SBA Communications Corp
NASDAQ:SBAC
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
186.12
254.98
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
SBA Communications Corp
You don't have any saved screeners yet
Ladies and gentlemen, thank you for standing by. Welcome to the SBA, First Quarter Results Conference Call. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Mark DeRussy, Vice President of Finance. Please go ahead.
Good evening and thank you for joining us for SBA’s first quarter 2023 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 2023 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, May 1 and we have no obligation to update any forward-looking statements that 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 now turn the call over to Brendan to discuss our first quarter results.
Thank you, Mark. Good evening. We started the year off with a solid first quarter. Our results were slightly ahead of our expectation and allowed us to increase our full-year 2023 outlook for most metrics.
Total GAAP site leasing revenues for the first quarter were $617.3 million and cash site leasing revenues were $610.4 million. Foreign exchange rates represented a benefit of approximately $600,000 when compared with our previously forecasted FX rate estimates for the quarter and a headwind of $2.5 million when compared to the first quarter of 2022.
Same tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis, was 4.7% net over the first quarter of 2022, including the impact of 4.2% of churn. On a gross basis, same-tower recurring cash leasing revenue growth was 8.9%.
Domestic same-tower recurring cash leasing revenue growth over the first quarter of last year was 8.5% on a gross basis and 5.1% on a net basis, including 3.4% of churn. Domestic operational leasing activity or bookings representing new revenue placed under contract during the first quarter remains steady and was similar through the fourth quarter.
We again saw balanced contributions from each of our largest customers. During the first quarter, amendment activity represented 51% of our domestic bookings and new leases represented 49%. The big four carriers of AT&T, T-Mobile, Verizon and DISH represented approximately 95% of total incremental domestic leasing revenues signed up during the quarter.
Domestically, churn was in-line with our prior quarter projections, and our full-year churn expectations remain the same as we provided last quarter, including $25 million to $30 million of Sprint merger-related churn.
Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 2.5% net, including 7.8% of churn or 10.3% on a gross basis. International leasing activity was good again, with similar results to our solid fourth quarter. Inflation-based escalators also continue to make healthy contributions to our organic growth, although these inflationary rates have begun to decline from their ‘22 highs.
In Brazil, our largest international market, we had another good quarter, although the impact of the previously discussed TIM agreement weighed on our first quarter, same-tower organic growth. This growth rate in Brazil was 4.7% on a constant currency basis, including the impact of 5.9% of churn.
International churn remains elevated, but in line with expectations and our previously provided outlook. Excluding Oi consolidation related churn, we believe 2023 will be the high watermark for international churn.
As a reminder, our 2023 outlook does not include any churn assumptions related to the Oi consolidation, other than associated with the TIM agreement, but if during the year we were to enter into any further agreements with other carriers related to the Oi consolidation that have an impact on the current year, we would adjust our outlook accordingly at that time.
During the first quarter, 78% of consolidated 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 15.5% of consolidated cash site leasing revenues during the quarter, and 12.4% of cash site leasing revenue excluding revenues from pass-through expenses.
Tower cash flow for the first quarter was $491 million. Our tower cash flow margins remain very strong as well, with a first quarter domestic tower cash flow margin of 84.3% and an international tower cash flow margin of 69.9% or 91.8%, excluding the impact of pass-through reimbursable expenses.
Adjusted EBITDA in the first quarter was $459.3 million. The adjusted EBITDA margin was 68.7% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74%. Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.
During the first quarter, our services business had another strong quarter, with $58.2 million in revenue and $14.1 million of segment operating profit. Our carrier customers remained busy deploying new 5G related equipment during the quarter, and our services backlogs also remained healthy at quarter end.
Adjusted Funds From Operations or AFFO in the first quarter was $341.7 million. AFFO per share was $3.13, an increase of 5.7% over the first quarter of 2022. AFFO growth was hindered by increased interest rates, which are anticipated to impact growth rates throughout the year.
During the first quarter, we continue to invest in our portfolio, acquiring 14 communication
sites for total cash consideration of $8.6 million. During the quarter we also built 52 new sites. Subsequent to quarter end we have purchased or are under agreement to purchase 66 sites, all in our existing markets for an aggregate price of $63.7 million. We anticipate closing on these sites under contract by the end of the year.
In addition to new towers, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $11.6 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 36 years.
