American Tower Corporation (AMT) Earnings Call Transcript & Summary

We'll get started now. Thanks, everyone, for joining us. I'm Batya Levi with the communications team at UBS. Our next speaker is Steve Vondran, EVP and Global COO for American Tower and soon to be CEO. Thank you so much for joining us, Steve.

Well, thank you. Thanks for inviting me.

Awesome. Great. Just given the time of the year and maybe your new responsibilities as we head into '24, can you talk about what the strategic focus of the company would be and what should we expect in terms of some changes as you take on the new CEO role?

Sure. Well, I'm in a transitional role as COO right now, so it's probably a little premature for me to talk about any changes that I would make. But what I would say is I've been part of this leadership team as the Head of U.S. Tower for the last 5 years, and I've worked very closely with Tom and Rod and the rest of the executive team in developing our strategy. So you can expect a lot of continuity for me in terms of how we'll look at the business going forward. In terms of what our strategic priorities are, I'll start with kind of what we said in our last earnings call because we laid out some of our near-term focus. So in particular for the near term, what we're focused is, number one, driving organic growth; number two, some cost controls and margin expansion. And those are both very helpful to our -- one of our stated priorities, which is delevering. And so we're focused on bringing our leverage down to the top end of our target range of 3% to 5% to 5% as quickly as we can. So in addition to the organic growth and the cost controls that we're doing, you've seen us be very disciplined with our capital allocation. So if you look at our CapEx program for 2023, at the midpoint of our guidance, it's about $1.7 billion. That's a little bit lower than it was last year because we're reallocating some of that capital to help delever. We've also messaged that we plan to keep the dividend flat year-over-year from 2023 to 2024, and so we'll keep it kind of that $3 billion level that you saw this year, and that's to take that additional cash and put it toward delevering. And then you've also seen us do a little bit of capital recycling this year. So we divested our fiber business in Mexico, we divested our small portfolio in Poland. And then we've said that we're under a strategic review of our business in India and the proceeds from those capital recyclings have also gone to reducing our leverage. And the reason we're doing that, there's a couple of reasons. One is the cost of capital, the cost of debt is higher right now so it makes some sense to do that. But we're also going to make sure that we have our balance sheet in great shape to take advantage of whatever opportunities do present themselves. So when we look out over kind of that medium to longer term, we want to make sure we have the lowest cost of capital in the business to make sure that we're in a position to take advantage of anything inorganic that might be out there. But we'll also weigh, at that point -- once we get down to that 5%, we'll weigh the best uses of our capital and whether it's going to be something inorganic, share buybacks, further delevering. Kind of everything will be on the table at that point, and we'll make the assessment then about what we'll do once we get there.

Great. Let's dig into all of those and maybe starting with the domestic business. You've been with the company more than 20 years.

23 years.

23 years. And I hear that you have tremendous experience in writing these contracts with the carriers, and they have evolved quite a bit over the last 10-plus years. How would you characterize the current structure of the more recent comprehensive deals that we've seen versus the prior plans and what's good, what's bad?

