May 2, 2008
Executives
Michael Powell - Director of IR Brad Singer - CFO and Treasurer James Taiclet - Chairman and CEO
Analysts
Ric Prentiss - Raymond James Jonathan Chaplin - JP Morgan Gaurav Jaitly - UBS Clayton Moran - Stanford Group Jonathan Atkin - RBC Capital Markets John Marchetti - Morgan Stanley Jason Armstrong - Goldman Sachs & Co. David Barden - Banc of America Michael Rollins - Smith Barney Citigroup Anthony Klarman - Deutsche Bank Joseph Mastrogiovanni - Credit Suisse Jonathan Schildkraut - Jefferies and Co.
Operator
Good morning. My name is Danielle and I will be your conference operator today.
At this time I would like to welcome everyone to the American Tower Corporation First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remark there will be a question-and-answer session. [Operator Instructions].
Thank you. I will now like to turn today's call over to Mr.
Michael Powell, Vice President... Director of Investor Relations.
Mr. Powell, you may begin your conference.
Michael Powell - Director of Investor Relations
Thank you Danielle. Good morning everyone and thank you for joining American Tower conference call regarding our first quarter financial results.
We'll begin with comments from Brad Singer, Chief Financial Officer, who will then things over to James Taiclet, our Chairman and Chief Executive Officer. After these comment we will of course open the call up for...
for your questions. However, before we begin I would like to remind you that this call will contain forward-looking statements that involves number of risks and uncertainties.
Examples of these statements includes statements regarding our 2008 outlook, our stock repurchase program, our international business development initiative 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 factor set forth in this morning's press release and those set forth in our Form 10-K for the year ended December 31, 2007, as well as our other filings 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 subsequently occurring events or circumstances.
And I would like to turn things over to Brad Singer.
Brad Singer - Chief Financial Officer and Treasurer
Thanks Michael. American Tower began 2008 with a strong performance during the first quarter, with significant revenue and adjusted EBITDA growth.
In our core rental and management division, our revenue and gross margin increased 8% and 9% to $374 million and over $290 million respectively from the first quarter in 2007. Our rental and management revenues in gross margin included a decrease of over $5 million of non-cash straight line revenue compared to the prior year and over $4 million on a sequential basis from the fourth quarter.
Adjusted to exclude the non-cash straight line elements, Tower revenue increased 10% and gross margins increased 12% than the prior year. The combination of our new business and the renewals and extensions of existing leases increased our non-cancelable lease commitments to 8.8 billion or nearly 6 years of revenue.
We expect the non-cash straight line revenue will decrease sequentially in the second quarter of 2008 by approximately $2.5 million. Our total selling, general and administrative and development expense was $48.9 million, including 16.9...
$16.3 million of stock based compensation expense. The stock based compensation is seasonally higher primarily due to divesting of all employee annual grants in March.
We anticipate stock based compensation expense of approximately $14.5 million in the future quarters in 2008. Our selling, general and administrative and development expense also included $0.6 million of additional costs associated with the stock option review and related matters.
Our adjusted EBITDA increased 11% to $262.5 million and our adjusted EBITDA margin increased approximately 200 basis points to 69%. Adjusting to exclude non-cash straight line revenue in expense, adjusted EBITDA increased over 14%.
Our operating income for the quarter increased $59 million from the first quarter of 2007 to $145 million. Of the increase $30 million was attributable to the change in our estimate of the useful life of our towers and related intangible assets.
As previously disclosed in our third quarter 10-Q and our 2007 10-K, we have reviewed the estimated useful life to determine whether we should modify our current estimates based on the historical operating experience. In connection with internal review, we retained an independent consultant to assist with the analysis.
As a result of the internal and independent reviews, we have concluded that we should increase the estimated useful life our towers and related intangible assets from 15 to 20 years will account for the change perceptively effective at the beginning of this year. As a result we have reduced depreciation and amortization expense by approximately $30 million in the first quarter of 2008 and anticipate reducing annual depreciation and amortization in 2008 by approximately $120 million.
Our net income for the first quarter of $42.2 million which includes approximately $18.8 million net of tax related to the change of useful life. Our capital expenditures totaled $44.6 million.
During the quarter, we completed the construction of 18 towers and 3 in-building installations. While the number of new towers were slightly below our expectations, based on current construction pipelines, we continue to anticipate completing 300 to 400 new towers and in-building sites in our existing market.
We have also signed our first build-to-suit agreement in India, which Jim will discuss in greater detail. We anticipate spending $15 million in capital to complete approximately 200 towers during 2008 in India.
Separately we acquired 244 new towers in the quarter. The average un-levered day one return of the 265 new sites that we acquired and built in the quarter was over 13% with strong prospects for additional tenants further increasing our future returns on investment capital.
We also had higher than historic levels of redevelopment capital expenditures during the quarter due to the incremental investment related to one of our customer as well as the expansion of several of our casino properties to accommodate additional tenants. As a result of our growth initiatives, we are increasing our anticipated capital spending by $15 million to $200 million to $230 million to reflect our India build-to-suit project.
A strong operating performance produced approximately $138 million of free cash flow for the quarter. We define free cash flow as cash provided by operations less all capital expenditures.
Please note that the free cash flow calculations include approximately 37 million of discretionary capital spending on new site construction and land acquisition, as well as redevelopment of existing site. As indicated in our press release, we are increasing our 2008 outlook.
