American Tower Corporation (AMT) Earnings Call Transcript & Summary

Yes. Thank you, everyone, for dialing in for our next session with American Tower. We have Rod Smith, Chief Financial Officer and Treasurer of American Tower. We're -- I'm going to moderate the questions, and if you have any questions on your side, please e-mail them to me and I will pass them along. Rod, thank you so very much for joining us today.

You're welcome. Thank you, Batya. It's always great to be with you.

Thank you. I wish we were in person then I wish we were on video, but we have to make do with just audio call.

Yes, I feel the same way.

Yes. I just wanted to start off with maybe a quick overview of the strategic focus of the company as we head into the next year. What are the main topics that we're going to hear about?

Yes, great. So I mean, our focus is pretty consistent. So it's really driving reoccurring sustainable long-term growth. That's what we've been focused on for the last many years, and we continue to be focused on that. And we really do it through 4 primary lenses through what we refer to as our Stand and Deliver strategy, which you've probably heard about. Many of the folks on the line have probably heard about it. It really comes in 4 pillars, so for us, the first 1 is efficiency. And I think of that as driving efficiencies through our business. It's driving and being focused on organic growth. It's looking at ways to improve our margins, make sure that we've got control of our SG&A kind of across the globe and that we're constantly challenging ourselves to make sure that we're running our business to the fullest extent and at the highest level possible. So we're always focused on efficiencies. Again, it's not just cost, it's driving organic growth. Second, we're also focused on growing our asset portfolio. This year, we expect to build about 5,500 towers around the globe. A lot of those will be in India, almost 4,000 in India, with the balance being in Latin America and in Africa. And as we look forward going into next year, we think we'll have an opportunity to build probably a similar amount in the next year and kind of going forward. So we're pleased with that. And I'll just remind you, I know, Batya, you know this, you've heard us say it before, but when we deploy capital through our internal build program, that's the highest-yielding returns that we have in the company day 1. So we -- when we build these towers internationally, they come really out of the ground with an NOI yield of over 10% in India, in Latin America, in Africa. So it's really a good way to invest. The other one is expanding our core platform. So expanding beyond towers, looking at ways that we can use the tower sites for other revenue opportunities, ways to make the towers more efficient, drive more cash flow. We do that by a couple of different things that we're looking at. We're certainly looking at power and fuel, which you've heard us talk about primarily in Africa, and that's been a great program for us. We're also investing in some fiber in Latin America and in Africa. And we're exploring in India a little bit, but nothing too material at this point. But we're looking at ways where we can invest in infrastructure assets that the carriers need as part of their backbone network. So we do explore that. And we're exploring other things like edge compute and in-building strategies, which will -- I think you'll probably ask me a question or 2 about those as we go forward. And then final is leadership. We want to make sure that our company is a leader in this space, in this industry, not just in the U.S. but around the globe, not just in towers but in telecom. And that's particularly important as we head into a 5G fully connected world as we go forward. The other key priority as we look into next year, one final thing that I would mention, Batya, is we did buy -- we announced the acquisition of InSite, a U.S. portfolio. We'll be very focused on integrating that portfolio as we enter into 2021 and again driving that organic growth, driving the efficiency through that portfolio as well.

Right. That's great. Maybe we start off with the domestic business. A lot of moving parts in terms of how we should think about the domestic organic growth. You're ending this year with about 4.5%. We think that you could be a little bit higher than that. But can you talk about -- I know you're going to give official guidance in the beginning of the year. But sort of like how should we think about the different pieces? Maybe starting off with the MLA with T-Mobile, how would that impact the growth in the near term, maybe midterm, long term?

