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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome to the American Tower third quarter 2018 earnings call. As a reminder, today's conference is being recorded.
I would now like to turn the conference over to our host, Senior Director of Investor Relations, Mr. Igor Khislavsky. Please go ahead.
Good morning and thank you for joining American Tower's third quarter 2018 earnings conference call. We've posted a presentation, which we will refer to throughout our prepared remarks, under the Investor Relations tab of our website, www.americantower.com. Our agenda for this morning's call will be as follows.
First, I'll provide a few highlights from our financial results. Next, Jim Taiclet, our Chairman, President, and CEO, will provide some brief commentary focusing on key technology trends in the U.S. And finally, Tom Bartlett, our Executive Vice President and CFO, will provide a more detailed review of our third quarter results and updated full year outlook. After these comments, we'll open up the call for your questions.
Before I begin I'll remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include, our expectations regarding future growth, including our 2018 outlook; capital allocation and future operating performance; the pacing and magnitude of Indian carrier consolidation and its impacts on American Tower; assumptions around our pending and recently closed acquisitions and other transactions; and any other statements regarding matters that are not historical facts.
You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's earnings press release, those set forth in our Form 10-K for the year ended December 31, 2017 as updated in our Form 10-Q for the quarter ended June 30, 2018, and in the 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.
Now please turn to slide 4 of our presentation, which highlights our financial results for the third quarter of 2018. During the quarter, our property revenue grew 5.8% to $1.75 billion. Our adjusted EBITDA grew 5.3% to nearly $1.1 billion. Our consolidated adjusted funds from operations grew about 10% to $821 million, and consolidated AFFO per share increased by nearly 7% to $1.85. Finally, net income attributable to American Tower Corporation common stockholders increased by about 23% to $367 million, or $0.83 per diluted common share.
And with that, I'll turn the call over to Jim.
Thanks, Igor, and good morning to everyone on the call.
The highlight of our third quarter was our U.S. property segment organic tenant billings growth of 7.4%, leading us to raise our 2018 expectations for that metric to above 7% for the full year. Unlimited data plans and increasing mobile video consumption continue to drive additional spectrum deployments and equipment installations by our domestic tenants to support 4G network technology, and that's leading to those elevated growth rates.
Moreover, our major U.S. customers are beginning to embark on tangible plans for 5G technology, which provides a relevant backdrop to our usual third quarter topic of technology development. But before getting into the details of those trends, I'd like to spend a few minutes on our comprehensive agreement with Tata, which I'm pleased to disclose in this morning's press release.
We've been working amicably with the Tata Group for nearly a year to reach an agreement that satisfies three main objectives for us while also respecting our partner's goals of an orderly exit from both the mobile business and from our tower joint venture. Those three objectives for ATC which we believe we've attained through this agreement, were to: first, preserve our ability to achieve American Tower's long-term return on investment targets in India by securing economic value for Tata Teleservices leases to be terminated while at the same time retaining a portion of the run rate through new leases with other Tata Group businesses; second, to better position ATC India for growth in the post-consolidation phase of the Indian mobile market in the 2020 timeframe and beyond; and thirdly, to set the timeline to evolve the joint venture through the replacement of Tata as a partner with either increased ATC ownership, an additional partner, or some combination.
Tom will provide additional details of the agreement during his remarks, so now let's jump into our regularly scheduled technology discussion. My remarks are focused today on technology trends in the U.S., which remains our largest market, generating the bulk of our company's cash flows. We also expect that over time, these trends will follow across our international markets.
As I noted earlier, the overwhelming driver of tower demand today is 4G technology, and we believe that will remain the case well into the 2020s. However, as momentum for 5G builds, a number of trends in network deployments are expected to increasingly contribute to our demand profile as well.
The first of those is the anticipated deployment of new spectrum assets, as carriers continue to enhance the capacity and speeds of their networks. Already, 600-megahertz equipment for 5G applications is being deployed on our sites, and several carriers have been vocal about millimeter wave-based rollouts as well. But in my view, one of the most compelling aspects of evolving 5G expectations is the role of mid-band spectrum, including 2.5-gigahertz, CBRS spectrum in the 3.5-gigahertz band, and C-band spectrum assets in the 3.7 to 4.2-gigahertz range.
All these bands have the potential to significantly enhance network performance over time and, importantly, are well-suited to macro tower-oriented deployments. 2.5-gigahertz, for example, is spectrum that several carriers have identified as being vital for their 5G network plans. There is substantial channel bandwidth with favorable MIMO capacity and peak speed characteristics.
In addition, the 2.5-gigahertz band is able to propagate across considerably longer distances than millimeter wave spectrum. And as a result, 2.5-gigahertz is an intriguing hybrid between low and high-band spectrum for 5G. Importantly, outside of dense urban areas, we continue to believe macro towers are the ideal signal transmission points for 2.5-gigahertz spectrum. We've already started to receive applications for the very early stages of deployments of this spectrum utilizing massive MIMO antennas on our tower sites. And we would expect the activity around 2.5-gigahertz deployments to increase over time.