With that, I’ll now turn things over to Mark who will provide an update on our balance sheet.
Thanks, Brendan. We ended the quarter of $12.9 billion total debt and $12.7 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 6.9x, below the low end of our target range. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense remains at a strong 4.7x.
During and subsequent to quarter end, we borrowed and repaid certain amounts under our revolving credit facility. And as of today, we have a $595 million outstanding balance under our $1.5 billion revolver. The current weighted average interest rate of our total outstanding debt is 3.1% with a weighted average maturity of approximately 3.8 years. The current rate on our outstanding revolver balance is 6.5%.
The interest rate on 93% of our current outstanding debt is fixed. During the quarter we did not repurchase any shares of our common stock and we currently have $505 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company shares outstanding at March 31, 2023 were $108.3 million.
In addition, during the quarter, we declared and paid a cash dividend of $93.9 million or $0.85 per share. And today we announced that our Board of Directors declared a second quarter dividend of $0.85 per share, payable on June 21, 2023 to shareholders of record as of the close of business on May 26, 2023. This dividend represents an increase of approximately 20% over the dividend paid in the year ago period and only represents 27% of our projected full year AFFO.
With that, I will now turn the call over to Jeff.
Thanks Mark and good evening everyone. The first quarter represented a very good start to 2023. Our team continued to execute at a very high level and we produced solid year-over-year growth in each of our key metrics. Each of our largest U.S. customers remain busy and they contributed relatively equally to our organic leasing activity during the quarter. The focus of their activity was a balanced mix of adding equipment to sites in support of 5G through the deployment of new spectrum bands and infill and coverage expansion through brand new colocations.
While we believe domestic activity in 2023 will fall below the peak levels of activity in 2022, we expect our carrier customers to stay relatively busy with additional network deployment over the next several years for a number of reasons.
Some of AT&T's and Verizon’s C-Band licenses will not be cleared until later this year. The C-Band and 3.45 gigahertz licenses won by T-Mobile have been delayed due to the lapse of the FCC spectrum authority. Dual band radios are our customers are planning to use in their deployment supporting 3.45 gigahertz and C-Band frequencies have just been approved by the FCC and dual band radios supporting C-Band and CBRS are still pending approval. And DISH will be moving forward with additional co-locations to meet their 2025 coverage requirements. We believe all of these developments will drive multi-year continued development activity.
Also encouraging about the prospects for future network development activity is the letter sent last week from CTIA to the White House, imploring the President to free up 1,500 megahertz of additional mid-band spectrum currently held by the Department of Defense and other governmental agencies. The request is for the spectrum to be made available on a full-power license basis, which obviously would have positive implications for additional macro-site activity. The request from CTIA demonstrates the industry believes that more network resources will be necessary to handle increasing demand for volume, quality and new applications and to stay competitive with the rest of the world.
Just as the last 20 years has demonstrated the need for continuous network investment, we believe the future will be the same. We believe this will provide continued – a continued positive environment for SBA.
Internationally we also add a solid quarter with continued steady organic leasing activity. During the first quarter, 42% of new international business signed up in the quarter came from amendments to existing leases and 58% came through new leases with particularly strong contributions from Tanzania and South Africa. Brazil also had a strong quarter, ahead of our internal expectations with contributions from each of the big three carriers in that market, as well as good-sized contributions from CPI based escalators.
The integration of the GTS assets has gone very smoothly and these assets are performing well thus far, and we have seen a stabilization in the currency exchange rate that has contributed to our increased full-year outlook. We remain excited about our opportunities in Brazil over the coming years as we build on our strong customer relationships and expect meaningful 5G related investments and continued expansion of wireless services throughout the country.
Moving on now to our balance sheet, we remain in a very strong position. As we have stated before, we continue to be a preferred issuer in the debt markets we currently participate in with extremely good access to capital. With respect to the current interest rate environment, fortunately we do not have any debt materials until October 2024. Thus we do not need to issue incremental debt today, unless we see a compelling use of capital that we expect to be additive to long-term shareholder value.
We finished the quarter with 93% of our debt fixed and thus we are only modestly exposed to significant interest rate fluctuations. Our exposure to floating rate debt is also expected to decline further as we anticipate further paying down our outstanding revolver balance throughout the year absent other more compelling capital allocation.