Sure. So they're all a little bit different, depending on what the carriers' needs are and kind of where we were in our evolution with them when we negotiated those agreements. But the whole purpose behind these comprehensive MLAs is to really provide a better user experience for our customers and, frankly, for our employees administering them. Now it does have also the benefit of smoothing out some of the peaks and valleys you see in the carriers' spend cycle. But we don't discount to get these agreements in place. The reason we do them is to take that business as usual that we were going to get anyway, and just create a much better experience for both sides. That's kind of the origin of them. So when you think about that and that kind of context of how you're going to negotiate one of these, we're looking at what the carriers' plans are over the period of that comprehensive portion. And whether that's 4 or 5 years or a little bit longer, it's different every time. And so what we do on our side is we look at what the carrier needs are going to be over that time period. And so if you're deploying a new G in particular, you kind of know what the carriers are going to need to do. You have the anticipated growth factor that's already kind of baked in. So right now, we're anticipating mobile data usage growth in the U.S. to be in that 20% to 30% range. And then we also have a really good idea about what spectrum they have available and also what equipment is going to be available. When there's nothing that's going to go on a Tower in the next 5 years, that's not already in the testing and development and certification phase. So from our side, we take a look at all those factors, and we project out what's that carrier going to need to do on our portfolio over that period of time to meet the projected demand. And that gives us a good kind of BAU to look at on that. And that's evolved over time. The earlier -- you ask how that's changed. The earlier iterations of some of these MLAs, they really came about because we were kind of haggling back and forth with the customer and you kind of end up in the same place that you knew you were going to. And we were a little bit less sophisticated in the early days in terms of doing that BAU case, but we were still pretty darn good at knowing what they were going to spend. So I'd say that the way it's evolved is we've gotten a lot better at kind of doing our due diligence and figuring out exactly what it's going to look like at a much more granular lever. And then I think the customers, now that they've gotten comfortable with this way of doing business and these agreements, they've gotten better at making sure they execute on their side and that they're -- what they're signing up for is something they can do. So I think it's really been a win-win for both parties on it over time.

Great. So I guess this also gave you the opportunity with that visibility to guide to -- through '27 of about 5% domestic growth, including the churn that we will see from Sprint. Can you just remind us of the drivers of how we get to the 5%? And what could change it from here until '27?

Sure. Let me kind of reiterate what we said publicly. What we said is we anticipate that our organic tenant billings growth in the U.S. will be at least 5% on average from 2023 through 2027, okay? That's the guide that we've put out there. And that would have been about 6% if you normalize for Sprint because we are seeing some outside Sprint churn from the consolidation. So if you look at the components of that, we have about a 3% escalator as one component of it. And then our normal churn runs in the 1% to 2% range. And then the Sprint churn has been a little bit over 1% over that time period. And so that would imply growth from colocations and amendments of about 4% to 5% to kind of offset those churn impacts. So those are the components of it. When you look at our guide, what we've also said publicly is we have about 75% visibility into that 5% over that period of time. And that's underpinned by those contractual obligations that we have in place, both from the escalators and from the comprehensive portions of our MLAs. So when you look at some of the viability, again, those -- so when we think about that visibility of 75%, it's higher in the early years. I think we said at the beginning of this year, we had about 90% visibility and it goes down over time. That's because some of those comprehensive portions of MLAs roll off. And so we are expecting a certain level of business outside of those. That comes from a few areas. Again, we think we have a very good handle on what needs to be done on the existing networks to augment them to hit those anticipated data growth usages. And so we feel very comfortable in that level of business over that period of time. There can be some variability year-to-year, and that's why we've got it to an average. I would point out that we look at that average and it could be a little bit above 5%, a little bit below 5%. We don't foresee wild swings, so we're not expecting a 3% to 7%. But there is a range around the 5% that it could be year-to-year, depending on some of those individual customer ups and downs once they're out of the comprehensive agreements. We also have a portion of our business that is outside of the big 3 plus DISH. And so -- and they're actually underpinned by a lot of government grant programs this year. We're seeing some good growth in that area. And then with DISH, we've included the minimum contracted portion of our comprehensive agreement. So there's nothing baked in for any upside from that or for new entrants as well.

Got it. And in terms of the -- maybe when we look at the towers in the U.S., I think roughly 50% of them -- of those towers have been upgraded for 5G equipment. Is that so?

Yes. It's a little over 50% and each carrier is on its own path. So some are going to be a little bit higher, some are going to be a little bit lower, but there's still a lot of runway. And I would just point out, when we deployed 4G and 3G before that, it's a decades-long deployment. We expect the same thing with 5G.

So how long [ lower ] do you think it will take for them -- for the rest of the country to get the 5G equipment?