CBRS spectrum is another interesting opportunity and is a priority element of our innovation program. This year's spectrum in the 3.5-gigahertz band can potentially help significantly expand the U.S. indoor opportunity for American Tower beyond the 1,500 or so venues in the U.S. that we today believe are suitable for traditional indoor DAS systems. Being able to dynamically share this spectrum can help drive down costs, and we are working on new and innovative architectures that may make it feasible to bring connectivities in CBRS spectrum to Class A office buildings, condominium complexes, and other indoor environments, where DAS has historically been cost prohibitive.
Combining shared CBRS spectrum with reduced-cost installation architecture can enable private LTE systems or enhanced Wi-Fi installations in addition to traditional indoor cellular coverage, thereby enhancing the economics of installing of system for both the building owner and our customers.
We're also increasingly convinced that spectrum in the C-band range of 3.7 to 4.2-gigahertz will be a significant driver of macro site demand in the mid to long-term time horizon. This band, similar to 2.5-gigahertz, has crossover benefits that combine potentially several hundred megahertz of bandwidth and sufficient propagation distances to be utilized in suburban settings, which are predominantly served by towers.
In addition to helping usher in the deployment of new spectrum, we anticipate that 5G is likely to open up a host of new business and consumer services, including a tremendous expansion in IoT functionality. Consequently, another primary focus area of our innovation program continues to be to foster relationships with companies in a variety of industries that may end up being new tenants, while at the same time exploring complementary technical solutions and network architectures to augment our existing core macro business.
One example of our efforts with respect to emerging applications is our ongoing evaluation of edge compute solutions at our tower sites. Our sites can act as a convergence point for the wireless access network, cloud services, the Internet of Things, and enterprise networks. We are currently engaged in discussions with players in numerous industries that may ultimately be edge compute tenants and expect to further explore the potential long-term opportunity going forward.
While evaluating prototyping and partnering around future 5G growth opportunities represents a focus area of our innovation program, we have additional initiatives that seek to leverage currently available technology as well. One prime example of this is ATSC 3.0 broadcast technology, which we've been working on in Dallas with several partners. This new broadcast standard is designed to enable significant expansion in broadcast content to mobile devices, while opening up the ability to add value for broadcasters through geographically targeted ads. As the largest independent owner of broadcast towers in the U.S., we're extremely well-positioned, should this new standard and product take hold.
So, to summarize, we're experiencing strong organic growth in the U.S. driven by 4G technology, which we expect to continue for many years to come. But we're also increasingly convinced that emerging 5G technology will further expand American Tower's growth trajectory many years into the future, not only in the U.S., but also in international markets. We see meaningful potential to utilize our tower sites for mid-band spectrum that's not even in use or available today.
We also believe there's additional opportunity for indoor small cell systems based on CBRS spectrum. And importantly, our experience proves that macro tower and indoor systems provide high colocation and return on investment performance, and 5G should thereby provide additional runway for both those asset classes.
And we're also applying our innovation approach to outdoor small cell architectures in an effort to bring installation and operational costs down to develop avenues to, hopefully, achieve tower-like returns on those installations, though we're at much earlier stage in solving that equation.
The bottom line is that we see real and long-term opportunity in macro, indoor, and possibly outdoor small cells, and we'll use our innovation program to pursue those aggressively and in the disciplined manner that we've always followed.
Now I'll turn it over to Tom for more detail on the quarter and our full year expectations.
Hey. Thanks, Jim. Good morning, everyone. As Igor highlighted earlier, we had another quarter of strong growth across our key metrics. Organic tenant billings growth in the U.S. was over 7% for the second consecutive quarter. Simultaneously, we grew our common stock dividend by 20% and repurchased more than 600,000 shares.
We also settled with TV Azteca with respect to the unpaid interest issue we disclosed last quarter, which resulted in a receipt of nearly $60 million in late September and favorable use right terms. Subsequent to the quarter end, we further diversified our geographic footprint with our expansion into Kenya. And just a few days ago, we were able to reach a settlement agreement with Tata in India, as Jim mentioned, that we believe helps clear the path for us to capitalize on the acceleration in 4G deployments that we expect in this market.
With that, let's dive into the details around our third quarter performance and updated outlook for the year. If you please turn to slide 6; during the third quarter, consolidated organic tenant billings growth was over 5%, or nearly 8% on a normalized basis, primarily attributable to a record contribution of new business generating from colocations and amendments across our global asset base, resulting from the strong pace of run rate additions over the course of the last 12 months.
Our U.S. business reported property segment revenue growth for the quarter of about 6%, including a negative impact of nearly 3% associated with $21 million decline in noncash straight-line revenue recognition versus the prior year. U.S. organic tenant billings growth was 7.4%, including volume growth from colocations and amendments of nearly 6%. This new business recognized in the quarter was up nearly 30% versus Q3 of 2017 and up over 7% sequentially.
Pricing escalators contributed just over 3% and were partially offset by churn of about 1.5%. Signed new business in the quarter, which was up by around 60% versus Q3 of 2017, was again heavily weighted towards lease amendments, as carriers continue to add incremental equipment to their networks. Given the multiyear nature of carrier spending initiatives in the market, we expect to sustain solid levels of organic growth in the U.S. going forward.
Our International business reported property revenue growth was also about 6% in the quarter. International organic tenant billings growth was about 2%, or around 8% excluding the impact of the Indian carrier consolidation-driven churn, which represented over 70% of the total International churn. Colocations and amendments drove nearly 6% of International organic tenant billings growth, escalators contributed another 4.3%, and other run rate items added about 60 bps. This was partially offset by cancellations of about 8.5%; again, primarily concentrated in India.
