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SBA Communications Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the SBA First Quarter Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given to you at that time. [Operator Instructions] And as a reminder, this conference is being recorded.
I would now like to turn the conference over to the VP of Finance, Mark DeRussy. Please go ahead.
Good evening, everyone, and thank you for joining us for SBA's first quarter 2018 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer.
Some of the information we will discuss on this call is forward-looking, including, but not limited to, any guidance for 2018 and beyond. In today's press release, and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, April 30, and we have no obligation to update any forward-looking statement we may make.
In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.
With that, I will turn it over to Brendan.
Thanks Mark. Good evening. SBA began the year with a very solid quarter. We produced positive results in both our domestic and international leasing operations as well as realizing incremental contributions from our services business.
Total GAAP site leasing revenues for the first quarter were $430.5 million and cash site leasing revenues were $425.1 million. Foreign exchange rates slightly weaker than our estimates for the first quarter, which we previously provided with our fourth quarter earnings release negatively impacting leasing revenue by point $0.2 million.
Same tower recurring cast leasing revenue growth for the first quarter, which calculated on a constant currency basis was 5.2% over the first quarter of 2017, including the impact of 1.4% of churn. On a gross basis, same tower growth was 6.6%. Domestic same tower recurring cash leasing revenue growth over the first quarter of last year was 6.2% on a gross basis and 4.7% on a net basis, including 1.5% of churn, 53% of which was related to Metro/Leap and Clearwire terminations.
As mentioned on our previous earnings call, our modest operational domestic leasing seen activity during the fourth quarter of 2017 will impact our reported leasing revenue and year-over-year gross same tower growth rate in early 2018, but we expect this growth rate to increase sequentially throughout 2018.
Internationally, on a constant currency basis, same tower cash leasing revenue growth was 8.3^% including 80 basis points of churn or 9.1% on a gross basis. Gross organic growth in Brazil was 10.1%.
Domestic operational leasing activity representing new revenue signed up during the quarter was up from the prior quarter as we began to convert some of our increased application backlog into signed agreements. Revenue from this tiny activity will begin to be recognized at various times throughout the year. Newly signed up domestic leasing revenue came about two thirds from amendments and one third from new leases and the big four carriers represented 97% of total incremental domestic leasing revenue signed up during the quarter.
Our domestic leasing application backlog remains elevated and we expect to continue to see a very healthy level of new lease and amendment signings over the balance of the year. International operational leasing activity was also solid in the first quarter with positive contributions from all of our markets and Brazil in particular.
During the first quarter, 84.6% of cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenue was from Brazil. With Brazil representing 13.9% of all cash site leasing revenues during the quarter and 10% of cash site leasing revenue excluding revenues from pass through expenses.
With regard to first quarter churn, we continue to see churn from leases with Metro, Leap in Clearwire consistent with our expectation. As of March 31, we have approximately $17 million of annual recurring run rate revenue from leases with Metro, Leap and Clearwire that we ultimately expect to turn off over the next two to three years. Domestic churn in the first quarter from all other tenants on an annual same tower basis was 70 basis points.
Tower cash flow for the first quarter was $339 million. We continue to have success managing the direct cost associated with our towers, allowing us to continue to produce industry leading operating margin.
Domestic tower cash flow margin was 82.6% in the quarter. International tower cash flow margin was 68.4% and 90.3% excluding the impact of pass through reimbursable expenses.
Adjusted EBITDA in the first quarter was $318.8 million. Our adjusted EBITDA results in the quarter were due to solid results from both our leasing and services businesses.
Services revenues in the first quarter were $27.8 million, up 7.8% over the first quarter of 2017.
Cash SG&A for the quarter was a little better than expectations, due in part the delays on the timing of certain international headcount additions, as well as the timing of certain other expenses expected to be incurred later in the year. Cash SG&A continues to remain very low as a percentage of total revenue and speak to the efficiency of our operations.
Adjusted EBITDA margin was 70.4% in the quarter compared to 69.7% in the year earlier period. Excluding the impact of revenues from pass through expenses, adjusted EBITDA margin was 75.2%. Approximately 99% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.
AFFO in the first quarter was $218.4 million. Our AFFO per share increased 9.5% to $0.85. AFFO was aided during the quarter by approximately $2 million of lower non-discretionary CapEx than previously anticipated. About half of which is expected to still be incurred later in 2018.
During the first quarter we also continued to expand our portfolio, investing incremental capital into both new tower builds and acquisitions. During the first quarter we acquired 334 communication sites for $106.7 million with 300 of these sites located internationally. We also built 67 sites during the first quarter. Subsequent to quarter end we have acquired 190 additional communication sites at an aggregate purchase price of $119.5 five million.
