SBA Communications Corp

NASDAQ:SBAC

Earnings Call Analysis

SBA Earnings Weigh Affected by Legacy Churn

SBA reported solid Q3 results, with financial metrics exceeding expectations despite currency headwinds and forecasted a mid-single-digit U.S. growth excluding Sprint churn. Domestic churn was slightly lower than anticipated, while international same-tower cash leasing revenue growth was strong at 4.5%. Sprint-related churn is projected at $28 million in 2023 and approximately $30 million in 2024. The overall outlook points towards continued growth, driven by wireless data demands and international investments, despite macroeconomic challenges and the slow phase-out of legacy Sprint leases.

Executives Emphasize Prudent Capital Allocation

During the call, executives underlined their commitment to high-margin projects, albeit noting that margins over 30% might not be sustainably maintained. Capital allocation remains a core focus, with the company eyeing opportunities for using capital to maximize shareholder value. This includes deliberation on buybacks, new asset investments, or further debt reduction. Executives telegraph that the company is on a trajectory towards a robust balance sheet, with an anticipation to end 2024 at a lower or similar leverage level compared to the end of 2023.

Strategic Moves Toward Investment Grade and Debt Maturities

Management is actively preparing for approaching debt maturities in 2025, with a confident stance on the company's access to capital. Though refinancing costs have risen, access to capital markets remains unhindered. There's an evident natural shift towards achieving an investment-grade issuer status, dependent not solely on leverage reduction but also on internal policy adjustments. The company's conservative approach to capital deployment ahead of debt maturity conjures a clear picture of their cautious yet opportunistic capital management strategy.

Potential for Lower Domestic Churn

The executives discussed the potential to further reduce the domestic churn rate, which currently looms around 2% of revenues. The implication lies in the diminishing proportion of smaller customers and strengthened terms with major clients, positing future churn minimization. This hints at enhanced revenue stability and customer retention strategies augmenting the financial robustness of the company.

International Market Demonstrates Robust Demand

The company observed stronger than expected demand in the international market for new leasing revenue, largely driven by a substantial requirement for 4G and 5G expansion. Sustained high inflation rates in some markets have also sustained elevated growth rates. The company's build-to-suit program primarily flourishes internationally, with a prudent selection criteria based on expected returns and a bias towards securing additional tenants for new sites, suggesting a growth-oriented yet calculated international expansion plan.

Insight into the U.S. Tower Valuation and Secured Debt Market

Despite rising interest rates and some macro tower growth concerns, the U.S. tower asset valuation remains high due to continued demand from various investors with a mandate to deploy capital in digital infrastructure. The limited supply of U.S. tower assets further fuels this competitive landscape. Additionally, insights into the secured borrowing costs suggest mid- to high 6% rates in the ABS market, which could influence future refinancing decisions.

Backlog Trends and Future Outlook

Some short-term downtrends have been observed in unsigned lease application backlogs, correlating with a slower investment pace by carriers. However, the company remains attentive to how this will progress with new carrier budgets and industry dynamics in the coming year, implying an adaptive approach to fluctuating market conditions.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the SBA Third Quarter Results Conference Call.

[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.

[Mark DeRussy, executive]

Good evening, and thank you for joining us for SBA's Third Quarter 2023 Earnings Conference Call. Here with me today are Jeffrey 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 expectations. Our statements are as of today, November 2, and we have no obligation to update any forward-looking statement we may make.

In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.

With that, I will now turn it over to Brendan to discuss our third quarter results.

[Brendan Cavanagh, executive]

Thank you, Mark. Good evening. We had another very solid quarter in Q3, with financial results that were ahead of our expectations. Based on these results and our updated expectations for the fourth quarter, we have increased our full year 2023 outlook for site leasing revenue, tower cash flow, adjusted EBITDA, AFFO and AFFO per share, notwithstanding weaker forecasted foreign currency exchange rates than we had previously expected.