Key international markets across LatAm and EMEA continue to show positive trends, with Brazil, Mexico, and South Africa all generating organic tenant billings growth between 11% and 12% this quarter. And in India, although carrier consolidation has resulted in elevated levels of churn, gross new business volumes came in slightly higher than our prior expectations. Overall, organic commenced new business across our international markets was up about 15% sequentially in the quarter.
And finally, the day one revenue associated with the sites we've added over the course of the last year contributed another 4.4% to our global tenant billings growth. This was largely driven by acquisitions and, to a smaller degree, revenue from newly constructed sites, including nearly 700 towers built this quarter. Our newbuild programs, primarily in international markets, continue to generate solid returns, with average day one U.S. dollar NOI yields of over 9% in Q3.
Turning to slide 7, we also generated solid adjusted EBITDA and consolidated AFFO growth in the quarter, supported by strong top line growth, diligent management of operating expenses, interest costs, net of interest income, and maintenance CapEx. Our adjusted EBITDA grew by over 5%, with our adjusted EBITDA margin coming in at over 61%. And after stripping out the negative impact of noncash straight-line recognition and the impact of the Indian carrier consolidation-driven churn, our adjusted EBITDA would have grown over 10%.
Finally, SG&A as a percentage of revenue was about 7.6%, roughly flat on a sequential basis. Consolidated AFFO and AFFO attributable to common stockholders grew nearly 10% and 11%, respectively, in the quarter. On a per share basis, consolidated AFFO grew about 7%, while AFFO attributable to common stockholders grew about 8%.
Finally, on a normalized basis, consolidated AFFO per share grew nearly 10%. And these growth rates reflect our high-quality global portfolio, significant diversification, focus on operational efficiency, and strong investment-grade balance sheet. And in line with our previous expectations, the growth rates this quarter incorporated sequential increases of maintenance CapEx and cash taxes. We expect both of these items to tick up again in Q4.
Turning to slide 8, as Jim briefly touched on earlier, we have reached a settlement agreement with Tata with respect to their contractual obligations on certain of our towers in India. Per the agreement, we will receive a onetime cash payment of approximately $320 million in the fourth quarter. In exchange, approximately 80% of Tata's tenant billing run rate on our sites, representing roughly $120 million in annualized billings, will churn off effective November 1 of this year. The remaining $30 million or so in annual run rate will continue under various new leases, including leases assumed by other Tata-related entities.
We are consequently updating our view on carrier consolidation-driven churn in India to incorporate this incremental $120 million or so in annualized churn from Tata. We now expect the total of between $270 million and $320 million in carrier consolidation churn, with approximately $140 million occurring in 2018, and between $130 million and $180 million expected in 2019. Aside from the incremental Tata churn, these new charge ranges reflect assumptions broadly consistent with our prior expectations.
With the signing of this agreement, we believe that the major anticipated churn events associated with carrier consolidation in India have now been substantially cared for within our numbers. We expect to have between $550 million and $600 million or so of ongoing annualized tenant run rate revenue in Asia post the Tata churn and expect to increase this base over time, as incumbent carriers eventually make investments to expand and improve their 4G networks.
Our portfolio of more than 76,000 sites, combined with strong relationships with the major remaining carriers, should position us well to play an important role in the transformation of India from 2G to 4G over the next decade. Over 90% of our leases will, in fact, be with remaining large incumbent wireless carriers. We expect it to eventually result in more normalized rates of organic growth, moving to the high single to low double-digit range during the 2020 to 2021 timeframe. Finally, I'd also note that even in 2018, despite the volatility, our gross organic growth in India is expected to be about 9%.
Moving to slide 9, before I dive into our updated 2018 outlook, I'd like to quickly summarize a few key considerations driving our optimism on the long-term growth potential in India. India is the world's largest free market democracy and also one of the biggest wireless markets, with well over 1 billion mobile subscribers today and over 1.5 billion expected by 2022. To put that into context, 1.5 billion subscribers would represent nearly 4 times the subscriber base of the U.S. With minimal fixed line penetration, wireless connections are absolutely critical for consumers and businesses, and wireless broadband access has been clearly recognized by the government as a fundamental driver of economic growth and transformation.
The path towards increased broadband access in India is represented by the deployment of 4G, which in most parts of the country is still in its nascent stage. In fact, despite 4G investments made thus far, over 50% of connections are still 2G-based. This, however, is changing rapidly, helped in part by the ongoing carrier consolidation process that we've referenced for some time now.
Once this consolidation wraps up, we expect the three remaining large wireless operators plus BSNL to eventually ramp CapEx spending for 4G as the wireless competitive environment trends towards normalization. Importantly, because 4G brings exponentially more data traffic, it requires significantly more network density. As a result, third-party forecasts indicate that India will need nearly twice as many cell site leases to enable ubiquitous 4G connectivity. With more than 76,000 communication sites in the market today, we believe we're well-positioned to capture a significant portion of this incremental demand, enabling us to achieve our targeted returns over time.