Yes. Yes, absolutely happy to address that. So you're right. In the U.S., we are forecasting about 4.5% organic tenant billings growth in the U.S. And based on the way that, that stacked up in the first 3 quarters, that would assume that organic growth will be closer to 4% as we get through the balance of the fourth quarter. When you look at the different piece parts, we have what we refer to as holistic agreements with a number of our big carriers in the U.S. That certainly provides us some level of visibility in terms of the revenue outlook going forward. So we do view the U.S. as a very constructive marketplace for us. We see growing mobile data consumption continuing across the 4G networks in the U.S. We see 5G just beginning to launch. We see new spectrum coming available here in the U.S. We do believe that as 5G networks get rolled out on higher-band spectrum, that there will be a shift towards densification of the networks, which would indicate a shift from amendments drifting back over towards co-locations and adding new cell sites into the carrier networks as opposed to just amending the ones that they already have. So you put all those things together and we view the U.S. as having a long period of very constructive solid growth going forward and growth drivers. Certainly, the fact that we have these holistic deals with many of our carriers gives us a lot of visibility into that. And I'll just highlight one of the deals, the T-Mobile deal that we have. We just struck a 15-year term, so it extends all of the sites that will -- excluding the Sprint sites, some of the Sprint sites that will churn. The remainder of the sites, they've committed now to a 15-year term, so it's a long-term agreement. It adds about $17 billion of contracted future revenue to our order book. It brings that order book, for us as a company, up to about $58 billion. So a significant size order book in terms of committed future revenues for sure. So that, we certainly view that as a real positive. With that agreement, we will have some Sprint churn. That churn is not a surprise to anyone. We've been talking about the Sprint churn and the industry has for many years to come. I would just remind everyone that the Sprint churn that we talk about is largely the iDEN churn left over from the Sprint-Nextel merger, where we never experienced that churn because of the way we contracted and did agreements with Sprint. So we were able to maintain that revenue for a number of years longer than, let's say, the other tower companies were able to. But now at this point, Sprint is merging with T-Mobile, and T-Mobile will select a percentage or a portion of those Sprint sites to get off of. So we will see elevated churn beginning in the end of 2021. We'll see probably the largest churn year from the Sprint churn to be in 2022 on an annual basis. And then we'll begin to pull out of that in 2023 and 2024, so we'll have that churn spread over a full year period with the bulk of it coming through in 2022. So you'll see that kind of dip. But if you look at the gross organic business in our industry, we feel very good about solid levels of growth in the U.S. going out over an extended period of time.

Got it. Maybe just one follow-up on the churn. Is the total amount still roughly that 6% overlapping sites that you had initially indicated? Or are you getting some -- I mean, I guess, you are -- you've got the business plan, but should the total amount be roughly in that 6% range?

Well, it's in line with the 8-K that we provided a number of quarters ago and it's about 4% of our property revenue. So when you look out in 2021 or 2022, at that point, it will be about 4% of that property revenue, global property revenue will come off through the Spring churn over a full year period, not all of it but over a full year period.

Right. Right. I guess I was thinking more about of the domestic property revenue, but that makes sense. And maybe...

Oh, right, yes. Yes. But it's in line with the way we've talked about it.

Right, right. Okay. Maybe just walking down the list of other moving parts for the domestic business. A question we get is AT&T. They're about to be close to completion of their FirstNet deployment. Does that mean that when they're done, the activity level from AT&T will slow down dramatically? Or you also signed a long-term MLA with them last year. Does that smooth out or give you a better sense of what the kind of long-term activity from AT&T might be?

Yes. For us, it's definitely the latter. So we do have a signed comprehensive master license agreement with AT&T that goes out for several more years. So that will be a good indicator and gives us very good visibility and predictability into the revenues from AT&T. So we don't expect any volatility there. We did see the FirstNet build-out start up many years ago. We did kind of see a spike several years ago in terms of our growth rates. But going forward, we will not expect to see any kind of a reduction in our revenue or even revenue growth because of AT&T because we have that comprehensive MLA signed.

Got it. And maybe the recent auction that we saw, CBRS, do you think that will be an opportunity for the tower business or is it mostly indoors at this point?

