American Tower Corporation (AMT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower, Telxius Towers Acquisition Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to your host, Igor Khislavsky, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining American Tower's conference call regarding the Telxius Tower transaction we announced earlier today. We've posted a presentation regarding the transaction, which we will refer to throughout our prepared remarks in the Investor Presentations section of our website, www.americantower.com. This morning, I'm joined by Tom Bartlett, our President and CEO; and Rod Smith, our Executive Vice President, CFO and Treasurer. Before I turn the call over to Rod to walk through the key financial points around the deal, I'd like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding the Telxius Towers transaction, including anticipated closing time line, the expected consideration and financing for the transaction, and our revenue, gross margin, adjusted EBITDA and consolidated AFFO estimates and our expectations regarding future growth, industry trends, our net leverage range and any other statements regarding matters that are not historical fact. 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 press release, those set forth in our Form 10-K for the year ended December 31, 2019, as updated in our Form 10-Q for the 3 months ended March 31, 2020, 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. And with that, I'll turn the call over to Rod.

Good morning, and thank you for joining us on the call. As you saw in our press release, we have signed a definitive agreement to acquire a portfolio of communication sites from Telefónica, sites that are located within select markets across Europe and Latin America. I will start by highlighting the key financial elements of the transaction. Next, Tom will discuss its strategic significance, including the expansion of our valued long-standing relationship with Telefónica. And before we conclude the call, we will open the lines for your questions. As summarized on Slide 3 of our presentation, we expect to acquire approximately 31,000 existing sites, which consists of roughly 12,500 sites in Germany, 11,300 sites in Spain and another 7,100 sites or so in Brazil, Chile, Peru and Argentina. In addition, we are gaining a committed pipeline of roughly 3,300 build-to-suits, which are expected to be completed over the next 5 years, primarily in Germany and also in Brazil. Including the growth capital we plan to deploy for these new builds, we expect to dedicate nearly $10 billion towards this deal. The existing sites have an average of 1.3 tenants per tower with Telefónica serving as the anchor tenant. And the portfolio has substantial remaining capacity for incremental tenancies. In its first full year in our portfolio, pro forma for the impacts of the committed new builds I just mentioned, the Telxius sites are expected to generate a total of approximately $775 million of property revenue, approximately $410 million in gross margin and approximately $390 million in adjusted EBITDA. Therefore, the implied all-in adjusted EBITDA multiple is under 26x, which we believe is attractive given the high-quality nature of the assets, the benefits of our enhanced relationship with Telefónica and, of course, the portfolio's very strong growth prospects. Importantly, this multiple is calculated under U.S. GAAP accounting. If we were to look at this from a European IFRS perspective, that multiple would be significantly lower given the treatment of ground leases as debt and ground lease payments as interest expense. On the AFFO side, we expect the deal to be modestly accretive initially and increasingly accretive over time as we drive lease-up and continue to develop the portfolio. A key driver of this accretion is our projection that on a consolidated basis, the assets will generate an organic tenant billings growth CAGR of around 6% through 2025. And turning to the funding side of the equation, we expect to finance this transaction in a manner consistent with maintaining our investment-grade credit ratings, which remains a key priority for us. Given the strength of our balance sheet and the current conditions of the debt capital markets, we anticipate having access to the required capital at very attractive rates. In addition, and similarly to the way we financed our 2015 tower transaction with Verizon, we expect to temporarily bring our net leverage above our stated 3 to 5x target range, with a path towards returning to that range over time. We also expect it to be an equity funding component to this transaction, again, similar at a high level to what we did back in 2015. As always, we will be targeting an optimal financing path that minimizes dilution for our common stockholders while maximizing total shareholder returns over the long term. From a timing perspective, and subject to government and regulatory approvals, we expect to close on these assets across multiple tranches in 2021, likely beginning in the second quarter. And lastly, I will note that we have a fully committed bridge loan in place to support the closing process. In conclusion, we believe that this transaction highlights our patient, disciplined and highly successful approach to strategic capital allocation. This is an economically attractive transaction for us. But just as importantly, it is transformational for our European business. Delivering significant scale in Germany and Spain, where we expect to drive some of the highest organic tenant billings growth rates available in Europe. It also adds to our existing footprint in Latin America and significantly enhances our relationship with Telefónica, a key customer and important strategic partner. As always, we look forward to providing you with more updates. We begin closing and integrating these sites into our global portfolio and capitalizing on their significant long-term growth potential. And with that, let me now turn the call over to Tom.

