10/30/2017 | By Allen Kenney
Published in the November / December 2017 issue of REIT magazine
Jim Taiclet took over as CEO of American Tower Corp. (NYSE: AMT) from founder Steven Dodge on Sept. 10, 2001. The world changed drastically for everyone the very next day, leaving no time for an acclimation period for the ex-aerospace services executive and U.S. Air Force pilot.
Despite its precarious financial position, American Tower survived the economic downturn after the terrorist attacks. It also made it through the Great Recession that followed later in the decade. With Taiclet at the helm, the Boston-based infrastructure real estate company with a market capitalization north of $60 billion has since grown into the largest REIT in the world.
Taiclet sat down for an interview with REIT magazine on lessons learned in combat during the Gulf War, managing a company through a crisis and keeping up with changes in wireless technology.
Q: You began your career in the U.S. Air Force and served during the Gulf War. Can you tell us a little bit about your role as a pilot in combat?
I was qualified as a fighter pilot in the Air Force and also as a transport jet pilot. During the Gulf War, I flew large transport jets with intercontinental range, but right up to the front lines often.
I’d say my most high-stress mission during the war was being one of the pilots of the four lead airplanes bringing in the first U.S. troops into the region after President [George H.W.] Bush’s order to deploy. On the inbound flight from Germany, the intel briefer there said, “Well, good luck when you head out of here because the Iraqi tanks could drive to the base ahead of you guys flying there if they decide to cross the border while you’re in flight. And you should at least expect a chemical attack on the air field once they know that you guys are there.”
We landed safely, actually, and with our 82nd Airborne Rangers secured the air field. It was a pretty exciting day, to say the least. For the next six months, we flew almost every day to put the counter invasion force in place, including to those forward frontline operating bases.
Our plane actually made it through without a dent.
Q: Do you still fly now?
No. After logging 5,000 hours and the war being over, I decided that I wanted to move on to a business career and left the flying behind.
Q: What do you think are some of the advantages of having a military background once you enter the corporate world?
As an officer, you get a lot of real responsibility at a very young age. So, in my mid-twenties, I was commanding multi-million dollar aircraft and experienced air crews on classified missions all over the world. On a few of these, the mission briefer’s parting words were, “If anything happens, we never heard of you.”
You also have to engage with and lead people of varied skills and ages, rank and motivation. And the only way to do that is to treat them right and to earn their respect through leading by example.
Finally, you’ve got to perform, and learn to do it with grace under pressure—often with very high stakes involved. Again, at a very young age, too.
All of these are directly transferable to business. One is embrace responsibility. The second one I mentioned is demonstrate authentic leadership to people. Thirdly, handle pressure or adversity in the process.
Q: Prior to joining American Tower, you were in aerospace engineering. What made you want to switch to tower real estate? They seem like such dramatically different businesses.
My prior experience in business was actually in jet engineering aerospace equipment services, which are actually very similar to the tower business model. They’re technology based. There are massive [business-to-business] customers involved, like airlines and air forces. There are long-term contracts on taking care of these jet engines and airplane components—contracts upwards of 10 years, just like ours [at American Tower]. And it’s a global industry.
Based on the service nature of the business and long-term contracts and the type of technical customers we had, the learning and the understanding of that business is very transferable to American Tower. I’d say the main difference is that towers are an even better business than jet engine spare parts and repairs and overhauls. Because once a tower is in place, the operating leverage of additional tenants or revenues approach 100 percent. To me, communication real estate has the best fundamentals of any asset class, at least that I can think of.
Q: Did you feel as though you had a handle on what you were getting into? What were the surprises or maybe any facets of the job that you feel you might have underestimated?
Of course, I studied the company and the industry prior to joining American Tower, and [founder Steven Dodge] and I built a really good rapport and dialogue. I felt really ready on my first day at the company, which was Sept. 10, 2001. The next day was 9/11, and everything changed.
Tragically, we lost 13 employees at the World Trade Center. The first job responsibility I had was to set up funds for their families and make sure that they got all of their benefits that they had coming to them and really focus on that.
In the aftermath of the World Trade Center tragedy, the dotcom bubble and the telecom industry affected our customers and our business quite terribly, too. The overall recession that followed exposed the company’s extremely fragile financial condition that we had at the time, and the value of our stock plunged to less than a dollar per share. But in spite of all this, [Dodge], the executive team and I pulled together to do all the difficult things that must be done in a company in crisis, which is what it was. It was a long, hard-fought battle to right the ship and put the company on the trajectory it is on today. And there are many, many terrific people who’ve contributed to this at the company who are still here.
Q: You mentioned the fragile financial condition. Can you give us an idea of what it took to solidify the financial condition of the company?
A few things. One is we had to go back to Wall Street and to the banks and get covenant relief and get extensions on some of our loans. Some of the restrictions that were around those loans we asked to be loosened, and, fortunately, our financial supporters in the marketplace opted to do that. We needed to refinance an especially difficult issuance that we had that was really going to hurt the company. One of our longtime investment banks stepped up, bought that deal and syndicated it when, really, no one else would. That was incredibly helpful.