At the midpoint of 2008 outlook, we anticipate Tower revenues of $1.5375 billion, Tower gross margin of $1.193 billion and adjusted EBITDA of $1.082 billion. We continue to anticipate 2008 levels of commenced new business to be above our 2007 outlook, based on our current pipeline of commenced and signed leases as well as our applications received in dialogue with our customers.
Our financial position remains solid due to strength of our operations and the continuing solid fundamentals of the wireless industry. In March we substantially increased our liquidity with a new $325 million term loan facility which we used to pay down our existing revolving line of credit providing us with total un-drawn capacity of close to $600 million.
We entered into interest rates swaps locking in our interest rate and the significant majority of the new term loan below 4% providing very reasonably priced capital. Over the past six months the spiky uneven credit market conditions, we have successfully raised over $800 million of reasonably priced debt, demonstrated the success of the diversification for financing sources and the strength and durability of our financial position.
During the first quarter we repurchased approximately 4.5 million shares for $171 million and approximately 1 million shares subsequent to the end of the quarter. Our repurchase activity was lower than we had anticipated.
Under the purchase plan we put in place, we expected to benefit from current market volatility by repurchasing a greater quantity of shares as the price declines and lower the purchase activity as the price of our shares rose. The strength of our share price performance subsequent to the end of the first quarter reduced the number of shares we have purchased today.
We review our repurchase activity subsequent to our earnings release each quarter as we set our new 10b5 purchase program. We remain confident of our financial performance and think that utilize our financial position to appropriately maximize shareholder returns through our investment and re-purchase activity.
The five weeks into the baseball season, the Red Sox are well positioned to return to their championship form, sharing first place despite being subbed [ph] by Ray last weekend. I will now turn things over to our Chairman and CEO, Jim Taiclet.
James Taiclet - Chairman and Chief Executive Officer
Thanks a lot Brad and good morning to everybody. Our company once again delivered excellent growth in the first quarter; a 10% increase in cash tower revenue and a 14% increase in cap adjusted EBITDA.
These results are a credit to our employees who are striving every day to get the many tasks accomplished that enable new cell sites and augmentations to be added to our towers and in-building system. We experienced strong commenced new revenue in Q1 of which 70% was new installations and 30% was augmentations to existing cell sites.
Demand for tower space remains robust, as being confirmed by our application pipeline which remains at high levels, our direct interactions with our customers and industry development. Since the beginning of the year I've met with each of our most critical domestic and many international customers and from these meetings and the carrier's public statements have derived the following conclusion.
First the largest U.S wireless carriers continue to aggressively invest in network quality for current 2 and 3G technologies, while laying the groundwork for 4G data services which include securing spectrum and defining technology roadmaps. Second Auction 66 deployments continue and spectrum is clearing...
and spectrum clearing is progressing well. T-Mobile, Leave [ph] and MetroPCS are all active with us.
And third we are securing meaningful lease up from arranged... regional and emerging technology customers such IPCS, MediaFlow and AirCell.
In Latin America, Mexican carriers continued to invest in their networks as quality plays an increasingly important role in that competitive market. While in Brazil, two market entrants in Sao Paolo state, coupled with regional developments are in deployments related to recent spectrum auctions are resulting in a significant increase in demand for our sites in Brazil.
Our strong first quarter financial results also demonstrate that our fundamental corporate strategies continue to pay off. Our management team first implemented these strategies in 2001 and we have been driving them forward ever since with appropriate cost adjustments based on market conditions.
Our first strategy has been to focus exclusively on the tower leasing business model and achieve meaningful scale of high quality asset. By maintaining this focus, we've avoided the costs and management distraction of non-leasing businesses and have been able to add very high quality assets to the company that leverage those assets to attain consistent tower revenue growth.
The US Wireless Tower business is the core of our company. With the acquisition of SpectraSite back in 2005, we are able to accomplish the first and the only tower company merger that brought together substantial former cellular or 800 megahertz tower portfolios.
With this critical transaction towers purchased from SBC, AirTouch and Verizon, ALLTEL, Nextel and AT&T Corporation as well as towers built facility for co-location by ATC and SpectraSite were all brought together. The characteristics of these towers were and still are critical because strongly sub-growth overtime depends on three factors; location, tower capacity in ground states and what we call readiness.
At American Tower we feel we have the best tower asset in US and here's why. They have a healthy 53% of US towers wireless towers the top 100 markets with an additional 28% in second tier cities in high traffic corridors, which also experienced high demand.
It's our view that tower company built an 800 megahertz carrier towers generally have favorable structural capacity and tower space and ground space characteristics. These characteristics may support greater lease up potential and lower redevelopment CapEx overtime.
Available capacity in ground space enhances the readiness of this site to accept new leases and equipment. With speed of execution increasingly important to our carrier customers, the quality of our tower portfolio provides for fast lease applications cycle time.
We believe our company is an industry leader in this area of speed, resulting in greater customer satisfaction based on our latest third party customer surveys, which in turn helps us further maximize our share of new lease opportunity. Our assets outside the US which provide about 14% of our revenue currently has similar characteristics to our US towers.
Revenue per tower in both Mexico and Brazil are at or above the US average and both markets have delivered superior returns on investment providing diversification to our customer base. And we continue to explore additional markets in Latin America and elsewhere for opportunities to replicate those successes in Mexico and Brazil.