I don't know exactly how long. The carriers are all going to speak to their own deployment plans. But I think what we've seen in prior Gs will hold true for this one. And as you get this first phase, where there's a big ramp-up to kind of get them to 200 million POPs or somewhere thereabouts. Then you have a little bit a pullback while they're looking at their networks and saying, "How to optimize this? Do I have any holes in the network?" And then they go to the next phase, which is pushing out coverage but also adding some capacity. And so I'm fully expecting that activity level to pick back up. It won't be as high as it was a couple of years ago when we saw $42 billion in investment. We have seen the carriers pull back a bit. But I think the number that we've seen for this year is about $35 billion. And we expect that to kind of be an average rate going forward, for the next 5 years from the carriers is $35 billion. And that's about $5 billion higher than we saw in 4G. So we still see very healthy levels of investments by our customers, and we think they'll continue in a very methodical way to build out.

In that sort of like pullback environment, do you anticipate it to be a pause of a year or 2? Or are you already starting to see a little bit of densification depending on the carrier?

So no crystal ball here. What I would say is we didn't really see a pause. We saw a slowdown, but we've got crews on our towers today installing equipment. And part of that stuff they already leased but hadn't installed yet, et cetera. I don't know exactly when they're going to turn the spigot back on. It would surprise me for it to be elongated. If you kind of reference back to 4G and 3G, those slowdowns for each carrier might have lasted in the 9-month to 18-month range, depending on the carrier. I wouldn't expect to see anything more than that here. For us, because of these comprehensive MLAs, we're a little bit more insulated on the property revenue side. So it's not as impactful to our rental business when they start back. Where you see it more for us is our Services business. And that's inherently harder to predict. A couple of years ago, we had to take the guidance up pretty steep. This year, we pulled it back some. And that's really reflected in the tenant activity levels.

And that networked Services business, should we just assume that until there is sort of like a leg up in terms of densification, it will stay at current levels?

Look, I don't really have that visibility to guide to '24 yet. We'll talk about that in February. Look, again, I would expect to see a moderate level of activity in any given year, so I don't think the activity levels you're seeing in Q4 are indicative of a trend that I would point to. But again, we'll give more specific guidance in February.

I don't know if you would want to talk a little bit more about the differences between the carriers and how they're approaching their network build-outs, if there were any differences between the main 3 incumbents that you would highlight?

Well, I don't want to get in trouble with my customers, so I'm going to stay way from any details on that. Look, I would say is you had one carrier that had a head start, and they had a little bit different spectrum band. And so they were pretty aggressive out of the gate. And I think that you've got the other 2 that are being more methodical than -- a little bit slower start and they didn't get their spectrum as quickly. But I think overall, they're all approaching it in a very similar fashion, which is you want to cover that dense urban, the 200 million POPs or whatever you set your first target at and then you start rolling out progressively from there. And we're seeing that same pattern of behavior with all of the carriers.

In terms of DISH, it gets a lot of attention because what the company is talking about is that they've met the '23 build-out requirements. They're pausing a bit or maybe slowing down their activity, but then there's another sort of deadline approaching. In terms of your exposure, maybe if you could just remind us your exposure. And then in the worst case scenario, if DISH defaults, what do you think could be the exposure?

So DISH represents about 1% of our global revenues today. And the only thing that we have baked into our guidance is the minimum contractual commitments under their agreement. So we don't have any upside built in. And that -- those contractual commitments are there regardless of the speed of their buildout. So from that perspective, the pace at which they deploy is not as relevant to us.

So they have a longer-term deal or maybe a framework of a deal. And then within that, the comprehensive component is short.

That's right.

A shorter period of time. Got it. In terms of cable, I guess they haven't necessarily been a significant contributor to the overall activity, but we do hear them talking to deploy more CBRS spectrum. Comcast started in Philadelphia, maybe they'll do it in other markets. From your perspective, is that an upside? Or is it mostly in major metros and it doesn't really go to the towers?