Thanks, Rod, and thank you, everyone, for joining us today. We are very excited to announce our acquisition of the Telxius assets. And I'm pleased to share with you some of the key points around the strategic rationale for the deal and why we believe this portfolio is so attractive for our company. And then after, as Rod mentioned, after my comments, we'll go ahead and open the line for any of your questions. Since entering Europe through our acquisition of around 2,000 E-Plus sites in Germany back in 2012, we have diligently evaluated dozens of available for-sale portfolios across the continent. We're very familiar with the various European markets. And as a result, have spent a significant amount of time identifying the most attractive markets, counterparties and assets. With that said, until now, we've not found a scaled portfolio with the characteristics that we are looking for, at a price point that we felt enabled us to achieve our required returns. This has been due to a variety of factors, including valuation hurdles, regulatory considerations, asset quality concerns and organic growth challenges, among others. We believe that the Telxius assets, though, in the other hand, are an excellent fit for American Tower. Underpinning the strategic rationale for this transaction are 4 core concepts, which we've highlighted on Slide 4 of our slide deck. First is our strong belief that the markets where the Telxius assets are located are highly attractive and offer tremendous long-term growth opportunities for our communications infrastructure business like American Tower. In Europe specifically, we view Germany and Spain, which comprise the vast majority of the Telxius asset base as 2 of the premier markets from a variety of perspectives. And now coupled with our French presence, they will collectively provide us with an excellent market position to grow. Second, we believe that the size and scale of this portfolio will enable us to more effectively compete with other large tower companies in the region while positioning American Tower as a clear leader in the European communications infrastructure market. Third, the Telxius assets are high-quality, well-located and are supported by long-term noncancelable anchor tenant contracts with Telefónica, a committed investment-grade tenant and partner. We're excited to enhance our long-term mutually beneficial relationship with Telefónica through this transaction and expect this to be a clear win for both parties. And finally, we believe that this asset base is a strong long-term organic growth profile, both in Europe and Latin America, with future leasing activity expected to primarily be driven by high-quality Tier 1 mobile network operators. Turning to Slide 5. I'd like to dig a bit deeper into the strategic elements of this transaction. First are the obvious scale benefits. This transaction will be transformational for us in Europe, catapulting us into a position as one of the top 2 independent tower companies in the continent and a leader in Germany and Spain. And while we've had success with a smaller European presence over the last 8 years or so, we clearly understand the benefits of scale in the tower business and are confident that a more comprehensive portfolio focused on what we believe to be the 2 of the most attractive markets in the region, will pay significant dividends over time. In Latin America, we're adding about 7,000 existing sites through this deal across 4 of our markets. We view this as an excellent way to further strengthen and expand our existing business. Along with those scale benefits comes the ability to develop increasingly strategic, deeper partnerships with key multinational tenants. For example is the anchor tenant on all of the sites we're acquiring. Telefónica is committed to a long-term noncancelable term of around 7 years on average. In addition, we now expect to have more meaningful opportunities to drive lease-up with the other Tier 1 MNOs, particularly in Europe, where we will have a greatly expanded asset base. And finally, as 5G deployments accelerate across these markets, we expect that our material or larger presence will position us well to enhance our platform expansion initiatives particularly in the context of future local and global edge compute opportunities. As a result of these considerations and more, we expect this transaction to augment our go-forward organic growth trajectory. In Europe, where organic growth has been relatively modest for us in the past, we anticipate that these assets will generate average organic tenant billings growth, at least in the mid single-digit range over the next 5 years, representing a significant acceleration. And this is due to a combination of increased 5G spending, continued carrier investments in 4G and some modest churn expectations. Meanwhile, we expect the Latin American sites we are acquiring to also generate solid organic tenant billings growth rates over the long-term as 4G deployments accelerate throughout the region. The final key strategic element I want to highlight is the meaningful incremental diversification that this deal brings to our portfolio. Pro forma for the transaction, approximately 20% of our international revenues will be generated in Europe. And on a consolidated basis, more than 60% of our total company revenues will now be from developed technology-advanced markets. We've always sought to strike an appropriate balance between the higher growth potential of emerging markets and the attractive stability and consistency of more mature regions. And this deal fits squarely within that objective. I also want to specifically point out that we believe that this transaction will further expand our access to the European capital markets, which we expect will continue to be extremely attractive from both a rate and a continuity perspective. In closing, I want to reiterate our excitement around this transaction. The Telxius sites are well-built, well-located assets with an attractive long-term growth trajectory and a strong committed partner as an anchor tenant. We have solid experienced management teams in place eager to start integrating these assets into both our existing European and Latin American operations, supporting Telefónica and marketing them to new potential tenants. We look forward to moving forward with the closing process and leveraging this portfolio to continue to drive compelling, sustainable growth and returns for our stockholders for years to come. With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Brett Feldman.

