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SBA Communications Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the SBA Third Quarter Results Conference. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Finance, Mark DeRussy. Please go ahead.
Thank you, Rich. Good evening and thank you for joining us for SBA’s third quarter 2020 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 2020 and beyond. In today’s press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today, November 2, so 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 now turn it over to Brendan to discuss our third quarter results.
Thanks Mark. Good evening. SBA once again had very strong results in the third quarter, exceeding our expectations in all key financial metrics. Total GAAP site leasing revenues for the third quarter were $486.8 million and cash site leasing revenues were $486.1 million. Foreign exchange rates were a $1 million tailwind to revenues when compared with our previously forecasted FX rate estimates for the third quarter. They were again however a significant headwind on comparison to the third quarter of 2019, negatively impacting revenues by $20.1 million on a year-over-year basis. Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis, was 4.1% over the third quarter of 2019, including the impact of 1.9% of churn. On a gross basis, same tower growth was 6.0%. Domestic same tower recurring cash leasing revenue growth over the third quarter of last year, was 5.7% on a gross basis and 3.5% on a net basis, including 2.2% of churn.
Domestic operational leasing activity or bookings representing new revenue placed under contract during the third quarter increased over the first half of 2020 levels, but remains below levels we were seeing in the year ago period. The sequential increase in domestic new bookings was driven primarily by increased activity with T-Mobile. Based on conversations with our customers and continued growth in our domestic application backlog, we anticipate seeing this activity continue to increase in the fourth quarter and into 2012.
During the third quarter, amendment activity remained the large majority of our domestic bookings with newly signed-up domestic leasing revenue coming 80% from amendments, and 20% from new leases. The Big 3 carriers represented 83% of total incremental domestic leasing revenue signed up during the quarter. Internationally, on a constant currency basis, same tower cash leasing revenue growth was 7.1%, including 0.4% of churn or 7.5% on a gross basis. Our international leasing activity was up modestly over first half 2020 levels, but still remains impacted by continued COVID-related spending reductions by our customers in a number of our markets. This quarter, Brazil was again the largest contributor to international lease up. Gross same tower organic growth in Brazil was 9% on a constant currency basis. During the third quarter, 86% of consolidated cash site leasing fee revenue was denominated in U.S. dollars. The majority of non-U.S. dollars denominated revenue was from Brazil, with Brazil representing 10.8% of all cash site leasing revenues during the quarter, and 8% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the third quarter was $396.8 million. Our tower cash flow margins continue to lead the industry with a third quarter Domestic Tower cash flow margin of 84.3% and an International Tower cash flow margin of 71% or 19.1% excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the third quarter was $373.3 million. Our industry-leading adjusted EBITDA margin was 71.5% in the quarter, up 90 basis points from the prior year period. Excluding the impact of revenues from pass through expenses, adjusted EBITDA margin was 75.8%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter.
AFFO in the third quarter was $270.1 million. AFFO per share was $2.38, an increase of 10.7% over the third quarter of 2019, and a 15.3% increase on a constant currency basis. Our outperformance in AFFO was partially attributable to reduced net cash interest expense, resulting from the termination of the company’s $1.95 billion notional value interest rate hedge on a portion of our 2018 term loan in exchange for a one-time cash payment of $176.2 million. This termination in combination with a new interest rate swap entered into by the company on the same day, fixing the interest rate of 1.87% on $1.95 billion of our 2018 term loan will result in annualized cash interest expense savings of $37.2 million. The impact to 2020 net cash interest expense is a reduction of $16.3 million.
During the third quarter, we also continued to expand our portfolio, acquiring 44 communication sites and one data center for total cash consideration of $73.5 million and building a total of 75 sites in the quarter. Subsequent to quarter end, we have purchased 54 communication sites for an aggregate price of $14.6 million, and we have agreed to purchase 132 additional sites for an aggregate price of $85 million. We anticipate closing on the majority of these sites by the end of the first quarter of 2021. 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 $7.2 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 71% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 35 years.
In our earnings press release this afternoon, we included an update to our outlook for full-year 2020, providing increases in all key metrics. Strong leasing revenue and services results in the third quarter were drivers of these increases in our outlook in addition to lower SG&A projections, lower non-discretionary capital expenditures and lower net cash interest expense. These results and adjusted forecast, along with the impact of our recent share buybacks which Mark will discuss in a moment, have allowed us to increase our full-year 2020 outlook for AFFO per share by $0.25.
I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.