It's a great question. I think CBRS, we view it as mostly indoors but that still could be an opportunity for us. We do have a pretty extensive in-building network. We've got over 350 premier in-building networks built out today, and we've got many other facilities where we have exclusive agreements and could build out additional networks. And we spend a lot of time expanding that and going out and talking to building owners and looking to expand that. So we do think that the CBRS spectrum probably is primarily indoor, although some carriers will use it outdoors in certain applications as -- maybe as they wait for other spectrum to become available and maybe as a permanent part. So we'll see how they actually deploy that. But certainly, we do expect CBRS to be an in-building application and one that we are working to put through some of our in-building networks and, at the same time, expand our coverage of in-building networks and expand the total addressable market that we have for in-building coverage. And we think that's important because as you get more 5G deployments out there, and as you bring in more of the mid-band and higher-band spectrums, that spectrum being propagated off the macro tower doesn't propagate quite as far as lower-band spectrum, and it has a harder time getting into buildings. So it could be over time, over several years and in a 5G wireless network environment that in-building coverage could be served in a different way than it is today through 3G and 4G networks, meaning the 5G mid-band spectrum may not penetrate as many buildings and at the same rate, so adding supplemental in-building coverage because of that may be important. That could be done through CBRS and through a mutual host like us.

Got it. Okay. And maybe the next big opportunity for the U.S. tower business could be the C-band deployment. The auction is beginning this week. How should we think about that opportunity from the perspective of potential winners of that spectrum applying more -- sort of adding more equipment, deploying that spectrum over time? But also as you think about the propagation of that spectrum, could that also lead into more densification needs? And how quickly do you expect that spectrum to be deployed?

Yes. So all very relevant questions. So the C-band auction is about to kick off here any day. And we do expect at least a couple of the carriers will be aggressive. That's our expectation. Certainly, Verizon has stated that they expect to be a participant in that as well as AT&T and, to some extent, maybe even T-Mobile. We do think that, that C-band spectrum will become a pretty essential piece of the 5G deployments going forward. It will take a little bit of time to have that spectrum cleared so that it can actually be used in wireless networks. So we do think it probably is a second half of 2021 deployment cycle and with the majority happening even beyond 2021, so into '22 and maybe even beyond. So that's kind of the time frame of actually getting the spectrum, getting the auction done, getting the spectrum cleared, getting it available to be pulled into the wireless networks. It's probably an end of 2021 and into 2022 sort of a rollout. The way we expect to see that be deployed is the carriers would integrate that into the networks, it's going to use probably new antennas in addition to what's already out there. So there'll be new antennas put up in the towers. There'll be additional cables and lines and radio heads to support all of that. So that will be kind of an amendment wave through the tower industry as we see C-band spectrum get deployed.

Got it. And maybe the sort of like another driver is the potential deployment of DISH spectrum. They have signed a deal with Crown Castle to deploy up to 20,000 towers. Just I wanted to hear your thoughts about that. Do you think that this means that DISH will become the main beneficiary -- Crown will become the main beneficiary of DISH's entry into the space? Or do you expect to get some of that business as well? And how quickly could that show up?

Yes. I think -- I mean, the first thing I would say is I think it's great that DISH is actually taking these steps. It really validates their plans to build out this nationwide network. They've got those commitments with the government and through the T-Mobile-Sprint merger process. So we think all that is really good. If you look back in history in all these networks, there's never been a nationwide network that's been built on a single infrastructure provider set of assets. So we -- just because the Crown deal is first, I don't think that means that the other tower companies won't get even their fair share of lease-up and activity across the U.S. DISH just said that their network is likely to be 50,000 sites or even more. So there's -- I think it's a really good sign that DISH is taking these steps. We do expect to see them begin to deploy a network sometime in 2021. It will be a multiyear deployment. And we certainly are excited about that deployment and think that our towers are perfectly suited and in the right locations that they will be important to DISH and important really to any nationwide network that gets built. So I think we're in a really good position, whether we lease our sites to DISH on a site-by-site basis or if we have some sort of a holistic agreement. Either way, we're fine with as long as the terms and conditions are right, the pricing is right, that we're protecting value at the same time we're helping DISH or whoever the customer would be to deploy their network. That's really what we're looking for. So we'll be patient. I don't think that being the first to move necessarily puts you in the best position to create value long term. And that's what we're about. We're about creating value for our shareholders and off of our assets over the long term. And the DISH network when it gets built, it will be up and running for a long time, years and years, if not decades and decades. So we're focused on getting the long-term value and helping DISH build out the network and do it in a rapid fashion. So we are ready, able and willing to do that, whether that comes on a site-by-site basis, which is perfectly fine with us or if we do it in more of a holistic agreement, that's perfectly fine with us as well. But we do think our assets will be important in that network build.