Also, as of today we have 874 additional sites under contract for acquisition at an aggregate price of $182.7 million, including the previously announced 811 sites located in El Salvador to be purchased from a local subsidiary of Millicom International. We anticipate these sites will close throughout the balance of 2018.
We also continue to invest in the land under our sites, which provides both strategic and financial benefits. During the quarter we spent an aggregate of $16.1 million to buy land and easements and to extend ground lease terms. At the end of the quarter we owned or controlled for more than 20 years the land underneath approximately 70% of our towers and the average remaining life under our ground leases including renewal options under our control is approximately 32 years.
Looking forward now, to the balance of the year our earnings press release includes an update to our outlook for full year 2018. We have increased our full year leasing revenue guidance on a constant currency basis, although we have slightly decreased our GAAP full year outlook reflecting the negative impact of changes in our foreign currency rate assumption for the remainder of the year.
These changes to our foreign currency assumptions negatively impacted our full year outlook for site leasing revenue by $8 million and also our full year outlook for tower cash flow adjusted EBITDA and AFFO by $5 million each. In addition, we have lowered our full year expectation for straight line leasing revenue by $2 million.
Excluding the impact of FX changes and straight line revenue changes, we have increased our full year leasing revenue outlook by $7 million, consisting of $1 million reduction in churn expectations, $2 million increase in nonorganic revenue contributions largely related to timing and $4 million increase in other revenue items such as pass through reimbursable expenses and other miscellaneous revenues.
The increases to our full year cash revenue outlook also positively impact our full year outlook for tower cash flow, which has been increased by $7 million on a constant currency basis and adjusted EBITDA, which has been increased by $8 million on a constant currency basis. The increase in the adjusted EBITDA outlook includes an approximately $1 million benefit as a result of our strong first quarter services and SG&A results.
Since it has only been two months since our last guidance, we are leaving our gross organic growth outlook unchanged. Our updated full year 2018 outlook does not assume any further acquisitions beyond those closed or under contract today and it does not assume any additional debt financing or share repurchases beyond those completed prior to today.
Our updated outlook incorporate the interest cost impact of our term loan B financing closed earlier this month, which Mark will discuss in more detail in a moment. We raised an incremental $470 million in this financing after the repayment of our existing term loans. We also continue to assume a slightly increasing LIBOR rate throughout the rest of the year impacting our floating rate debt.
As a result of our recent financing activities as well as the additional dollars invested or under contract to be invested in new assets or stock repurchases since we provided our initial 2018 outlook, we have increased our full year outlook for net cash interest expense by $13 million. Notwithstanding our increase to our full year adjusted EBITDA outlook, we have lowered our full year AFFO outlook by $10 million primarily as a result of this increase in anticipated interest expense.
Our assumption of no incremental capital allocation beyond that under contract as of today means we have not fully put the new money to work for purposes of guidance, which combined with the increased interest expense assumption now included has resulted in a decrease of $1.5 at the midpoint of our full year AFFO per share outlook. Excluding the negative impact of the change in foreign currency assumptions our full year outlook for AFFO per share would have increased by $0.02 from our initial outlook, even with the additional interest expense.
With that I will turn things over to Mark, who will provide an update on our liquidity position and our balance sheet.
Thank you, Brendan. SBA ended the first quarter with 9.3 billion of net debt and our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times, right in the middle of our targeted range of 7 to 7.5 times. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.6 times. At the end of the quarter we had 235 million outstanding under our revolver.
We were active in the debt capital markets during and subsequent to the first quarter with the completion of two large financings. On March 9, we issued to our tower trust 640 million of secured tower revenue securities at a fixed interest rate of 3.448% payable monthly. These securities have an anticipated repayment date of March 9, 2023 and a final maturity date of March 9, 2048.
The proceeds of this offering in combination with borrowings under the revolving credit facility were used to repay in full our 2013-1C and 2013-1D tower securities as well as approved and unpaid interest. Additionally, on April 11, through a wholly owned subsidiary, we obtained a new $2.4 four billion seven year senior secured term loan. The term loan was issued at 99.75% of par and will mature on April 11, 2025. It bears interest that our election at either the base rate plus 1% per year or LIBOR plus 2% per year.
We have typically used one month's LIBOR to determine our interest rate. The current interest rate under the term loan is 3.9%. The proceeds of the term loan were used to repay and retired our 1.93 billion of outstanding existing term loans to pay off the existing outstanding balances under our revolving credit facility and for general corporate purposes. We're very pleased with this transaction as we were able to reduce our interest rate spread and improve flexibility under our credit agreement, while also extending our maturity dates.