After an in-depth assessment of the Indian market for example, we've chosen for the time being to establish our presence by build-to-suit agreements with key customers and are pleased to announce the first of these today. This approach enabled us to enter the market on a construction cost basis versus the currently higher entry cost routes of large acquisition or joint venture alternatives available today in that country.
We believe we can achieve viable scale in India over a period of time with this build-to-suit approach by gaining experience on the ground that will help us evaluate potential future opportunities there and regionally. Our immediate goal in India is to build a set of high quality towers in the country and demonstrate our ability to drive industry leading co-location rates in that market.
The commitment to achieve industry leading co-location rights in India is completely in line with the second of our major strategies over last 6, 7 years and that's to use operational execution to maximize returns on our asset. Our operating teams have combined dedication of customer service and revenue growth with the commitment to cost control and as a result in the first quarter American Tower delivered 69% adjusted EBITDA margins, significantly higher than our industry peers.
Our operations in the U.S. and in Latin America use three fundamental operational processes to drive results and accountability and will take these processes to other markets as we enter them.
These are integrated operational goal setting and measurement process, our quarterly operational financial reviews, and our talent management process. We complement this blocking and tackling of these basic management processes with our in-house continuous improvement team and with investments in data quality, site documentation and IT systems.
The overarching goal of all these operational programs is to rapidly provide our customers with the information they need to make a purchase decision and then to sign a lease on our tower as quickly and actively as possible. Speed is what we are all about and it's where we place our operational investments.
Our third major strategy is to maintain financial strength and flexibility. Simply said we never want to be painted into a corner.
We never want an overstretched balance sheet to prevent us from being able to do the right thing for the business and for you, our shareholder, be it an investment and asset at the right price or returning capital through an appropriate share repurchase program. We also never want our investors to question our ability to refinance our debt at reasonable terms and costs.
As I've said we are designing this company for a long term success. We are gifted with a great foundation for future growth, the expanding wireless industry that we serve.
Our balance sheet and capital structure condition our company to whether a range of economic and financial market scenarios and still take full advantage of the opportunities that I am confident will be available to American Tower. As I hope you can tell, we are very energized about our current position and performance and even more so about the future.
So thanks for joining us on the call today and at this point Brad and I will be happy to take your questions. Operator?
Michael Powell - Director of Investor Relations
Danielle are you there? Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Ric Prentiss from Raymond James.
Ric Prentiss - Raymond James
Yeah, good morning guys.
James Taiclet - Chairman and Chief Executive Officer
Hello Rick.
Ric Prentiss - Raymond James
It's appropriate to be first since the Rays are in first place by a few percentage points over you guys in Boston. It's the last time I'll be able to say that probably.
Ric Prentiss - Raymond James
A couple of questions for you guys. First on the change of the life of the tower assets.
Obviously a non-cash item does reduce depreciation, does increase book taxes. Can you update us on where your NOL balance is and what this change might do as far as kind of the lifetime of burning through that NOL and are you paying any cash taxes yet?
Brad Singer - Chief Financial Officer and Treasurer
Hey Rick, it's Brad. It doesn't have any impact on our tax position.
It's a GAAP adjustment in terms of the estimated useful life. So NOL is around a billion six...
$1.6 billion and it so would not change the burning through of that. We don't pay US income taxes.
We do pay certain franchise taxes that are not large in size but we are a tax payer in Mexico and Brazil.
Ric Prentiss - Raymond James
Second question is the Indian as I call it the toe touch there, think it is much smarter way to get in what looks like... should we assume the $15 million is the full cost to build those 200 towers which would imply $75,000 per tower and some extra questions associated with that is how tall are the towers you are looking to build in India, what's the capacity that the towers could hold, what's the barriers to entry as far as zoning protection, the anchor rent.
Can you help us kind of understand how the business model works in India from a standpoint, the height of the towers, the cost of the towers, the capacity of the towers, the anchor red and how long it might take to get that second carrier.
James Taiclet - Chairman and Chief Executive Officer
Hey Rick, you want us to send you over our business model.
Ric Prentiss - Raymond James
Yeah, it would always help and '09 guidance now would help also.
Brad Singer - Chief Financial Officer and Treasurer
Well, Rick we actually had our Latin American teams design a special tower for the India market that would be easy to replicate the construction of low cost and be able to hold sort of three carriers out of the box. And so that's our capacity goal is 3 to 4 carriers up...
initial construction cost of about 75,000 as you said, 40-meter towers plus or minus 5 meters depending on the utilization. So it's basically a low cost way to get into a very fast growing market and we're going to build our way into it rather than go through the higher cost and probably higher risk, lots of big acquisitions and big join ventures for the time being.
Ric Prentiss - Raymond James
And I would assume the Indian carriers would not be paying the similar kind of rent that we would see in the US. But in Latin America you do get some extra payments back for, I think, land don't you?
James Taiclet - Chairman and Chief Executive Officer
We pass-through ground rents in Latin America, that's not the case in India, but there are some other pass-through costs like security and things, so... in some contracts.
So, what we basically done, Rick, is align our business model to meet our return criteria and with the rates being set by the market as you suggested in India being a bit lower than say Latin America, we needed to make sure that our cost base was also lower going into the country and that's really the reason we established our beach ahead in this way.