Total GAAP site leasing revenues for the third quarter were $637.5 million, and cash site leasing revenues were $630.4 million. Foreign exchange rates represented a headwind of approximately $1.4 million when compared with our previously forecasted FX rate estimates for the quarter, and a benefit of $4.8 million when compared to the third quarter of 2022.

Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis, was 4.7% net over the third quarter of 2022, including the impact of 4.1% of churn.

On a gross basis, same-tower recurring cash leasing revenue growth was 8.8%.

Domestic same-tower recurring cash leasing revenue growth over the third quarter of last year was 8.6% on a gross basis, and 4.7% on a net basis, including 3.9% of churn.

Domestic operational leasing activity or bookings representing new revenue placed under contract during the third quarter was up materially from the second quarter, primarily as a result of the AT&T master lease agreement signed in July.

Excluding the impact of the AT&T MLA, third quarter activity levels were similar to the second quarter. All major carriers remain active with their networks. However, agreement execution levels continue to be slower than a year ago.

The higher cost of capital naturally has caused a focus on cash management and expense control by our customers. This dynamic extends the timing over which 5G-related network investments are being made.

There is still a long way to go for 5G network investments based on the number of our sites that remain to be upgraded with mid-band spectrum deployments by the major mobile network operators.

Wireless data use continues to grow materially, and that fact, combined with the limited spectrum availability, will require additional infrastructure over time to maintain and certainly to enhance service quality. This gives us great confidence in continued domestic organic leasing growth for many years to come.

During the third quarter, domestic churn was slightly below our prior projections due to a slower pace of decommissioning of legacy Sprint leases than we had projected. Our overall expectations for Sprint related churn remain the same, but there will likely continue to be small variations in timing of realizing this churn over the next several years.

We currently expect Sprint related churn for 2023 to be $28 million. 2024 Sprint related churn is currently estimated to be approximately $30 million. Non-Sprint related domestic churn was in line with our prior projections and continues to range between 1% and 2% of our domestic leasing revenue.

Internationally, on a constant currency basis, third quarter same tower cash leasing revenue growth was 4.5% net, including 4.9% of churn or 9.4% on a gross basis.

International leasing activity remained strong in the third quarter and was again ahead of our internal expectations.

While global macroeconomic conditions present challenges to our carrier customers, we have continued to see pockets of dedicated network investment across a number of our markets. The desire and need for enhanced wireless coverage and quality of service continues to be elevated internationally, and we expect will continue to drive leasing opportunities across our portfolio.

Wireless data growth in our international markets is even greater than the U.S. We also continue to see steady contributions from inflation-based escalators in many of our markets.

In Brazil, our largest international market, the same-tower organic growth rate was 2.6% on a constant currency basis, including the impact of 6.3% of churn, which growth rate reflects a decline in the Brazilian inflationary index. The net growth rate was also again significantly impacted by our previously discussed TIM agreement.

As a reminder, our 2023 outlook does not include any churn assumptions related to the Oi consolidation other than that associated with the TAM agreement. However, we continue to discuss potential arrangements with other carriers related to the Oi consolidation that could have an impact on our current year international churn.

During the third quarter, 77.8% 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 16% of consolidated cash site leasing revenues during the quarter, and 12.9% of cash site leasing revenue, excluding revenues from pass-through expenses.

Tower cash flow for the third quarter was $511.7 million. Our tower cash flow margins remain very strong, with a third quarter domestic tower cash flow margin of 85.3%, and an international tower cash flow margin of 70%, or 91.5% excluding the impact of pass-through reimbursable expenses.

Adjusted EBITDA in the third quarter was $482.1 million. The adjusted EBITDA margin was 71.4% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 76.9%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter.

During the third quarter, our services business had another solid quarter, with $45.1 million in revenue, and $13.6 million of segment operating profit.

While off last year's all-time high activity levels, we continued to execute on our backlog of high-quality, high-margin work and deliver for our carrier customers.

However, given the slower pace of carrier network related activity across the industry, we have lowered our full year outlook for our site development business by $15 million at the midpoint.

