 2025 outlook reflects total company organic tenant billings growth of approximately 5% and around 5.5% absent the impacts of the final tranche of Sprint churn. Organic tenant billings growth in the U.S. and Canada is expected to be greater than or equal to 4.3% and greater than or equal to 5.3%, excluding the impacts of Sprint churn, a modest reduction compared to 2024 as contracted use fees step down and contributions from noncontracted leasing, which is sensitive to commencement timing, begin to accelerate.

Growth includes contributions from organic new business in the mid-3% range and a 3% escalator, partially offset by non-Sprint-related churn and other adjustments of roughly 1%. It's important to note that our guide assumes the first three quarters of 2025 will be impacted by approximately 140 basis points of Sprint churn, likely keeping growth below 4% during that time period before recovering to over 5.5% in Q4, which will not have any negative growth impacts from Sprint churn. Growth in Africa and APAC of approximately 12% includes roughly 7% in escalators, 6% in organic new business as ongoing 4G densification and initial 5G upgrades continue and less than 1% in other billings adjustments, partially offset by approximately 2% in churn, which is a notable improvement from prior years. Growth in Europe of approximately 5% includes 2% in escalators and steady organic new business contributions of around 4%, partially offset by churn of approximately 1%.

In Latin America, growth of approximately 2% includes contributions from escalators of around 5% and organic new business of over 2%, gross growth is partially offset by another year of carrier consolidation-driven churn, which we expect to persist through 2027, resulting in elevated churn of approximately 5% in 2025 and other billing adjustments of less than 1%. Turning to Slide 9. You'll see organic tenant billings is supporting property revenue growth of over 0.5% or approximately 3% on an FX-neutral basis, which is impacted by a year-over-year FX-neutral reduction of $217 million in straight-line revenue and over 2% negative headwind to reported growth. Complementing organic tower growth, net of a reduction due to the nonrecurrence of certain onetime revenue benefits in 2024 is a continuation of solid performance in our U.S.

data center business, growing at nearly 12% at the midpoint. Moving to Slide 10. Cash property revenue growth is converting at a high rate to adjusted EBITDA, representing year-over-year growth of approximately 1% and over 3% on an FX-neutral basis, which includes an approximately 3% negative headwind associated with noncash straight line. Complementing property contributions, we anticipate the positive momentum we saw in our U.S.

services segment in 2024 to continue into 2025, resulting in an increase to services gross margin of nearly $30 million. The operating leverage inherent in our business model is expected to be amplified by prudent cost controls and lower bad debt expense, including another year of cash SG&A declines of approximately $20 million. Turning to Slide 11. 2025 attributable AFFO per share of $10.40 represents growth of over 4% relative to 2024 attributable AFFO per share as adjusted of $9.96 and growth of approximately 7% on an FX-neutral basis.

Performance is supported by a strong conversion of cash adjusted EBITDA growth through tightly managed cash taxes and maintenance capex, partially offset by net interest headwinds of $80 million, a roughly 1.7% negative impact to growth. On Slide 12, I'll review our capital allocation plans for 2025. We expect to resume dividend growth in the mid-single-digit range, subject to board approval, which corresponds to an approximately $3.2 billion distribution to our shareholders. Next, we're planning for $1.7 billion in capital deployments, of which $1.5 billion is discretionary in nature and includes the construction of 2,250 sites at the midpoint.

Approximately 80% of our discretionary spend is centered on our developed market platforms, including over $600 million in success-based investments toward our data center campuses to replenish the record level of capacity sold over the past several years, increased spend in the U.S., primarily toward land buyouts under our tower sites and continued acceleration in European new tower construction with 600 new sites planned. While overall capital spend is moderately increasing year to year as we execute on attractive development opportunities across the U.S., Europe, and CoreSite, we continue to reduce spend across our emerging markets. In 2025, investments in Latin America, Africa and APAC will primarily consist of augmenting sites to accommodate incremental tenants and meeting multiyear agreement obligations with leading carriers, primarily through new builds. Execution of our strategic balance sheet priorities since closing the CoreSite acquisition has us well positioned to deliver more sustained and durable earnings growth, partially mitigate market risk and volatility and provide financial flexibility to execute on opportunistic and strategic growth opportunities at an attractive cost of capital.