Moving to slide 10, let's now take a look at our updated expectations for the full year 2018 revenue. At the midpoint of our revised outlook, we expect annual reported property revenue growth of about 10%. This includes a negative impact of over 2% from lower non-cash straight-line revenue and a negative 2.5% associated with foreign exchange translation effects. We expect consolidated tenant billings to increase between 8% and 9%, including organic tenant billings growth of around 5% and a 3% to 4% contribution from new assets. This new asset contribution includes around $13 million from the combination of our new sites in Kenya and a portfolio of urban fiber assets in Brazil that we expect to close on November 1.
This is also being supported by especially strong trends throughout our U.S. and Latin American segments, where we are raising our expectations for organic tenant billings growth. Additionally, we are maintaining our expectations for organic tenant billings in EMEA while slightly reducing our expectations for Asia as a result of the incremental Tata churn I just discussed.
In the U.S., we now expect organic tenant billings growth of over 7%, supported by record levels of new business run rate additions. Further, we expect that organic tenant billings growth in the fourth quarter will be at least as high as the 7.4% rate we achieved in the second and third quarters of this year. Meanwhile, in Latin America, we expect to generate organic tenant billings growth of over 11%, also as a result of higher than anticipated levels of new business.
In Asia, while we expect slightly higher levels of gross new business, our churn expectations are being raised to incorporate the impact of our settlement with Tata. As a result, we project an organic tenant billings decline of around 13% versus decline of 11% we included in our prior guidance. And on a gross basis, as I mentioned earlier, we now expect organic growth of around 9%, up versus our prior outlook, which anticipated growth of just over 8%.
Finally, in EMEA, we are maintaining our organic growth expectations of between 6% and 7%, as performance in the business continues to be consistent with our previous projections.
In total, we are raising our property revenue outlook by $325 million as compared to our prior outlook. About $300 million of this is accounted for by the net impacts of our Tata agreement. The remainder is driven by approximately $55 million in higher revenue expectations across the business, including the new assets I referenced earlier and U.S. outperformance, including around $9 million in incremental straight-line revenue. This is being partially offset by roughly $30 million in unfavorable FX impacts.
As a result of our revised expectations for India carrier consolidation-driven churn, we now expect a consolidated churn rate of approximately 4.1% for the year. Churn across the remainder of the business is expected to remain at between 1% and 2%, in line with historical ranges.
Moving on to slide 11, we now project our adjusted EBITDA to grow by over 12% for the year, up $315 million from our previous outlook, reflecting a $300 million net benefit from the Tata agreement. The increase also reflects about a $7 million contribution from our newly added portfolios and about $11 million in net straight-line impacts in the U. S.
Overall, in the more than $30 million FX-neutral increase in our EBITDA expectations, about $13 million is in the U.S., with the remainder spread across our international markets. This is being partially offset by approximately $12 million in unfavorable currency fluctuations as compared to our prior expectations, as well as just under $7 million in other non-run rate items.
We are also raising our consolidated AFFO expectations by $255 million to just under $3.5 billion, reflecting a year-over-year growth rate of over 20%. On a per share basis, we now expect consolidated AFFO of $7.88. These increases are being driven primarily by about $250 million, or $0.56 per share, in net impacts from the Tata agreement. In addition, we expect over $18 million, or roughly $0.04 per share in incremental consolidated AFFO resulting primarily from higher anticipated cash EBITDA and lower net cash interest expense. This is expected to be partially offset by about $13 million incremental FX headwinds.
Turning to slide 12, we remain committed to our proven investment evaluation methodology, which has enabled us to generate consistent cash flow growth and returns over the long term. Over the last two decades, we worked judiciously to cultivate a high-quality portfolio of global assets with attractive cash flow growth. In fact, since 2007, we've grown our U.S. segment free cash flow at an average annual rate of about 12% and our International segment free cash flow by an average of about 25%. This is attributable to the operational excellence of our teams in the highly structured math-based process we utilize to assess new investments, which includes careful consideration of ongoing capital needs, the sustainability of future growth, and a host of other factors.
As you can see on this slide, not only have we been able to generate tremendous long-term growth in free cash flow, but also we've been able to do it while keeping capital intensity, which reflects the nondiscretionary capital needs of the business extremely low. In fact, as we scaled our operations, capital intensity on a global basis had decreased by nearly a third. This in turn further enhances the reoccurring free cash flow stream of the business, which increases our ability to invest in future growth and innovation, while simultaneously returning cash to our stockholders.
Since 2007, we've expanded our portfolio by an average of about 20% annually, while simultaneously repurchasing nearly $5 billion in stock, distributing over $5 billion through our dividend program, maintaining our investment-grade rating, and diversifying our sources of capital. We remain committed to that investment-grade rating, are comfortable with our long-term target leverage range of 3 to 5 times, and expect to continue to evaluate opportunities to further strengthen and diversify our balance sheet as we seek to build on our past performance.
We believe that continued discipline within our investment evaluation process, combined with our balance sheet strength, positions us well to deliver attractive total returns to stockholders for many years to come.
And as you can see on slide 13, our expansion strategy has also resulted in sustained growth in consolidated AFFO per share and an expansion of our return on invested capital over time. These are the financial metrics that comprise our leadership team's long-term performance objectives and drive compensation. Since 2007, we've grown our consolidated AFFO per share at over 16% on average each year. We've also simultaneously expanded our ROIC by nearly 2%, despite growing our asset base over sevenfold during the period.