While our first choice for capital allocation continues to be portfolio growth, today the market is pretty slow globally and lacking attractive opportunities. That of course can change quickly and we will be ready when it does. We ended the quarter with a net debt to annualized adjusted EBITDA leverage ratio of 6.9x below our target range and giving us flexibility if we see value enhancing investment opportunities.
As a result of our strong financial position and our optimism about our future, today we announced our second quarter dividend, consistently our first quarter dividend which represents a nearly 20% year-over-year increase. This dividend represents only approximately 27% of our projected AFFO in our 2023 outlook, leaving us substantial capital for additional investment in portfolio growth, stocking purchases and revolver payments.
Our financial condition remains very strong. Last quarter I mentioned the fourth quarter ratings upgrade we received from Standard & Poor’s to just below investment grade. Since our last earnings release, we received another ratings increase, this time from Moody's. These upgrades are indicative of the comfort the rating agencies have and the strength and stability of our underlying business.
The future of our business remains bright. Our customers continue to have significant network needs and we are committed to supporting them and efficiently and effectively meeting those needs. I want to thank our customers and I want to thank our team members for the significant effort put in by all to the contribution to our shared success. We look forward to sharing with you our progress as we move throughout the balance of 2023.
And with that Eric, we are now ready for questions.
[Operator Instructions]. And first we will hear from Nick Del Deo with MoffettNathanson. Please go ahead.
Hi! Thanks for taking my question, guys. It looks like you did about $20 million or $21 million in leasing in the first quarter. The guidance implies may be 51 or so for the rest of the year. Should we think of the acceleration from here being fairly linear or is it going to have a bit of a different shape to it?
It should be fairly linear Nick. The $21 million that you mentioned is about right for the first quarter and I would expect it to be kind of a gradual step down throughout the year.
Okay, okay, good. And then with the strike to new builds overseas, looks like the pace stepped down quite a bit versus what you were doing in 2022. So I just want to know if that's kind of normal noise or if there's something more substantive that we should be cognizant of.
Yeah, I think it's just a little bit of a slow gig out of the gate for the year. I don't think it's any more than that and we're not making any material adjustments to what we think we're about to do this year.
Okay. Which countries are you most focused on from a new build perspective?
It really attracts our largest markets. So I would say outside the U.S., it would be Brazil, South Africa, Tanzania, but we will build towers I believe in every country in which we're currently operating for this year.
One thing Nick is that in Brazil a little bit of that slowdown is with the merger that took place among the carriers. There's some focus on that. So, that's put a little bit of a slowdown on the new builds temporarily, but we expect over time that will obviously come back and pick up.
Okay, great. Well, thank you both.
And next we'll hear from Jonathan Atkin with RBC.
Thank you. So given the comment that you made Jeff about – I think it was Jeff, you made a comment about lack of – relative lack of compelling portfolio growth opportunities. I wondered why stock buybacks didn't kind of rank higher on the packing order in terms of capital allocation. And then secondly, as you think about U.S. leasing specifically, just wondering if you can maybe give us some of the puts and takes around any carriers that you might see even ramping on your portfolio, the activity level and then those that might be kind of tapering and what kind of rate of change do you expect. Thank you.
Yeah, in terms of the stock repurchases, John, they are definitely high on our priority list as we demonstrated over the years and they will continue to be. We just feel like at this moment in time that we need to let the Fed do their thing and get to the point where we see that interest rates have stopped going up, because the rate that they are increasing has a direct impact on the cost of our revolving credit facility.
So we think through this particular period of time, and given the rate that we're paying on the revolver, that is absolutely the best use of our temporary capital allocations, but rest assured we will be buying material amounts of stock back over the coming years.
In terms of the rate of changes of the carriers, and we don't want to get into too much detail about who's exactly doing what, and I think it's been fairly well broadcast that who was spending the most money last year, and who was the most active. T-Mobile and DISH really were the two big ones last year for the industry. Verizon and AT&T were busy. And that really hasn't changed a whole lot this year other than the aggregate amounts when you add it all up, what we expect for this year in terms of the volume of activity is going to be a little bit off from last year.
Thank you.
And next, we'll hear from Walter Piecyk with LightShed.
Thanks. I guess a follow-up, and sorry for not knowing this, but what is the size of that loan, meaning that how much more you need to pay down, obviously given the rate environment understood. What would you allocate there?