Ric Prentiss - Raymond James
And I think it's a smart way to go, I guess the other way to ask the question maybe is, you mentioned 13% kind of day one returns on the stuff that you did within the quarter as far as acquisitions and builds, what was kind of day one India IRs be then?
James Taiclet - Chairman and Chief Executive Officer
In India it will be mid single-digit, with one build-to-suit customer which we expect to grow into mid double-digits, mid-teens as you bring on the second carrier and since it is the fastest growing wireless market in the world, we think we are going to have a lot of confidence in getting the second and ultimately the third carrier on these towers someday.
James Taiclet - Chairman and Chief Executive Officer
Okay. Thanks a lot guys and we will see how you do against the Rays this week.
James Taiclet - Chairman and Chief Executive Officer
Take care Rick.
Operator
Your next question will come from the line of Jonathan Chaplin from JP Morgan.
Jonathan Chaplin - JP Morgan
Hi, thanks. Just following up from that question, where do the IRs ultimately go as you get to three and then maybe four carriers and then if I could also ask you some on guidance, it looks like...
if I look at the increase in revenue, increase in EBITDA doesn't completely conform to your... to the expected incremental margins, I am wondering what the offset are there?
Thanks.
Brad Singer - Chief Financial Officer and Treasurer
Sure, Jonathan. It's Brad.
With regard to where the IRs ultimately go, I mean, the business scaled somewhere to the U.S. in terms of the incremental tenant in India doesn't come with a significant amount of incremental cost...
that would not be passes through. So you should assume if we are getting kind of a...
off a second tenant up to like mid-teens, they show slightly better returns, the third tenant would also flow right above until you'd well in excess at 20% and for higher kind of returns. With regard to our incremental margins, they are still running I'd say the high 80% to 90% as you look at our outlook between revenue to the gross margin line item in the tower business and that's what you should anticipate as we move forward.
Jonathan Chaplin - JP Morgan
Could you look at the slight disconnect between the increase in guidance for revenue and EBITDA, is there an offset to your typical gross margins?
Brad Singer - Chief Financial Officer and Treasurer
Well we just have... we had about a million more of corporate expense this quarter that had to be incorporated.
So that's why you're dealing with fairly small numbers. So when you have the mid point of revenue go up $7.5 million and EBITDA goes up $5.5 million or so, that extra $1 million counts towards that percentage, there's not meant to be; there's no change in the actual business model just that we're incorporating would actually happen in the first quarter into that outlook for the year.
Jonathan Chaplin - JP Morgan
Got it. Thanks Brad.
Brad Singer - Chief Financial Officer and Treasurer
Sure.
Operator
Your next question comes from the line of Gaurav Jaitly from UBS.
Gaurav Jaitly - UBS
Thanks, good morning guys. Just to follow up on the India question a little bit, it's obviously very fragmented market, lot of wireless carriers especially beyond the top four carriers there, don't have to give me a name but, you said you are targeting some strategic customers, is it those top four big carriers or are you looking at the smaller carriers?
James Taiclet - Chairman and Chief Executive Officer
Our contract indicate that... we keep the counter parties silent and those in...
and all I can tell you is it's a major carrier that's growing significantly in India right now. It's not...
I don't mean to say, the opposite of fashion [ph], it's not a new entrant without a business.
Gaurav Jaitly - UBS
Okay, great.
James Taiclet - Chairman and Chief Executive Officer
We feel pretty confident about their ability to --
Gaurav Jaitly - UBS
Pay the bills.
James Taiclet - Chairman and Chief Executive Officer
Yes [ph].
Gaurav Jaitly - UBS
That's great. And then just on the guidance upside, slight increase in the revenue guidance.
Is that coming mainly from... is this domestic or is it Latin America; I am assuming there's no India revenue this year?
Brad Singer - Chief Financial Officer and Treasurer
Yes, the way our guidance... the increase is based on both US and the Latin America operating performance; both of them were a little bit ahead of expectations internally.
We did not incorporate the Indian assets that we put in place and that was third and fourth quarter. You may have a million or two of revenue that may come in those quarters but it will be pretty far out, right.
And so I don't think that will change the guidance in any significant way.
Gaurav Jaitly - UBS
Okay, great thanks guys.
Operator
Your next question comes from the line of Clay Moran from Stanford Group.
Clayton Moran - Stanford Group
Morning. Just wanted to ask about the existing towers, few things.
Can you just share with us the percentage of towers that are at full capacity now and also the percent of new leases that require augmentation capital and then talking about the change in estimated life, can you talk about what you see with your oldest towers, what happens to maintenance CapEx if anything, how old those oldest towers are? And then you raise the estimated life to 20 years but what do you truly think the life is, when do you need to replace the tower?
Thanks.
Brad Singer - Chief Financial Officer and Treasurer
Lot of questions Clay. Let me go through each one.
On the capacity side, we don't give a specific statistic but very... there's a small percentage of our tower that we say are at capacity.
Even those that are at structural capacity, we typically can put money into a site and into redevelopment cost to add additional tenants. So you can create capacity by what we call redevelopment capital.
So I think there is very few times where we can't put a customer on a site and I think that's the best way to think of it. In terms of how often we have to do something to the tower probably one in five times --
James Taiclet - Chairman and Chief Executive Officer
One and four times.
Brad Singer - Chief Financial Officer and Treasurer
One in four, one in five times when a new customer comes out not when they are adding more equipment but a new installation is where we would have to put redevelopment money into it. The customer typically pays half of that cost, when we do have to improve the tower when they come along.