Thanks, Brendan. We ended the quarter with $10.8 billion of total debt and $10.5 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.0x at the low end of our target range. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 4.2x. On July 14, through a trust, we issued $750 million of 1.884% Secured Tower Revenue Securities, which have an anticipated repayment date of January 29, 2026, as well as $600 million of 2.328% Secured Tower Revenue Securities, which have an anticipated repayment date of January 11, 2028. The aggregate $1.35 billion of Tower Securities have a blended interest rate of 2.081% and a weighted average life through the anticipated repayment dates of 6.4 years. Net proceeds from this offering were used to repay the entire $1.2 billion aggregate principal amount of the 2015-1C and 2016-1C Tower Securities, with the remaining net proceeds being used for general corporate purposes.
As a result of this financing, our next debt maturity is not until April 2022. As of today, we have no outstanding balance under our revolver and the weighted average interest rate of our outstanding debt is 3.1% with the weighted average maturity of approximately 4.2 years. During the third quarter, we repurchased 580,000 shares of our common stock for $175.6 million or an average price of $302.63 per share. Subsequent to quarter end, we have repurchased 415,000 shares for $124.4 million or an average price per share of $299.54. Today, our Board of Directors approved a new $1 billion stock repurchase plan, effective immediately, replacing the previous $1 billion plan, which had a $124 million of repurchase authorization remaining. The company’s shares outstanding, as of September 30, 2020 are 111.4 million compared to 112.6 million at September 30, 2019, a reduction of 1.1%. In addition, during the third quarter, we declared and paid a cash dividend of $52 million or $0.465 per share. And today, we announced that our Board of Directors declared an equivalent fourth quarter dividend of $0.465 per share payable on December 17, 2020 to shareholders of record, as of the close of business, on November 19, 2020.
And with that, I will now turn the call over to Jeff.
Thanks, Mark and good evening everyone. We had another strong financial performance in the third quarter. We produced leasing revenue, tower cash flow, adjusted EBITDA, AFFO and AFFO per share that were all ahead of both our expectations and consensus expectations. The year has developed almost exactly as we predicted it would on our last earnings call. U.S. customer activity has increased due to T-Mobile activity increasing post merger. International business remained stable to improving, but still challenged due to the continued impact of COVID-19 in those markets, and the capital markets remained very friendly to our company. Because we see further increased U.S. leasing activity in the future over 2020 levels, at a time where international markets recover from today’s COVID-19 challenges, we continue to invest capital in both portfolio growth and by repurchasing our stock which investments, we believe will help fuel future growth in AFFO per share and dividends per share.
We are very pleased with our results, particularly against the backdrop of continuing COVID-19 conditions in all of our markets. The majority of our employees and our customers’ employees are still working remotely, but yet, continue to work efficiently and effectively to produce these positive results. We also have a number of essential field personnel working everyday out of tower sites to meet our customers’ needs. We greatly appreciate the efforts of all of these frontline folks who have not only had to adjust to working in the new COVID world, but also have been there to get hurricane and fire-impacted sites back up and running for our customers, and ultimately for their customers. They have done a great job and I thank them for all they have done and will continue to do.
From a leasing activity standpoint, in the U.S., we saw an increase in new bookings during the third quarter to a higher level than we saw throughout the first two quarters of the year. This increase relates directly to T-Mobile activity post merger. This increased activity, as well as our strong services results and our growing application backlog, are positive signs for continued increases in the pace of domestic organic leasing activity for the fourth quarter and into 2021. These third quarter levels, while trending up, are still below the levels of activity we saw in the year earlier period. We believe that there are opportunities to see growing levels of new bookings on a quarter-to-quarter basis for the next several quarters.
There are several drivers behind this anticipated trend. First, we expect T-Mobile to continue to accelerate their focus toward meeting their stated 5G coverage goals, including upgrading the majority of their sites with either 2.5 gigahertz or 600 megahertz spectrum or both. Second, the upcoming C-band option should see significant participation, and we expect will be a driver of increased activity starting sometime next year with both Verizon and AT&T as the deployment of this spectrum will require new equipment at many of their existing macro sites. And third, we continue our constructive discussions with Dish and we anticipate that they will be actively engaged in building out a nationwide 5G network over a multi-year period. All of these factors should create an increasing domestic leasing environment as we move through next year, which will bode well for domestic organic growth for the following several years.