So, the revolver is $595.0 million Wal and absent some other use of capital allocations, that'll be paid off by the end of this year.
Got it. So, I mean, the rates have been so volatile obviously, but there's – can we assume there's just no reason to keep any of it, meaning that like we should just assume zero share repurchase until that's done. And then when it's done, you kind of unleash on the share repurchase or is there other elements in your cap structure that I'm not remembering that would impact the timing of when the share repurchase would kick back in.
I think your intuition is, is directly correct. I mean, right now we're using dollars to pay back 6.5% debt. When that’s paid down, we won’t be earning 6.8% on our cash. So we'll be looking for other uses.
And then similar I guess question on the dividend, not that I'm ever complaining about steady dividend growth, because obviously that helps to broaden the investor base, but I guess I have to ask the question. Why increase the dividend to that amount, if at all, if it makes more sense to maybe get rid of that element of your debt?
You know we're very confident of the debt, unless we spend additional money on something that will be obviously better, will be gone this year. So we didn't want to get off of a long-term dividend trend that we're trying to establish here just for the sake of less than a year.
Understood, and just one last question. I think the cable companies have been, this is my opinion, I don't know, I'm not stating this as facts, but maybe have been delayed in building infrastructure, maybe because of some vendor issues associated with some of the spectrum that they have. And I'm just curious, and it seems like that may be coming or that might be loosening up going forward. I'm just curious if you can kind of characterize any of relationships with, however you wanted to describe them. Basically I'm asking about the cable companies, in terms of as their subscribers and usage ramp, do you see an appetite for starting to add more assets on your towers?
Yeah, I think they will for sure, but they rely very heavily on outsourcing to Verizon's network, at least Charter and Comcast. So with that in mind, it’s kind of their built-in default system. What they have to do around their other spectrum that they can develop is more limited. We are getting some business from them, but of course it pales in comparison to the four traditional wireless service providers.
Yes, thank you.
And next, we'll hear from David Arden with Bank of America.
Hey guys, thanks so much. I guess two questions if I could. I guess maybe Brendan this is for you. We're all kind of looking at DISH exposure and we're just basing the commentary and others. It feels like we're going to get to the mid-June build out requirements. Not clear how much beyond that we're going to go at DISH.
So I guess two questions would be, number one, if we take the 15,000 cell sites that they said that they were going to need to build this first stage of getting their licenses all locked down, and we multiply that by your percentage of domestic towers, and we assume that you've gotten roughly that percentage. It would seem like that would be roughly a $40 million or so number. Is your kind of run rate annualized exposure to Dish if you could kind of validate that or tell me where I'm wrong, that’ll be helpful.
And then, second, with respect to kind of the second half of the year, given kind of where DISH’s finance stand. What have you assumed in the guidance exit rate heading in the 2024? Thank you.
Yeah David, first on your estimate of approximately how much they represent on a run rate, that's in the right ballpark today. We still continue to have activity though with them. They are still signing up new business, not the same pace they were a year ago. And so, we'll exit the year at something, obviously, greater than that, would be our expectation given the fact that we're constantly signing up new business.
And then really, it's a question of, as they turn their sights towards their 2025 obligations how much more will be required. And we're pretty confident based on our conversations with them that there will be a good bit more required, so we'll have to see. But I think for the balance of this year, a lot of it is focused on deployment of a lot of what they've already signed up. And we'll see how much more they are able to churn to the 2025 objectives by the time we get to the end of the year.
Yeah, I would just add that I think that's unknown at this point as to how much of the 2025 obligations will actually be booked or signed up in 2023.
Right, I think yeah, that's a good point. And if I could follow-up real quick, maybe Jeff, just on your comments regarding Brazil or maybe this is also Brendan. You mentioned that if there is some sort of new agreement that evolves as a function of the Oi situation, that you would change your outlook obviously. Should the market be expecting that that is a likelihood or should the market be expecting that that's unlikely to happen in 2023? Sorry, thank you.
Yeah, the market should expect that it is more likely than not, but the market should take comfort in that, it will fall well within our estimated churn for Brazil that we've been putting forth now for quite some time.
Perfect! Alright, great! Thanks Jeff.
And our next question comes from Michael Rollins with Citi. Please go ahead.
Thanks and good afternoon. Two questions if I could. First, just curious for your current thoughts on sustaining SBA's al-a-carte leasing framework for the domestic business, and if you have any new thoughts on the possibility of someday pivoting to a structure around comprehensive leases and comprehensive MLA's.