In terms of our maintenance capital, it has not dramatically gone up or down over the last several years and the maintenance area what we disclose as improvement capital. For the most part that...
the largest driver of maintenance capital, believe it or not, are lighting systems and I think that's one of the bigger segments and so it's not actually the structure itself. The structure's based on the studies we have used from third parties and our own operating experience, last well beyond 20 years and well beyond 30 years even in the studies and some are 50 or 60 years.
And even when you keep putting improvements into them, it can last even beyond that. So the structures are very long lived, we went to 20 years based on an incremental approach to how we were looking at the useful life and I think it's also comparable to our largest peer in the industry also uses 20 years.
Clayton Moran - Stanford Group
Okay, thanks.
Operator
Your next question comes from the line of Jonathan Atkin from RBC Capital Markets.
Jonathan Atkin - RBC Capital Markets
Yes, good morning. I have a couple of follow-up on India.
But first of all can you refresh us on what the average tenancy level is in Mexico and in Brazil versus the US?
James Taiclet - Chairman and Chief Executive Officer
In... yes, the physical tenants 1.8, roughly 2, in Latin America, prices there are higher there for lease as you might remember Jonathan.
So the revenue per tower are at or above the US.
Jonathan Atkin - RBC Capital Markets
Okay. And then the build-to-suit approach in India, is there a deep demand for that type of service by third party such as yourself, I am just trying to get a sense of how much you could ramp those efforts, if you decide after the initial 200 to go for more?
James Taiclet - Chairman and Chief Executive Officer
Yeah there's... estimates as high as the need for 300,000 more structures over the next five or so years in India, Jonathan.
So there's plenty of open field to play in frankly and we're more interested in the performance of a set of tower, and not necessarily, the absolute number and so we feel there's plenty of room for us. And what we really want to do in the India market is change it by driving co-location versus pure construction as the method of getting cell sites on there and that's what we are hopefully...
really make our mark.
Jonathan Atkin - RBC Capital Markets
And then in the past I think you've talked about other Latin American and other South Asia markets, are you still actively considering entering those?
James Taiclet - Chairman and Chief Executive Officer
Yes we are considering them and using the same sort of due diligence that we have so far in India. And if you think of Latin America, you might just view the kind of countries where we have common customers, Jonathan, and that will be kind of a good clue to what's interesting.
We don't have anything specific to announce yet but that's one way to kind of gauge where our interest level might lie in Latin America.
Jonathan Atkin - RBC Capital Markets
As far as overhead cost to support the Indian efforts above and beyond the office that you established there, what are we looking at in terms of employees of ATC versus contracted labor and so forth?
James Taiclet - Chairman and Chief Executive Officer
We're doing it mostly with outsource contractors right now especially all the physical work. So we are picking up a dozen people to get the first build-to-suit off the ground, and probably it would be what we would need on in-house.
Jonathan Atkin - RBC Capital Markets
Great. Thanks very much and namaste [ph].
James Taiclet - Chairman and Chief Executive Officer
Okay.
Operator
Your next question comes from the line of John Marchetti from Morgan Stanley.
John Marchetti - Morgan Stanley
Hi, thanks. Just one quick housekeeping item and then I'm going to beat this India thing to death again.
Can we just... can you give us a sense for the towers the towers that you acquired in the quarter, how many were US and how many were in Latin America and then just following up on the comment you just made about changing the business model in India, what gives you the confidence that right now they're not just doing land grab mode and everybody's just looking to put up a tower as quickly as possible, but that you can convince operators to go this sort of co-lo route and get more tenants that way.
James Taiclet - Chairman and Chief Executive Officer
Yes, let me just touch the acquisition piece first. It was sort of an 80/20 Latin America/US for us in the first quarter.
So most of those sites were in Mexico and Brazil.
John Marchetti - Morgan Stanley
Okay.
James Taiclet - Chairman and Chief Executive Officer
And then secondly on India, yes there is a number of dynamics I'll say going on in that market right now. Some of those dynamics depending on who you are would drive you to build maybe more towers than to really actively try the co-location on existing towers.
But that's not going to be our motivation and so what we're going to try to do there is what we've done in the US and Latin America which is to prove to the carriers that if there's an existing tower and hopefully it will be ours, that we can get them on... on air at a much faster cycle time than they could get by building their own tower doing some other alternative.
And that's what I think is our goal in India is to prove that.
John Marchetti - Morgan Stanley
In respect to the competition that you are seeing there today, is it largely that decision where there are a lot of tower operators and it's more just the carriers themselves that you see a lot of third parties coming in now and trying to take advantage of some of the growth dynamics that they see there.
James Taiclet - Chairman and Chief Executive Officer
In India there are a few existing third party companies. I would not say that there's a...
just sort of the Oklahoma land rush of companies coming in there and the market will settle out and I think the best performing third party companies will do well and some may drop off and some will get acquired.
John Marchetti - Morgan Stanley
Right,
James Taiclet - Chairman and Chief Executive Officer
We are very focused on... we are very cognizant of the surroundings.
But we are also focused on how we are successful and we are successful by just as we did in Brazil 600, 700 towers at this point perform really well in a much larger market because we've got low entry cost and good co-location rates. And that's what we are going to strive to do in India.
And then if something larger opens up at the right entry cost, we'll look at it also.
John Marchetti - Morgan Stanley
Thank you.