We were able to take advantage of a strong market to upsize this financing and raise an incremental 470 million of debt capital. This financing is supportive of our efforts to maintain our target leverage levels and maintain a level of 20% to 25% floating rate debt as we anticipate our next five or so financings will likely be with fixed rate instruments. Also, this facility will allow us to more efficiently use our international assets as collateral.
In addition to the term loan, we also amended our revolving credit facility at the same time. The amendment increased the total commitments under the facility from $1 billion to $1.25 billion and extended the maturity date to April 11, 2023, lower the applicable interest rate margins and commitment fees and amended certain other terms and conditions under our senior credit agreement.
Amounts borrowed under the revolver will bear interest at our election at either the base rate plus a margin that ranges from 12.5 basis points to 75 basis points or LIBOR plus a margin that ranges from 112.5 basis points to 175 basis points, in each case based on borrow leverage.
As of today we have $100 million outstanding under the revolver, currently accruing at an interest rate of LIBOR plus 1.5%. Pro forma for these new transactions, the weighted average coupon of our outstanding debt is 3.8% and our weighted average maturity is approximately five years. As mentioned with our fourth quarter earnings release, on February 16, our Board of Directors approved the authorization of a new $1 billion stock repurchase plan replacing the prior plan.
During the first quarter, we spent $38.5 million under this plan to repurchase 200,000 shares at an average price of $161.60 per share. Subsequent to the first quarter we spent an additional 261.5 million under this plan to repurchase 1.6 million shares at an average price of $164.82 per share. All the shares repurchased were retired.
As of today we have $700 million authorization remaining under the repurchase plan. Share repurchases are an important component of our ability to continue growing AFFO per share. The company's shares outstanding at March 31, 2018 are 116.5 million, down from 121.3 million at March 31, 2017 and down over another 1.5 million shares in this month of April.
With that I'll now turn the call over to Jeff.
Thanks Mark and good evening everyone. As you've heard we are off to a very good start in 2018. We delivered strong first quarter financial results, continued to see strength in both the domestic and international leasing environments, expanded our tower portfolio by 400 sites, reduced our outstanding share count through stock repurchases and completed two significant debt financings. We continue to be well positioned for 2018 and beyond.
In the US all four major US wireless carriers have been very busy driving our domestic leasing application backlog to the highest level in several years. During the first quarter we saw an increase in contracted revenues signed up above levels we saw during any point over the last two years. This increase in signings has been in line with our expectations coming into the year and it will support solid growth in our future reported financial results as these executed agreements begin at various times throughout the year to produce revenue.
During the first quarter, we saw solid leasing contributions from all of our customers including new leases and amendments signed with Sprint under the master lease agreement we entered into with them in the fourth quarter and amendment activity related to AT&T's FirstNet initiative. We expect to continue to see contributions from both of these projects as well as continued solid activity from our other US customers as we move through 2018, although we obviously will be monitoring any potential impacts on our operational activity levels as a result of the recently announced Sprint/ T-Mobile merger.
With regard to this merger it is very new news. And thus there will be still a lot to be learned. Some things we found interesting in yesterday's presentation where the amount and speed of additional investment contemplated, the commitment to rural markets, the focus on the low and mid band spectrum and macro site architecture and the goal of adding equipment to make all spectrum available at all sites prior to materials site decommissioning. We look forward to learning more and working with both T-Mobile and Sprint to help them achieve their goals over the next months and years.
Interestingly and a point that was specifically made on the T-Mobile/Sprint call yesterday, we have begun to see 5G oriented activity on macro sites outside of urban areas consistent with the vision put forth yesterday by T-Mobile and Sprint. We have begun to receive amendment applications for new MIMO antennas, which are just now becoming available in higher performance designs and that will facilitate much faster speeds using existing low and mid band spectrum. These new MIMO antenna are generally wider and deeper than current antennas and in some cases way over twice as much.
We continue to execute at a high level, converting the vast majority of our incremental operational leasing activity into tower cash flow and adjusted EBITDA. In the first quarter, our domestic tower cash flow margin was a very strong 82.6% and our company wide adjusted EBITDA margin was likewise very strong at 70.4%. We believe the strength of these margins is clear evidence of the efficiency and solid cost controls with which we run the business as well as the quality of our assets and contracts.
Internationally we also had a positive start to the year including a stronger start in Brazil than we had a year ago. Carriers are active throughout all of our international markets and the wave of growth in wireless mobile data consumption will continue to drive network investment throughout our Latin American markets in particular. The contractual revenues signed up during this quarter in our international markets came about half from amendments and half from new leases and we expect a fairly balanced mix going forward.
Brazil specifically had another strong quarter in terms of operational leasing activity and we continue to be pleased with the performance of our assets there. We are however, disappointed in the 10% decline in the Brazilian real in the last three months and actually almost in the last month and the offsetting financial impact it will have on what we expect to be strong operational results from Brazil. We're a bit puzzled by the decline given the improving Brazilian economy rising GDP and declining interest rates and inflation and we understand that the decline seems to be mostly brought about by political anxiety around the October elections.