Yes. Congrats on the deal. In terms of the multi -- in terms of the multiyear outlook that you provided in the presentation and you just walked through, can you give us a little insight into the visibility that's behind it? I'm interested in how much of that is maybe based on an existing funnel whether it's from Telefónica or maybe other carriers. How much of it is just your read of the market? And then to what extent do you think that moving the portfolio into your independent ownership is going to accelerate the ability to lease up the towers to other carriers beyond Telefónica?

Yes. Sure, Brett. Thanks for the question. A lot of the growth is based upon kind of current run rates, a visibility into the funnel as well as working closely with Telefónica themselves. I mean, we expect minimal churn, obviously. They're committed builds. And what we're seeing in -- particularly in Germany and Spain, is a very similar kind of 5G build. They have new spectrum, interesting. They have a mid-band spectrum that we're looking at and even in the United States. There is -- there are MVNOs who have put themselves and have spectrum themselves and are actually looking to build. And so we are looking at this and from -- as I said, really based upon kind of the current run rates, what we expect and what we've been working on with Telefónica themselves. And so have good visibility in terms of the growth rate. And we expected candidly, even our own markets, with 5G being deployed, particularly in Germany, an uptick clearly in the core organic growth in that market over the next several years as well. And your second question, Brett?

It just had the -- obviously, Telefónica makes up the vast majority of the revenue in the existing assets. So it seems under leased to non-Telefónica tenant. Do you think moving this into your independent ownership is going to maybe open up the leasing opportunity that might not have been there before when it was a captive portfolio?

Yes. That's what we've experienced in every other market that we're in. We approach the business differently. It is our only business. And as a result, we think that there is significant opportunity for us to be able to take advantage of this portfolio now in a neutral host type of an environment. So clearly, as we expect. And as I said, we've experienced that model in the past, and it's worked out quite well for us.

Our next question comes from the line of Simon Flannery.

I think -- I wonder if you could just talk a little bit more about the master lease agreement. I think you said it was 7 years. Any color on escalators reserve space? And perhaps you could just clarify on the BTS. What exactly is the inclusion on EBITDA to get to that $390 million before and after the BTS?

Yes, sure, sure. I mean the escalators are, like many of our other national markets are CPI based. So there is no surprise there. No reserve space or any of those types of things, Simon. I mean, it's a traditional colo amendment type of a market. And as a matter of fact, given the densification in the market, we expect probably a higher weighting towards new colocations, particularly given the fact that we're going to be marketing these sites that haven't really been marketed to any third parties before. So we would expect more colocations...

And they said they can handle 3 or 4 tenants?

Yes, they can. I mean, one of the issues that I've always had, and we've talked about in the past, is that in certain markets, in certain areas, the height of this -- the height of the sites themselves. And these are all 30-, 35-meter sites, and so can significantly handle more tenancy. There will be some start-up CapEx as we always have some start-up CapEx in just about every deal that we've ever done before. But it's really minimal going forward. So we wouldn't expect that. And as a matter of fact, even in Germany, given that the population is largely city based, there's a significant rooftop presence that comes along with this transaction. And candidly, that's one thing that we've struggled with a bit with our existing portfolio. We haven't been able to get that rooftop presence. So if you look at a Vodafone or even DT, they have a significant rooftop presence and -- which is really important in terms of being able to service that population. And so by putting our hands on this particular portfolio, we work our way right into having that significant rooftop presence, which is critical for us.