We hope so. Look, what we've baked into our current plan is we're not expecting a large new entrant. So if they -- if cable came through as a player in a big way, that would be upside from our current business case. They are a customer today and we do have a level of new business that we expect out of them. It's just kind of the normal business that we have with them. But in terms of CBRS, I'm excited about the prospects of it. I hope that they decide to build more of it. And I think we'll benefit. We do have a rooftop portfolio that [ is urban ]. We do have suburban towers. I think those would be great locations for them to install it. So I'm hopeful.

A little bit of both.

Yes, a little bit of both.

And then maybe just touching on the competitive environment within the U.S. Over the years, we've seen multiple private tower companies that are looking to take share from the incumbent tower companies. And we saw Verizon signing a deal with Vertical Bridge. Can you talk about sort of the current environment? And as you look at that incremental revenue or activity you could extract from the carriers, is there a bigger pool of towers that could go to?

So when we look at that kind of the build-to-suit world and what the opportunities are to develop towers, we haven't developed much in the U.S. over the past few years. The economics just haven't worked for us that are kind of driving that market today. So we don't look at it as anything that's really taking away from our current business plans. We don't have an expectation of building a lot of sites in the U.S. today. I think that you can actually read across to that a very positive read from the carriers that they're continuing to develop. And as they push out into more rural areas, we do have some portfolio there that's an opportunity for them. So if you see them continuing to build and expand to rural areas, the build is going to be a combination of colocations and new builds. So we see some upside potential from that as they continue to develop in that area.

Okay. Maybe shifting to CoreSite, domestically, and it's been about 2 years since the acquisition of the assets. Maybe if you could provide, again, sort of like the strategic rationale for owning the asset now that you've been operating for 2 years. And has that changed since -- when you made that acquisition?

Sure. So when we bought CoreSite, we were looking at CoreSite as a strategic option to help us develop the edge because we think that the edge is a big opportunity to add revenue to our existing tower sites. And we were experimenting with the edge and looking at different ways to develop that with partners before we bought CoreSite. And what we realized when we were looking at the edge is you can drop a container on a tower site and you could connect it with fiber, but that doesn't give the tenants what they need to be able to operate a low-latency edge use case that is what we ultimately think is going to drive some good returns in that area. They have to interconnect to a connected ecosystem so that, that edge node is getting fed the data and feeding data back into kind of a cloud-rich environment that has all the right players there. So think about it, if you're trying to game with somebody and you're on one network and they're on a different network, that needs to connect to somewhere where those networks can talk to each other. And so when we looked at the edge developing, we realized that unless you control an interconnection point, there's going to be a value transfer from the edge facility back to that ecosystem. So that was the thesis behind it. But when we underwrote the deal, we didn't factor that into the underwriting. So we said that the investment has to stand on its own. And so what we found was an asset that had a lot of opportunity in it, but it does give us that option on the edge and it gives us the ability to play in that space. And it's performed phenomenally well. We've exceeded all of our underwriting for it. And what we said publicly last year, we had a record sales for CoreSite last year, and we're on track to potentially have another year similar to last year. And if you look at the supply and demand dynamics that have evolved in that space, they've been very favorable to us. We've been able to increase pricing and we've been able to underwrite some additional investment. When we originally closed where our plan was to reinvest the cash flow, of course, that was generating, this year is a touch higher than that. The $360 million is what we're projecting for development CapEx. And that's really replenishing the capacity that we sold last year. And so we're very happy with the way the asset is performing. We think there's a lot of upside for it. With respect to the edge, what I would say is we are seeing some progress in some of the partners that we're talking with about the edge, and we've got some POCs in place that we're doing with various players. And some of those use cases are things like -- you have different software vendors that are trying to provide services that require low latency. And today, the option is to put it on prem. So I'll make up a use case, this is not a real one that we're working on. But -- so say you have a drug store and someone is going to offer you software that lets you use your security cameras to do supply replenishment. They can check your inventory on your shelves. Well, that may be a low latency use case that requires you today to have a set of servers in your drugstore to do that. And that may not be optimal for you. It's expensive, it's hard to maintain, whatever the reasons. And so we're experimenting with, well, can you do a near-prem installation where you take a bunch of those on-prem installations, put it near in an edge use case, and save them money on the installation, save them headaches on the install and earn a great return for us. Now we don't know. This is a proof of concept, and we're still working on it. But those are the types of use cases that we're in discussions with different partners about. And we wouldn't have been able to have those POCs in place if we didn't have CoreSite as a kind of strategic asset.