We continue to be optimistic about the future. As a result, we have continued to be active and allocating our capital to both new assets and share repurchases. During the first quarter we added 400 sites to our portfolio with 90% of those sites coming in international markets. Subsequent to quarter end, we acquired another 190 sites with most of those in the US. As a result and combined with the sites we currently have under contract to acquire, we believe we are in good shape to exceed the low end of our range of 5% to 10% portfolio growth again this year. We have continued our approach of focusing on high quality assets and markets well suited to the macro tower business at prices that will drive incremental value for our shareholders.
As has always been our behavior, we continue to believe it is imperative to stay disciplined and not overpay for assets. This discipline has meant and will likely continue to mean that we have more investment capital available than we have attractive portfolio growth investment opportunities. We have therefore allocated incremental capital for share repurchases when we believe our stock is trading below its intrinsic value. At the end of Q1 and into April, we have cumulatively spent 300 million to purchase 1.8 million shares. We believe a healthy mix of both quality asset growth and attractive share buybacks will continue to create value.
In order to continue to meet our capital allocation goals, we intend to continue to stay within our target net debt range of 7.0 to 7.5 times at least until such time or close to such time as will become a dividend paying entity. Toward that goal we've already had a very successful start to 2018 with two significant financings. The first was the $640 million securitization refinancing completed in March. The second, our $3.65 billion financing completed in April. The bank financing, which consisted of the $2.4 billion term loan B and $1.25 billion revolver was the single largest capital raised in our history and the first raise of new money for us in the bank market in three years.
We achieved historically tight pricing spreads on this transaction. We added incremental capacity and flexibility to our capital structure. We believe these recently completed transactions reflect our continued strong access to attractively price capital. The solid accomplishments of the first part of 2018 in concert with the significant network needs of our customers give us great optimism for continued solid performance in 2018 and beyond.
I'd like to thank our employees and our customers for their contributions to our success and with that Noah we are now ready for questions.
[Operator Instructions] Our first question is from Ric Prentiss with Raymond James. Please go ahead.
Thanks, good afternoon guys. Obviously we had a busy Sunday with the Sprint/T-Mobile merger announcement, Jeffrey talked about there. Can you update us a little bit on also what the remaining life is that you have on your Sprint and T-Mobile leases and is the new MLA with Sprint, is that a take or pay, is that kind of a guarantee you were just trying to think through their synergies wise and what it means for you guys?
Yeah, hey Ric, it's Brendan. In the press release we actually did disclose some information regarding our Sprint and T-Mobile contracts including the stair of revenue that each represent for us as well as on the overlap site how much revenue comes from each. Just to give you those numbers quickly, on the sites where we have both Sprint and T-Mobile today, Sprint represented 5.9% of our total cash site leasing revenue and T-Mobile was 6.2%. In terms of the remaining terms, Sprint has on average approximately six years left and T-Mobile approximately three years left, but the range of those is quite broad, so in the case of sprint it's between one and thirteen years, in the case the T-Mobile it's between one and ten years.
We did get some nice average term elongation from that MLA Ric and that is in fact a hard obligation which will not be impacted by the news of yesterday.
And I'm getting a lot of questions about acquired network churn, obviously it's coming down, but if you look back to the days when we Leap, Metro and Clearwire got acquired like in 2013 and 2014, how long was it before you - when the deals closed or when you started getting notification of churn and then the churn started occurring? I'm just trying gauge if the Sprint/T-Mobile deal is approved what sort of timeframe we should be thinking about given those average lives and your past history with other transactions?
It's hard to generalize what happened with those deals and with this deal, given the disparate spectrums and the large number of folks that need to be migrated over. I think the commentary that was given yesterday that talked about really making sure they had all the spectrum available at all the sites that were going to remain before they started any decommissioning, I think is going to take it at face value. I think that is going to make this a longer process than what we saw with certainly with AT&T and Leap for example and then even the case with T-Mobile and Metro. But even in those cases it was several years after closing before you really started to see any type of termination notices.
Okay, the final question for me is as you look at AT&T, FirstNet and Sprint starting to ramp their applications, how long is the process from application to revenue getting booked? I know you said varies, but just trying to gauge, is it three months still for amendments or is it six or nine, just what should we think about that timeframe?
Well, you left out a critical component which is the execution of the final document whether be an amendment or a lease and then the most critical element is the revenue commencement date, which can be as short as immediately upon an amendment to as long as the greater of a date in the future or installation, so that's really the missing link to your question Ric. But to generalize from - it's actually hard to generalize from application because there's a lot -
I should have said execution. I really meant that lease up.