Notwithstanding this adjustment, we continue to manage our costs and focus on high-margin work. And thus, we have not lowered our expected margin contributions to 2023 adjusted EBITDA and AFFO from our services business.

We still expect 2023 to be the second largest services revenue year in our history, trailing only 2022.

Adjusted funds from operations or AFFO in the third quarter was $364.1 million. AFFO per share was $3.34, an increase of 7.7% over the third quarter of 2022.

During the third quarter, we continued to invest in additions to our portfolio, acquiring 45 communication sites for total cash consideration of $40.8 million, and building 86 new sites.

Subsequent to quarter end, we have purchased or are under agreement to purchase 215 sites, all of which are in our existing markets for an aggregate price of $74 million. We anticipate closing on these sites under contract by the end of the second quarter of 2024.

In addition to new towers, we also continued to invest in the land under our sites. During the quarter, we spent an aggregate of $15.1 million to buy land and easements and to extend ground lease terms.

At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 70% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years.

Before I turn things over to Mark, I'd like to take a quick moment to welcome Marc Montagner, who joined our team in mid-October, and will be taking over as our new CFO on January 1. Marc brings with him an extensive background in telecommunications and finance, and we are very excited to have him as part of the team.

I also would be remiss if I did not take a moment to recognize that this call is Jeff's final earnings call as CEO of SBA. I have big shoes to fill, and I am grateful for the professional guidance and the friendship he has extended to me over the last 25 years.

And with that, I will now turn things over to Mark, who will provide an update on our balance sheet.

[Mark DeRussy, executive]

Thank you, Brendan. We ended the quarter with $12.6 billion of total debt, and $12.4 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 6.4x, 0.2 turns lower than last quarter, and the lowest level of decades.

Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense increased to 5.1x.

During and subsequent to quarter end, we repaid amounts under our revolving credit facility. And as of today, we have a $285 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 3.2 years. The current rate on our outstanding revolver balance is 6.5%. Including our interest rate hedging position, the interest rate on 95% of our current outstanding debt is fixed.

During and subsequent to the quarter, we repurchased 0.5 million shares of our common stock for $100 million at an average price per share of $197.89. We currently have $404.7 million of repurchase authorization remaining under our $1 billion stock repurchase plan.

The company's shares outstanding at September 30, 2023 were $108.1 million. In addition, during the quarter, we declared and paid a cash dividend of $92.1 million, or $0.85 per share. And today, we announced that our Board of Directors declared a fourth quarter dividend of $0.85 per share. It's payable on December 14, 2023, to our shareholders of record as of the close of business on November 16, 2023.

This dividend represents an increase of approximately 20% over the dividend paid in the year ago period, and only represents 26% -- 26% of our projected full year AFFO.

With that, I will now turn the call over to Jeff.

[Jeffrey Stoops, executive]

Thanks, Mark, and good evening, everyone. We continue to execute well in the third quarter. We produced financial results ahead of external and internal expectations, and we continue to be a valued partner to our carrier customers in helping them to meet their network objectives.

Each of our largest U.S. customers continue to add equipment to sites in support of 5G through the deployment of new spectrum bands as well as to expand coverage through brand new colocations.

Although current activity levels are below the pace of the last couple of years, we have continued to steadily organically grow our revenues and tower cash flow. Even in a slower than typical demand environment, wireless carriers still have a constant need to invest in expanding and enhancing their networks.

By leveraging our high-quality assets and providing them quality services support, we have been able to continue growing our business relationship with each of our major customers. In addition, we are confident there will be additional material network investment over the next several years as wireless data usage continues to grow materially. The growth in wireless demand is not slowing down, and networks will continue to be strained, and our customers still have significant mid-band spectrum holdings that need to be deployed with little additional spectrum plan for release anytime soon.

Macro tower sites are still the most efficient and effective way to deliver wireless connectivity, and our focus on high-quality portfolio will make us a key participant in network growth for many years to come.

Internationally, we also had another solid quarter with greater organic leasing activity than we had anticipated. We again experienced strong contributions broadly for many of our markets, including Central America, Brazil and South Africa.