James Taiclet - Chairman and Chief Executive Officer
Sure.
Operator
Your next question comes from the line of Jason Armstrong from Goldman Sachs.
Jason Armstrong - Goldman Sachs & Co.
Thanks. Good morning.
A couple of questions that just... one more on India.
In terms of...
James Taiclet - Chairman and Chief Executive Officer
I am going to start charging for these Jason.
Jason Armstrong - Goldman Sachs & Co.
Okay. One more if I may.
But the... there are no foreign ownership caps, just how you are getting around this and are you splitting the economics here with anybody else?
James Taiclet - Chairman and Chief Executive Officer
No.
Jason Armstrong - Goldman Sachs & Co.
And then --
Brad Singer - Chief Financial Officer and Treasurer
Well, let me just answer that real quickly. There are no foreign ownership caps on infrastructure in India where there are in wireless service provides.
So we don't have that restriction. And frankly one of the reasons we are going in the way we are going is so that we can control the whole entity at this point, at least.
So --
Jason Armstrong - Goldman Sachs & Co.
Okay, great. And then second question just on the share repurchase.
I know you said there were some structural limitations around the 10b5. In the quarter just given the way the share price had moved, as you reset the parameters post the earnings release can we think about a rate similar to what we saw in '07 in terms of the pace of the buyback?
James Taiclet - Chairman and Chief Executive Officer
I think Jason that we'll still try and take advantage of somewhat of volatility... volatilities in upward bias of late.
But as we... we want to maintain certain leverage parameters and so to maintain leverage and not de-lever you should anticipate that we would increase the pace of buy backs from where it has been.
Jason Armstrong - Goldman Sachs & Co.
Okay, great thanks.
James Taiclet - Chairman and Chief Executive Officer
Okay.
Operator
Your next question comes from the line of David Barden from Banc of America.
David Barden - Banc of America
Hey guys, thanks for taking the question. A couple of if I could, just following up a little bit on the buyback side, Brad obviously you know with LIBOR down you guys locked in some very low rates, does that increase the ability of the company do you think from a relative yield perspective to go after stock so to speak.
The second question related to that is, if you guys are going to be taking much more incremental steps in terms of a build-to-suit approach in India rather than maybe holding out for one of these big acquisitions, does that maybe release again some incremental capacity on the balance sheet from a leverage standpoint to go after stock if the credit markets can support it, I guess. And then my last question is, there's been a growing number of questions if you've have been listening to the calls over the last couple of quarters about the ability of the tower industry to support the growth in wireless from a capacity standpoint.
To your point you guys are having to put money to work one in every four, one in every five new deals. Does this kind of maybe unravel a little bit the whole idea of recurring cash flow being the relevant benchmark here since almost one in every four deals requires new capital to be put to work to grow?
Would love your comments on that. Thanks.
James Taiclet - Chairman and Chief Executive Officer
Let's take your last question first. We put in total let's make sure we bracket this, that one in every four and one every five totals $30 million a year.
So this is not a significant capital expenditure, usually they're fairly modest and as I said that is growth, it's not even net of what the customer gives us, so we recorded growth from a book perspective. So you think of our improvement cost us around $25 million a year, across our portfolio and then there will be amount that we put into redevelopment is $30 million across the portfolio.
That's really the aggregate amount you are putting into existing portfolio in terms of what our historic experience. This year is a little higher in re-development but that's due to one specific customer in international, there's nothing to do with the structural limitation that we talked about.
So, I think what you want to call recurring cash flow after improvements or recurring cash flow after... of the re-development, both of those, I think, are realistic expectations.
But we haven't seen an uptick in redevelopment, just that's about where it has been running and you usually just need to put a little bit of money whether it's reinforcing the tower through brackets or touching the foundation when you are adding customers. So I just want to be careful that you understand that fully so as you are thinking about valuation and that is based on our specific capital spending history.
With regard to LIBOR and our share repurchase, look it makes the math better. For long-term we do always think about ultimate value and how we create best for our shareholders and that's how we base...
where our financial position is as well as the incremental opportunity is to the deploy that capital. Having said that India is starting off with an initial 200 tower build, we are still looking at several other areas to explore internationally and we do also want to have...
be able to take advantage when... if asset prices are going to remain as tight throughout the world or there's opportunity that they come up for us to put money to work.
So I think, we still... you'll still anticipate us to have financial flexibility.
We think it's very important, that's how we create a lot of value, and we should still be within that 4 to 6 times leverage; nothing has changed our bias to do that.
David Barden - Banc of America
All right, great. And just to maybe...
since you raised the issue Brad, how does that contribution from customers who are participating in that capital enhancement of the tower come back to you from an accounting standpoint.
Brad Singer - Chief Financial Officer and Treasurer
Have to recognize the revenue over the life of the lease. So if we have 10-year leases, it's 10-year.
It's like they gave us $10,000, it's $1000 a year. So --
David Barden - Banc of America
Okay.
Brad Singer - Chief Financial Officer and Treasurer
That's a very small... you don't see it comes through the income statement because it's over such a long period time.
David Barden - Banc of America
Okay great, thanks guys.
Operator
Your next question comes from the line of Michael Rollins from Citi Investment Research.
Michael Rollins - Smith Barney Citigroup
Hi, good morning. Just had a couple of questions on the land purchasing side.