Great. And on the BTS?

And so we are -- yes. And your other question was?

Just how -- what's the BTS contribution for that $390 million of pro forma EBITDA?

Yes. It's about $35 million of EBITDA.

Your next question comes from the line of Nick Del Deo.

First, regarding the 6-year or 5-year organic growth forecast, how much of that do you think comes from Telefónica versus other carriers? And do you see that 6% come in relatively evenly over the next 5 years? Or is it, say, back-end loaded?

It's actually pretty evenly spread candidly, I think in terms of how we're looking at that right now. I think a lot of that growth is going to be coming from the other carriers as we continue to lease these up and position them. I think 5G activity as well as 4G activity going there. I think it's going to make our portfolio being opened up, very attractive in both markets. We had the leading a -- really leading position in Spain with Telefónica as the anchor, as you would expect. And we're the only independent tower company in Germany. So we think as a result of having that neutral hosts, market position in those markets that we'll see some really sizable growth coming from other -- the other carriers themselves.

Okay. How does the expected growth from this portfolio compared to some of the portfolios that you may have passed on in the past?

One of the issues that we've -- it's significantly higher, candidly. And one of the issues that we've had in the past have been kind of twofold. Where is really the growth going to be coming from? First of all. And then secondly, what is the capital that's going to be required to enable those sites structurally to be able to handle those -- that new growth? And those are the 2 elements that have impacted our valuations, which made us unsuccessful, candidly, in terms of looking at transactions. And so the growth that we're seeing right now is, interestingly enough, the markets look very much like the U.S. markets in terms of numbers of wireless carriers as well as in terms of even towercos themselves. And so we're looking at the growth really coming from the continued 4G build, 5G, they're really at their infancy in 5G. I mean, Telefónica, I believe, is looking to get to kind of half of the markets in Germany, for example, by the end of the year. They've rolled out 5G sets really at the back half of last year. And so we're looking at the growth really to come from the same kinds of elements as we're seeing really in the United States themselves. And so as a result, we're seeing real growth coming from the markets. And we're very excited about what we're seeing going forward. And so -- and by the way, we saw that with -- even with our existing business coming out of kind of, as we talked about coming out of last year, looking at the -- some of the spend that the carriers were making into their 5G networks. I clearly think that the European players are really wanting to regain that 5G presence and that technology position that they had many years ago. And so we're excited about what we're seeing going forward relative to new growth.

Okay. That's great. And one last thing. Sorry, go ahead.

Sorry, Nick. This is Rod Smith. So just one quick additional comment there. So we are very excited about the additional real growth. But also, as Tom mentioned earlier, we do expect a lower level of churn than we see in some of our -- some of the other portfolios that we reviewed in Europe. And a lot of that, of course, is contractual with Telefónica as an anchor tenant. So there's good visibility in the churn picture here, which certainly is helpful for us in terms of growth rates.

Okay. Okay. That's great to hear. And -- but one quick point. Just to confirm, you're buying these assets outright, not through your JV?

Yes. So that's right. We're buying the assets outright. And relative to our capital structure going forward and things like that, we'll provide more color in terms of how that will materialize.

Our next question comes from the line of Colby Synesael.

Great. Maybe just a follow-up on that. You do have the JV with PGGM. Just curious why they're not being included or maybe based on what you just said, they might be. It just hasn't been disclosed yet. And I guess, as it relates to the balance sheet, this deal is going to be done over tranches. Are you intending to do the full equity raise the full debt raise all at once? Or is that going to be spread out over the course of the year? And then just my second question has to do with just the balance between the U.S. and international. The company in the past has talked about trying to maintain some, I think, percentage coming from the U.S. Has your views on that changed? And based on just the sheer size of this deal, is it more likely that some of the future transactions we see from the company could be more U.S. oriented to kind of maybe regain that balance?