Brazil, our largest market outside of the U.S., was again ahead of our internal expectations, and each of the big 3 carriers in that market remain busy, with coverage expansion, densification and integration of the legacy Oi wireless network.

Lease up across many of our Central American markets was also ahead of expectations, and evidence is the need of our customers to meet the constantly growing demand of wireless customers for wireless data in those markets.

I'm pleased with our operational execution internationally, and I'm optimistic for the future based on significant network needs across many of our markets.

During the third quarter, we again generated very healthy AFFO, providing strong dividend coverage and significant cash for discretionary allocation. During the quarter, we allocated capital to the dividend and new site additions through both acquisitions and new tower builds, selectively adding high-quality sites that we believe will be additive to our organic growth in future years.

We also spent $100 million on share repurchases at prices we believe represent a very good value and will produce a nice return over time.

We also continue paying down the outstanding balance on our revolver. We immediately benefit from this by reducing some of our highest rate cash interest obligations. The reduction in our outstanding debt, along with our continued solid growth in adjusted EBITDA produced a quarter ending net debt to adjusted EBITDA leverage ratio of 6.4x, which I believe is the lowest level ever in our public company history.

Even with continued portfolio growth, stock repurchases and growing dividends, we have reduced our leverage by almost 1 full turn in the last 18 months, demonstrating the deleveraging power of our business.

At this leverage level, we believe we have the near-term optionality to achieve an investment-grade rating. However, for the time being, we are maintaining flexibility in order to comfortably assess all capital allocation options.

Going forward, we expect to continue growing our dividend at a rate higher than the rate of growth of our AFFO over the next several years while maintaining a low AFFO payout ratio.

And for the time being, excess future cash flows will likely be directed into the repayment of debt, as it is the most accretive short term and is also beneficial long term. But we will, of course, also stay opportunistic around portfolio opportunities and additional stock buybacks.

Our balance sheet remains in great shape, with no debt maturities until October 2024, and we have the capacity to satisfy that repayment entirely with cash flow from operations or availability under our revolver.

We continue to have very good access to capital, and thus are comfortable to be opportunistic around the timing of future financings. Overall, we feel very good about our current capital position.

As Brendan mentioned earlier, this represents my final earnings call as CEO of SBA. I have participated in approximately 100 of these calls over the years. I have been honored to be the leader of this organization for the past 22 years, and appreciative of the time I have spent with many of you on this call.

Thank you for your support and goodwill throughout this very enjoyable ride. I will retire with the comfort and satisfaction of knowing SBA is a great company in great shape, and with the management team that I know will lead it to new heights.

I want to conclude by thanking our team members and our customers for their contributions to our shared success.

And with that, Eric, we are ready for questions.

[Operator]

[Operator Instructions] And our first question goes to John Atkin with RBC Capital Markets.

[Jonathan Atkin, analyst]

Jeff, I want to wish you all the best. And maybe a question for you, given your tenure in the industry. Your company and many of your peers have seen kind of a lot of changes. I think your company at one point was doing shared wireless backhaul. You've gone into data centers. You've evaluated things like outdoor DAS.

But anything about the sector as you see it on your way out of the company as an active observer, I imagine. But any kind of broad brush structural changes that you see affecting the tower model or anything ancillary to that, that we should be looking for as investors?

[Jeffrey Stoops, executive]

I would say, over my 25, 26 years, John, there's been a steady connection between growth in wireless demand and necessary infrastructure. And I think that really has its roots in the laws of physics in the way radio spectrum works.

We've seen cycles that have repeated themselves over time. The current cycle feels like it's going to be a bit more elongated than perhaps some of the prior cycles as I think our customers are demonstrating. Not that they didn't demonstrate fiscal prudence over the years, but it seems to be a particularly higher priority than racing to deploy spectrum, which they will own and deploy it when they need it.

But the basics haven't really changed that much. We haven't seen any technology that really will obsolete the basic power business model. We watch satellites and things like that, and we watch small cells. And the macro site really continues to be the backbone of wireless communications. And the conversations we have with our customers tell us that they expect macro sites to continue to be the backbone.