Right. Okay. Maybe one question to wrap up U.S. before we move on to the other regions. And again, I know that we're going to get more detailed guidance early on, but there seems to be a lot of focus on this direction of this organic growth curve, and there are some puts in terms of the higher activity coming from T-Mobile. C-band could be an option towards the end of '21 into '22, and '22 is the year that we're going to see that big chunk of churn coming in. So putting it all together, would you -- do you still feel comfortable that the current growth rate will kind of like show up over the next maybe 12 to 24 months? Are we going to see sort of deeper declines and then moving up from there?

I think the way we think about it, Batya, and when we looked at our organic and in billings growth from a gross perspective, we do see an acceleration for a lot of the reasons that you just mentioned, right? Having the agreement with T-Mobile, that certainly will be a step-up in organic gross, let's say, new business for us from T-Mobile relative to what we saw, let's say, in 2020. With the C-band auctions coming in and the way some of our other agreements are structured, we do see a very constructive path over the next several years in the U.S. for gross organic tenant billings growth. With that said, we can't overlook the Sprint churn that we will have coming. And again, that will begin in 2021. The high watermark or the trough of churn will probably hit in 2022, and then we'll begin to see less churn in '23 and '24. And by the time we get out to 2025, we'll have the Sprint churn behind us. So if you kind of look at it, if you were visualizing a chart with 2 line graphs on it, 1 line graph of gross organic growth looks constructive and steady. The churn comes down a little bit. It peaks in '22 and then begins to pull out. So with that said, we do look beyond 2022, we think we'll have higher growth rates than in 2022 just because of that churn issue. So that's kind of the way I would speak about it. I don't want to talk too much about any individual year. We're not -- we'll be giving guidance in February so certainly, we'll have more to share at that point, but I don't want to get too far ahead of ourselves in terms of specific guidance.

Right, okay. That makes a lot of sense. And maybe moving on to India. It has been a challenging market. We're seeing maybe some stability right now. Can you talk a little bit about what gives you confidence in the long-term growth drivers of this market?

Sure. Yes. So India is a market that, as you stated, over the last couple of years, it's been fairly challenging. There's been a couple of noticeable headwinds, the first of which is the consolidation of the wireless carriers themselves that happened pretty rapidly, albeit not unexpectedly, it happened quicker than we thought. And we're almost behind -- we almost have that headwind behind us entirely. And now the market is -- from a structure standpoint, it looks very much like the U.S. and some other developed markets around the world where you have 3 to 4 primary wireless carriers serving a population and having nationwide networks. So that structure, I think, is in a good place now going forward. The other headwind is the issue of the adjusted gross revenues definition that was part of a Supreme Court case and negatively affected some of the wireless carriers, although not all of them, primarily of the existing carriers, it's Vodafone and then, to a lesser extent, Airtel, and it doesn't really affect R-Jio too much. So there is a liability there in terms of the prior tax penalties and interest that now Voda and Airtel both have those liabilities assigned to them. The one thing I would just point out here, Batya, is if you recall back when we entered the market back in around 2007, for almost a 10-year period, India was one of our fastest-growing markets. So it's proven itself to be a very rapidly growing market. And I think it will return to that once we get through some of these headwinds, and the primary issue now is the adjusted gross revenues definition and how that may affect Vodafone, Idea over in India. So that's really what we are looking at, at the moment. And we're looking for a couple of things from Voda in terms of the pathway forward. Certainly, the timing of these fees will be important. They did get a reprieve from the government. Now they have 10 years to make those payments. They can spread those over 10 years, so that's much better than having them all do now. So that gives Voda a much longer runway to plan their cash flows and make arrangements to make those payments. Number 2 is they are in the market looking to raise equity, so we will be watching that and we wish them a lot of luck there and hopefully, something constructive there happens at some point in the next quarter or so. That certainly would be a good step for them in the marketplace. The third one is tariff increases, so them increasing prices on their subscribers. The market has done that once in 2020. We expect that they'll do that again here in some point in the next quarter or so. And that would provide additional cash flow to all of the wireless businesses and importantly, into Voda, Idea so that would be a constructive step forward. So we're watching all those potential activities and certainly rooting for Voda to have a lot of success in those arenas and raising equity and raising [indiscernible] and continuing to work with the government. [indiscernible] a very supportive executive branch in the India government. They're very supportive of telecommunications in general, and they have a strategic objective to digitize the Indian economy. And the only way that works is to have a healthy, robust telecommunications infrastructure. And in India, that telecommunications infrastructure will be wireless infrastructure. So we do see a DOT and an Indian government that is supportive. And I would -- and it's important, I think, to just point out that those 2 branches are separate from the Supreme Court. So the Supreme Court is the agency that was opining on the validities of the fees around the AGR and the timing and those sorts of issues. We think that the Indian government itself is much more incented and aligned to have a healthy robust industry. So hopefully, they will be working with the industry players to make sure that it's a very constructive environment going forward. We do -- when we look at India, we still believe that there's a lot of potential, a lot of upside. It's a great opportunity. It's a market that has 1.3 billion people in it. It primarily relies on 2 and 3G networks, a little bit of 4G network available through the R-Jio network but primarily 2 and 3G. So a significant amount of investment is required in order to bring those networks up to 4G capability and improve the quality over time. So that is really exciting. That's really the long-term goal. We do believe we'll get back to those high single-digit, low double-digit growth rates once the churn issues are worked through primarily with Voda. And with that, we're not sure exactly when that will happen. We need to wait to see the resolution of some of these things. So we don't think it will happen in 2021. We do expect some more churn in 2021. And beyond that, we'll just have to continue to watch the market and look for these positive events to actually take hold.