Internationally, we saw slightly higher leasing activity levels than we saw in the first half of the year, signing up 47% of international revenue under new leases and 53% under amendments. Notwithstanding a slight increase in activity levels, we continue to see impacts in our Latin American and South African markets from the COVID-19 crisis. On the positive side, most of our international wireless customers have reported improved third quarter financial results sequentially compared to the second quarter as lockdowns in their markets have started to lift. However, they have also reported material year-over-year CapEx reductions in the order of 10% to 25% as lockdowns have made network deployment difficult and they have prioritized cash. As a result, we expect international bookings may remain pressured in the fourth quarter and into early next year.
On the bright side, some of our customers, such as America Movil have discussed in their third quarter calls their future plans for increased more normalized capital spending, which we believe will be a positive for us. Wireless continues to be critical for the access to the Internet in all of our international markets and significant network investment is still needed throughout all of these markets. None, with the possible exception of certain parts of Canada, have as yet embarked on the type of 5G upgrade that we are starting to see here in the U.S. As COVID-19 conditions improve, we expect wireless capital spending in our international markets will improve considerably.
Consistent with the uptick in our U.S. leasing activity, our services business had a strong quarter seeing a material pick-up in construction activity, particularly with T-Mobile. We also continue to control our cash, SG&A costs very well. As a result, we again reported the highest tower cash flow and adjusted EBITDA margins in the industry, including an 84.3% Domestic tower cash flow margin. We also were able to control our non-discretionary capital expenditures for the quarter, allowing us to again reduce our full year outlook for this CapEx. And we were able to use available cash on hand to pay off and reset an out-of-the-money interest rate hedge, significantly reducing our future cash interest expense obligations for nearly the next 5 years.
Our solid performance up and down the lines of the P&L allowed us to produce our highest quarterly AFFO per share ever. And while I am hesitant to bring up this only but boldly, we will end 2020 just short of an annualized fourth quarter AFFO per share of $10. If not for the significant negative FX movements experienced this year, which we believe were largely due to the relative strengthening of the U.S. dollar and Federal Reserve Bank policy in response to COVID, we actually would have made that $10 by ‘20 target we set out almost 5 years ago. If nothing else, I think this is really indicative of the strength and predictability of our business and our ability to manage it.
In addition to our operating and financial results, we also had a solid quarter allocated capital. We purchased or put under contract, a number of very high quality tower assets. We have built a number of towers across our international markets. We invested in a JaxNAP data center, as we discussed on our last earnings call, big step in our long-term edge data center strategy focused on being ready to monetize, and capitalized on eventual data center demands at our tower sites. We spent $300 million in the third and fourth quarters opportunistically repurchasing our stock, which will positively contribute to AFFO per share growth going forward, including this quarter.
And we announced today, our dividend and an amount which represents less than 20% of our third quarter and the midpoint of our projected fourth quarter AFFO per share. We anticipate that our expected increased AFFO generation will give us ample ability for material future increases in dividends, while maintaining plenty of capital for continued portfolio growth and stock repurchases. Next quarter, in conjunction with the preparation of our 2021 outlook, we anticipate that our Board of Directors will be declaring a materially increased quarterly dividend, which as is becoming our practice, will remain the same on a quarterly basis through the course of the year.
From a balance sheet perspective, we’ve been able to continue to manage our leverage effectively ending the third quarter at 7.0x, a level I’m very comfortable with. As I mentioned earlier, the debt capital markets have been very accommodative. And we’ve taken advantage of these opportunities several times this year. In the third quarter, we were able to refinance $1.2 billion of securitization notes, reducing our overall cost of debt, which today averages 3.1%. We have achieved an investment grade cost of debt on a levered balance sheet, which of course when properly managed greatly benefits our shareholders. We currently have no debt maturities until 2022, and we continue to have very high liquidity, including our fully available undrawn $1.25 billion revolver. The strength of our balance sheet continues to provide us with the flexibility and confidence to be opportunistic around investment opportunities and share repurchases, while still being able to comfortably support and materially grow our dividend. We had another solid quarter in the third quarter. I want to again thank our team members and our customers for their contributions to our success, particularly during these challenging times. We look forward to a strong end to the year and sharing our results with you next quarter.
And with that, Rich, we are now ready for questions.
Certainly. [Operator Instructions] We will begin with the line of Phil Cusick with JPMorgan. Please go ahead.
Hey, guys. Thanks a lot. So, Jeff, you discussed T-Mobile ramping and probably ramps further from the fourth quarter. Do you see signs that other carriers could be slowing down in the next year that would sort of net some of that growth out?