So I don't think -- I think there's always ups and downs and twists and turns. But directionally, it remains pretty much the way it was many years ago.

[Jonathan Atkin, analyst]

Great. That's great perspective. And thinking forward, over the next year or so. Brendan, I guess it would be directed towards you. But kind of the operating trends and the demand drivers, any sense as to kind of the cadence that one might see as the spectrum gets further deployed and the kind of the 5G journey continues on behalf of the MNOs?

[Brendan Cavanagh, executive]

Yes. I think, John, we'll see in the early part of heading into next year that things will probably be lower than they've been, but I would expect to see that increase over time. And I really based that answer mostly on the needs that our customers have. There's still quite a bit of spectrum that has to be deployed on our sites. . There are some deadlines out there for certain of our customers that they need to meet. And just based on conversations that we have with them, suggest that there's still a ton of work to be done.

But I think, as Jeff kind of alluded to, in the current moment in time, there's a little bit more of a focus on financial constraints and cost control. But I think that naturally will start to give way to network needs as mobile and wireless data consumption increases. So I would expect that we'll see it start to move up as we get into the middle of next year.

[Jonathan Atkin, analyst]

All the best, Jeff.

[Operator]

Our next question goes to Rick Prentiss with Raymond James.

[Ric Prentiss, analyst]

Jeff, I think I've been on 96 of those 100 earnings calls with you. So I'll echo Jonathan's comments. And have fun with the grandkids and your charity work I know you're so active with.

[Jeffrey Stoops, executive]

Well, thank you, Rick. We had a good run together.

[Ric Prentiss, analyst]

Yes. I want to come to a couple of items. The dividend policy. I appreciate the comments on that, dividend rate over the growth rate of AFFO.

Some of the others in the space are looking at the dividend policy, should it be tied more towards the qualified REIT subsidiary, kind of minimum that you have to do versus total AFFO. How should we think about you all looking at kind of the dividend versus qualified REIT subsidiary versus total AFFO, and as you think about the payout ratio over time?

[Brendan Cavanagh, executive]

Yes. We're fortunate to be in the position that we're in, where we actually still have fairly sizable NOLs, which gives us some flexibility there, Rick.

But as -- you kind of look at it as, you produce a certain amount of taxable income, and we satisfy it through a mix of using NOLs and paying out dividends and in order to maintain our REIT compliance.

And so by starting when we did, it has allowed us to continue to grow our dividend at a pace that I think is fairly high across most REITs, and will allow us to continue to do that to some degree, it's certainly at a pace greater than the AFFO per share growth. Until we reach a point at which we will have exhausted those NOLs, and at that point, I would expect we'll pay a dividend that is -- whatever is necessary to comply with our REIT requirements.

So that's kind of the way we look at it. What that means, based on our projections is that we'll continue to have nice growth in our dividend over the coming years. And we'll be able to keep our payout ratio as a percentage of AFFO fairly low, which gives us a lot of flexibility on other discretionary uses for that capital.

[Jeffrey Stoops, executive]

Yes. I think, Rick, the reason we haven't broken out total AFFO versus just AFFO from requalifying income that dividend is calculated, is we're not close to any of those levels.

I mean, I think our philosophy will never change, which is we're only going to pay out what we have to on that calculation. And it also kind of confuses people if we introduced another metric. It's just, I think, easier for people to understand and think about when we're using AFFO.

But we have a long way to go before we get to the point where we've exhausted our NOLs. And that gives us the ability to increase dividends faster than perhaps others.

But at the same time, we're watching the total payout as a percentage of AFFO. And we're going to be able to do both, keep a lower relative payout ratio and increase the dividend at a faster pace for the next several years.

[Ric Prentiss, analyst]

Makes sense. You mentioned that you think, possibly, the levels you're at lowest, decades, if not, ever publicly in the mid-6% range.