And I guess when you bought the asset, you had mentioned maybe the edge opportunity will start to show up within the next 3 to 5 years. What do you think the time line is now?

I think that's stretched out a bit. When you look at the macroeconomic conditions, no one that we were talking to has stopped any of their edge development, but it has slowed down a bit. So I don't know exactly when it's going to be there. There's nothing in our multiyear guide for edge. So if it does come within that time period, that's upside to the case that we've laid out. But I am convinced more than ever now that it's when, not if, that that's going to develop.

And should we expect that you will just continue with the pilot programs in the near term? And how much capital would you put behind that?

These are small dollars. These are a few hundred thousand dollars a piece in some of these POCs that I'm talking about. Look, we would not deploy significant capital at risk in this area. This is an area where we're going to continue to iterate, work with partners, and for us to do anything of scale, it would come with an anchor tenant and a lot of visibility into it. We have a lot of options where to put our capital, including CoreSite itself. So anything that we did at the edge would have to earn returns higher than what we can put in other places. and we would look for ways to derisk that.

Right. And in terms of the core CoreSite, how should we think about the capital needed to support the faster growth that you're seeing now?

Yes. So again, what we're trying to do is replace the capacity we sell. And so as we have these record sales years, we'll tweak that capital up a little bit. We're not looking to meaningfully scale the platform into a lot of different markets, but we are doing some to put a toe in the water. We bought a small data center in Miami that we disclosed, and that's to test that market to see if we can develop another campus there. You might see us look at another kind of Tier 2 market, maybe where we would experiment with a small data center there to feed the market on that. But we feel good about the overall reach of CoreSite. And we have the opportunities to continue to invest in those campuses at very low risk. I think we said at the end of Q3 that 40% of the construction we have in place was preleased. It derisks it, accelerates your return criteria. And so you should expect us to continue to invest at a rate that replenishes that capacity.

And the expectation is to keep the -- sort of this initiative more domestically? Or do you think that there could be opportunities outside of U.S?

Right now, we're focused on domestic with it. We're not looking to take it international. And we've got a core set of competencies here. There's plenty of opportunity here. Some day if there's the right opportunity with the right anchor tenant and the right economics. I'd never say never. But for now, we're really focused on the domestic opportunity.

Okay. Maybe moving on to some of the international operations. India first. It gets a lot of questions. I think you suggested a deal could be in the works before year end. Can you provide an update on whatever you can say on it? And how should we think about your expectations to be in the region? And maybe just proceeds of the sale as well.

Sure. So there's really nothing new to report, so I'm just going to repeat what we said on our last earnings call, and that is that we are engaged in a strategic review of the business. We are interested in selling a majority stake in the business. We're hoping to have something to announce by the end of the year. At this point, there's nothing to announce yet.

Okay. And maybe moving on to Europe. It's been a market that's actually growing faster than the U.S. right now. Maybe a little bit of sort of drivers for that and your expectations just generally, if that could continue?

Sure. So when we did the Telxius acquisition, we said that we were expecting that market to grow at kind of mid-single digits organically. That's been a touch higher than that this year. We've seen a good level of activity on the portfolio as well as our legacy portfolio. It's also been supported by CPI escalators, they've been a little bit higher, and we have very low churn because of the way we structured our agreement with Telxius. And so if I break that down a little bit into some of the markets and what's going on there, I'll start with Germany, which is the largest. What we're seeing there predominantly is 5G overlays. So we have amendments there that we're able to monetize, paired with some build-to-suits with our anchor tenant. And then there is some activity of new builds with 1&1 starting to build their network. That's been a very modest contributor to our business this year, but that is something on the horizon that we're looking forward to. If you go to Spain, it's predominantly 5G amendments as they're operating their network, again, with some build-to-suits with our anchor tenant. And then if you look at France, where we have a smaller portfolio, that's primarily colocation-driven, and that says they're doing augmentations with their existing networks.