Yeah, from execution to six months or nine, usually the outside.
Great, thanks guys.
Thank you. Next we go to Nick Del Deo at MoffettNathanson. Please go ahead.
Hi, thanks for taking my question. First, now I recognize that you can't give us numbers, but are the monetization rates you're starting to get for FirstNet consistent with what you anticipated coming into the process and are they consistent with other amendments you've negotiated for comparable deployment in the past?
They are and I would say though that they're very greatly Nick. Wide variety of equipment loads are being requested. Given the wide variety of circumstances from which the sites that are being touched are coming from. And the averages are where we thought, but it's - the goalposts - the end zones are pretty wide.
Thanks got it. That makes sense. And then maybe one on Sprint/ T-Mobile, I mean, it seems like there's a potential for a healthy amount of amendment revenue involved in moving Sprint's spectrum onto T-Mobile sites and vice versa. Yeah, I know it's early and we don't know a lot, but given what we do know about their spectrum holdings and they're only sharing one band in common, is it appropriate to think that the rate for, I mean covering that sort of package would be a fair bit higher than average or do you think there are other factors we should take into consideration?
Well, I think we have to see ultimately what the configurations look like. To my knowledge today and I'm not a product expert, but to my knowledge there is no single radio unit and certainly no single antenna unit that covers the spectrum, covers the range of spectrum that will be deployed by the combined company, so you're looking at multiple units to cover that full array of spectrum and then if you start to get to the desired MIMO configuration on the antennas that actually could add quite a bit of weight and that - obviously depending on the load of things like that that will impact the price, so that there that there could be a wide range of about outcomes there.
Okay, that's helpful. Thanks, Jeff.
And next we will go to Simon Flannery with Morgan Stanley. Please go ahead.
Thanks a lot. Maybe you could just touch on International a little bit? You talked about good momentum in Brazil, can you just talk about Oi specifically what's the latest on their restructuring on the - their capital plans and then any other markets that you're seeing good momentum in and then I think you said 97% of the leasing was to big four, any interesting trends from Dish or others outside of the big four? Thanks.
Yeah, the Oi restructuring plan continues to move forward as intended. June is a critical date where I believe the debtors will make some decisions on whether or not they will continue to insist on Oi reaching an agreement with the government of the outstanding Anatel fines, so that's something that we're watching. People expect there to be a resolution there that will allow Oi to move forward, be capitalized and emerge and start more greatly investing in its network and obviously that's something that we're optimistic and hopeful for as well. In terms of the markets, Central America not every country, but it seems like at any given time one or two countries in Central America is hot bearing the region we continue to see very good activity in Ecuador, starting to see good activity in Peru, although relatively new in that country. We think Brazil's going to be good all year long. We're just generally continued to be very pleased all in all Simon with Latin America. And in terms of the other US things, while there's a lot of initial discussions with Dish and others, certainly the lion's share of the leasing activity this year so far I'm sure with respect to the remainder of year will come from the big four.
Okay, thank you.
Thank you. Next we'll go to Philip Cusick with JPMorgan. Please go ahead.
Hi guys, thanks. Brendan I noticed as you talked about your guidance, you said since it's only been two months since our last guide we're going to leave it unchanged, but it sounded like there may have been a little bit of a shift in how you were thinking about it within that sort of range. Can you give us any more visibility into sort of how you think about the guidance versus where you may have seen visibility over the last couple of months? Thanks.
Yeah, well, I mean that comment was specific to the organic growth component of it and while we've seen good activity and continue to see our application backlogs grow, there really hasn't been enough time go by where we could comfortably say we expect that to impact that number for 2018. So really the comment was just to kind of say, hey, it really hasn't been that long, but things are going well from an operational standpoint and so let's see how the rest of the year plays out.
That's a fair.
Phil, I just wanted to say that's really consistent with our guidance approach of well reported as incurred and not projected.
Makes sense and then second if I can, the buyback you said was mostly in April. Was this driven by 10b5 due to the weakness in the share count or something that was under your control, weakness [ph] in the shares?
Was a little bit of both actually.
Great, thank you.
And our next question will come from Amir Rozwadowski at Barclays. Please go ahead.
Thank you, very much. Just doctoring on Phil's prior question in terms of thinking about the organic growth rate, if we think about sort of some of the build in activity levels that you're seeing, do you believe that that organic growth rate has room for improvement based on the activity levels that you guys are seeing at this point?