How should we think about what investment grade means to you, if you were to pursue it? What kind of level -- you've always been kind of a levered capital appreciation story. But obviously, the interest rate environment we're in has caused people to always look through things.

But how should we think about your view on leverage and interest rates? And then that calculus that allowed you to do stock buyback this quarter?

[Brendan Cavanagh, executive]

Yes. So as you alluded to, obviously, the broader environment, in terms of rates and cost of capital, is certainly influencing the trajectory of our leverage levels lately. And really, it's a combination of a couple of things. It's the overall cost, but it's also the relationship to the opportunities in front of us in terms of investing capital and what we see as the potential return on those items. And we haven't seen an appropriate adjustment, I guess, in the price points for some of that investment relative to the shift in the cost of capital.

And so as a result, the best use of the cost of capital, most of the time, is to pay off some of our debt. And as you know, we had balances outstanding on our revolver. And so it's easy for us to just pay that down as the use of capital, and given that it's floating rate, it's some of our highest cost debt.

So we will continue to do that. But at the same time, we're going to look to be opportunistic around opportunities to invest that capital, and the stock buybacks are representative of that. We started to see our stock trading down to levels where we just felt that it was an appropriate time to jump in, and it would be certainly accretive to us. Both in the short term and over the long term, we would expect to invest a little bit of capital into the buyback.

So I think, as we think forward, longer term, we haven't necessarily targeted being investment grade, but the leverage has continued to drop. And that's one of the great things about this business, you continue to grow EBITDA, and it naturally -- as we produce a lot of free cash flow, you naturally start to delever quickly. And so we're approaching those levels now where we certainly could move towards investment grade.

But as we mentioned in our scripted comments, we are going to maintain that flexibility for the time being and see how things go. And if we decide that, that's a better way to go in terms of improving our cost of capital, then we have that optionality to do it. And if not, and there's other places to invest that we think are going to produce greater returns for our shareholders, we'll go that direction.

[Ric Prentiss, analyst]

Great. One quick one on my end. I think you mentioned Sprint share now expected to be $30 million in '24. Has that previously been thought it was going to be kind of in the double digit, maybe $10 million to $15 million? And [indiscernible] can you kind of update on what you think of '25, '26, '27 Sprint [indiscernible]?

[Brendan Cavanagh, executive]

Yes. I think last quarter, we gave you a range that was around $20 million to $30 million. And so by saying $30 million now, we're seeing it a little bit lower here as we end this year. But the total is still the same. When we originally were giving guidance, we expected to see a little bit more in '25 and '26. And now we're thinking '25 is probably a little bit lower.

So again, the total number is going to be basically the same, Rick. It's just trying to pinpoint exactly the timing from year-to-year is -- it's been a little bit challenging to do with that kind of precision. But I think we've been pretty close.

[Ric Prentiss, analyst]

Right. Okay. Again, best wishes, Jeff and Marc. Look forward to hearing Marc with the CFO. Look forward to hearing from you next quarter.

[Operator]

Our next question comes from Simon Flannery with Morgan Stanley.

[Simon Flannery, analyst]

And Jeff, also my best, will miss you on these calls and your insights on the industry.

A couple of things. You talked a lot about the demand being subdued, given the financial conditions in the market. To what extent are things like the FCC not having the spectrum authority to release some spectrum, the dual-band radio issue. Do you think any of those might get solved here in the near term that might be holding back some spending, or even just a turn off the calendar from year-end '23 and to '24?

And then you did some M&A in the quarter. It would be great just to get some broader thoughts on the M&A environment. I think we've heard in the past, just a big difference between public and private multiples, but it'd be great to get any color on what you were able to find in the market and what you see out there today.

[Jeffrey Stoops, executive]

Yes. I think the FCC spectrum authority issue has to be resolved here soon. At the same time, the FCC has lost their spectrum authority. The White House and other governmental agencies are trying to plot and figure out long-term spectrum availability. So -- and everybody knows it needs to get done, and it will.

And I believe, by the time it has been done or will be done, Simon, the dual-band 3.45 and C-band equipment will be ready to go. So that's absolutely something that we think will contribute to next year's leasing.