And then just secondly, if you can unpack, within this first quarter churn, the amount that specifically came from the Sprint merger decommissioning. Thanks.
Yeah, on the al-a-carte versus the – what I think are most commonly called holistic MLA's, you know we're very open to whatever makes the most sense for our customers and for us. We have not – we've done MLA's, we've not done holistic MLA's that provide a customer with kind of all you can need equipment rights up to a specified amount in exchange for some kind of pricing benefit. Although we almost did back in 2013, 2014, we came very close to doing that.
So I think you should take all that Michael as kind of our view that it continues our kind of opportunistic way of running the business and we will do what's right for us and our customers at that time. And that you should not assume that you won't ever see that kind of agreement from us in the future.
And Mike, on the Sprint churn question in the first quarter, $6.5 million of the churn, incremental churn to Q1 was related to Sprint.
Thanks.
Yeah.
And next we'll hear from Brandon Nispel with Keybanc Capital Market.
Great! Multipart question for you Jeff. Can you talk about booking's activity in terms of unsigned lease applications and how that's trending this quarter from like a year-over-year perspective?
Then you had mentioned a number of drivers in terms of why we should still be bullish on 5G investments, including Verizon, AT&T, CBAN that’s not being cleared, T-Mobile licenses, dual band radios and DISH. Which of these is the largest potential driver for leasing for you over the next couple of years. Thanks.
Yeah, I think the – well, the biggest drivers will be the ones that I believe are most likely. It's got to be the dual band equipment. And obviously we need to get the T-Mobile licenses that they went and paid for, freed up out of the FCC. So those will be drivers that really get – and we know that the CBAN spectrum will be cleared by the end of this year, which just particularly in AT&T's case will coincide with when they'll see good availability of the dual band 3.45 and CBAN radios. So all those things I think are going to be positively impactful you know late ’23, certainly into 20224.
And because I answered your second question first – oh, the backlog. Yeah, the backlog is probably down a little bit from where it was a year ago, but it's been holding steady for the last quarter or two.
Great, thanks. And one follow-up, when do you expect to see lease applications for some of these dual band radios? Thanks.
I would say second half of the year, and then pick it up as you move through the year, the end of the year.
Will they just – I believe it might have even been just last week that the FCC approved by
waiver, the 3.45 and the C-Band dual radio equipment from Ericsson.
Got it, thank you.
And next we'll hear from Ric Prentiss with Raymond James.
Hey everybody!
Hey Ric!
Hey, I wanted to follow-up on Walt’s question about the dividend. You mentioned that the long term churn in the dividend, when do you think dividend payout ratio caps off and does that kind of imply 20% growth is here for a good percent of your future subject to votability [ph]?
Yeah, I would think it's not going to be a steady 20%. I would think it will – as it has since we started the dividend, it will decline a little bit each year or so over time so we can continue – while still increasing that, what may be the REIT industry's fastest growth dividend, still growing at a very fast clip, while we maintain a relatively low, relative to our peers AFFO payout ratio. That's been the strategy from the start Ric.
Right, right. You guys have been a very good allocator of capital. Is there a capital that's obviously got some international properties that are probably not covered by the REIT exclusion in the U.S. Just wondering, was the cap out like at 70%, 80% or anything?
It should be much less than that. I mean maybe way out long term, I would say its closer to 45%, 50%, because ultimately when we're through our NOLs, it will obviously match our net income, or taxable net income. So at this stage the relationship of the tax net income to AFFO is somewhere in that 40% to 50% range.
Okay. And then you mentioned to David's question on the Oi insurance, can you just remind us of what the total Oi insurance or is that still left to be addressed possibly and how that's factored into what your total results are number wise?
Yeah, so related specifically to the Oi consolidation risk, I think you're asking, the total exposure we've ball-parked in the $25 million to $35 million range. We've through the TIM deal, that represents about $10 million of churn that we've locked in, that's in our 2023 guidance. There's nothing in there for anybody else at this point. None of those leases are up. So if it were to be added into this year through an agreement, it would be pulling some of that forward. But the total range we still think is a fair estimate over time of $25 million to $35 million, of which $10 million is already in.