Our liquidity position of $12 billion, including $10 billion of bank facility capacity, along with our low floating debt exposure, provides optionality to manage the $3.7 billion of fixed note maturities in 2025. Our plan continues to target maintaining floating rate debt exposure below 10%, which we believe is a reasonable target for the foreseeable future. Moving to Slide 13 and in summary, our fundamental business proved resilient throughout a volatile macroeconomic backdrop in 2024 as carriers continue to invest in their networks across our global footprint to address growing mobile data demand. Although market volatility continues to persist, including interest rate and FX uncertainty, the quality of our assets, people, counterparties, and contract terms, combined with the strategic steps we executed over the course of 2024 to strengthen our balance sheet and enhance earnings quality have us well positioned to deliver stronger growth and returns for our shareholders over the long term.

With that, operator, we can open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Michael Rollins from Citi. Please go ahead.

Gary W. Rollins -- Chairman

Thanks, and good morning. First, can you give us some additional details on what you're seeing in the domestic leasing environment, including the mix of colo versus amendments? And is that mix affecting the book-to-bill for the OTBG metrics over the course of '25? And then just maybe second, and to the point about domestic leasing opportunities, can you give us an update on the multi-year growth opportunity? And do you still see annual growth in the mid-single-digit range going through 2027? Thanks.

Steve Vondran -- President and Chief Executive Officer

Yes. Thanks for the question, Mike. Yes, we don't -- we're not changing our long-term guidance in terms of what we believe the average to be from that 2023 through 2027 time period. When we look at this year's OTBG in particular, there is a little bit of a mix, but it's a little bit more nuanced than just colos versus amendments.

We do have a sequential step down in our contracted use right fee under our comprehensive agreements. As we told you guys when we laid out the guidance, we had more visibility early in that process. It gets a little bit less each year. And so, our organic tenant billings growth is a factor of those use fees plus the incremental amendments and new leases that are outside of those contracted use fees.

So, we do still have one customer that's not on a comprehensive agreement with respect to amendments. And then we also have colocations that are outside of the contracted use fees with some other customers as well. And so what we're seeing from an activity level is a robust pipeline from all of our carriers. It's broad-based across the three national carriers.

And that is still a healthy mix of amendments and colocations. We are seeing a rise in new colocations across the portfolio. That's a combination of continuing to extend the reach of the network, so going into some more rural areas, but also some early stage densification that we're seeing. So, we are seeing that mix change a little bit.

When you look at the 2025 guide, because less of that revenue is part of the comprehensive use fees, we are more subject to timing on that. And we do see a little bit more of a delay in the signing and commencing of those. Those use right fees tend to be front-end loaded in the year, and these others will come throughout the year. And that OTBG metric is so sensitive to the in-year revenue piece that even a 30-, 60-, 90-day delay in commencements can make a difference there.

So that's why it's a little bit -- we're not giving a flat-out number. We're giving it greater than or equal to 4.3% because we'll see what the commencement timing is on that. But that is a combination of the amendments from the customer that are outside of the agreement and the colocations. And that does extend the book-to-bill time line just a little bit.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Michael, maybe I'll just add a point here that roughly 4.3% that Steve talked about in terms of organic tenant billings growth for the U.S., that's in line with our prior expectation and does fit in and support our full year outlook for 2024 as well as that longer-term multiyear guide that we had provided earlier, which was roughly 5% organic tenant billings growth in the U.S. on average from 2017 out to 2024. So, we are pretty well on track with that. The other thing I would highlight is within that equal to or greater than 4.3% includes 2 percentage points contributed from churn.

Roughly half of that is from Sprint churn, which will not be reoccurring next year. So that will be an inflection point where that number certainly is expected to be higher going into next year.