But, operationally, we had to divest quite a number of non-core businesses. We ended up having to move our head count from 5,000 people the day I showed up to 1,000 people at the end of that process.
One of the things, believe it or not, we’re most proud of about that period of time was when we sold our non-core businesses, we took lower proceeds for them than we could have otherwise got with the requirement that the buyer had to take on all the people and keep their jobs. The vast majority of the folks that were no longer wearing an American Tower badge at the end of all this had a job with another company that actually was a better home for their business: Industrial companies took on our manufacturing and distribution businesses, et cetera. And they actually had a better outcome at the end of the day, even though the process was quite dramatic and painful.
Q: It seems as though the average person would probably be pretty intimidated by the idea of trying to explain what a company like American Tower’s role is in the overall telecommunications ecosystem.
I think the average person can easily understand our role. I mean, they drive by towers every day on the side of the road. They kind of understand that the more gigabits of mobile data that you’re using on your phone or laptop for a month, you can actually see your bill that you get going up. [More data usage also means] more transmission equipment is needed on the towers and elsewhere to get that service to you.
Q: Do you find it hard to communicate the company’s investment proposition to the investment community?
Investors can be distracted by the complexity of the technology, but that’s not really what’s important.
There’s a simple logic tree that we take our analysts and portfolio managers through to understand the investment proposition, and it just starts with a question: Are consumers using more data and adopting high-quality services, such as video? We all know that’s happening.
The second question: Are mobile operators competing to get and keep subscribers so that they must improve their network quality constantly? Well, you can see the advertisements and the offers—they’re always trying to get each other’s customers, and the network quality is what they often advertise as the reason to move.
Third: How much are these companies investing in the networks in capital expenditures to make this happen? In the U.S., it’s about $30 billion that’s spent every year upgrading and advancing these networks.
If all this is going on, then we have—and we should continue to have—strong organic growth on our tower sites. The capital expenditures of the carriers translate into places they need to position the equipment they just bought, and we provide those places. We end up having strong organic leasing growth that has been translating over the years into double-digit adjusted funds from operations per share for many, many years in a row, based on our operating leverage. We also have a very consistent track record over time with more than a decade of new opportunities coming down the road. It was 3G, then it was 4G. Now it’s 5G, and 5G can now be even more exciting for our type of business because technology such as autonomous cars, remote control drones and other kinds of newly enabled technologies by 5G could actually expand our future customer base beyond our traditional telecom-type customers and broadcasters. I think that’s very interesting in the future.
Do the investors kind of get this? They have a very firm grasp on what we do and how we perform. They’ve been long-term investors over more than a decade, many of them, so we think that the investor proposition is quite well understood, especially in the growth investor universe.
Q: Looking at American Tower’s mission, one plank of that is to “lead wireless connectivity around the globe.” It strikes me that the pace of change in technology is so rapid that a company like American Tower might constantly be in a reactive posture, so what does leading look like in the tower sector?
You’re right, when it comes to mobile devices, apps, electronic transmission equipment, etc., the technology does change rapidly. Nearly any of these technologies, devices, or apps can be provided to from our sites. The antennas and the other physical equipment on our sites are routinely augmented or replaced to meet those needs. That often results in increased monthly rents for us, so technology migration and advancement is actually a good thing for tower real estate.
Leading in our part of the industry really means three things. One is having a substantial market share of existing towers and other transmission sites and the capability to build more to meet these needs. So, scale is really important for us.
The second thing is demonstrating operational excellence in asset management, which enables our customers to get on air, if you will, quickly and reliably. Because once a mobile operator or broadcaster or a company like Gogo that’s providing internet in airplanes decide that they need a new transmission site, they want it up and running quickly. We’ve designed all of our operational processes and systems to get excellence into that process of getting you on air, and that’s why we’ve got a pretty good market share of business.
The third thing is maintaining a strong balance sheet, so you can make acquisitions or build new sites during all phases of the capital market cycle, which may be different than the phases of the technology cycle.
With large scale, operational expertise and a solid financial position, we can have a really proactive role in advancing the wireless industry’s future for our current customers and, as I mentioned, even future tenants that will come down the road. We’re very well positioned for that.
Q: What’s your favorite part of the job?
It’s the change and the evolution of our company to stay ahead of what’s a very dynamic industry. What’s most exciting for us now is, really, what I would call the fourth phase of American Tower’s trajectory.
The first phase was just getting the company recovered from 9/11 and the recession.
The second one was to bulk up domestically, which we did.
The third phase was globalizing that well-performing business model, which we’ve largely done. We’ve got roughly 150,000 sites all over the world today.
The fourth phase could be even more interesting than the other three, and that is to be on the leading edge of the next generation of design and implementation of the mobile internet. That’s this 5G concept, which is going to enable things and devices and capabilities that we haven’t even thought of today. That future mobile network, which we can be literally on the ground floor of as a real estate provider, makes this job very interesting.
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