Right. Okay. Maybe it will be good to -- if you could remind us your total exposure to Vodafone in the region or maybe as a percent of total global property revenues?

Yes. Sure. So Voda is -- it represents about 5% of our total company property revenue, so global property revenues. And within India, in the region, it's about 40% of our India property revenue. So that's kind of the size and scale of it. And I would point out that with Vodafone in 2020, we continue to see new business activity from them as well as from the other players. So they continue to invest in the network, albeit there has been elevated churn.

Right. I wanted to ask you about that. Putting Vodafone on the side, how are the other 2 incumbents, Jio and Airtel growth activity have been trending?

It's been good. It's been solid. It's been consistent. So we've actually seen double-digit gross growth in India. So even without the escalated, just the new business activity, we've seen double-digit growth, and that's primarily supported by the other 2 carriers. Voda's been active but not at the same level as they were a couple of years ago for the reasons we just talked about. So we have seen very solid gross growth in the market. And as I said earlier, as we see the churn kind of work through and Voda get their path forward, clearly defined and on track, then I think we could reach those more normalized levels of organic growth. The other thing I would mention in India is we're going to build about 4,000 new towers in India this year. The majority of those towers will be built for Airtel. So there is a -- there remains a lot of capital being deployed in India building out these networks to get them where they need to be in order to handle the 4G networks that will be coming in the future. So -- and again, with those assets that we build in India, we're getting double-digit NOI yields right out of the gate with one tenant.

Right. Would you expect similar levels of build-to-suit activity to continue in the region?

Yes. Yes, we do. I mean, we think that, that market with the number of people they have and given the state of their current networks, we do think that continued significant investment in India is required, and that includes building new -- more towers. So we've got really good relationships. We always look to have mutually beneficial relationships with the big carriers we serve around the globe. We do that in India as well. And we would expect that there'll be a significant number of towers built in India over the next several years. And we think the level that we're at now, there's no reason to think that that's going to stop anytime soon. So we'll give more guidance again in February, so not talking too specific about 2021. But we're in a really good situation in India when it comes to building towers, particularly building with their talent and anchor tenant, getting -- in getting those towers up and running.

Okay. Awesome. Moving on to LatAm. It has been a pretty stable, solid growth region, about 7%, 8%. Wanted to ask you if you see anything in the near term that could deter that growth rate. And maybe if you could touch upon Mexico. We're seeing that Telefonica is going to use AT&T's network as an MVNO player. What kind of exposure do you have to -- do have in Mexico for that potential churn event?