I did want to follow up on 1&1 date. They do have an MVNO agreement also in Germany. To the extent that they decide to go all the way MVNO, what would your exposure be?

So well, they're already in MVNO and so we have very little exposure to that. I don't know the exact percentage, but it's pretty small. They were a small contributor to our results this year. But I also would point out, they've been an MVNO previously in the agreement with Telefónica. And if you look at their public statements, they've said they still intend to build out their network along the same cadence that they had projected before. So from our perspective the change of MVNO for Telefónica to Vodafone doesn't really change our expectations about what they're going to do in the market.

And in Europe, there seems to be a lot of assets that are coming up into the market, either from some of the current independent tower operators that are looking to shed some assets or carrier-owned towers. What's your interest for adding more scale? And what are -- maybe hypothetically, what would be some of the characteristics that you would look for if you wanted to increase your scale in Europe?

Sure. Look, it's a good market. So if we found the right opportunities, we'd be interested there. Let me kind of back up and tell you what we look for in general when we go into a new country, regardless of where it is. So the first thing we look for is the stability of the country itself. Is there a good rule of law, preferably based on English for European common law, independent judiciary, respect for property rights, those types of things, the macroeconomic. If those are met, then we look at the telecommunications industry in that country and say, is it healthy? Are there multiple carriers? Is there a plan for issuing new spectrum? Is there decent market share sharing between the carriers versus one dominant carrier, et cetera. And then we look at the portfolio itself. And that's really where some of the European distinctions come in because a lot of those countries meet those criteria. But we were very disciplined in waiting to enter the European market at scale until we found the right terms and conditions. So part of it is are they good assets? Part of it is will they hold additional tenants? Is there a colocation environment? But the main thing for us is making sure that the underlying agreement with the anchor tenant provides us with the opportunity to lease up the assets, to monetize amendments, to minimize churn and to have a healthy escalator. And so if we can find opportunities that meet those criteria, then we might take advantage of it. But if not, then we will probably remain disciplined, look for other places to deploy the capital.

Right. Okay. Moving on to Lat Am. I guess it's a market that has a lot of growth left, but maybe sort of like a disruption with churn. How should we think about overall growth and activity in that region?

Yes. So when you look at our Latin America market, this year, we're projecting our organic billings growth to be about 5% this year. And so if you look at the pipeline of activity that's happening across Latin America, it's moderate compared to what it's been in the past. And that's largely because of the carrier consolidation churn that we've seen. So if you look at the activity that's happening in the larger markets like Brazil and Mexico, we are seeing 5G overlay starting but we are also dealing with the impact of churn there. So Telefónica in Mexico and Oi in Brazil. A lot of the Telefónica churn has already happened. We announced some settlements earlier this year that cared for a lot of that churn. In Brazil, we've had a delay in churn. And so we expected to have a little bit lower results this year because we're going to see more churn from Oi. That's been extended. So that churn that we thought was going to happen over multiple years is now going to be concentrated in '24 and '25. And so that will temper our results in Latin America for a couple of years.

Okay. And Africa actually has been growing very significantly. Some effects risk there and you recently extended your agreement with MTN. I was just curious to see what drove that. And maybe how should we think about that, your interest in that region?