Steve Vondran -- President and Chief Executive Officer

Yes. Just to clarify, that guide was 2023 to 2027.

Gary W. Rollins -- Chairman

OK. Right. Thank you.

Operator

Your next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Simon Flannery -- Analyst

Great. Thank you very much. Good morning. Steve, if I could come back to the data center business, great to see the strong performance there.

Just want to get a sense of how the original concept of the integration of the data center connectivity, the towers, AI inference, and so forth. How are you thinking about that today? And I guess one of the concerns is we've got this massive multiple gap between data centers and towers. And are you getting full recognition for the assets that you hold given the predominance of the tower business. So, I'd love to get your thoughts about, is it worth owning this versus separating that? And then I think there was a reference, Rod, maybe to more money on U.

S. land purchases. Can you just give us a sense of what's driving that? How are you thinking about the economics now that's leading you to lean into that this year? Thanks.

Steve Vondran -- President and Chief Executive Officer

Yes. Thanks for the question, Simon. So we're very happy with the performance of CoreSite and how it's doing as a stand-alone business. As you mentioned, the original reason we bought CoreSite strategically was, number one, we knew it was a good business.

And number two, we thought it would give us an advantage when the industry does move to edge compute. We still believe there will be a convergence of the wireless edge as well as the wireline edge. And we still have strong conviction that, that will happen. In the meantime, we're focused on maximizing the value of CoreSite.

So, when we think about whether we're the right owner of that asset, as long as we're maximizing the value of that asset, we think it makes sense for us to hold it and to continue to grow it because we do believe that that long-term strategy will play out. Now for some reason, it looks like that doesn't play out or it's not a strategic fit, we'll reassess that when the time comes. But at this point, we -- everything that we're seeing leads us to believe that you will continue to see an evolution to the edge, and we believe having that interconnection ecosystem. And to be clear, it's not just having a data center company, but it's having a highly interconnected ecosystem with multi-cloud environments is what's going to be essential for an edge to work.

And that's also what we're already seeing play out in terms of AI. Those multi-cloud environments are also the ideal places for inferencing for AI. So, as this whole ecosystem evolves over time, we think we're well placed to capture that demand as it evolves. And so we believe that we are the right owner for that asset as we continue to maximize its value and evolve that future offering out there.

But like I said, we'll continue to assess it. And if at any point, we think that somebody else can create more value than we can, we'll make that assessment at that time.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Simon, I think the second question you had was around land purchases under our towers in the U.S.

Simon Flannery -- Analyst

Yes.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

You can see in the numbers that we put out for the guide for '25, we're driving that up to about $200 million invested, in '24, that was about $144 million. So, a nice inflection point there and a higher level of investment. The key there is a couple of things that I would highlight. One is we're very selective in terms of which parcels of land we purchase, and we look to purchase land under our very best towers to secure the revenue over the long term to either extend -- we certainly look to extend those leases out 20, 30 years and also buy them or get perpetual easements when and where we can.

So, one of the metrics that you've heard us talk about in the past is the percentage of land or percentage of towers where we have long-term security on the land. And we've got that up to north of -- up in the high 70s at this point. That's partly through the execution of extending leases but also purchasing these leases. And not only does the purchase of the land under the towers secure the future revenue and cash flow of the tower, it's also a great use of capital in terms of the outright returns.

We get returns that are well above our hurdle rates in the U.S. And again, we can be pretty selective in terms of which towers and where the returns are. So, all in all, it's a great use of capital. It helps drive growth, secure revenue, and it gives us returns.

Simon Flannery -- Analyst

Thank you.

Operator

Your next question comes from the line of Batya Levi from UBS. Please go ahead.

Batya Levi -- Analyst

Thank you. A couple of follow-ups on the domestic activity. I think you mentioned 65% of towers in the U.S. have been upgraded.

