Simon Flannery: That’s great. Thanks, Rod. And any update on dividend policy beyond this year?
Steve Vondran: Yes, what we’ve said is we plan to resume growth in 2025, subject to board approval. And we’ll give specifics on our Q4 call in February 2025, as we always do, in terms of what that’s going to look like. Over the long term, what you can think about is that our dividend per share and AFFO per share growth would be similar over the longer term. And so, there may be some short-term changes in that. So, for example, with our India divestiture, there will be some dilution in AFFO per share. So, there might be a dislocation there from the AFFO per share growth and what we will see in taxable income. So, over the long term, you can think about those being similar. But for 2025 in particular, we’ll get more specific about that in February of next year.
Simon Flannery: Great. Appreciate it. Thank you.
Operator: Your next question comes from the line of Rick Prentiss from Raymond James. Please go ahead.
Rick Prentiss: Thanks. Yes, I want to follow up on Simon’s question there on the dividend. I appreciate you can’t give a lot of color there yet, but what kind of payout ratio are you trying to achieve then? Is it then like 100% of attributable AFFO per share? Was it more like 90% and the growth rate’s going to be more on that long term? Again, more decision, but is it more a payout ratio or is it an absolute level, or is it growth that you’re kind of pairing up dividend per share with attributable AFFO per share?
Steve Vondran: Well, if we continue to grow it kind of in line with our AFFO per share growth, you can think of that payout ratio staying kind of in that 60%, 65% range.
Rick Prentiss: Okay. Makes sense. And then one question – go ahead.
Rod Smith: I would just add to that quickly, Rick, that that 65% range, it does leave us between $1.5 billion and $2 billion of additional, let’s say AFFO to put towards other uses, either CapEx or anything else we want do. So, that ratio, that 60% to 65%, kind of fits in well with giving us a lot of financial flexibility to invest capital.
Rick Prentiss: And it’s a good thing not to pay it all out. Leave yourself some money to grow the business. Appreciate that. One question we get a lot, and Steve, you’ve talked to a lot on the call already, prepared remarks and questions from Michael and others, about US green shoots, possibility of improvement. A lot of investors we talk to always look to like carrier CapEx, and you’ve pointed to it as well. I view carrier CapEx as an indicator, but not a perfect linear indicator of leasing. Can you help us understand how you look at carrier CapEx and why it may or may not be a perfect indicator to what can happen in any given quarter or year on the leasing activity you see?
Steve Vondran: Sure. I’m happy to. Thanks for the question, Rick. So, when you look at carrier CapEx, first, I would point out that we’re seeing the estimates for carrier CapEx in 5G are around that $35 billion, $36 billion per year mark on average. And that’s up about $5 billion or $6 billion from what we saw in 4G, and that was up $5 billion or $6 billion from 3G. So, we do see overall CapEx increasing. The reason it’s not a perfect algorithm for growth on the tower side is that CapEx goes to a lot of different uses. It’s not all going into the radio access network that goes on towers. Some of that CapEx goes into the core of the network, and some of it goes to the fiber to connect the network. And so, there’s a lot of CapEx that’s not related to just the RAN on the sites.
So, it’s not a perfect algorithm for that. And in fact, I think I’d point you to one of my customers comments earlier this year where they said that their C-band deployments will continue at pace and that the savings that they’re getting in their CapEx this year is coming from core and fiber. So, when we think about carrier CapEx, what we’re really trying to focus on is what we think the CapEx is going to be on the tower sites themselves. And while the carriers don’t break that out specifically, that’s where we take our market intelligence and what we’re hearing from the teams on the ground to get a better idea from our perspective of what the activity is going to be based on what they’re preparing to do on their sites. And so, the CapEx does matter.
If they’re spending more CapEx, that does imply, generally speaking, more activity. Less means less, but it’s not a perfect algorithm.
Rick Prentiss: Sure. And back to another thing Michael pointed out, it seems to us also that if you do see the shift from coverage and amendment activity to new lease activity and new co-locations, typically your average rent is going to be higher obviously for a new lease than a amendment, even though CapEx might not be very different at a carrier. Is that another possibility?
Steve Vondran: Yes, that’s a possibility, Rick. A new lease rate is typically higher than an amendment rate, but you get more amendments than you do new leases. So, there’s a little bit of a trade-off there. But look, it’s all positive and it’s all the things that underpin our long-term guidance, and that’s where our expectation for growth is. It’s a combination of new leases and amendment as we go through a 5G cycle. It’s a long cycle and it’s going to replicate very closely what we saw in 4G and 3G, and that’s what we’re seeing play out today.
Rick Prentiss: That helps. I want to circle back the last one for me. Rod, you mentioned, obviously you have excess cash that you can use for capital allocation, construction projects that meet returns, but you would also think stock buyback comes into the equation at some point. I know you’re trying to get to the 5.0. Help us understand the process getting through India, and then what would trigger and allow you to think that stock buybacks are an available option, given where the stock price is at?
Rod Smith: Yes, it is a great question, Rick, and as we’ve – as Steve and I have been saying really for the last couple of quarters, we are very focused on driving organic growth, very focused on driving operational efficiency, reducing our overall direction and SG&A cost to drive AFFO and FFO per share growth. When it comes to capital allocation, we’re very focused on delevering and strengthening our balance sheet and continuing momentum of adding CapEx and with the best projects that we see driving quality of earnings, the right risk profile, the right growth profile over the long term. So, all that is clear and remains our focus. You did see we are at 5x this quarter in terms of net leverage. So, we’ve achieved our goal for Q1.