Well, first of all to be clear when we talk about growth rates, the same tower growth rate that we report is indicative of a year-over-year, so the number that we gave for the first quarter was growth that really represented the previous trailing twelve month. So as we move forward through the year based on what's happening now, which is an increased level of leasing activity compared to where we've been over the last year, we certainly expect to see that increase sequentially as we move through the year and we would expect to exit the year at a much higher rate. But in terms of isolated to an individual quarter, we're not assuming that it gets better than where it is today, but that it continues at a similar level to where we are now, so to Jeff's earlier comment, we're not stretching out on something that we haven't seen yet get signed up.
Thanks very much, Jeff. That's helpful and then going back to the deal of the day with Sprint and T-Mobile, one of the things that they did talk about it sort of a material expansion of their small cells. I believe they have decided the number of 50,000. If we think about sort of the opportunity set between some of the deployment of new spectrum versus some of the capital that will go towards small cells, how do you think about sort of the allocation or opportunity set when it comes to macro versus small cells now? Have anything really changed from your perception of the market or the opportunity set that's taking place with how these networks are going to get constructed for 5G network?
Not really. I mean we always assume that there would be a very healthy numeric sampling of small cells out in these networks and for us it continues to be a ROIC issue, Amir.
That's very helpful. That's very much for the incremental color.
And now we go to Walter Piecyk with BTIG. Please go ahead.
Thanks. I think you provided some color on amendments in [indiscernible] domestic $44 million for the year and I think it was - was it here for escalations $39 million for 2018? Are those still targets that I missed whether there was an update on that?
They haven't changed. That's in our supplemental financial package of the bridge there of the domestic growth. Those numbers are the same. The only organic number domestically that we shifted was the churn which we actually reduced by $1 million from last quarter.
Got it, so this churn rate that it's just you just gave it in terms of the absolute level as opposed to just saying like, okay, it's going to be a 1.5% going forward?
Yeah. Well, in the bridge we gave an absolute dollar amount. Yeah, but we did give - given the same tower growth rates, we gave the churn rate, which is for the first quarter as compared to the first quarter of the prior year was 1.5% domestically which is basically indicative of the last 12 months. So that should be generally where we are although at the end of the year there is a little bit of item churn expected that may be slightly higher, but -
When we look at the 62 versus kind of prior growth periods, is any of that from escalations? Like is there any deviation that could have occurred in escalations in the first quarter?
No. It is from - it does include escalations, but any variance in it is really not due to escalations. It's due to having less leasing activity in the latter part of last year. So as mentioned in the prepared comments, that's expected to increase as we move through the year because we are obviously signing up more organic business now in the first quarter and into the second quarter.
Got you and then I think again maybe something I missed a bunch of stuff in the supplemental bridges, but I didn't see any reference to the $10 target of the FFO for 2020. Does that still hold for you guys or what's the update on that?
That's still the goal, still the goal.
Still the goal?
Still the goal, we are still striving towards that. The results through the EBITDA line and with the backlogs we continue to march towards that goal, Walter.
But there is no change. I mean it sounds like I mean I don't know, is there any change in the body language on that? I mean there is one thing to strive to something to get a goal as opposed to being like, hey, we are confident, we are going to hit this $10 in 2020?
Well, let's go through some of the headwinds and the tailwinds there. I mean the tailwinds have been I think through the EBITDA line are going to be really, really good as we see this operational activity. From the time we first put forth the 10 by '20, probably 100 basis points higher on interest rates where we assume things and we are three multiples higher I believe on our actual stock repurchases versus our assumed. So those are the two headwinds or about where we were on FX. So ahead on operations, a little bit of headwind below the line, but all in all that's still the goal and we are still confident of getting there.
Great, thank you very much.
Yeah.
And our next question will come from Spencer Kurn at New Street Research. Please go ahead.
Hey guys. Thanks for taking the question. I just have a question on long-term strategy. So as you think about laying out the next five to 10 to 15 years of growth, it looks like some of your competitors are laying their groundwork in small cells and some are developing innovation strategies. I'm just curious if - how do you think about laying a slowdown in domestic macro activity versus other sources of growth which may carry slightly lower ROIC?
Well, we've kind of looked at that previously, Spencer, and that's what drove us to pursue international activity and that continues to be where we are today. And where our stock has traded that continues to be the preferred capital allocation in growing our FFO per share through that way is kind of our view of growth. Some folks want to see that growth on the revenue line. I continue to submit to you that the ROIC that we can produce by doing what we are doing is better and the value created for our shareholders will be better. I think our historical results have borne that out. So we will continue to do what we are doing, looking for good investment opportunities. But in terms of feeling like we have to find a new trick to grow the revenue line, we don't feel any pressure to be down at all.
Excellent, thanks so much.
Next we will go to Jonathan Atkin at RBC. Please go ahead.