We expect that the strong organic growth generated by the scaled asset base, in combination with our strong balance sheet, will continue to enable us to make compelling investments in assets, while minimizing any potential dilution for our shareholders.
Looking in slide 14, and in summary, we've had another strong quarter's global results in Q3, including U.S. organic tenant billings growth of over 7% and organic tenant billings growth in Latin America of over 11%, enabling us to raise our expectations for full year organic growth in both regions. Our continued focus on cost controls throughout the business has enabled us to also increase expectations for adjusted EBITDA and consolidated AFFO from our legacy operations. Additionally, we reached an agreement with Tata, which resolved the last major known near-term churn item for us in India and clears the path towards achieving more normalized levels of growth in the market in 2020 and 2021 timeframe.
We continue to be excited about the long-term potential of our global business. We've worked carefully to select assets with attractive cash flow characteristics and low capital intensity, while continuing to focus on operational efficiency. As a result, we're well-positioned to deliver attractive total shareholder returns over the long run as we seek to capitalize on a rapidly evolving wireless communications landscape across our global footprint.
And with that, I'll turn the call over to the operator so we can take some Q&A. Operator?
Thank you. Our first question comes from the line of Amir Rozwadowski. Please go ahead.
Thank you very much and good morning, folks, and thank you for taking the questions. I wanted to ask two, if I may. First on U.S. site rental growth, while clearly at healthy levels and recognizing that you took up your organic tenant billings growth outlook for the year, it seem to be largely flat on a sequential basis. Is this the current run rate we should expect going forward, or are there factors that could edge it up higher? For example, Jim, I believe you alluded to the fact that you are just starting to see massive MIMO deployment on 2.5-gigahertz. So any color there would be most appreciated, and then I've got a follow-up after.
Hey, Amir, it's Tom. It was up a bit Q3 to Q2, although relatively flat sequentially. It was up a couple in colocation/amendments. Escalations were up a little bit. But I think if you actually kind of look forward to balance of the year, we actually are finishing, I think, on a very strong note. We continue to kind of set record levels, as we said, in Q2 and Q3. The commenced new business in the year is up probably 50% from where it was last year.
When we start to get into 2019, we'll introduce guidance at that time period. And we do that largely due to the fact that the carriers themselves will then have been public in terms of what their overall capital plans will be. So we'll be able to give you a much better sense of where it will be, but I have to say that this year has been a terrific year for the U.S. as you've seen. I think they've been leading industry growth rates, and the team continues to knock it out of the park. So we're really encouraged by the growth that we've seen and we think they are long-term trends. But in terms of coming out with actually the rates in 2019, we'll do that in the February timeframe.
Yeah. And just to add to that, Amir, we look at a few gauges, as we've talked about in the past, when we think about forward opportunities, and I would just remind everybody on the call of those gauges to look at. One is aggregate mobile usage in the U.S., it's still growing 30% to 40% a year from what we can surmise based on the data. If that continues, we should have strong growth going forward in the next few years.
Also the second gauge we often look at is aggregate U.S. industry CapEx for mobile. Again, if it's in the $30 billion range, it supports the kind of growth we've been experiencing. And then, lastly, the spectrum availability, when spectrum becomes more available and you can look at the FCC schedules and other inputs for that, we tend to have strong growth. So, if you look at those three gauges over the next couple/three years, you can get a sense of how our trajectory should look.
Thanks very much. That's very helpful. And then my second question, Jim, I believe you mentioned the potential opportunity to bring tower-like returns to outdoor small cells. What needs to be done in terms of getting the business there? Is this a matter of acquisition that you guys are thinking about diversifying your asset base to area such as fiber? Or how should we think about the necessary steps to be able to pique your interest in potentially moving to that business model?
I think that key to this is attaining scaled franchise real estate rights in municipalities, because everything else is production input. Fiber's a production input we can get of the U.S. Existing fiber market, in especially urban areas, you can get multiple bidders on fiber runs. So we're going to go to supply chain, but the most important thing for us is getting franchise rights at large-scale in municipalities. And we've got a few small examples of that and prototypes in trials that we have done. We're starting another one in Southern California. We're going to see if these things will actually attain those franchise real estate rights. And then we can use those key positions to monetize them going forward with multiple carriers. So, for us, what we're really interested in is really an outcome in sort of 5G small cells if we can help encourage it.
Open source infrastructure, meaning third-parties like us, create the infrastructure for multi-use, and it could be our existing customers and/or new customers. And secondly, that infrastructure is resilient, meaning if there are changes in administration or municipal concerns, the regulatory relationships, that infrastructure is survivable and it will continue to create great returns for the provider. So if we can get the regulatory regime to go towards an open source resilient model and we can achieve scaled franchise rights, that really is the key to getting the outdoor business up to tower-like returns for us.
What we've done outside the U.S., though, where we don't have sufficient fiber capacity, existing fiber industry, like in Mexico, South Africa and Brazil now, is – and Argentina as well, we decided in those cases we can get a tower-like return on the fiber to the tower itself, and then tack small cells on to it over time. So, depending on the market, Amir, there's a different solution set. But in the U.S., which is, of course, the biggest and most focused market for us, it's really getting franchise real estate rights.
And just to underscore that, Amir, I mean, if you look at the opportunity we have in Mexico, that came along with 50,000 small towers, if you will, in the key markets like Mexico City, Guadalajara, Monterrey, similarly in Buenos Aires. So that ties to that exclusive real estate model that Jim is referring to.