Yes. Colby, let me try to take those, and Rod can fill in some of the gaps. We anticipate some of our PGGM participation going forward. And we'll disclose more of that going forward. But they're very excited about the transaction as well. And they've been a great partner. And so we look forward to having them participate in this in whatever way that they feel that they can. Relative to the capital raise, I mean, I'll leave that to Rod to answer, but we'll take a look at, again, being opportunistic in the market. And whether we're looking at kind of a once in the market or twice in the market, I think Rod will be working that through with his team. He's done this very well in the past. We've raised similar levels of capital. So we'll take advantage. And working with our advisers, we'll figure out the right timing to be in the markets themselves to be able to finance it. As you well know, we've got a bridge in place to be able to support the transaction out of the gate. And relative to going forward, Colby, the way we've always approached our capital allocation is really looking at where is -- we -- looking at where we can create the most net present value. We've been fortunate in terms of having a nice balance between emerging markets where we're able to get some outsized growth versus our more developed markets, where it's more predictable, solid growth. And this deal, I think, as I mentioned in my remarks, just fits really well within that structure. It provides perhaps more predictable kind of growth rate, more growth rates consistent with what we've seen kind of in the United States, predictable growth rates. I view Germany as just being real crown jewel, candidly, in the marketplace, particularly given our presence in that market. And they're taking that leadership position in the region from a 5G perspective as well as in Spain having Telefónica as the anchor there, and that being their home market. So they obviously have the market share in that particular country. We just look at those 2 opportunities, those 2 markets as being really a terrific fit with our other presence that we had in Europe. And so we'll take a look at all transactions going forward. Where we -- as I said, where we can create the most NPV and the most value. And we'll look at those in the typical way that we always have and determine whether we want to move forward with them and -- or not.

Yes. And Colby, maybe I'll add a little bit on the financing side. So just as a reminder, we do have a fully committed bridge to help with the closing process, if needed, but certainly, our intention is to finance this deal consistent with our investment-grade credit ratings. And then if you think back to 2015, when we did the GTP Verizon acquisition, that -- the combination of those 2 transactions was similar to this transaction. So in terms of our leverage -- stated leverage range of 3 to 5x, we do anticipate going above that in a similar way that we did back in 2015 and then we would delever back to our stated range within a -- probably within a couple of years or so in that kind of a strategy. And that would be entirely consistent with maintaining our investment-grade capital. And then the additional capital, we'll be looking at all different sources of capital. Certainly, with our strong balance sheet, the quality of these assets and the quality of our company, we have a lot of different options. We think the debt capital markets will be very constructive for us. The interest rates have been very low recently. You've seen us in the market, both in the USD market and in the euro market. So we'll certainly be looking at all of those sources as well. And as I said in my prepared remarks, and as Tom said, there will be some portion of this purchase price that will be funded with equity. In our view, will always be to try to minimize the dilution and maximize total shareholder returns and make sure we evaluate all options when it comes to raising capital.

Have you given any color in terms of the magnitude of accretion to AFFO?

We have not. In my prepared remarks, we do view this transaction as being accretive right out of the gate and that it will be increasingly accretive as we lease it up and develop the portfolio.

Your next question comes from the line of Rick Prentiss.

I hope we continue to be well in these difficult times.

Thanks, Ric.

Yes. Obviously, a lot of the focus here is on growth. I want to continue that kind of price-to-growth questioning. First, on the growth side, Rod, you've mentioned a couple of times, churn, hopefully, is lower. I think your European portfolio has been seeing churn kind of in the 2% to 3% -- kind of mid-2% range. What are you thinking magnitude-wise? Does this mean churn on this portfolio drops below 2%, below 1%?

Yes, I think...

Yes, I would -- go ahead, Rod.

Sorry, Tom. Yes. So in terms of churn for Europe specifically, we would expect that this portfolio, the nature of the contract and the heavy weighting to Telefónica, we expect churn to be well below 1%, so well below kind of our average in Europe that we've been seeing.

Okay. And then when you think about the 6% organic billing growth and that obviously benefits from churn being lower, how does that 6% compare, do you think, to the markets we'll see in Germany and Spain, predominantly? Are you guys expecting to get above market share growth then with this portfolio?