Can you give us an update in terms of where we are, what the percent of revenue that's tied to land or if you want to include 99-year leases that you own. And then the second part of the question is how should we think about land repurchases over the next couple of years in terms of your valuation expectations for what you are bringing them in at?
Thanks.
James Taiclet - Chairman and Chief Executive Officer
And Michael with regard to land repurchases, we look into protect the assets that's on that land. So we either extend leases or we ultimately buy the land.
We are agnostic about which way we pursue that. So this year we budgeted $40 million to $60 million, we will probably be somewhere in the midpoint of that to maybe close to 2.50 rather than 2.60.
And that's really based on the cost to extend the land. Right now we own about 16.5% of our sites.
But also just as important we've extended many more sites over the last, call it, 18 months. So we have very few sites that over the next 15 years will ultimately...
that we have to work through. There is roughly about 1000 sites over the next 15 years of the vast majority being years 10 through 15 that we need to work through.
And so we do that by put making payment to landlords or redoing the ground leases themselves. One of the things that comes through as a prepaid rent is that we have about 4 million or 5 million bucks that we've spend over the last 6 months on paying landlords to extend leases, and capturing another 20, 30 years.
And so we really take it... we do the most economic way to take care of all of our leases and we have been very successful in protecting those assets.
And just give you some numbers, over 1400 leases have been extended or purchased in 2007. So that was over that 12-month period.
So we've very, very successful in doing that. We've got probably about 1000 to go to make sure the next 15 years are completely taken care of.
That should probably be done by the end of the year but no later than probably six months after that for the vast majority of them. And we just try do it in a common sense economic approach.
Michael Rollins - Smith Barney Citigroup
And just one last question. When you do extend the leases what kind of escalators do you see in those land purchase or land...
excuse me, lease agreements?
James Taiclet - Chairman and Chief Executive Officer
We think we have three year escalators. Almost all of our...
I am sorry, Michael Powell correct me, 3% escalators. Almost all of our ground leases have 3%.
Michael Rollins - Smith Barney Citigroup
Thank you very much.
Operator
Your next question comes from the line of Anthony Klarman from Deutsche Bank.
Anthony Klarman - Deutsche Bank
Perhaps the larger piece of the international business going forward?
Brad Singer - Chief Financial Officer and Treasurer
Anthony the first part of your question either was on mute or something. Can you repeat it please?
Anthony Klarman - Deutsche Bank
I'm sorry, it was just about anything that you might be doing to manage FX exposure in the Indian market going forward particularly as you start making that a more significant presence in the international segment.
Brad Singer - Chief Financial Officer and Treasurer
One of the key things about FX exposure was how we think about the currencies is making sure if you are getting paid in a currency... in the sovereign currency of that country, you get the appropriate return.
So we risk adjust all our capital expenditures based on ultimately how we are getting paid. So you take the sovereign rates, you adjust it for their equity market premium and determine for us what the return on that asset is.
The absolute fluctuations in these currencies we have not hedged out in the past and we probably will not hedge out in the past unless we felt that there is a situation that was unique.
Anthony Klarman - Deutsche Bank
Is it safe to say that as you compare day one returns in the US versus India you are currency adjusting those day one return estimates to... for building [ph] purposes?
Brad Singer - Chief Financial Officer and Treasurer
That's exactly right We do it in Mexico, Brazil and we'll... you...
we do that in India and every country we look at.
Anthony Klarman - Deutsche Bank
Okay.
James Taiclet - Chairman and Chief Executive Officer
Plus Anthony there is local currency denominated costs that we incur, so that's part of a self-hedge in a way.
Anthony Klarman - Deutsche Bank
Right. The business in and of itself is hedged because you are incurring cost in the local currency I guess I am just wondering about how it translates into when you report US revenue and EBITDA and things like that?
Brad Singer - Chief Financial Officer and Treasurer
All right, sure. In the past, the only currency that has benefited us really has been the real down in Brazil and that's produced...
last year produced about 4 million to 5 millions bucks of... of revenue on $1.4 billion...
was what the tower revenues were.
Anthony Klarman - Deutsche Bank
Right. If I look at your balance sheet today in...
you had roughly $4.4 billion of debt at the end of the quarter and if I back out that 3.25% convert that's pretty well in the money by a wide margin and I look at the midpoint of your guidance, you could actually be below your low-end of your leverage range. And I think even if you assume some pace of share repurchases with debt reduction, I think at worse you'll probably be at the very low end and I guess it would seem like you guys are pretty well set up in this market in the sense that you are at the low end of the leverage range for the entire sector and the low end of your own leverage range and the credit markets are more challenging and so I'm wondering if there are opportunities that you're looking at to perhaps be more aggressive, either...
I think some earlier questions were about maybe accelerating the share repurchase but maybe about accelerating some of the purchase opportunities, maybe even in the U.S. as people aren't able to raise capital at the same types of rates that you've been able to and have the same type of leverage.
Brad Singer - Chief Financial Officer and Treasurer
Anthony, the most of those opportunities that you highlight are not on the small scale, they are on a larger scale. So when assets go above a certain price level in terms of the aggregation of that price, we do have, we believe, an advantage because we have access to capital and are fairly flexible from that perspective.
And so we have looked at certain situation. On the smaller side, it is not apparent that we would have any advantage because selling-buying 50 or 100 even 200, 300 towers, I think, the access to capital is fairly readily available.