What does that metric look like for the carriers that are outside of the comprehensive deal? And maybe in terms of the pacing, new leasing pacing for the year, I think you mentioned mid-threes, so about $170 million versus the $180 million we saw last year. How should we think about the cadence through the year? And one final question, if I could. On capital allocation, with leverage inside your target now and dividend growth potentially starting, how do you think about buybacks? Thank you.

Steve Vondran -- President and Chief Executive Officer

OK. I'll take the first one. And so when you think about the carrier activity, I don't want to get too specific because my customers get mad at me about that. But I'll just reiterate that we have one customer that's upgrade to mid-band 5G on over 80%, one customer that's about 65% and one that's still a little bit under half.

And I think with some of their public statements, you guys can probably figure out who those are. In terms of the timing for the new business throughout the year, I think, was your second question. As we think about that cadence, the impact of the Sprint churn is probably the biggest factor that will change the cadence on that. So, the last tranche of Sprint churn hit in October of 2024.

So that will weigh on the OTBG metric for the first three quarters. So, you should expect those three quarters to have a little bit lower growth because it's weighed down by that churn and coming out to a higher growth rate on the back end of that. In terms of the activity cadence, we are exiting 2024 after four quarters of sequential growth. We expect 2025 to be roughly the same volume of applications on our sites.

And I think we think it may be a little bit more front-end loaded this time, but it's really hard to tell exactly what cadence that's going to be in terms of when the applications come in because the carriers are still finalizing their plans. So, we'll see how that works out. But the early indications is last year, it ramped up from the first half to the back. There might be a slight ramp down this year, but it's too early to know for sure how that's going to pan out.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. And Batya, maybe I would just add a couple of things. One is in that -- in the U.S., of course, we do have Sprint churn. The timing of that is it will impact the organic tenant billings numbers over the first three quarters, and then it will be absent in Q4.

So, the churn numbers, the raw numbers, we're looking at about $98 million, $100 million of churn revenue in 2025, we're going to start off the year at roughly a run rate of about $30 million a quarter of churn, and that includes Sprint churn. Sprint churn is a little more than half of it. It's about 140 basis points over those first three quarters. And then that churn number in Q1 will reduce down to about $10 million or so.

Batya Levi -- Analyst

Got it. And the buyback?

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

And then on the new business piece, you're right, we had about $180 million of new business in '24. That's going down to about $165 million in that range, $170 million right in that range. So -- and we do see -- although we do see a dip, as Steve talks about from the end of last year going into Q1 and Q2, we do think there's an acceleration -- modest acceleration that could be seen at the end of the year. When it comes to buybacks, we are at about 5.1 times leverage at the end of 2024.

Our view is that we will be at or below five times early in 2025. That certainly returns us to full financial flexibility. So, leverage would not be an overweight consideration as we move forward. Now with that said, we have to continue to look at interest rates.

There continues to be uncertainty in the macroeconomic backdrop and with the rate environment. So, depending on where rates go and what the outlook is, we'll make decisions on capital allocation. We could certainly delever further if we think that is in the best interest of our shareholders because of uncertainty around rates. But otherwise, we see very constructive ways to deploy growth capital in the developed markets, clearing the hurdle rates, getting very good long-term growth and value creation.

We also will be looking at other ways to supplement that, and that could be through M&A or buybacks. We'll look at both. We'll be very disciplined. And the measure there will be driving shareholder value over the long term.

So, I would say we're definitely open to share buybacks. We're open to allocating capital over the next several years. We will have capital generation in the business that we will have the ability to deploy, and we will be using all the tools available to us to create maximum value for shareholders over the long term.

Batya Levi -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Ric Prentiss from Raymond James. Please go ahead.

Ric Prentiss -- Analyst

Good morning, everybody. I have questions for you. First a follow on, on my friend, Simon, who's -- we're going to miss you, man. But following Simon's questions on the data center side, what yields are you getting on the over $600 million on the data centers? And then when -- if, when, how does AI affect towers? We're all trying to figure out how that might play out.

And then I'll have one more.