I don’t think materially. I think we will see a period of time, though, in 2021, before we will see the highest levels of activity we expect, particularly with respect to the C-band, because that’s going to take a little bit of time. But I don’t know, I mean, of course, anything can happen, but I don’t see signs today that T-Mobile going one way and the other two are going in the opposite direction.
That’s great. And then what momentum do you see in the deployment of MIMO and kind of this is something we’ve been talking about for a couple of years. Does that wait for C-band to be deployed as well or you’re seeing that happen today?
Well, we’re seeing it happen today because we’re seeing 2.5 gigahertz spectrum being deployed today. And, I mean, that is the preferred way, my understanding, that is the preferred way and the most efficient way to get the most out of the mid-band spectrum for 5G.
That makes sense. And one more if I can. What do you see in activity levels in Brazil? And how does that compare to what you expected when you bought more sites in December? Thank you.
Well, we didn’t see COVID, and we didn’t see the – we did not see the level of the FX adjustment, which I think is, in large part, due to. But what we have seen is a steady currency – constant currency adjusted, very good demand, Phil, for those assets, and we think over time and with some improvement in those COVID conditions, we’re going to see tremendous improvement in the numbers coming out of Brazil. But I would certainly be telling you, Phil, if we foresaw everything that has gone on in Brazil this year back in December.
I don’t think anybody could say that, but it does sound like there’s still good demand in that market despite COVID.
Yes, there is. I mean, if you were to strip back – I mean, if you look at the demand and the growth rates that Brendan talked about and you see in our numbers on a constant currency basis, we’re very pleased with where things are. And that’s still on a year and in an environment where these customers have pulled back materially in their CapEx in response to COVID. And they basically said that, look, this is temporary, and we’re going to need to spend more money coming out of this thing. So we’re very – we continue to be very happy with our Brazilian operations.
Okay.
And we will now go to the line of Simon Flannery with Morgan Stanley. Please go ahead.
Great, thank you very much. Good evening. You talked about Dish and T-Mobile, you didn’t talk about – much about Cable they were very active in the CBRS. So I wondered, Jeff, do you think Cable can be a contributor in ‘21 and beyond? How are those conversations going? And on T-Mobile, they have a real interest in reducing some of the old [indiscernible] Sprint sites. Is there an opportunity, you think, to work with them to come up with some structure to allow them to take down some of those sites quicker than the current contracts allow?
We don’t really have any of the [indiscernible], Simon. What we have are just straight Sprint leases that are of a more regular Sprint network deployment that have various termination dates over time and we’re always open to discussions. In terms of Cable, we do have Cable, lot of demand for some of our tower space. I don’t know that Cable will ever have a desire to mount a – or the spectrum ability to mount a greenfield nationwide build out the way the other four will have. But we certainly do see some incremental demand and benefit from their spectrum holds.
Great. And then just one quick one for Brendan on the leverage, you were at the low end of leverage of 7x. Is that – you’re going to keep that there with the buybacks? How should we think about your desire to stay at that 7x versus coming down lower depending on where the stock price is, if you don’t have other M&A opportunities?
Yes, I mean, it’s our desire to stay within that target range. We’re at the low end of it now. It’s – in terms of the share buybacks and the asset acquisitions, it’s really a matter of being opportunistic around what’s available to us at a given time. So we’re there today, largely through share buybacks in the third quarter and we’ve done some already in the fourth quarter. So you should expect we’ll be somewhere around the same range going forward.
Great, thank you.
Thank you. We’ll now go to the line of Batya Levi with UBS. Please go ahead.
Great, thank you. Can you remind us how we should think about the pacing of the T-Mobile churn? I think this shared churn is coming in a little less than 2%. Maybe some early color for next year, if there is anything that we should look forward to and on when you would think T-Mo to ramp up?
Yes, we – so we have seen a little bit of churn notifications from T-Mobile, thus far, around 100 leases or so. That is relatively small, probably in the $4 million to $5 million range in terms of its impact for next year. When you look at our overall churn end date, though, in terms of the overlap in particular, we have almost 4 years left on average for the Sprint leases that are on – sorry, for T-Mobile it is, and – but when you look at the specific dates, most of it is out about 5 to 6 years. So we expect that we’re going to start seeing that stuff heavily weighted toward the back end.
Got it. Thank you.
And we will now go to the line of Colby Synesael with Cowen. Please go ahead.