I’ll point out, Rick, for you, that that was benefited by the payments that we saw in India in the absence of, let’s say the need for the reserve that we had in our outlook. So, there is some timing benefits there that could be as much as $40 million, $45 million in Q1. What that means is we expect that leverage during the year will be back up above five slightly between now and the end of the year. And we’re going to continue to work on getting that down to five in a sustainable way. And the goal is by the end of the year. Now, we may not get there, but we’ll be very close, I think, and we’ll be in good shape. So, with all that said, at some point when we have leverage at our target range or below in a sustained fashion, then I think all options are on the table.
At that point, we regain full financial flexibility. In order to really engage in buybacks, I think we’d want to see more certainty around the economics, more certainty around issues of inflation and interest rates and those sorts of things today. I think we all appreciate the fact that there is still a fair amount of uncertainty there, and we’re going to be prudent in making sure our balance sheet is strong and that we are managing the business effectively to drive AFFO growth. That means reducing our floating rate debt, reducing our vulnerability, let’s say to changes in short term rates. That’s kind of the focus for this year. So, I would say when you think about buybacks, Rick, it’s probably more towards the end of this year we’ll be reassessing things.
At that point, I think we’ll be in a little bit different position when it comes to sustained leverage. Hopefully by then, there’s more certainty in the economic outlook and where interest rates are going. And at that point, we can do a full consideration of different allocation options.
Rick Prentiss: Well, I sure hope some more certainty and visibility. Thanks so much guys. Have a good day.
Operator: Your next question comes from the line of David Barden from Bank of America. Please go ahead.
David Barden: Hey guys, thanks so much for taking the questions. I guess my first question would just be related to foreign currency movements. We’ve been seeing some pretty extraordinary moves in the last six months, the Argentinian peso, the Nigerian Nira, even more recently, the yen. Could you kind of share with us any evolution in your thinking around hedging and how that might be impacting your outlooks as you give them for the year? And then the second question would be, similarly, we seem to be at a inflection point, maybe in fixed wireless access, some carriers getting more aggressive, some carriers getting less aggressive. Could you kind of share how you are looking at fixed wireless access as an increasing contributor or a decreasing contributor to your growth outlook for the macro side? Thank you.
Rod Smith: Hey, David, thanks for the question. I’ll hit the FX one and then I think Steve will take the one on fixed wireless. So, when it comes to FX, you’re absolutely right to point out we do have some FX headwinds in the business. That’s clear. This year, the FX headwinds that we’re really seeing are coming through Africa and primarily in Nigeria, which I think you’re aware of. So, when you look at outlook to outlook, we’re down about $15 million in this guide on property revenue, just about $5 million on EBITDA and AFFO, which is about a penny dilution or headwind when it comes to the outlook adjustment there. And the puts and takes there, we’ve seen, although for the year, year-on-year, we have an FX tailwind across Latin America, outlook to outlook, there’s a bit of a headwind that brewed up here in the first quarter.
And then we have the opposite in Africa, where we have a pretty significant headwind in FX across the region year-on-year, but outlook to outlook is actually a positive kind of tailwind in Africa. So, not all currencies kind of move together. We certainly benefit at times more than others in terms of the portfolio effect, where if one currency is under pressure, another one may be up a little bit. If you look at the spot rates, we actually could improve revs by about $17 million. It’s too early to build that into our outlook, but that’s what the spots would tell us. So, from a hedging standpoint, I mean, one of the things that we’ve done is we’ve diversified our debt structure quite a bit in the last several years, and we’re up now to about $7.5 billion of Euro denominated debt to kind of match up with our euro based business that we have in Europe.
The other thing I would say is the international businesses that we have, let’s say across Latin America and Africa and APAC, the cash flow that we generate there, we continue to kind of reinvest back in the business if we don’t take it out through our intercompany lending. And of course, when you have devaluation, we’re still operating in local currency in those markets. Our P&L is denominated in local currency. So, all of the revenues and expenses are all in local currency. So, a lot of it is translational. There isn’t a lot of hedging that we can do, or we think is prudent to do in Africa and Latin America. But reinvesting those cash flows back into assets in those regions, I think is a pretty good long term play in terms of creating value for our shareholders.
But with that said, to the extent that we see any markets that have outsized FX headwinds, that certainly comes into our capital allocation thinking. And one of the benefits of our portfolio is it is very broad, and we don’t have to invest capital in every country every year. We can allocate it where it makes most sense for our shareholders and where it will create the most value, and we do that actively and dynamically. The other thing, you’ve heard us say this before, David, we certainly build FX headwinds or FX impacts into our underwriting model. It’s in all of our deals. So, we do weighted average cost of capitals country by country. We also have the fisher effect and an expectation of inflation differentials between the foreign country as well as the US currency that we invest in, and we build that in out over the long term within the model.
So, it’s hard to get FX right in the short term, but I think when you pull that out over a 20, 30-year period, you have a much better chance of getting that right in the long term model. So, in terms of our underwriting over the long term, we still feel good about the portfolio that we have and our ability to handle the FX, but it is important to know that in the short term, we have the ability to lean in and out of different places, depending on what’s happening. And FX is one of those things that we would certainly be looking at.
Steve Vondran: Yes, I would just add that we also use contractual mechanisms to also control that to some extent. It’s very important for us to have CPI-linked escalators in all those international markets to make sure that you do recover some of the differential that you have from inflation from the US and those markets. And in some markets, we also will have some of the revenues pegged to US dollar. For example, in Nigeria, about 40% of the revenue in Nigeria is pass-through of power. And so, that’s kind of passing through at the same rate that we’re paying it. So, that’s a little bit of a natural hedge. Of the remaining 60%, about half of that is pegged to the US dollar. We get paid in Nira, but it’s pegged to whatever the exchange rate is when we go it there. So, we do use contractual mechanism to hedge as well, as well as what Rod said, that most of our expenses are local currency expenses. So, there’s some natural hedge there as well.