Steve Vondran -- President and Chief Executive Officer

Thanks, Rick. So, all of our development in CoreSite is being underwritten at mid-teens stabilized yields. And that's a number that they were able to achieve as a stand-alone company, and we have certainly not diminished any of the underwriting standards for that over time as we've owned them. There's potentially opportunity to do better than that if we outperform the business case on those, but everything is being underwritten at that.

So again, we think that's a really good place to deploy capital. When it comes to AI on towers, I think it's hard to predict exactly when you're going to see it. If you look at how AI is developing, the time gap between you do something on your desktop and when you do it on your phone is pretty much disappeared. People like to be able to do things in the mobile world like they can on their desk.

So, as you see these different activities evolving, the way I think about it is what's going to be bandwidth intensive. If you're interacting with AI on your phone today, it's largely text or still photograph, and those are not huge bandwidth hogs. So, it really comes down to video. I'm really encouraged by what I'm seeing evolving in the AI space.

OpenAI has launched Sora to a select group of people that hasn't been broadly released yet. But when that becomes more mainstream, that will put bandwidth, Google announced Veo 2, Adobe announced Firefly. So, you're starting to see these video AI applications being launched. And I think as those become more widespreadly -- used more widespread -- in a more widespread fashion, that will start making its way to the mobile phone.

That will be more bandwidth intensive. That will put stress on the networks. And so I do think that the incremental use case of AI is going to be a factor in requiring more densification on the networks over time. The question is, when are we all creating videos on our phones.

Ric Prentiss -- Analyst

Makes sense. And question -- go ahead, Rod.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Sorry, Rick, I'll just add a couple of comments here briefly around the data center comments that Steve made. So, as you know, we've seen accelerating revenue growth in the data center business. We're up to double-digit growth here. Along with that certainly comes some pretty good pricing power on our side.

The demand backdrop is really strong. That is driving our average monthly reoccurring rent per cab up. So that's gone up a couple of hundred dollars in the last couple of years. That's evidence of the strong pricing that we're able to drive.

And we're in a position to be very selective in terms of who's coming into the spaces and making sure that they fit into that ecosystem, which is interconnecting, connecting with other enterprise customers, connecting into the cloud, connecting into the networks that we have in there. The other thing that I would highlight is the modest increases in capex you've seen over the last couple of years, we see that directly driving up our backlog. And our backlog now is at an all-time high of north of $80 million, and that's going to sustain solid revenue growth over the next couple of years. So that business is really well positioned, performing very well and is in line to continue to perform well for the foreseeable future.

And the other thing I would say is the increases that you're seeing in the capital in the data center business, we're also increasing capital in Europe. We're also increasing capital in the U.S. tower business through the land purchases that Simon asked about. And at the same time, we're decreasing capital investments on the development side across Africa, LatAm, and APAC.

Ric Prentiss -- Analyst

OK. And then on Batya's question, you mentioned that there could be some other M&A that would fit into the mix on stock buybacks or not. Previously, you've been thinking there's not many portfolios out there that were of interest or value creation to you, not putting words in your mouth, I don't think there. But anything changing on that dynamic as far as more portfolios coming out? Are they coming from mobile network operators? Are they coming from privates that want to exit? What are you thinking as far as what might be in that pipeline of potential M&A for tower deals?

Steve Vondran -- President and Chief Executive Officer

Yes. There's nothing else that we're seeing out there right now, Rick. I mean there's a few portfolios that people are talking about, but nothing at this point looks to us to be something where we can create the type of value that we would need to see. I mean, again, to reiterate, for us to do something M&A, it has to be strategically important to us and one plus one has to equal three.

So, we've got to think that we can create more value in that portfolio than anybody else. So, it's possible we'll find some small portfolios domestically where we think that using our teams and what we know in marketing to our customers, we can do a better job than other folks. You might see some small portfolios like that. But at the end of the day, it's got to be better than a stock buyback for us to do M&A.