And we'll be moving on to the next question. We do limit you to one question. We'll be going to Colby Synesael. Please go ahead.
Great. I just wanted to go to India. So was the – the negotiation with Tata, when you look at what you guys did, the $325 million, and then also restructuring the JV, the Viom portion, was that all one negotiation or were those two discrete events? And the reason I ask is that the $325 million seems a little light relative to what we are anticipating, all things considered. And I'm just trying to take in – trying to see if I should be thinking about how you structure the JV and ultimately what you're paying for that as part of that overall process.
And then just one quick housekeeping on that, can you remind us, is it correct that you owned 65% of the JV, Tata owned 26%, and IDFC owned 9%? And if that's correct, I would have thought the new blend would get you to 87% pro forma ownership. And I think in the press release you guys mentioned 79%. So I'm just trying to understand what I'm missing there. Thank you.
Colby, it's James Taiclet. Let me first say, I'm extremely pleased with this agreement, this inequitable MLA settlement, and it is integrated with the future transition of ownership in the joint venture. All that had to be negotiated simultaneously, because each piece affects the other. And what's important about this is, I firmly believe that this MLA settlement's going to enable us to meet our investment criteria for our India business. I think we're in the best position to actually evaluate that. And we pushed on it for a year to make sure we got the numbers we needed to make our investment return hold. So that's the first piece.
The second piece of this is by in an integrated fashion solving for the MLA, if you will, and solving for the future ownership, it allows us to stabilize the business, fully integrate all of our assets, including Idea and Vodafone, that we've recently acquired, achieve cost synergies, and doing all of that really to prepare this operation for the growth phase in the post-consolidation market, which as Tom suggested, we think will happen over the next couple of years.
The third benefit of this is it opens up the opportunity now that we have certainty on the future ownership position of Tata Group to establish the optimal ownership and capital structure for our whole India business going forward as we integrate the whole thing. So there are tangible and intangible benefits here that we are more than convinced have made this agreement really positive for us.
As far as the ownership piece, currently I think we're at 63% of ATC. That's going to go to 79% in the first foot of this Tata share, and then we'll decide where we go from that. Today they're at 13%. By the way, Macquarie is in at 8% and IDFC is I think 1% or 2%. So there will be a long-term ownership structure that we will determine over the next year or two to take this business into the future.
And, Colby, I would just add, just to underscore a couple of things that Jim said. I'm not exactly sure what numbers you might be referring to or what the timing is. We've had the benefit of the cash flow coming in from this business all year, where some had expected it to be effective back in the beginning of the year. And we do have the going-forward MLA with the leases on the 30,000, so the $30 million of revenue. So there are couple of other pieces in there that may alter some of the math that you may actually have.
And just to also come back to Jim's point, we have 26%. The 79% also includes the 2% coming from IDFC. So it's half of the Tata put plus the IDFC piece. That's what gets the math together. Macquarie, I think as you mentioned, has about 8%. So we'll continue to evaluate also the possibility of continually looking at bringing in other global investors into the business, as Jim mentioned, as we've done in other geographies. It's worked really well for us in other geographies, and we'll see if it makes sense here.
Our next question comes from the line of Amy Yong. Please go ahead.
Thanks. Tom, I guess there's a lot of concern from investors around interest rates rising. At 4.6 times leverage, can you help us think about some of the puts and takes? You have obviously some cash coming in. But you also have a bit pretty big commitment in 1Q with India. Can you help us just think through what you're thinking, how you're prioritizing cash, and maybe if we should expect that the buyback will continue to stall, given the commitment in India? Thank you.
No, sure, Amy. As you can see in some of the slides over the last decade, we're committed to the allocation strategy that we've had. It's first to our dividend, which has grown pretty steadily, over 20%; then to our CapEx program, where I've said just 2% of the revenue is non-discretionary, with the balance driving incremental value, either newbuilds. This quarter we had 700 newbuilds; redevelopment, or land acquisitions. And then M&A or share buyback, wherever we can create more value. And all this is a function of our staying within our leverage targets being committed to that investment-grade rating in that 3 to 5 times level.
So if you step back and you take a look at 2018, we'll generate just about $3.5 billion of AFFO. Of that, $1.3 billion – $1.4 billion or so is to be targeted to our dividend, $800 million on our CapEx, and $1.6 billion or so roughly to M&A. And the incremental $500 million or so of EBITDA has given us that added flexibility regards our leverage ratios and allowed us to buy back shares, which is about $250 million or so year to date. So we think that allocation approach gives us a lot of flexibility. It's very balanced. And I think our record of growth to both AFFO/share and ROIC is really reflective of it.
And so as we kind of finish out the year, which we think we're doing very strongly, and start out the beginning of the year, I think we have a lot of opportunities to keep all of those four ladders, if you will, with regards to our allocation program in place. We would expect to continue to drive incremental EBITDA. We are continually working on driving operating expense savings within the business.
And I would say, Tom, to reaffirm your earlier point, we've done a regression analysis on all of our capital allocation decisions over the last 10 or 15 years. And the first and highest and best returns have come from growth CapEx, building new towers, buying back land, et cetera. The second most valuable to the investor has been our M&A program. And when we have excess cash, we just return it to you by repurchasing shares once we've paid our dividend.