Sure. So this year, we're projecting OTBG in Africa to be about 12%. And that's a combination of CPI-linked escalators but also some healthy amounts of new business there, and we've also had some outsized churn particularly in South Africa, which we think will be kind of cared for this year. In particular, what we announced was that we had entered an agreement with MTN in Nigeria for 2,500 tenancies. And we expect to satisfy those 2,500 sites with the combination of colocations on our roughly 8,000 sites that we have in Nigeria and some selective new builds. And I want to clarify a couple of things on that agreement. First is we have not agreed to buy any towers from a competitor. And when we look at those -- when we look at negotiating an agreement with the customer, we have not changed our financial discipline or our terms and conditions. So I'm not going to give you specifics of the agreement we have there. But rest assured that it's supportive of the types of agreements we already have there and the underwriting for that agreement is similar to what we've done in the past, where we're hitting our risk-adjusted returns in the market for that. And so any time a customer comes to us and has a need for their network to build something, we're going to take a look at it and we're going to bid that or make a proposal on that in line with our existing philosophy of how we support a market. And so to the extent that we do an agreement with the customer, it's going to be at the market terms and conditions that we think are supportive of our business there.

And with incremental lease-up opportunities for those sites as well?

Absolutely.

Okay. Maybe just going to sort of capital allocation and how to think about cost for the -- and operating leverage for the business. I think one thing that has been lost is how much you've cut out of the overall cost side this year.

Thank you for bringing that up because we have been really disciplined about looking at our cost basis. In fact, our SG&A for 2023 is about $20 million less than it was 2022, and that's an inflationary environment. So what we've been very focused on as a team is looking at our overall organization and trying to figure out how we expand our gross margins overall. And so we're looking at direct costs where we can, but also with SG&A. And if you think about how fast our company has grown over the past, call it, 10 years, we've bought a lot of assets. We've built a lot of assets, and we just didn't have as much availability to focus on getting operationally really efficient. And that's what we're doing right now. And so some of it is looking at can we centralize a few functions here and there and save some money? Some of it is saying, we can get more efficient by looking at best practices. And some automation. We've done quite a bit of automation in our kind of back office side. And so all those things are kind of coming together and helping us to really control our costs. And we're going to continue to be focused on that going forward.

We should expect that there are more opportunities for that.

We're going to do our best.

Okay. Great. And leverage is almost in line with your longer-term guidance. I think you could sort of like come inside the 5x early, sometime in '24?

So we're actually at about 5x at the end of the quarter in Q3, but that's a number of onetime items. So we'd expect to end the year a touch higher than that. I don't know exactly when we're going to get to 5.0, but we're very focused on it. And again, if you look at steps that we've taken from margin expansion to reallocating some capital, holding the dividend flat, et cetera, we're going to do our best to get it down there as quickly as we can.

Okay. And the decision to kind of like pause the dividend, can you just go over that maybe one more time? And then should we expect that to be more aligned with your free cash flow growth beyond that pause?

So I don't want to give multiyear guidance here, but I'll talk about the decision for next year. So when we took a look at our priorities for next year, but we did have some headroom in terms of our -- as we're required to dividend out 90% of our taxable income. And we did have some headroom in meeting that requirement to be able to hold it flat. And we thought that it was going to bring more value to our shareholders to use that to pay down debt and get to our leverage ratio. And so I would point out that that's disconnected from our expectation of AFFO growth next year. I think going forward, we'll like an assessment every year about where we are in terms of our distributions. But we would anticipate that at the right point, the dividend will need to grow in line with our FFO because that approximates our taxable income. And so I would expect to see growth in that in the future.

Okay. And maybe one last question. As we think about sort of capital allocation, including discretionary CapEx, opportunity to do buybacks, taking the leverage to a level that you're comfortable with and going back to dividend growth, how would you prioritize all those?

Yes. So right now, we're prioritizing getting down to 5. And once we get to 5, then we'll make it a separate assessment at that point to say what's going to drive the highest total shareholder return. And so I can't really project now what we're going to do with that because it's going to depend on what the available opportunities are to invest that CapEx, and it depends on where our stock price is and things like that. But we take a very kind of mathematical view of it, and we're going to look and see when we get down to 5, what's the next best use of that capital? And if reinvesting it in the business drives a higher return, we'll do that. If not, we'll look at share buybacks. We'll look at further delevering. But we'll make that call when we get to that point.

Awesome. Thank you so much.

Thanks.