Anthony Klarman - Deutsche Bank
And I mean... I guess what do your seeing in terms of...
has there been any material change in terms of what sellers are looking to get paid given what has happened in the credit markets, so our... has a really not...
is there still a pretty wide bit offer spread?
James Taiclet - Chairman and Chief Executive Officer
Anthony, we haven't seen a big change in what sellers are wiling to accept for tower assets that they think are valuable and again as Brad said for those portfolios they can be financed by numerous parties through different sources and that hasn't changed our view of how we value these things and basically it's the entry cost, what's the current cash flow and what's the potential growth of that cash flow and when we make that equation work, we will be able to finance it, we know we can but it's not going to change the equations for us.
Anthony Klarman - Deutsche Bank
Final question. You've got a couple of bonds that are refinancable this year and I think you are the last remaining securities that you have that have any limitations in terms of high yield covenants because I think that 7% note you did was more in the investment grade format Just wondering about now as you sort of have another chance to redo your capital structure, if you thought that that was something that made sense this year, if you could get the returns to work in terms of refinancing those remaining high yield notes and going to an all investment grade structure of the unsecured credit facility and then the investment grade covenant package?
Brad Singer - Chief Financial Officer and Treasurer
Anthony, it's something we look at, we basically just run it if it economically makes sense to do that. We have plenty of room under the restrictive payment baskets which would really be the gating item on those two bonds, the 7 1/8th and the 7.5.
Since we have plenty of room and we're well below the 7.5 times leverage, and that's without the carve-out for bank facilities, we think we'd have... they're...
at this point doesn't seem to make a lot of sense to call them in but we do evaluate it quarter-to-quarter periodically.
Anthony Klarman - Deutsche Bank
Thank you very much
Operator
Your next question comes from the line of Joseph Mastrogiovanni from Credit Suisse.
Joseph Mastrogiovanni - Credit Suisse
Good morning, thanks for taking my question. If I could just follow-up on the land purchases, I think historically you guys purchased land at about 10 or 11 times, have you seen any change at all on prices there?
And then also a second question, sounds like demand is strong across all of your markets, can you maybe talk a little bit about pricing that you are seeing in the U.S. and Latin America.
Brad Singer - Chief Financial Officer and Treasurer
I'll take land, and I'll turn over to Jim for the pricing. Our purchases this quarter if I may were [ph] 11 to 12, rather than 10 to 11 range, so it's modestly slightly higher.
We are still fairly judicious in terms of what we think is appropriate to pay for land and in some cases if the historical rate was really low that could distort the multiples of what you pay. And that's the best way to think about it.
But there are many people and many entities out there trying to buy land under towers, some may not do it in the most economically appropriate way, but we try to be fairly thoughtful about it.
James Taiclet - Chairman and Chief Executive Officer
And on the demand side, Joe, it's not much affecting lease pricing and historically we've talked about this over the years because the carriers' next best alternative is to build their own towers and those factors of production don't change much and therefore the lease price, sort of band [ph] doesn't change much. So the short answer to...
strong demand affecting... initial lease pricing up or down is not much because of that alternative that carriers theoretically have which is to build.
Joseph Mastrogiovanni - Credit Suisse
Okay, great. Thank you.
Brad Singer - Chief Financial Officer and Treasurer
And I think we have time for one more question.
Operator
Your final question comes from the line of Jonathan Schildkraut from Jefferies.
Jonathan Schildkraut - Jefferies and Co.
Great. Actually two questions.
The first is back on the land ownership. Is there any other way that we can kind of quantify your protection on the downside of the land, is there a weighted average length on the leases?
And second question is we've been hearing a lot about incremental demand from wireless backhaul, are you seeing any applications, any installations on the wireless backhaul side, is that coming from, if you are, is that coming from carriers directly or is that coming from third partly backhaul providers? Thank you.
James Taiclet - Chairman and Chief Executive Officer
Jon, it's Jim, on the wireless backhaul, I'll just take that first, and turn it over to Brad on the land question. There is some incremental additional demand for microwave dishes for backhaul from a couple of carriers I'd say in the U.S.
that could be a combination of redundancy purposes and/or adding capacity and not necessarily paying for T1s to do. It's been modest, it's helpful and of course on fiber tower and a couple other smaller companies that are out there doing that on a third party basis and we've supported them for the last three years as far as tower space.
So we get lease revenue from both those sources, it's helpful but it's not necessarily the driver of our revenue growth right now, although it is helpful.
Brad Singer - Chief Financial Officer and Treasurer
And just to give you... to be various specific about our land leases and we do put in the back of our investor presentation.
But in the U.S. we're less than 1% of our cash flow is that risk before 2011 and less than 4% is at risk between 2011 and 2021.
So in aggregate, if you went all the way to 2021, it's under 5%. Does that frame it for you?
Jonathan Schildkraut - Jefferies and Co.
Yes, thank you.
James Taiclet - Chairman and Chief Executive Officer
Yes, and John that team that Brad talked about earlier which is out either renegotiating or purchasing that property is focused exactly on that 5% and working it down.
Jonathan Schildkraut - Jefferies and Co.
Thanks again.
James Taiclet - Chairman and Chief Executive Officer
Thanks everyone for participating on the call here. I appreciate it.
Brad Singer - Chief Financial Officer and Treasurer
Have a great weekend everybody.
Operator
This concludes today's conference call. You may now disconnect.