Yes. I would expect so, Rick. Again, just kind of given the neutral host component of this and the kind of the marketing and sales capabilities that we have, we think we'll be able to expand the existing relationships that we already have with them. And keep in mind, it's a very low existing tenancy that's coming on with this portfolio. So we would expect us -- ourselves to be able to kind of give an outsized share of the market over the next several years.

Okay. And...

And the other thing I would -- I'm sorry, Ric. The other thing I would point to is just the concentration of rooftop assets, particularly in Germany that comes with this deal. Those assets will be centered around the densely populated areas and they could be really attractive assets as the -- as that market transitions into 5G and continues to deepen their 4G coverage. So that certainly adds to the quality of this portfolio, particularly in Germany.

And Rick, I guess on the -- just on the one last. There is a new 5G entrant in Germany as well as an MVNO, who now has some spectrum that's actually looking to build. And so we would hope that we would be able to support them in a significant way as they build out their network.

Makes sense. Yes. And I assume you're also talking kind of on the C-band auction they had there a while back. And that new entrant kind of definitely bought a big chunk.

Right.

Okay. And on the price side, I'm glad you brought up the land U.S. GAAP versus international GAAP. Is the $390 million that you said would be adjusted EBITDA, is that the U.S. GAAP number or is there a different way we should think about you're going to be reporting your European assets?

Yes. No, our numbers are U.S. GAAP, Ric.

Okay. And then can you remind us in the 2015 time frame when you did the Verizon deal on GTP, was it about 27 million shares that you raised back then to keep the balance sheet balanced and point to that maybe as an example? Is that the right number to look back in our historical model, I think, that was what was done back in 2015?

I wouldn't look at that number specifically as being a number that we'll be looking at for this transaction. I wouldn't want to go make that stretch, Ric. But I think the point was made that when we were -- when we did that particular transaction, we looked at a number of different elements of equity capital that -- to use to be able to finance that deal. And I think that's the same comment here is that we'll look at all different forms of capital of consideration that we'll use for this particular transaction, public equity being one of them.

And converts also possible?

Very possible.

Okay. And final one from me, I guess, is on the ability to add capacity, I think, to Simon's question. You said the height for the tower portion of this is kind of 30, 35 meters, about 100-foot tall towers. You mentioned start-up capital. Can you give us a thought about how much start-up capital there would be? And is there going to be a component of augmentation capital that's needed as well?

I mean I believe the start-up capital, help me here, Rod. I think it was in kind of the $20 million to $30 million range. So not significant, candidly, from that perspective per -- on a per-year basis for a few years. And I think the augmentation, as is typical with adding anything on a site-by-site basis, we'll take a look at what that particular augmentation CapEx. That's obviously all built into the model is -- that we've laid out here. And I guess the other piece, Ric -- yes, the other piece I just wanted to also mention because you talked about land. Another way that this transaction is being underwritten is there is a -- [ this thing ] that come out of pass-through. And so when we're talking about the kind of the pro forma $800 million of revenue, there's probably a couple of hundred million dollars of pass-through on land and some power in the German and Spanish market as well. And so when you start to take a look at then the $390 million, $400 million of EBITDA, you're looking at some very attractive margins that Telxius has actually built up in the region that we're going to be able to take advantage of.

Your next question comes from the line of Spencer Kurn.

Congrats on the deal.

Thanks, Spencer.

So typically, a lot of European tower companies look to cost synergies as a way to drive EBITDA growth. And you've typically been skeptical of those. I'm just curious, are you expecting to drive any cost synergies with this deal?

Yes, Spencer. It's Tom. I mean, and as I mentioned, just some of the margin performance that comes along that the teams at Telxius have been able to manage. Yes, they are -- this is really an organic growth-driven business. I mean that's where I think a lot of the growth is coming from. There aren't a lot of synergies built into the model, candidly. They have, overall, I believe, a couple of hundred people that will be coming over for -- coming over to our business, particularly in Germany and we're in France, but this -- obviously, transaction is not there. But in Germany, we don't have a significant amount of synergy opportunities there. I do think that there are going to be opportunities for us to be able to bring to the markets based upon things that we're -- best practices that we're doing in the rest of our portfolio. So perhaps in the areas of how we think about power and how we think about co-location and those types of things, I think we'll be able to bring to bear to the business, which I think will be beneficial. But relative to the business itself, the growth is really largely revenue driven, new amendment and colo driven.