And so, we'll be holding the teams to a pretty high standard before we approve anything in the M&A world. So, nothing on the horizon right now that we see that would be compelling.

Ric Prentiss -- Analyst

Great. Thanks for that update. Appreciate it.

Operator

Your next question comes from the line of Nick Del Deo from MoffettNathanson. Please go ahead.

Nick Del Deo -- Analyst

Good morning, guys. Thanks for taking my questions. First, Steve, achieving cost efficiencies has been a real area of focus for you, and you've been quite successful on that front over the past couple of years. I guess in your prepared remarks, you alluded to sharing long-term efficiency targets with us in the future.

So, I don't want you to share anything with us today before you're comfortable doing so. But at a high level, can you expand on that and maybe tell us about the magnitude of savings you think American Tower can potentially achieve on this front over time?

Steve Vondran -- President and Chief Executive Officer

Sure. But I'm still not going to give you a target yet. So, when you think about what we've done so far, our focus initially was on SG&A. And as we have changed the focus in many of our markets to harvesting the cash flows that are there versus aggressively trying to grow those markets, that gave us an opportunity to rethink the organization.

And so that gave us some short-term savings. Those are durable recurring SG&A savings functions that we either just didn't need to do any more than we could do regionally. We've been globalizing our business for a period of time. We're accelerating that now.

And one of the reasons that we asked Bud to take the job as COO was to really look at what benefits we can get across the globe by looking at our core operations. As we were growing aggressively globally, we grew in a decentralized manner. And so we weren't getting -- we weren't as focused on being as efficient as possible in every market all the time because we're growing so fast. And what we've asked Bud to do is take a look at this global operations across all of our markets and to try to figure out what's that next level of savings.

So again, the SG&A was the -- that was the first area we're targeting. As Rod mentioned in his prepared remarks, we are targeting a bit more savings this year. But the next phase of this is to look at all of our operations. And the question is, what can we do in terms of our direct? What can we do in operations and maintenance, utilities, supply chain? And I just don't have the answer yet.

Bud is still running a project to see what that's going to look like. We know there's some savings out there. Not prepared to share a magnitude of that with you yet because we're still sizing it up. But I look forward to doing that as soon as I can pin down Bud on this and get a clear goal from him on what he is willing to sign up to.

But that's something that we'll be sharing with you in the future as we work through those numbers.

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Nick, maybe I would just add to Steve's comments around SG&A is that the SG&A efficiency that you so rightfully highlight is only one piece of the priorities that we laid out a couple of years ago. So, we really were looking at a multiyear, multifaceted set of priorities, which were driving organic growth through the business, driving operational efficiency through the business, improving our quality of earnings and strengthening the balance sheet. The SG&A piece is certainly evidence of us staying focused and executing diligently. We've done that across all of these pieces with the sale of our India business.

We sold some other smaller businesses like the land that we had down in Australia. We just announced that we're -- signed an agreement to sell the fiber business down in South Africa, and we're looking at a few other smaller things there. We've been very focused on driving organic growth, and you can see that in the consistency of the numbers that we're putting up with the balance sheet strength, you've seen us rotate the balance sheet. We're now down to about 3% floating rate debt, which really insulates us somewhat from the volatility and the uncertainty around rates, gives us more certainty, which has been really good.

And we've also received the S&P upgrade from a credit rating standpoint. So, SG&A is certainly an important piece of us driving costs down, being efficient, and it's combined with us executing across the consistent priorities that we laid out a couple of years ago.

Nick Del Deo -- Analyst

OK. Great. Thanks for all the color on that front, guys. I guess one on CoreSite for you as well.

Historically, when they were public, we see the stats by Metro, the capacity and the demand was really skewed toward the Bay Area, L.A., and Northern Virginia. Have you seen the demand patterns change at all such that it's broadened out across your markets? Or do those three markets continue to garner a lopsided share of demand?

