Rod Smith
Executive Vice President, Chief Financial Officer and Treasurer at American Tower
Thanks, Steve. Good morning, and thank you for joining today's call. As you saw in this morning's press release, adjusted for certain non-cash items in the quarter, including the loss taken upon closing our ATC India sale, our solid third quarter results continue to highlight strong demand across our exceptional portfolio of global assets. These durable demand trends, combined with our disciplined approach to capital allocation, continued focus on cost management and strong balance sheet position us to deliver sustained high-quality earnings growth and shareholder returns over the long term.
Before I dive into our results, I want to highlight a key reporting change as it relates to the successful closing of our ATC India sale on September 12. You will now see historical results associated with our India business reported as discontinued operations represented as a standalone line item on the income statement, balance sheet and in our reconciliations to attributable AFFO. As such, certain reported measures, including revenues and expenses within the income statement, in non-GAAP measures such as adjusted EBITDA and tenant billings will not be presented to exclude discontinued operations. I encourage you to refer to the definitions of footnotes throughout our Q3 earnings presentation and press release for a clarity on how the discontinued operations treatment is reflected in our results.
Additionally, we have introduced new metrix. AFFO attributable to AMT common stockholders or attributable AFFO as adjusted, and AFFO attributable to AMT common stockholders per share or attributable AFFO per share as adjusted. These new metrics represent results from continuing operations adjusted for a full period of interest expense savings associated with the use of proceeds from the India sale. The attempt of these as-adjusted metrics is to provide investors with what we believe our continuing operations would produce in attributable AFFO and attributable AFFO per share. We believe this will be useful in determining an appropriate baseline for future periods.
Now a few highlights from the quarter. First, in the third quarter, demand for our global portfolio of assets remained strong as we saw continued acceleration in application volumes in the U.S., which nearly doubled those of the prior year period, and similar growth in our services gross margin. Internationally, mid-single-digit organic tenant billings growth was supported by another quarter of accelerating new business contributions in Europe and double-digit organic growth in Africa.
International organic growth was complemented by selective new site construction, including the four consecutive quarter of over 100 sites in Europe, and approximately 500 new sites overall. As Steve mentioned, demand in our U.S. data center business remains exceptionally strong and well in excess of our initial underwriting, as CoreSite is on track for its third consecutive record year of new leasing, supporting year-over-year revenue growth of over 10%.
Next, complementing the demand trends driving our top line results, we continue to execute strategic priorities laid out earlier this year on the cost management side, third quarter SG&A, excluding bad debt, declined nearly 2% year-over-year, supporting cash adjusted EBITDA margin expansion of roughly 30 basis points as compared to the prior year period. We also made progress in optimizing our portfolio, closing our India sale and signing agreements to sell our land interests in Australia and New Zealand.
Additionally, we further strengthened the balance sheet by using ATC India sale proceeds to reduce gross debt, and we expect further reductions from efficient repatriation in the near term. Importantly, S&P upgraded our credit rating to BBB flat from BBB minus during the quarter, signaling our momentum in executing key financial and operating strategies to enhance our balance sheet strength, financial flexibility and portfolio quality. These achievements reinforce our commitment to actively assess our global portfolio to focus on platforms where we can drive high-quality earnings and earnings growth outsized returns and compelling total shareholder value over the long term.
Finally, on the customer front, we took certain provisions in Colombia related to WOM, who filed for the equivalent of U.S. bankruptcy earlier this year. Any outcome of the potential reorganization is uncertain and it would be premature to speculate. But we began recognizing revenue on a cash basis and reserved a portion of outstanding AR as bad debt. In the third quarter, this resulted in revenue reserves of $13 million, including $3 million in straight line and another $8 million recognized as bad debt expense. For context, WOM Colombia's gross revenue makes up approximately 1.5% and less than 0.5% of our total Latin America and consolidated property revenues, respectively.
Turning to third quarter property revenue and organic tenant billings growth on Slide 6. Consolidated property revenue declined approximately 1% year-over-year, and increased nearly 1% excluding non-cash straight line revenue. Growth was negatively impacted by roughly 3% due to FX, as well as by the non-recurrence of certain onetime benefits in the U.S. in the prior year period and revenue reserves taken in the current period in Colombia.
As I mentioned, performance was supported by the third consecutive quarter of double-digit growth in our U.S. data center business.
Moving to the right side of the slide, consolidated organic tenant billings growth was over 5%. In our U.S. and Canada segment, growth was 5% or approximately 6% absent Sprint related churn. As we have previously indicated, we expect to see a step down towards 4% growth in Q4 due to the commencement of the final tranche of Sprint churn, consistent with prior outlook assumptions.
On the international side, growth was 5.7%, representing an enhancement of over 100 basis points compared to prior expectations through the exclusion of the India business.
Turning to Slide 7. Adjusted EBITDA declined approximately 1% year-over-year. primarily due to the revenue drivers I just discussed. Growth, excluding non-cash straight line, was just over 2%, benefiting from disciplined cost management and a roughly 100% increase in our services gross margin associated with an increase in tower activity. Growth was negatively impacted approximately 3% by FX headwinds.