Thanks, a couple of questions. I wanted to ask about the lag time between signings or executions and revenue generation on the international side. I think you gave a good domestic answer, but seeing if there's any difference in Brazil? Secondly on FirstNet and the pacing's of both signings and the pacing's of deployments, any kind of commentary on whether there has been any change this quarter versus last and specifically interested in whether you have noticed any changes in light of the Crown Castle M&A with that customer? Thanks.
I'll take the last one first. The FirstNet backlogs continue to grow. So we have - that gives us good feelings for the future. Timing is a little more difficult to predict. But the application backlogs continue to grow and that's a good sign. In terms of the international timing, I don't know that there is much difference. Is there Brendon?
It's not materially different. There are times certain deals that we sign up where there are maybe more lenient commencements timeframes, but generally…
That would be specifically negotiated.
Specifically negotiated as part of maybe a larger agreement, but otherwise they are basically the same.
So FirstNet signings, so FirstNet deployments, nothing to speak of FirstNet signings continuing any change in the pace since mid-quarter when the M&A was good upon between Crown and AT&T?
Not material, no.
And then secondly -
That's specific - that's to the signings. Now the backlogs are continuing to grow.
Got it and then I think AT&T wireless, you didn't comment on that. Is that any more applicable than some of the other deals that you talked about in terms of how integration might unfold?
I think that would be the least applicable given the almost totally similar spectrum and technologies that those two companies had.
Okay. And then finally on M&A multiples, any commentary on domestic multiples, international multiples that you receive in the market and any more or less competition for deals that you are seeing in, say, Brazil or Latin versus the US?
Yeah, multiples in general stay high or high, have stayed high which is why we are selective, which is why we will continue to most likely not invest all of our investible dollars in portfolio growth. And there remains a healthy bid both internationally and domestically and we feel we are, but you have to be very, very selective.
Thanks very much.
We'll go now to David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks a lot. So two questions, I guess, Jeff, just thinking back to the Sprint network shutdown as we kind of think ahead, the potential Sprint T-Mobile combo, there were a couple of different approaches that the tower companies took. One was the American tower approach where they kind of traded off a little near-term opportunity for longer-term churn certainly and I think you guys kind of did it a little differently kind of monetize as much as you could and then you kind of took the churn paying later. It would be helpful to kind of get your reflection on your experience to that period and kind of what if any new approaches you might consider as you look ahead to a potential combination there.
And then second, Brendon, just in this kind of rising rate environment, could you kind of talk through why 20% to 25% variable debt exposure is the right one? If you kind of look at the most recent financings, it seems like you got maybe a 60 basis point better financing rate on the term loan versus the fixed loan, but in a rising rate environment that's not going to last. Is there sort of circumstances that would change your view there? That would be helpful to kind of think that through. Thanks.
Yeah. Looking back at the deal with Sprint, Dave, that was - it had many different components to which they had a term extension component. It had a network vision component. It had a LightSquared component which of course did not come to pass. It had - and then it had an iDEN churn component. So it was really the totality of all four that made that deal for us. So it's hard to say is that the right recipe going forward. There is a right recipe for sure. We've done these deals before and we would do them again. But it really is a very much of facts and circumstances type test. That was the right deal for us at that time based on those four variables and the agreements that we go through, in fact, the each –whether or not those circumstances will present themselves again. We'll see. But it's certainly something more amenable to and we would be very open too under the right circumstances.
And, David, on the term loan, we have historically targeted that 20% to 25% range excluding rate debt and that is still where we are focused. But we are constantly evaluating whether or not that is the right mix. I would tell you a lot of that comes from kind of looking at the alternative. It's one thing that is to say, well, we are going to do more fixed rate debt when you have to look at what that cost of that fixed rate debt would be. In addition, there is also factors that go beyond just the interest rate which include the ability to collateralize for instance our international assets in the US here. The bank market is one of the markets that allows us to do that. And so it's a logical place for us to do a portion of our financing. Not all of our assets are well-suited for instance for the securitization market. So when we look at our different alternatives, we are looking for the most cost effective, but also the most efficient in terms of our capital structure and we'll continue to do that. And also bear in mind that we do have always the flexibility to fix some component of that floating rate debt through swaps or even through refinancing that debt because it is freely pre-payable after six months with debt from a fixed rate market if we see that as a better alternative.
Got it and there is no absolute rate that - velocity of rate increase that's informing that decision right now?
Not specifically. But obviously if they were to continue to accelerate at a fairly rapid pace that might affect the way we view it, but it also might affect our overall views on our leverage levels in totality, so all those factors would fit together.
Alright, great, thanks guys.
Next we will go to Brett Feldman with Goldman Sachs. Please go ahead.