Yes. So Latin America is a market that is very resilient, growing really well for us. Last year in 2019, grew, I think, about 7.5% organic tenant billings growth. This year, it will be about 7% so pretty consistent there between that 7% and 8% that you referenced. We think it's very durable in the Latin America market kind of in a lot of the different countries that we're in is, again, really constructive. And we do believe that across those markets, the carriers will continue to invest in their 4G networks over the next 5 to even 10 years. So as we look out, we do see kind of a sustained continued CapEx investment in these networks over the long term. So that is really, really good. And it sets us up really well for long-term growth in Latin America. So we think it's very constructive. We think it's very stable. With that said, there have been a few consolidation events in Latin America. So in Mexico, you had mentioned Telefonica is going to be, in a sense, running an MVNO network over the AT&T network. So they're not going to have their traditional cell site equipment deployed, but they're going to run their own back office and core network. So that's kind of the path that they chose. So there's a couple of things there. We will have potentially a little bit of churn from Telefonica in 2021, where they have a few sites coming up for renewal. But the bulk of the Telefonica assets don't come up for renewal until 2026 and 2027. So even though they may be running over the AT&T network, a lot of their leasing activity with us continues until 2026 and 2027. Then on the flip side, when you look at AT&T, there's a couple of things there. Number one is with the addition of the telecommunication subscribers from Telefonica on the network, that will put a burden on the AT&T network and it will likely increase their investment requirements in their own network, which could be an additional revenue source for us as well. So we'll kind of work through that with AT&T and Telefonica. And then the final thing that I would say is when these kind of network sharing events come up, it's not automatic that the carriers have the ability to run a core network and then use some other carrier's equipment out on the cell site. So there is a contractual element to this that we're working through with AT&T and Telefonica to allow them the rights to run this MVNO network the way that they've got it designed.

Got it. Okay. And maybe -- we've seen you done that maybe in the past where when a carrier makes substantial change in its strategy to get out of that maybe contractual obligation that will come up '26, '27, there could potentially be a settlement with them as well maybe. But when you put it all together, the -- and specifically Mexico and Brazil, would you expect any of this activity to change the sort of the growth rate that we've seen?

No, I don't expect any material changes to the growth rate based on these events. Certainly, these are kind of within kind of normal operating activity that we would see going forward. We are looking out the -- there has been lower inflation across many of the countries in Latin America, which has reduced the escalators, let's say, in the last couple of years. So there's a chance that, that trend reverses and we could see some upside from there. We also saw some weakening of some of the economies in Latin America, which did put pressure on the carriers and their capital investment. In Brazil specifically, it followed a presidential election. And for the subsequent 2 years after that, there was a little bit of a disruption in the economy. And then COVID hit, so that was another kind of disruption. So to the extent that the -- we get through COVID and the economies begin to do better, we could see an uptick in just growth activity as well. So there are -- certainly, there's some upside here from the numbers that we've posted, let's say, the last couple of years, certainly to the level that could offset any additional churn from these couple of consolidation events that we just talked about.

Got it, okay. Maybe a question about Europe. It's definitely getting a lot of attention because there are a number of assets available to switch hands. Can you remind us how -- what's your overall strategy in Europe right now? You do have a very small exposure. It's growing slowly but it's contributing nicely to cash flow. How would you approach potentially increasing your scale in that -- in the region?