Steve Vondran -- President and Chief Executive Officer

Well, certainly, those campuses continue to see increased demand. But what we've seen is that ecosystem development that we've worked so hard to do across all of our markets is really paying off. So, we're seeing in our key markets like Chicago and New York that those campuses are becoming just as desirable as what we're seeing in Silicon Valley, L.A., and Northern Virginia. So it really is a testament to the business model they have where they curate that customer mix, bring in the networks, the clouds and the enterprises and that interconnection ecosystem.

That's what makes it attractive, and we are seeing that play out in those markets. And that's why in my prepared remarks, I mentioned you might see us do small tuck-in inorganics. I referred previously to Miami, where we bought a small data center. What we've asked the team to do is look at new campuses.

Is there a way to expand into other markets to build those over time, just the way we did in Chicago and New York most recently so that you get even more campuses that are performing that way. That's also why we're building DE3 right now in Denver is to try to turn that market into another desirable campus. So, we think we've got a good track record of doing that. We think there's more opportunities out there, and we'll continue to support the CoreSite team as they create those campuses.

But we are seeing a much more balanced load now than what you saw previously in public.

Nick Del Deo -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Jim Schneider from Goldman Sachs. Please go ahead.

Jim Schneider -- Analyst

Good morning. Thanks for taking my questions. I was wondering if you could maybe comment on your view of the U.S. carrier activity relative to fixed wireless access.

And specifically, are you seeing any of your carrier customers devoting new capacity specifically for that purpose as far as you can tell?

Steve Vondran -- President and Chief Executive Officer

It would be very tough for us to peg it specifically to fixed wireless. They're still using their existing wireless networks to serve that. So, we're not seeing a separate network going up for fixed wireless for fixed wireless. I think that anything that puts demand on the network makes it more likely that they're going to add more equipment over time.

But that's not something that we can parse out and see specifically on that. If you listen to the carrier commentary, they still say they're using fallow capacity in their existing networks. I'm certainly not going to contradict my customers on that. But I am encouraged by them raising their targets for the number of customers that are going to be served on fixed wireless.

I'm also encouraged by the returns they're able to get on that product and the positive signs in their business, some of which is attributable to fixed wireless. So, I think it's generally a boon for the entire industry. And I think certainly, we'll see our piece of that as that business develops over time.

Jim Schneider -- Analyst

Thanks. And then maybe as a follow-up, specifically relative to Europe, you're guiding for organic tenant billings growth of about 5%. Is that the right number on a multiyear basis, do you believe? Do you think there's a potential for acceleration there in the out years? And then maybe give us your view, if you would, on any M&A opportunities, specifically in that region? Is that an area where you'd like to increase your focus or not? Thank you.

Steve Vondran -- President and Chief Executive Officer

Thanks. In terms of our longer-term view of Europe, I mean, mid-single digits is what we see that market being over time. So, we think that's a durable growth rate for us. There are a couple of piece parts of that.

We do have CPI-linked escalators. So that will vary over time with what's going on with inflation there. But certainly, the core business activity is very encouraging, what we're seeing there. We're seeing a little bit more competition.

We're seeing expansion into rural areas that's being required by the governments. They are a bit behind on some of their 2030 targets in terms of the population they'd like to serve there. So, I think that there is an opportunity for them to catch up with that plan if they keep investing there. Also, if you look at their penetration for mid-band 5G, it's lagging a little bit behind the U.S.

I think that they're roughly 45% of the population served by mid-band 5G at this point. And so, I think you'll see a continued pace of deployment by those carriers. Now you are seeing a little bit of carrier consolidation in certain markets there as we are across the globe, as we saw here in the U.S. But again, we think that they emerge from those situations with maybe fewer carriers, but stronger carriers with more capital to deploy.

That's probably a good sign for the longer term. So, we feel very constructive on Europe as a whole. Now when we look at M&A, it's certainly a market that we think has potential. The question is, can we find the right portfolio with the right terms and conditions and the right price.

We're not going to go into a market, just to go into a market. We're not going to buy a portfolio just to get some scale there. For us, it comes down to two main components. The first is price.