Follow-on for me, on the Sprint churn, a follow-up on Mike's question, $6.5 million is in the first quarter with another $25 million to $30 million Sprint churn is in ‘23. Remind us of what's left out there in kind of the timeframes that you expect coming in maybe in ’24, ’25, ’26, just so you have those carrier consolidations and those kind of make sure that the market's got those similar models.
Yeah, it's pretty much the same as it's been in the past. Our big years are ‘25 and ‘26, where we would estimate somewhere about $45 million to $50 million in each of those years. Next year as we sit here today, we think we'll be a little bit lower in the $15 million to $20 million range and then as I said, $45 million to $50 million to the following two years, and then there's some marginal amount after that, probably $10 million to $20 million that kind of dribbles out into the future. So that's the full exposure of what's left after this year.
Great. I appreciate it. Thanks a lot.
Next we'll hear from Batya Levi with UBS.
Great, thank you. To the extent that you moved forward with holistic deals, could you talk about if that would change your view on leverage targets? And getting pretty close with investment grade and ‘25 seems to be a year where you have a bunch of issues coming in, can we expect you to put that as a top priority in the near term?
And then, another question on the activity, Verizon suggests that lighting up most C-band spectrum is now going to require new antennas. What's your view of more C-band spectrum coming in? Would you think that that would create more activity? Thank you.
On the spectrum that the CTI wrote to the White House about? A brand new spectrum? Yeah, I mean there's some antenna efficiencies that may allow that to happen depending on the spectrum, but there are no radio efficiencies. There has to be new radios that are frequency specific. They could be dual band or multi band, but they are not in any of the equipment today for the spectrum that has not yet been auctioned, so that's a real opportunity should that spectrum become available.
In terms of our leverage, one of the reasons that we – there are several reasons, but one of the reasons that we're using our free cash flow to pay down the revolver is exactly to your point Batya, which is to see how the Fed, how they do in their war against inflation. If they succeed, we believe rates will come down and we will kind of go back exactly to the way we have done business for 20 years.
If it looks like it is more permanent that we're going to be in a higher rate environment and inflation doesn’t come under control, then we'll take a much more serious look at turning investment grade, which will actually position to do fairly well and over a manageable period of time, if that's in fact what we choose to do?
I think the macro world will play itself out in the next year and we will be able to tell you with much more specificity exactly which of those paths we're going to take.
Got it. Thank you.
And next we'll hear from Simon Flannery with Morgan Stanley.
Great, thank you very much. Jeff, you said the M&A market was pretty slow. I wonder if you could just expand on that. Is it that there's just not much available or not much available at attractive prices? And then I was wondering if you could just also, just expand on the infill comment and we've heard a lot of bullish stuff from the telcos on FWA and I was just wondering if you're having more conversations about, if they wanted to add capacity for that, what that might mean for their bill programs over the medium term?
Yeah, in terms of M&A, it's a combination of both of those things Simon. There's just not a lot that's being offered for sale or shopped around I mean and that's a global comment relative to past times. I think it's a combination of the interest rate environment and I think it's a combination – and added to that would be the – it's a closing gap, but there's still a gap between buyer and seller expectation. There's really, and we keep pretty close tabs on all opportunities out there and there's really not a lot. And even the fewer that we would find attractive as evidenced by the fact that we did the amounts and everything this quarter.
And are you mostly looking in your existing markets or would you be open to new markets?
Yeah, we'd be open for the right opportunity similar to our past practices. We would obviously be careful and thoughtful, but we're not foreclosing new markets.
Great. And anything on infill you could share on, you know if they do decide to act… [Cross Talk]
Our customers have all been very, and they haven't said anything different to us, have all been very careful to describe fixed wireless as a product that really is just for excess capacity on the 5G network and I don't know if that'll change or not. I mean, they're all – well, the ones that are offering it more intentionally are doing very well. So, I mean you could see at some point that there is specific capital allocation, purely justified off of the fixed wireless. But I cannot tell you today that any activity that we're seeing is predominantly there because of fixed wireless.
Right, and perhaps your comments around the CTIA study, that might be a – some of that spectrum might be good for fixed wireless as well.
Oh yeah, it absolutely would be. But you got to have to deploy it. You got to have to deploy at a minimum radios for that and in most cases probably antennas too.
Great! Thank you.
Our next question comes from Phil Cusick with JP Morgan.