So the batting order that we've been outlining here, again, that Tom just went through, we've done the regression analysis that says that is the right order for us based on our decision criteria and our operational execution. And so we'll be making those decisions in a consistent way with the cash we have available.
The next question comes from the line of Ric Prentiss. Please go ahead.
Yes, good morning, guys.
Hi, Ric.
Hey. First, congrats to Boston, obviously a strong year for you guys at the right time.
Well, it's about time somebody said that.
I'm surprised Jim didn't hit it, but, yeah, very excellent choice, and then obviously...
We would have by the end of Q&A if you hadn't stepped up, Ric, so thanks.
But I want to follow Colby and go to India, I guess. I want to understand how many years were remaining on that $120 million worth of revenue that is going to now show up in churn, $20 million this year and $100 million next year?
Four to six, it fell off a bit in the fourth year going into the sixth, so average of about five.
Yeah, okay. And then when we think about the flow-through of that $120 million, how should we think of that flowing through from property revenues to EBITDA and AFFO? I know $20 million you've already reflected into your guidance, but how should we think about that incremental $100 million and what that means flowing through to EBITDA and AFFO?
It's churn, it's coming out of the run rate, right? So I think you think about it, most of – all of it coming out of revenue and virtually coming out of EBITDA. Now, keep in mind that as a result of those 28,000 leases – or probably 24,000 – 25,000 coming off, the business itself will have the opportunity to take some incremental cost out of their operation as well.
So to the extent that there were some of those sites on a – and it being the only site on a particular tower, we'll look at that particular tower and the opportunity for that going forward, and we could take some land cost out of the business. So there will be a number of costs, I think, that will be able to come out of the business as well, Ric. But relative to that tenant billings, think of that coming out of the churn rate, so think about it coming out of property revenue and EBITDA as well.
Our next question is from the line of Jonathan Atkin. Please go ahead.
Yeah. So I wondered if you could hit a little bit on some of the growth drivers that you're currently seeing in Nigeria and in Mexico. Telesites in Mexico reported a little bit of lumpiness. I'm just kind of curious what you're seeing in that business. And then just one more on India, just in terms of longer-term tower industry structure, any sort of updated thoughts, given what's going on among two of your larger peers in that market and how that might affect kind of the commercial model for Indian telcos over the medium to longer term? Thanks.
Yes, Jonathan, maybe I'll take the first one and, Tom, you grab the second question. But in Mexico, for example, we have a really significant MLA with lot of our customers, and that can have some uneven billing over the course of the year based on the MLA timing. But it's a significant revenue and growth driver for us in this multiyear.
The second element in Mexico for us is the Altán build-out. We have a significant portion of that build-out. You might recall that Telesites is an affiliate of Telmex and Telcel, and I think as a result of that kind of looks to ATC first whenever they can. And we've got some really good growth, not only currently, but in the future we expect from Altán and from our existing legacy customers, too. So that's kind of the layout in Mexico for us.
Nigeria is a little bit slow right now versus prior years, but this is typical. When networks are built out, it's more of a sine wave, as we've talked about, where we have a couple of strong years and a couple of grooming years, and that's kind of what's happening in Nigeria right now. And we expect that given the demand – again, you go back to the same kinds of things, what's the mobile usage in the country, are they moving from 3 to 4G in emerging markets, and then what's the aggregate CapEx, and what's – some of the big customers there, Airtel and MTN, there to stay, we're pretty convinced that this will be a good business long-term and that cycle will turn up.
On the tower, Jon, I think really kind of three pieces. There are companies like GTL, Tower Vision, Ascend, smaller players in the market. It's hard to say what might happen with them at the end of the day. I'd probably expect them to exit or merge somehow either into the independent TowerCos with really kind of in this merged, which has probably 150,000, 160,000 sites, and us have up to kind of 80,000 sites. So that's on the independent side. And then you still have a couple of the captives with BSNL and RTL.
So I think as we've seen – in the United States, we've seen the coming down to kind of four broad wireless carriers, and ultimately we see the consolidation on the TowerCo itself. So it's following the same trends as we have seen in the U.S., which we've talked about in the past. And my sense is there will be some further consolidation on the tower side, particularly with some of the smaller players.
And we'll open the line of Matthew Niknam. Please go ahead.
Hey, guys. Thanks for taking the question. I know it's a little bit early, but as we think about 2019, you've got the midpoint of guidance this year for consolidated AFFO at about $7.88. I know that's boosted by the Tata settlement. But, how should investors think about next year's AFFO per share, considering that $100 million churn headwind which seems to be pure margin? Maybe put another way, is there an offsetting impact that's material enough to offset that from increased stake and lowered minority interest that you would take out? Thanks.
Sure, Matt. That's very well one piece of it, the incremental capital that may come from third parties to help offset some of that. But I think it just comes back to the strength of the business itself. There is roughly $0.56 is identified coming from the Tata settlement, and so we took up the guidance in our underlying business. But I think if you take a look at over the last 10 years, our goal is to continue to drive double-digit growth within the business.
We'll talk, obviously, more specifically in February relative to what makes up that overall growth rates, but those are – that's what really drives Jim and I within the business and the leadership team that you have here. I think that there are lot of very positive things within the business, particularly even in the second half of the year with the strength of just the organic growth that we see in the business.