Yes. And Spencer, I would just add that the largest number of employees that Telefónica has is actually in the Spanish market, which will be a new market for us. So we need those employees, certainly. So there's a nice situation there for us. And then in Germany, they have about 42 employees there. We have an existing business. We plan to just merge those 2 in together. As Tom said, there aren't a lot of synergies built into the models. Anything that was synergistic would be additive to the model, but also not necessarily a priority for us. This portfolio and this transaction really is about driving growth.

Got it. That's really helpful. And then just a follow-up on another question from earlier. You're now at 20% of your international business being in Europe. Over time, is that sort of the right place to be? Or is there a number that we should think about for Europe contributing to your international portfolio over time?

Yes. So no, I don't think -- well, I don't have a number in my head in terms of the right percentages. Again, we're looking at these particular opportunities and looking at where we can create the most value. We like the balance of having the emerging market presence built on top of the foundational more mature markets. It's been a good mix for us in the past. And so I would expect that -- clearly, that kind of a mix going forward. But in terms of particular regions, particular markets, we don't have any preconceived notion of what that should look like or what those percentages should be.

Your next question comes from the line of Batya Levi.

Just a couple of follow-ups. On the churn side, is there any identified churn that we should think about in Latin America, maybe tying in what Telefónica's shutdown in Mexico could look like or anything in Brazil? And just to make sure. Is this an outright purchase? Or do the assets still sit on Telefónica's balance sheet and you have the option to buy them in, what, maybe 30 plus years?

No. This is a -- Batya, this is an outright purchase. We're acquiring Telxius as an entity. And keep in mind, as I mentioned, and I think Rod also mentioned, we have long-term contracts in place now with Telefónica in each of these markets. And so churn is minimal throughout the entire portfolio.

Your next question comes from the line of Matt Niknam.

Happy belated New Year. Congrats on the deal. 2 questions from me. First, it might make sense to ask this on your earnings call, but I'm going to ask it anyways. Was the deal -- would this deal and the inside transaction impact at all, how you're thinking about AFFO per share growth targets for the business over the long-term on a multiyear time frame? And then secondly, more of a housekeeping item, how should we think about the timing of the different tranches of this deal closing? If you can give us any sort of cadence or color in terms of how to think about that over 2021.

Matt, on the AFFO per share, I think it does contribute to our aspirational goal of double-digit AFFO per share growth. And so it will play into that, clearly. And I think it -- given the growth that we expect from the business and the position that we have in each of the markets, I think it will be a nice contributor to our overall aspirational goal. And throughout the second question on the tranches, we would expect them to be the multiple tranches throughout the year. I think as Rod mentioned, we would had hoped to be able to start to close on some of these transactions even in the second quarter. But as you well know, going through the kind of the regulatory process, it's really somewhat difficult to predict. We don't expect to have any issues given the presence, particularly that we have currently in Europe. And so we would anticipate it starting in Q2 and going from there.

Got it. And Tom, maybe just a follow-up. Is there any expectation in terms of when you expect this to have this ultimately wrapped up? Or is that sort of a wait-and-see right now?

We are hopeful that 2021, we'll be able to have all of the tranches completed.

Your next question comes from the line of Brandon Nispel.

I was hoping you could update us on just American Tower's legacy average tenants per tower in both Germany, Spain and then Brazil. And then really, is there a difference in tenancy of these assets on a market-by-market basis relative to the 1.3? Then I guess, just as a second question. I'm sort of confused. Why is 6% the right organic growth number when I think historically, it's 2% to 3% in Europe? Is it really just scale? Is it -- there are difference in the quality of assets? Just trying to understand organic growth a little bit better there.

Sure. I think our legacy -- and Rod help me here, but I think our legacy...

Yes.