Hi, great. Maybe just a follow-up on that, there is a lot of talk obviously about leasing increase in the next few quarters, including in the fourth quarter and then I guess you mentioned up further into 2021. But when you think about the net same-store growth rate ‘21 versus 2020, is there a risk that the churn could step up to such a level that effectively offset the increase in new demand that you’re anticipating to a point where the same-store growth rate in 2021 would actually be below that of 2020 despite this increase in new activity that you’re seeing? And I appreciate you don’t want to give too much on ‘21 just yet, but you might appreciate that that’s a big focus for investors right now. And then secondly, I was just wondering about the capital allocation. You talked about that 5% to 10% portfolio growth over a long period of time. It sounds like there is perhaps less to do internationally, right now, just given the economic situation down there. Should we anticipate that you just continue to step up the buyback in the interim? Thank you.
You take the first one I will take the second one.
Okay. Yes, Colby, so on the churn question, most – based on the way that it works when we give those same tower growth rates, it’s usually driven mostly by stuff that’s happening this year and into the first part of next year. So a lot of that is unknown. So I don’t expect the churn to be materially higher, although there is some potential for some additional notes. We’re not ready to give ‘21 numbers yet. And I think when we give them, we’ll have a little bit better view on whether there is certain plans from T-Mobile around some of that churn. But the overall growth rates will also be influenced by the activity levels in terms of new leasing activity this year as well, so [indiscernible] until next quarter to get the actual numbers. But what’s happening today and the slowdown we saw in the first part of the year, this year, will have some impact on next year’s same tower growth numbers because it is a trailing indicator.
Yes and how soon we start seeing next year, which frankly, we just don’t know yet today the benefits that will come from Dish really digging in and starting to deploy and the C-band deployments. So, on the – Colby, the 5% to 10% that continues to be the goal, we are not going to hit it this year. If you add this year and last year, we will have averaged greater than 5%, but that’s not going to be how we target things. We just didn’t see the number of opportunities this year that we thought made sense from a pricing perspective. There were enough opportunities out there to hit those numbers. I believe there will continue to be enough opportunities out there. But for us, it’s not only the number, it’s the price and it’s the quality. Unless it all comes together in the right way, we’re not going to buy stuff just to buy stuff and that’s where we are this year. But I don’t think this is indicative that there is not going to be 5% to 10% next year.
Okay, thank you.
We will now go to the line of Michael Rollins with Citi. Please go ahead.
Thanks. So, good afternoon. Just a couple of questions. One follow-up to begin with, so, you mentioned there is a delay between the booking and the billings and so that lag effect has impact going into ‘21. Can you share with us what that current book to bill duration is and maybe how that compares to the historical kind of range? And then just taking a step back, with the data center purchased this past quarter, curious if you could share your learnings and what you are getting from the data center model and how you see this edge opportunity playing out for SBA over time?
On the book to bill, it’s typically 6 to 12 months. It can vary a little bit depending on the mix amendments and the type of activity that’s been done by the carriers, but I would say we’re seeing it stretch out a little bit longer than it has in the past. I think there’s so many major projects going on in particular with T-Mobile that the delayed maintenance are a little bit longer than they happened in the past, but 6 to 12 months is the typical range.
Yes. And on the data center, Mike, we’ve now got two, and the purpose is to understand the data center business, data center model, so that we can be in a position when the opportunity is right to know whether we’re going to be operators of many data centers on our cell sites or something less, landlords or maybe something in between. What we’ve learned so far is that it is definitely a different sales business, different customers, but that there are a number of different applications and needs where by having a larger regional data center that is well connected with fiber, lot of interconnect, a lot of meet-me type rooms there, that’s an attractive offering to folks who may want to also have smaller installations at the tower site. We call that the hub-and-spoke theory. At the end of the day, for all of this to make sense, it has to be on our land at the tower site. That’s what this is all about. It’s not separately getting into an unconnected data center business. But for us to understand how to maximize that, we thought that some experience with and kind of experimentation with these two data centers, one in Chicago, one in Jacksonville and Jacksonville, it has also some undersea cable connections, will give us the right experience and skill set. So, more on that as it comes, it’s not going to be material to our financial results any time for the next several years. But it could be a key to really unlocking some value and frankly, land that we’ve already kind of got the sunk cost and sunk investment in. So it’s something that we’re excited about over the long term.
And just with respect to that, is there any sense of how many of these hubs that you may need? Like does a hub need to be in the biggest NFL, NBA-type cities or do you think that the hubs need to actually be much closer to the eyeballs in the used cases, and so you might have many hubs and spokes? Like, how do you think about that at least from your initial learnings?