Thanks for taking the question. Two, the first one is quick. On the average remaining lease term under the Sprint leases of six years, as you noted, the term is actually 1 to 13, I'm just curious is it concentrated around six years? Is it very spread out? And then just a bigger question, it's been a long time since domestic tower construction was a primary source of your capital allocation. And there are some operators out there newer or private; you have a view that there is a considerable number of new towers that need to be constructed in the US for a range of products including 5G and others. And so I'm just curious whether you think there may be an opportunity to start putting more dollars towards that type of construction or whether the terms that are being asked for that continue to be attractive of relative to your alternatives? Thanks.
Yeah, I will take the last one first. I think there are going to be some opportunities. There are going to be in many cases in more rural areas which pose their own challenges, but I also do continue to believe, Brett, that there will be some terms and conditions challenges that go with that work as well.
Yeah. And, Brett, in terms of the concentration of the terms, there are some fairly well spread out. There are certain years that are more than others. I would say the bigger years are in the six and seven-year timeframe, so that's why the average kind of ends up there.
If you don't mind, I just have a follow-up question around sort of the build-to-suit. You noted in the past that because recently developers have been building towers under terms that you didn't find particularly attractive that it was also going to reduce your appetite potentially picking up these portfolios down the road, which you've done a lot of in the past in the US. I'm curious have you actually bought any of those portfolios and if so are you actually paying maniacally lower amounts or are you just finding that there aren't portfolios out there right now that look attractive to you in part because of the terms they decided to construct the towers under?
We have had some very interesting conversations with some folks who have taken those terms and then very disappointed at the amounts of money we will prepare to pay.
Okay. Thank you.
Next we will go to Colby Synesael with Cowen and Company. Please go ahead.
Great, two questions if I may. I think investors, in their accounts for that matter look at the overlap revenue as the potential risk when we see a deal like Sprint and T-Mobile now and so I'm just curious when you saw that 35000 tower decommission number that they put up, does that align with that logic or is that higher or lower than what you would have otherwise anticipated? And then also when they mentioned 85000 towers on a per forma basis going forward, you look at that compared to what Verizon or AT&T have that's meaningfully higher than where both of those companies are today, do you think that there is something unique about T-Mobile and Sprint are intending to do that would support where they need to have so many years? Do you think that that's a number ultimately that the sector itself is going to have to go towards? Thank you.
I don't know. That's a very interesting question, Colby, on your last one. The combined Sprint, T-Mobile clearly wants to make great use of the 2.5G spectrum which everybody knows doesn't promulgate thus far. So that's my layman's potential answer. But that and a nickel will get you a cup of coffee. That's - so I don't really know the answer to that or maybe it's just there more nuanced view of the capacity, intensity requirements of 4 or 5G network that others will ultimately have to get to once they get to that level of thinking. And in terms of the 35000, it would be nice to see the detail on all that and whether the - some of that consists of Clearwire and Metro and iDEN and things that everyone already has kind of thought is going away anyway. I happen to think it does, but I'm not quite sure of that myself. But at the end of the day I think this is going to be much as prior integrations have gone and decommissioning except this one has the added positive offset of knowing that every single site that remains has to have potentially significant equipment attitude to satisfy the combined company's ongoing needs.
If I could just slightly adjust the question, do you still think that us looking at the overlap revenue in this case 6% for SPA is the best way to think about the worst-case scenario in terms of ultimate churn risk from this deal?
Yes.
Great, thanks.
And our next question will be from Matthew Niknam of Deutsche Bank. Please go ahead.
Hi, thank you for - thanks for getting me in. Just one on 5G, I think Jeff, you may have mentioned seeing more early 5G activity in some of the rural markets. Is there any more color you can give on what's driving this and whether it's from a single carrier or across a number of carriers? Thanks.
I didn't say rural, I said, non-urban and it's basically the use of the MIMO antennas which was highlighted in the Sprint/T-Mobile call yesterday as the way to use the lower the non - given the millimeter wave spectrum a way to get to 5G. So we're starting see applications for that and so it is happening, what they actually talked about.
Thank you.
Operator we have time for one more question.
Certainly and that final question will come from Batya Levi at UBS. Please go ahead.
Great, thank you. I think you mentioned that you expected to grow the portfolio at the low end of the 5% to 10% range outlook that you have for the year. Is that more of a function for the multiples you see for the opportunity or leaving more room for the buyback?
No, if that was the impression - I said, that would be as we - we're going to do at least that given how much we've already done at this point in the year. So we have the opportunity to grow the portfolio more than what the low end of the range. We will surpass the low end of the range assuming we close everything we have under contract, which I've no reason to doubt that we will. And the only thing that will hold us back Batya is what I discussed earlier about price sensitivity and getting good deals.
Okay, thank you.
Thank you.
I want to thank everyone for joining us and we look forward to our next call.
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