I would say first off, our European strategy is fundamentally consistent or the same as it is in every other region, which is we enter these markets in these regions to scale up and to become a significant player, being #1 or #2 in the markets that we're in, where albeit we're relatively in early stages in our European investment tier. There are many types that have changed hands recently. And I think you are correct, there are many more that will likely change hands in the coming years. So we would like to be bigger in Europe. We like the European market. We think it provides very stable cash flows. Some of the governments are high-quality governments with high-quality economies, which we definitely like. The cost of borrowing in Europe is very low at the moment, so that certainly plays a role in not only ours but other folks' capital allocation decisions when it comes to Europe. So we do see Europe as an attractive market. Certain countries in Europe are very attractive to us. We will continue to operate the businesses we have today to the greatest extent possible and as well as we can. That will mean that we'll focus on driving organic growth, just like we do everywhere else around the globe. We'll continue to build sites and build relationships with the primary wireless carriers within France, Germany and Poland, which is where we operate now. And we'll continue to evaluate M&A opportunities across Europe. And we'll continue to evaluate those opportunities in a consistent way with how we have in the last couple of years and as we have, really around the globe. We are very consistent in the way that we run models, and we look at individual assumptions. We go site by site, we go country by country. We certainly -- the counterparty plays a big role in that in terms and conditions of the leaseback agreement or the sale agreements play a big role in that as well. So in the past, we've seen some portfolios trade that had terms and conditions that didn't quite stack up to our business model. They weren't terms and conditions that we were comfortable moving forward with. And in some cases, we saw pricing that might have been a little bit overweight relative to our liking for those specific assets in those specific locations and countries with those specific agreements that are tied in with them. In every portfolio, every tower, every country, all the counterparties, they all have different leaseback arrangements. So there could very well be some future portfolios that come to market that have, number one, different terms and conditions in the sale; and number two, different leaseback arrangements with the counterparty. So we're very optimistic that eventually, there will be something there that we find the terms and conditions and everything line up and then we'll continue to evaluate. So we like Europe. We have a presence in Europe. We like our European businesses. And we do -- we are looking for ways to make it bigger and to become a bigger player in Europe.

Right, great. Maybe we have time for one last question, and tying that with where your ideal place would be in terms of financing such a transaction. I think with the InSite acquisition, leverage would be high end of your range, around 5x. Do you have room maybe to increase that a little bit, given the low cost of debt? And I guess when you look at an M&A transaction, what makes you walk away?

Yes. So maybe I can start with the last one. Yes, I'll start with the last one first, Batya, and then I'll hit the first question. So we would walk away from a transaction if we didn't see the right value creation there, if we didn't see a very clear path to identify and understanding and managing any risks that are associated with the portfolio. So we spend a lot of time on that. Certainly, the structure and terms and conditions could make us look at a deal in the final analysis and say, no, that's not -- we're not getting where we need to be, and we would be disciplined and we would walk away. So there are a number of reasons why we would not enter into a binding agreement to buy a portfolio. But with that said, I think you've seen us around the globe. There's also lots of reasons for us to enter binding agreements to buy portfolios when we get the right terms and conditions and we're pricing it and we've got the identified risks and mitigations and everything else and we feel comfortable, we don't hesitate to move forward. In terms of leverage, we are investment-grade. Our stated policy is to stay within 3 to 5x. We're definitely committed to that range in our investment-grade credit. With that said, with the InSite transaction, it does push us up close to that upper end of the range. A couple of things that I would note is, we've been above 4.5x most of this year. I think we've done -- we've got a lot of work, as you've seen in the capital markets, to extend maturities, to take advantage of the low rates. We don't have any maturities now out through until 2022. We've reduced our average cost of borrowing down to below 3%. Our average tenor across all of our senior notes is over 7 years. So we're really very well positioned. We're a little bit on the high end in terms of our fixed -- our percentage of debt that's fixed. So there, again, we did that by design to take advantage of the very low rate environment. So we've been very opportunistic and we've used this period of time, I think, very wisely in terms of positioning our balance sheet. With all that said, we do have that stated range of 3 to 5x. We are investment-grade, that's important to us. We will keep focused on that for sure. But I will remind you that there have been times with prior acquisitions, particularly strategically important acquisitions in developed markets, where we have gone above 5x. We've maintained our investment grade and then we've delevered over time to get back down below 5x. So there is a precedence, historical precedence, for that sort of balance sheet management. And as we look forward, the InSite transaction will push us up close to that 5x. We also have the second POP output, which we've been talking about that could come due at any point. So we probably will be running at the very high end of that range. And for the right deals, going over 5x with a commitment to delever, I think that's something we've done before and potentially that could happen again.

Got it. Okay, that's perfect. Thank you so much for joining us. I think we need to wrap it there. And hopefully, next year, we'll see you in person. Thank you, Rod.

Yes, I look forward to that. It was great talking to you. Thanks, everyone. So long.

Thank you.