Yes, so far the delta – it’s more of a regional Tier 2, Tier 3 markets for the hubs. So it could be more rather than less, but you got to have the spokes side of things more developed out for this to – for me to be able to sit and tell you that there’s going to be more than two months. That’s why we have the two to prove out now the spokes side of things, and these are both areas where we have a fair number of tower sites to do all kinds of different expected business models, but if there are enough tower sites that connect and makes sense, then you’ve got the creation of another hub opportunity and whether that needs to be owned or partnered, it doesn’t have to be more than the other.
Thanks.
We will now go to the line of Brett Feldman with Goldman Sachs. Please go ahead.
Yes, thanks for taking the question. Jeff, during your prepared remarks, you mentioned the C-band and you acknowledged that it could take a little bit of time for that to fully benefit the company. One of the questions we’ve been getting is how do we think about the factors that actually determine what that timeline or trajectory is because it seems like there’s two considerations and I’m not sure how to weigh them against you, one of which is just, where your towers are relative to the clearing timeline because there’s going to be a couple of tranches there and which is clear. The other is just which of your [indiscernible] and they are buying a lot of C-bands. So I was hoping really you could just expand for us, as best you can, your thought process around when you think your assets are actually going to be positioned to start to benefit from that reconnected? Thanks.
Well, I mean, you kind of answered it for me. You really won’t know until the auctions are done and what got taken by who and where. But one of the benefits of giving the 2020 outlook when we give it is, we hope to have some of that information by then. So we will look at that and bring in whatever we can from the results and be able to factor that into our outlook. I do believe a large part of – at least the early feelings will be based on the dollar spent and the belief that the folks who spend the large dollars and folks have indicated that they are looking to do that. They will be looking to deploy as quickly as they can. So that is kind of how we are going to triangulate things. But it is not going to be – it is hard for me to say with specificity now, without knowing the first thing about who won what and where.
Do you have enough towers in the markets that are kind of in charge line such that it actually could be meaningful catalysts for you over the next 12 or 18 months or you would be willing to wait until the majority of that spectrum is clear or you don’t know it yet?
Yes, I think the spectrum clearing is going to go faster than folks think, just like it did on the TV spectrum. Some of it’s going to go faster, some of it may not. There is every incentive for the folks who win that spectrum for purchasing, I guess, because they are purchasing it, in some cases, arguably to stay competitive with a rapidly deploying T-Mobile to get things done very quickly. And I think that it’s going to bode well for us and our industry.
Thank you.
We will now go to the line of Nick Del Deo with MoffettNathanson. Please go ahead.
Hi, thanks for taking my questions. Just following up on Brett’s C-band question, there are presumably smaller share of towers in which the carriers can economically deploy C-bands, especially in rural areas, just given the propagation attributes versus traditional mu band. How would you dimension the share of towers that might not be well positioned to host C-band or do you not think that’s the right way to think about it?
Yes, I suspect there will be some, but I think in large part where they have – I mean, anything except the absolute most old towers, which I don’t think – I think you are talking about areas where you really don’t have the same amount – you don’t have the coverage today. These are the areas that the government is actually incentivizing through the RDOF and the – these large amounts of money to bring to these underserved areas. I think for the most part, where most of the carriers are today, where they have existing 3G and 4G coverage, we believe you are going to see 5G brought in the form of a mid-band spectrum.
Okay. And then one on margins which has obviously been very strong, anything that’s going to revert post COVID or do you see kind of COVID-related extra cost about equal to any COVID-related savings?
No, we have not really had any type of – I mean our travel and entertainment expenses have been down. But I mean, when you look at the margins in the business, that’s still such a small overall amount that for that to come back, I just don’t see it, Nick. I don’t think you are going to see anything material.
Okay. Okay, that’s good to hear. If I can just squeeze in one housekeeping item, are you disclosing the PCS-Leap-Clearwire churn impact this quarter or are you stopping it?
We basically stopped it because it’s become largely immaterial. I believe that less than 0.3% of that same tower churn number, that’s on the domestic side and lower than that on a consolidated basis.
Okay, terrific. Thank you, guys.
Okay.