And right now, everything that's traded in Europe is trading at a price that has kept us on the sidelines a bit. The other aspect is terms and conditions. We are very patient before we pulled the trigger on the Telefonica portfolio because we saw portfolios trading with terms and conditions that just weren't conducive to long-term value creation. And we've enumerated those in the past, so I won't go into a lot of detail on those again.

But we don't want portfolios that don't give us long-term durable growth. And so even if the price was right, we would set out on those opportunities. So what I'd say about Europe is I'm cautiously optimistic that we might find opportunities to grow there, but there's nothing that we've seen to date that has been compelling enough for us to really get into the weeds on it. And we'll continue to be patient and disciplined before we do anything material there.

Jim Schneider -- Analyst

Thank you.

Operator

Your next question comes from the line of Richard Choe from J.P. Morgan. Please go ahead.

Richard Choe -- Analyst

Great. I wanted to ask about the services business, the 30% growth and the margin contribution. Can you give us a sense of how that should grow through the year and what you're seeing there? And then I have one follow-up.

Steve Vondran -- President and Chief Executive Officer

Yes. Thanks, Richard. So we do have a good backlog of projects going into the year. So, we do think that we're going to see some nice ramp-up in that in 2025.

It's a combination of a couple of different aspects of the business, though. We have our normal services business, which is tied to just normal deployment where we're doing some work for the carriers on permitting, things like that. But we also have construction services that's becoming a larger component of that, and construction services are something that we don't do nationwide, and we don't do it for all the carriers. It's really a very niche thing that we do for a couple of customers in a couple of markets because we've been able to structure teams and deals there where we can earn a nice margin, but more importantly, serve our customers well and get them on air on time.

So, when you look at that guide for next year, there's a little bit more construction in there, but overall activity is expected to be up year over year in terms of that. And so, at this point, we have more visibility into the first half of the year. As I've said before, it's extremely hard to predict services for the full year because it's a little bit more variable. But we feel good about the guide we put out, and we'll continue to monitor it, and we'll see what happens in the back half of the year.

Richard Choe -- Analyst

And then in terms of your Canadian business, can we get a little bit of color of how things are going there and any desire to get bigger in Canada?

Steve Vondran -- President and Chief Executive Officer

Sure. It's a very small business for us. We just have a little over a couple of hundred towers there. And it's going well.

It's growing well. We're seeing nice activity levels on it. The Canadian market is an interesting market. The carriers have not traditionally monetized their towers there.

And so, we'll continue to see how that plays out. All the developed markets are -- have some different characteristics to them. The Canadian market, in particular, has a lot of network sharing that's been part of that market throughout its history. You're seeing people building more differentiated networks today.

So, there is a little bit less sharing actually in some areas than there were before. So, we'll continue to monitor that. But the comments I made for Europe hold true for Canada as well. Terms and conditions are extremely important.

Price is extremely important. And you won't see us doing anything to get scale there that doesn't meet those criteria. So, there's no strategic reason why we would pay up to get into that market. We'll just evaluate the portfolio for its growth opportunities.

And if we did something there, it's because we got the appropriate price in terms and conditions.

Richard Choe -- Analyst

Thank you.

Operator

I'll now turn it back to you for any closing comments.

Adam Smith -- Senior Vice President, Investor Relations and Financial Planning and Analysis

Thank you all for joining the call. If you have any follow-up questions, please feel free to reach out to the investor relations team. Thanks, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Adam Smith -- Senior Vice President, Investor Relations and Financial Planning and Analysis

Steve Vondran -- President and Chief Executive Officer

Rod Smith -- Executive Vice President, Chief Financial Officer, and Treasurer

Gary W. Rollins -- Chairman

Mike Rollins -- Chairman

Simon Flannery -- Analyst

Batya Levi -- Analyst

Ric Prentiss -- Analyst

Nick Del Deo -- Analyst

Jim Schneider -- Analyst

Richard Choe -- Analyst

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