So, we feel really good about the end of the year how we're finishing and what we would expect for 2019, and think we have a lot of ways, if you will, to be able to mitigate some of the exposures that we've seen or the volatility we've seen in India. But I think longer term, we start to think about India, I also just want people to think, this represents about 5% of our enterprise value. Okay? And so, when you take a look at that from a kind of a risk/reward, we're really excited about the position that we have in India. And while we may not see the net growth in 2019, we would expect to be back to that high single-digit kind of organic growth rates, double-digit growth rates in 2020 and 2021.
So we have a lot of levers, we think, within the business. We have a very diversified business. And so we think that there are a lot of really good things in the business to help offset some of that volatility that we might see in 2019.
Yeah. And as Tom said that we'll do our formal guidance in February, that's when we have enough of our application flow that we understand all the U.S., and many of the international carriers are going to say what their CapEx would be for 2019. And we'll have better feedback from our field as to what their customers are saying locally.
But in the meantime, you could just take that reminder of $0.56 a share for the full year 2018 devoted to Tata on the AFFO. If you wanted to back that out, start with the remainder number, and then look at these gauges in the concept that I've been talking about, what are your CapEx expectations for the industry, what do you think the aggregate growth of data is going to be next year, and some of those other inputs that you can get and build your model from that, I think we've given you all the pieces to go ahead and get started.
Thank you.
We'll open the line of Simon Flannery. Please go ahead.
Thank you very much. Good morning. Tom, coming back to your comments on capital allocation, you did the Kenya deal. You've been finalizing fiber in Brazil. But we haven't seen any major transactions for a little while. Can you just talk about the broader M&A market? There's a lot of portfolios in Europe that have come up, that might come up. How are you just thinking about opportunities in Europe or elsewhere and the overall environment? Thanks.
Sure, Simon. We think about it exactly as we've always thought about it. I mean, we're involved, as you would expect and it's kind of a small community, in all of these opportunities. And we continue to come back to just kind of the underlying way we value these businesses in terms of looking at the long-term growth, in terms of looking at all the capital requirements of the business. And most of those opportunities just kind of fall by the wayside, because they don't meet our return thresholds, if you will, and there are some sizable transactions out there. There have been many in Europe, as you know.
And we have our – our Germany and our France operation there is really kind of a beachfront for us to give us an opportunity to look even further about the particular asset bases that are in the market. And never say never, but we just haven't seen the growth opportunity there at the right times of return thresholds for a lot of those portfolios that are available for sale. And so there are a lot of smaller opportunities that we look, like you've seen the kind of the once we've done in Latin America, kind of the fills-in that we've done in there and looking at the opportunity we just did in Brazil and following on what we've done in Mexico.
We've done some small things in Africa. We just did enter Kenya, so we'll continue to look at those kind of opportunities. And many of them provide opportunities for build-to-suits, so that get us into the market. We can operate Kenya out of Joburg, which is really good from a value creation perspective. And we'll continue to evaluate other portfolios there and if they meet the thresholds, we'll look at that as an opportunity to expand.
Africa happens to be one of those regions where we would like to get deeper into the market. We've had great experience there. We've got a great management team in the market. We have solid relationships with our customers. So that is an area where we would like to get deeper, but just haven't found an opportunity to do so at this point.
Great, thank you.
We have time for one more question. We'll open the line of Phil Cusick. Please go ahead.
Hey, guys. Thanks. To start, can you talk about Mexico? AT&T has been very public that they plan to ramp spending down? Do you expect growth to slow with that or you think you can continue despite?
There's numerous moving pieces in Mexico, Phil. We don't speak to our customers' plans. We allow them to do that. But what we can tell you is, in a range of plus or minus a few hundred basis points, that sine wave of spending is going to, we think, continue in Mexico over the next few years. They're basically transitioning from a 3 to a 4G network for 120 million people or so. Altán will continue to be a big part of that. We'll see what Telefónica decides to do and AMX. But everyone's going to 4G. That's going to be the competitive requirement in Mexico to have a mobile business. And we'll be providing bulk of the infrastructure for that as really the only truly independent tower company down there.
Great. And then last, I guess, finishing up, the potential for the U.S. business we've been thinking about. In the past the company's talked about a range of 6% to 8% growth. But in May when we saw you, you said that might be too high, given the company's size at this point. Now it's 7.4% and with it looking like U.S. carriers are still ramping, do you think that 8% is still out of bounds for next year?
We're not going to predict next year yet, Phil. We need all of our input variables. Unfortunately, you've got half a dozen engineers running this place and we don't make predictions until we get data generally. We can't call anything out of the question, but a lot of things have to go really well for our industry for us to get 8% on the size of this U.S. business now that we have in American Tower. So we'd love to see all those things fall in place, whether it's DISH or others or an accelerated FirstNet. I mean, there is a lot of ways to get there. But, look, the history and the regression analysis on our customers' behavior has been $30 billion, plus or minus $2 billion or $3 billion, over the last few years as far as what their spending capacity is as an industry, and so that's where to tend to look to as we think about the future. But, could it be higher? It could. But you'd have to have, whether it's cable or DISH or somebody else show up with some more capital probably.
Thanks, Jim.
All right. Well thanks, everyone. That wraps up the call. Have a good day.
All right, take care. Have a great weekend, everybody.
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