Thanks, guys. So two different subjects if I can. First, there's been a lot of discussion of DISH. Credit markets are concerned what would happen there. Can you remind us where at DISH your contracts lie? And if DISH were to stop building, what your sort of remaining security looks like.
And then second, completely different. South Africa, there's been a lot of power issues and growing power issues. Any changes in how you address this on your tower's interested involvement in supporting the country in power and your carriers? Thank you.
I'll take the South Africa question and Brendan, you could take the DISH question if you have the answer. We know it's at the spectrum holding level Phil. I mean, that's probably about as best as we can. We can get back to you with the exact legal entity if you'd like, but it's with the entity that has the spectrum.
So on the South Africa question, you know power is an issue and there is a movement effort by some carriers, particularly – well, I'm not going to name them specifically, but to outsource power on the towers. And it is something that we’re looking at. The bigger issue in South Africa and one that we're working on and hopefully we'll have something meaningful for both us and our customers in the future, is security.
And we really don't want to spend a lot of money on power supply, solving those issues until you have the site facilities secured, and that involves a wide range of potential solutions Phil, which we've got a lot of folks looking at and studying and I think we'll be able to share more with you on that over the coming year.
Thank you.
And next we'll hear from Brett Feldman with Goldman Sachs.
Thanks. Two questions if you don't mind. For many years now in the U.S., a lot of the new tower that have been constructed have been done by privately funded operators who achieve access to capital or signing leases with their carrier tenants with terms that we just – we're never going to match, and as a result we haven't seen develop a lot of towers in the U.S. for a number of years now.
I'm curious what the market for a new site development in the U.S. looks like. It would seem that with the carriers using higher frequencies than they've ever used before, there'd be some need for identification of the actual infrastructure. But I really don't know, so I’m curious whether that could be an opportunity for you.
And then a separate topic, American tower sold their Mexican fiber business, citing that it really has ended up being a more difficult business than they thought. You've been pretty selective in terms of where you've invested in fiber in your international market. I'm curious how those businesses are performing and whether maybe you're considering any portfolio lending there as well. Thank you.
Well, other than some assets which are very de minimis to the operation of our data center in Brazil or our towers internationally, we don't have any fiber businesses internationally Brett, so nothing really to divest there.
In terms of new builds, over time they should continue to be a steady, although I don't know if it will be growing number of new build opportunities. The new build market in the U.S. has slowed somewhat as carriers have focused more on amending their existing sites to roll out most efficiently their 5G. And I will also tell you that the cost of new builds have gone up tremendously in the last five years. They may have doubled over that period of time. So I think that's providing a bit of a damper on activities as well.
Are you still seeing those same private operators out there bidding for what’s available or has that cooled down at some degree?
Yeah, the same names are still out there, but the volumes are well down.
Thank you.
Our next question comes from Brendan Lynch with Barclays.
Great, thanks for taking my question. Jeff, you mentioned the dual-band radios. I was wondering if you give us a little bit more color on that and what you're expecting from the carriers. Have they been holding back in anticipation of this or what do you really expect them to change starting in the second half once you get those applications?
Yeah, I don't want to speak for our customers, but I will tell you that the literature that's available on this topic from organizations like Light Reading [ph] for example really go into quite a bit of detail as to what our customers plans are with respect to those dual band radios, including one of our customers said to not deploy any of certain amounts of spectrum that they already have until those dual-band radios are. So I mean that's what I know and I don't want to really talk more about specific customer discussions, but I think if you look at that literature, you will see a picture that is very clear that there's, there has been holdback in terms of what our customers would otherwise do, pending the availability of that type of equipment.
And in particular, you know right now the deployment is a separate radio and antenna for C-Band and 3.45. It'll be a more efficient form function when they are combined and to the extent that they were doing that in one truck roll with the two different radios, they would have the efficiencies of a single truck roll. So that's a long-winded way of saying, yeah, we think it's going to be a positive development when that equipment is available.
Great, thanks, that's helpful. And maybe one balance sheet question for Brendan. Accounts receivable was flat quarter-to-quarter around $183 million, but it's up quite a bit relative to the trailing 12-month average price of that. Is there anything specific that is causing that to occur?
Not really, because we are obviously focused on aged accounts receivable, which are not – we're doing fine on collections. So a lot of that's really just timing around some of the services contracts, generally services related in terms of fluctuations not leasing.