Tenancy is in that 1.5 tenants per site. And I think going forward, as we've kind of mentioned a couple of times, where they are on the kind of the 5G build cycle, where they are, clearly in -- still 4G, but really starting out on the 5G cycle. We have significant rooftop presence that we think is going to be critical for our growth in Germany, where we haven't had that before. We are seeing minimal churn, as we've talked about. And the sites themselves fit really well, particularly within Germany in terms of the good locations. I mean they really fill out the Telefónica portfolio that we acquired so many years ago. And as you would expect, in Spain, we have significant presence in that market geographically. And so this is what we've experienced in the past. We have significant presence in the more urban markets as a result of the acquisitions of these portfolios. So as I said, in a combination of all of those. And by the way, as I mentioned, we see potentially new MVNOs actually coming into the market, looking to build out their networks themselves. And so we think we have good visibility into looking at the growth rates. And hopefully, we'll be able to even exceed them. But right now, we're kind of looking in that kind of that 6% range as a guide for the next several years.

Brandon on the...

Can I just follow-up -- go ahead.

Sorry. Sorry, just a quick addition here. In terms of the 1.3 that we say this new portfolio averages in terms of tenancy, that breaks down the -- in Latin America. It's just above 1.3. And therefore, in Germany and in Spain, it's just below 1.3. And just below 1.3 in Germany and Spain is for each individual market, just to give you a little bit of context on how that fits into the 1.5 legacy.

Got it. And if I could just follow up, you mentioned rooftops a couple of times. How many rooftop sites are included in this? And then what are your ownership rights of rooftops in Germany and Spain?

I mean the rooftop presence in Germany, I think, is roughly 70%, 80% of the sites are actually rooftops. And relative to the ownership rights and things, I don't know, Rod, do you have any color on that?

Yes. Yes. So in Germany, there's about 10,000 rooftops out of the -- out of roughly the 12,500 total sites in Spain. We've got about 5,000 rooftops out of the 11,300 total sites. And in terms of the rooftop rights, we do expect to be able to put additional colocations on those assets. Many of the sites are contractually allowed where we can do that. And then also with the relationship we have in the marketplace, we think we can expand those rights on certain sites as well. But yes, certainly, those rooftop assets are good quality rooftop assets that will function a lot like towers in terms of the way the leasing works.

Your next question comes from the line of Michael Rollins.

First, I was curious if -- I didn't hear earlier, if you mentioned the cost of the build-to-suit, if you could share that. And then secondly, what impact might network sharing between the customers have on the outlook for leasing over time?

Yes. On the build-to-suit element, Michael, it's around $500 million that we would expect to incur for the -- actually, 3,300 sites. 2,400 of them are in Germany and 900 of them are going to be down in -- largely down in Brazil. And on the network sharing question itself, on the RAN sharing. In Germany, the overall impact of active RAN sharing is not expected to be material at all, which contributes to the very attractive nature of the market. There are regulatory issues that actually are -- prevent a lot of the network sharing to begin with. There are some limited sharing initiatives. Targeted some gray spots, if you will, in some rural areas and along some traffic routes that are in discussion, but we don't believe that they'll be material in our organic growth trajectory. In Spain, Vodafone and Orange, actually have a network share in place covering many of the existing technologies and settlements, but there are less than 175,000 people. So all of these factors that we've had, we've been through these. We understand them well. We've evaluated them and included them in our evaluation of the Telxius assets themselves and do play a role in our expectation that organic growth will be lower in Spain actually than in Germany. So we've taken all of that into account, we believe. And as I said, the German situation is much different than the situation in Spain.

And does the rooftops change the operating leverage of the business?

I mean, from what perspective?

Incremental margins. So as you lease-up revenue, do the incremental margins differ from the gross margins, if you take out the pass-throughs?

It's very similar, actually, Michael. I wouldn't expect significant differences. There are some pass-through elements that are different on the rooftops, but relative to overall margin performance, very similar.

And Michael, in Europe, both Germany and Spain, it -- we expect margins in the 75% range, excluding the pass-throughs, just to give you that perspective. And in Latin America, the average is even higher. Up closer to 80% to mid-80s.

And that does conclude the Q&A session. I'd now like to turn the call back to Mr. Khislavsky.

Thanks, Greg, and thank you, everybody, for joining us. Have a great rest of your day.

Thank you, all.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.