Next, we’ll go to the line of David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks for taking the questions. I guess the first one would be for Jeff. Is there any part of you that wonders if the American Tower MLA will affect the kind of cadence and tempo of the T-Mobile spend that you’re anticipating that can come in 2021? And I guess my second question is for Brendan, obviously great deleveraging over the last year. I remember when you guys instituted a dividend that we were talking about as the fixed kind of dividend cost grew there was an inclination to bring leverage down below the historical targets, maybe even closer to 6. Is that now no longer the game plan? Thanks.
Yes, on the MLA, given what T-Mobile has committed to accomplish under the terms of the approval, I don’t really think so, David. I don’t think there’s anything that is going to impact SBA.
David on the...
Good to hear.
On the leverage plans, I mean, right now, given how low a percentage of our dividend represents, we don’t think that it calls for any material reductions in leverage. I mean, we are naturally just organically delevering returning to a turn and a half every year just for EBITDA growth and the cash that we generate. So that – it keeps it up, requires us to be continuing to significantly invest in the business. So our goal would be to keep it up and continue to see opportunity to invest whether in new assets or share buybacks. But right now we don’t have any intention to lower it materially. But I think over time as the dividend grows, if it becomes a much larger percentage of our free cash flow, then we would naturally see the leverage start to come down.
Yes.
Okay.
And keep in mind, we started that conversation when we were more regularly running at 7.5x than at 7x.
Great. Okay, great. Appreciate it guys.
Thank you. [Operator Instructions] we will next go to the line of Ric Prentiss with Raymond James. Please go ahead.
Yes. Hey, guys. It sounds like you and your folks are doing well.
All good, Ric. Thanks. How about you?
Yes, doing well hunkered down. Couple of questions, if I could. Can you update us on the status of the FirstNet project in your areas?
Yes. We continue to be active and we still have – we are probably about 50% to 55% of our sites and then with AT&T, I mean, upgraded to FirstNet. So still a ways to go.
And do you expect to get to a 100%?
Coming up quite, but much higher than where we are today.
Yes, Okay. And are you having any discussions with potential C-band winners so they could run faster than the clearing process might suggest?
We have had general conversations, which give basically for us and our customers they know that they can access their gear on our sites, relatively quickly. So – and the parameters are in place to allow them to do that. So we are one of the shortest pole in the tent and not the longest pole in the tent, Ric. So, I mean, there’s just not a lot of need for that. I mean, we’re here and ready to go and they all know that.
Excellent. So last one for you and you might not have gotten this one before. I mean, we are getting questions about the new LEOs and RDOF auctions. Does that affect your customers at all, either new LEOs or fiber deeper?
Well, the – we had a fair amount of leasing that occurred from the last auction that went out to try and bring service to the rural areas. So we are hopeful that the RDOF will have similar impact, but when you mean – what do you mean by impact? I mean, it’s going to be generally, we believe, positive for incremental leasing.
Yes. Do you get the question on wireless operators maybe being impacted by LEOs, from the fiber going deeper into the network?
Well, I think it’s around the edges. It will not be material but they are doing it themselves.
Exactly. No, we just get that roughly a technology question. Thanks, guys. Stay well.
Thank you. We will now go to the line of David Guarino with Green Street. Please go ahead.
Thanks for the question, guys. I was wondering if you can talk about, in general, industry expectations for ‘21 non-FDIC-specific. And the reason I asked is one of your peers provided a guidance range for new leasing activity next year that’s essentially going to be flat versus here, which is somewhat disappointing. I thought that T-Mobile would then be returning. So I just wanted to get your take if that was a company-specific issue or reflective of maybe a broader industry trend for next year.
Well, they actually gave out guidance for next year, which we are not going to do. But, basically T-Mobile is going to be busy, we believe, and the real issue as to what will ultimately drive the financial results, as opposed to the activity levels, but the financial results, will be how early in the year Dish and the C-band work really starts to get going. And that’s about all we’re going to say about 2021.
Okay, fair enough. And then switching gears, maybe on the transaction market, I just wanted to get your thoughts on how that’s evolved since the start of the year. It certainly feels like there is more eyeballs looking at the tower sector relative to a lot of other property types. Have you seen that translated into higher prices for towers that are being paid, and maybe something that exceeds even what you guys are willing to pay for assets?
Well, it clearly has, which is why we will be expanding our portfolio by 5% which would be the first time in many years. There is a degree of interest in communications infrastructure, particularly towers, a lot of new players, and that has pushed pricing up to higher levels, levels such that we have taken a pass on a number of transactions.
Would that be something you guys could quantify possibly in terms of just how much higher multiples are on specific deals and what you are comfortable with?
No.
Nothing specific but...