Great. Thanks for the color.
Next question comes from David Guarino with Green Street.
Thanks. Hey Jeff, I want to talk about that CTIA report you mentioned. What do you think would happen to U.S. macro tower new leasing activity? If the SEC was unsuccessful and they couldn't get access to new build in that spectrum, do you think we'd see growth trail off from the 5% rate, pretty significantly once the C-band spectrum is installed?
Well, I think you'd see a tremendous amount of increased densification, because that will be the only way to satisfy demand in a spectrum constrained environment. The question is, it's the age-old question, who's going to pay for that and are our customer's buying going to find a good enough return on investment? I mean if there’s no more spectrum Dave, there has to be self-splitting and densification.
Okay, and I guess maybe to dive into the densification side, there's ample opportunity within your portfolio for that to happen, right? I wouldn't be fair to say during the 4G build-out the majority that already occurred?
I would say to densify within the existing spectrum and to have no additional spectrum introduced into the system. If you were going to truly build out to the max, to achieve the max 5G capabilities, I would tell you, we have a lot of opportunity and a lot of room on our towers that would need to be filled for our customers to achieve that.
Okay. Maybe stepping outside of the U.S., and it's been, I guess it's been over a year since you guys set up operations in the Philippines. Could you just maybe update us on how many sites you own in the country now, and then another with a lot of M&O tower assets sales? Are there any rumors about on the horizon of maybe the M&O's looking to sell some more assets?
Yeah, we've got about 130 or so sites right now, then a bunch more in construction, so we would expect to end the year in the high 100s somewhere.
Yeah, and the M&O's have followed up, I mean there are two real M&O's. There's three, but two that really own assets over there, and those customers have continued to hive off chunks of their portfolios, not sure that they've done it too many times, but I know there have been follow-ups I think from each of the two big ones there with additional asset sales.
But nothing else on the horizon that you are aware off?
Not that we are aware of?
Okay. Thank you.
And next we’ll hear from Eric Luebchow with Wells Fargo.
Great, thanks for taking the question. Just curious, for the two large U.S. carriers that are already deploying C-band today, any kind of rough estimate on how many of your sites has been upgraded just to give us a sense for how long the growth there will be in the next few years?
Below 50%,
Okay, helpful. And I guess when you think about the dual band radios, is there any real difference in your ability to monetize amendments, whether they are separate C-band and 3.45 radios, or if it's a dual-band, is it relatively equivalent in terms of your amendment revenue?
Yeah, I would say it's roughly equivalent, although the form factor is going to be less from a weight perspective in the dual band unified piece of equipment.
Got it, makes sense. And just last for me, I know you've made a couple of smaller data-centered investments kind of studying the edge compute market I guess. Have you had any learnings from those or anything to report that maybe could give you some confidence to get bigger in that space over time, either through new development or M&A?
Well, where we've continued to grow is in the edge and the fiber regeneration facilities. We are now up to somewhere between 40 and 50 of those. So what we found Eric is that there is high demand for quality locations where you have power and permitting and fiber. What really has not happened yet to our knowledge anywhere in the globe is the direct tie-in at the edge of the cell site to the wireless networks, which when that comes, that will unleash tremendous amount of demand at the cell site. But we're learning a lot along the way through primarily real estate demand as opposed to demand for this computing to be tied in to the wireless networks.
Okay, great. Thank you.
And next we'll hear from Greg Williams with TD Cowen.
Great, thanks for taking my questions. First one is on services. Your site development came in a bit stronger. Should we expect that also to sort of come down a little bit linearly? And second question is just on the dual-band radio opportunity on network services. So if T-Mobile and AT&T start deploying that, could we see an uptick in our services above and beyond your guidance? Thanks.
Yeah Greg, we would think that services will be declining slightly into the second half of the year, but I think in a lesser pace. I mean, you can see what our outlook looks like and where the first quarter ended up. It's only slightly ahead of that full year pace. So probably similar in the second quarter and maybe slightly less in the second half of the year, but relatively flat.
Yeah. And when the dual-band deployment start Greg, certainly that's going to benefit our services business.
Got it. Thank you.
And we have no further questions at this time.
Great. We want to thank everyone for joining us this evening. We appreciate your participation and we'll talk to you in a quarter. Thank you.
That does conclude our conference for today. Thank you for your participation. You may now disconnect.