Moving to the right side of the slide, AFFO attributable to American Tower common stockholders increased 2.6% year-over-year, driven by the high conversion of cash adjusted EBITDA growth to AFFO through the effective management of interest costs, maintenance capex and cash taxes, partially offset by the timing of our India sale. On an as-adjusted per share basis, growth would have stood at nearly 3%.
Now shifting to our revised full year outlook. I'll start with a few key updates. First, outlook has been adjusted for the close of our India transaction. As a result, historical India results will now be treated as discontinued operations, and as such, our property revenue, organic tenant billings and adjusted EBITDA will exclude India contributions for the full year. Our reported AFFO attributable to AMT common stockholders will include contributions from discontinued operations up to the date of closing. Prior year periods have been adjusted accordingly.
Next, our core business and the drivers that underpin our performance remains solid. As a company, we're focused on executing on a strong pipeline of new business demand driving cost discipline and margin expansion across the global business and effectively allocating our capital in a manner that supports sustained value creation. As you'll see, we're absorbing provisions in our outlook related to WOM, consisting of $21 million in incremental revenue reserves, including $3 million in straight line and an additional $15 million in bad debt expense, which combined represent $36 million in downside to adjusted EBITDA and $33 million to AFFO relative to our prior outlook.
However, we're more than offsetting that exposure through direct expense savings and an anticipated settlement with a customer in Brazil associated with the cancellation of future lease obligations, the latter contributing $35 million of upside.
Lastly, our revised FX assumptions include an incremental headwind of $25 million, $20 million and $17 million to property revenue, adjusted EBITDA and AFFO attributable to AMT common stockholders, respectively.
Turning to Slide 8. We are increasing our expectations for property revenue from continuing operations by approximately $15 million. This outperformance includes $15 million of core upside, primarily driven by our data center segment and the one-time customer settlement in Brazil, partially offset by WOM related reserves and an anticipated delay in certain non-run rate reimbursements in the U.S. which we now expect to receive in 2025. Non-core outperformance is driven by increases in pass-through revenue and straight line. Total outperformance was partially offset by FX.
Moving to Slide 9. Organic tenant billings growth expectations for consolidated U.S. and Canada, Africa, Europe and Latin America remain unchanged with trends and catalysts consistent with our prior assumptions. The removal of the lower-growth India business did increase our international expectation by roughly 100 basis points from the prior outlook to approximately 6%, and providing a modest benefit to our consolidated company expectations, though not enough to move our expectation of approximately 5%.
Turning to Slide 10. We are increasing our outlook for adjusted EBITDA from continuing operations by $5 million. This outperformance is driven by the revenue drivers I just mentioned together with incremental operating expenses upside achieved through a combination of recurring savings from various strategic initiatives as well as certain non-recurring benefits. Gross margin expectations for our U.S. services business remain intact, although certain anticipated project delays into 2025 will likely bring our revenue modestly below initial estimates. Partially offsetting the benefits to adjusted EBITDA, we've assumed $15 million of additional bad debt expense associated with WOM and another $20 million in FX unfavorability.
Moving to Slide 11. Adjusting our prior attributable AFFO per share outlook midpoint of $10.60 to the timing of the India closing resulted in approximately $0.12 of dilution, leading to a midpoint of $10.48 per share. This is directionally consistent with the dilution expectations communicated on past calls. Relative to prior outlook, adjusted for the ATC India closing, our revised outlook reflects upside of $0.05, moving the midpoint to $10.53 per share. Improvements include approximately $0.05 in outperformance from our India business through the September 12 closing date and the 100% conversion of cash adjusted EBITDA upside from our continuing operations on a currency-neutral basis, which is largely offset by the impacts of FX.
On an as-adjusted basis, the outlook midpoint remains consistent at $9.95 per share, reflecting the core outperformance in our continuing operations, offset by FX.
Moving to Slide 12. Our capital allocation plans remain relatively consistent, except for the removal of $105 million of capital expenditures allocated to India in our prior outlook. Our planned dividend distribution remains at $6.48 per share, with the expectation to resume growth in 2025, all subject to Board approval.
In summary, at the start of the year, we laid out a compelling set of expectations for 2024, reflective of the strong durable data demand trends that continue to highlight the criticality of our real estate assets. Our top line financial targets assumed accelerating demand in the U.S. and Europe, ongoing growth through 5G coverage and 4G densification across our emerging markets, and a continuation of near record-setting leasing in our data center segment.
To capture that demand, we established a set of strategic priorities aimed to effectively support our customers' needs and drive new business opportunities, manage our costs and capital structure, and optimize our portfolio through selective asset sales and refined capital allocation priorities to enhance margins and the quality of our earnings profile.
Our accomplishments to date and expectations for the duration of the year reflect the successful execution across each of these priorities, we believe this momentum will position us for an even stronger future, enabling us to drive attractive high-quality growth and shareholder value for years to come.
With that, operator, we can open the line for questions.