No. I am not sure that’s productive for our ability to compete and for others’ ability to take notes and compete against us.
Fair enough. Thanks for the answers.
We will now go to the line of Walter Piecyk with LightShed. Please go ahead.
Thanks. I am getting feedback on this line, hold on. I just have to try and go through it. So you basically indicated that there was a – I can’t do this, you got to re-queue me in because I am getting too much feedback on my lines.
Mark will recap to you, Walt.
Alright, thanks.
Alright. We will go to the line of Brandon Nispel with KeyBanc Capital Markets. Please go ahead.
Okay, great. Thanks for taking the question. One for Jeff, one for Brendan, if I could, Jeff, you mentioned in your remarks fourth quarter you are going to be pretty close to your long-term AFFO per share guidance of $10, is there any interesting outlining longer term targets for investors at some point in the near future? And if so, what might that look like? And then, Brendan, you brought up the T-Mobile cancellations, when specifically would those start to go into the run-rate? And then as we think about churn for next year, you had a 2% level and you are not breaking out sort of a one-time churn, so maybe can you help us understand where you are from like a run rate churn perspective annually? Thanks.
Brandon, we feel pretty good about where things came out on that old $10 by ‘20 with the exception that the FX proved to be much more than the guide that we put out in 2016 anticipated. So we probably won’t be doing that on a multiple year basis based on that experience. But everything else actually was extremely close and in many respects, we beat it quite handily. Yes, we will think about maybe some sub-components of that for maybe longer-term guidance, but to get right down to the AFFO per share, I think there are parts of that particularly FX that might make that not such a great idea. Obviously, it’s not something we can control. Brendan?
Yes, Brandon. So on the churn, as it relates to the T-Mobile churn that I mentioned earlier, which is basically Sprint churn, what we have received notifications on, as I mentioned, is about $4 million, $4.5 million, maybe $5 million of impact. And that would be the impact pretty much for next year. Beyond that, we have not received any notifications. If we were to look at that and incorporate what might happen, we are still looking at a relatively small amount for next year, only about 7% of the revenue in total, which includes the amount of time, just mentioned from Sprint is at risk of churn for next year and that’s highly unlikely to be at that full amount. So we don’t expect – we will give you, obviously, more detail when we get to giving guidance next quarter. We will have a lot more information at that point, but that’s the impact of that. As it relates to the churn as a whole, from a run rate standpoint, we were at – from a domestic level, this quarter, we reported same tower churn of 2.2%. I mentioned earlier that about 0.3% or so of that is vestiges of natural leasing to Clearwire. So just under 2%, that’s probably about the range that we will see over the course of the next year. There is a variety of things in there. We have talked about in the past, on a couple of calls, a lot of miscellaneous items including some number on air stuff that some of our customers have cleaned up, some smaller customers that have modified some of their older technology and based on what we have seen already this year, its impact to next year should keep us somewhere in that 1.5% to 2% range on a normal basis and then we will see what happens with Sprint.
Great. Thank you.
Rich, we have time for one more call.
Thank you. We will go to the line of Spencer Kurn with New Street Research. Please go ahead.
Hi, guys. Thanks for squeezing me in here. I wanted to just revisit amendment pricing. Historically, I would only thought of higher frequency spectrum having smaller antennas, which would typically command the lower amendment rate, but at the same time, minor antennas, I have heard, are a lot bigger. So I would just want to get your thoughts on how amendment price daily is sort of trending as you see more minor antennas being deployed? Thank you.
Yes, I mean it’s trending higher, but not trending differently than it has historically based on changes in weight and size. So it has been basically logical in terms of the way it has progressed which is good because it’s expected and it’s consistent with at least the way we have conducted ourselves with our customers over time.
Got it. And just as a quick follow-up, as we have seen C-RAN being deployed and base stations being pulled into data centers, it doesn’t seem like we have seen a big impact on pricing of towers. But I was just curious of your thoughts on how big of an impact you have actually seen and whether that’s been sort of entirely offset by new antennas filling up on towers as the C-RAN transition has played out?
Yes, we have not really seen much impact at all and I really don’t think we will, because at the end of the day, we are a radio and antenna location business, that is where we got the – we provided the height and the location and the entitlements and whether the computer is there at the bottom of the tower or somewhere else, it doesn’t really matter as much as the ability to host the radio-only antennas.
Great. Thanks again.
So we want to thank everybody for joining us on this call and we look forward to our next call when we report our fourth quarter results. Thank you.
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