But there's a lot of spectrum still, and we think about things as a percentage of completion or deployment of certain spectrum bands on our towers. There's just a lot left to go. And I think it just shows that our customers are being fiscally prudent and waiting and looking for the right return results before they deploy.

But ultimately, they have to deploy, unless the connection between growth in wireless data and the need for physical infrastructure has somehow changed, and that hasn't changed since the beginning of wireless.

I'll let Brendan handle your M&A question.

[Brendan Cavanagh, executive]

Yes. So on the M&A environment, we continue to see a very competitive environment. Notwithstanding where public valuations have gone, private valuations continue to remain elevated. And to the comments that I made earlier, that's obviously influence where we've directed some of our capital. .

So in the U.S., in particular, pricing is staying high. And even internationally, we're seeing that to some degree. Although I would say, internationally, there's perhaps been less in the market. There's still a ton out there of potential supply, but I think that sellers are being a little more cautious in their timing of bringing things to market.

[Operator]

And our next question goes to Batya Levi with UBS.

[Batya Levi, analyst]

Jeff, I wish you all the best as well.

I had a question on the leasing growth activity. You mentioned that it has been slowing down. Can you provide some sense if it has slowed down even more than what you had expected a few months ago?

And the AT&T MLA is providing some visibility when the activity is coming down. Can you provide some color, maybe if you're -- if there is appetite from your other tenants to replicate similar deals and how you would approach them?

[Brendan Cavanagh, executive]

The leasing growth, I wouldn't say that it's really all that different than what we thought 3 months ago when we talked about it. It's perhaps slower than what we thought at the beginning of the year than we were originally thinking how this year would play out.

But what we described last quarter, it's staying pretty much in line with that expectation that we laid out. And you could see that even in the guidance that we gave, where we didn't make any changes there.

On the AT&T MLA and it's -- the potential for that with others. We have master agreements in place with other carriers. The form of those agreements can vary among the carriers, but it's really dependent upon the needs of that specific customer, and what works best for them and for us and creates the best win-win situation given what they're trying to accomplish in that particular negotiation.

So I would say that we are certainly open to agreements with others over time as they're needed, and we have those conversations all the time. Exactly how they're structured may very, well, vary, though, depending on the carriers' needs.

[Batya Levi, analyst]

Got it. And one quick follow-up. I think you mentioned that the activity on putting 5G equipment on towers is still pretty low. Roughly 1% of your towers have seen that deployment.

[Brendan Cavanagh, executive]

Using the 5G-related spectrum, it's approximately 50%.

[Operator]

And our next question comes from Michael Rollins with Citi.

[Michael Rollins, analyst]

And Jeff, I also want to extend my thanks and best wishes as you move on to your next chapter.

Just curious -- and just curious, as we shift over to maybe the international side for a few more minutes. Have you thought about alternative ways to structure those operations? Or is there a need, at some level, to adjust the market structure of what you have over time to create greater scale or find some ancillary opportunities for growth in those markets where they may not be structured similar to the U.S.?

[Brendan Cavanagh, executive]

Yes. I don't -- I don't know if it's necessarily structure. I would agree with your reference to scale, that in markets where we have scale, we've seen the benefits of that in our relationships with the carrier customers in those markets, and our ability to be more impactful in their projects for build-outs that they have. So scale is something that we're definitely paying attention to within these markets.

And then in terms of other things that we might add, in some of these places, there are opportunities to provide incremental services that are somehow related or associated with what we currently do that add sort of an extra level of value that we're able to provide. It generates additional revenue streams, but it also kind of strengthens that relationship for a longer period of time.

So we're exploring that. We're doing some things around C-RAN hubs, some things around power, some things around security in certain of our markets. And we'll continue to explore those opportunities.

[Michael Rollins, analyst]

And just one other question. In past moments where there's been some uncertainty, whether it's in the operating environment or financial environment, the company has provided a north star in terms of a metric or a guide or an aspiration that you were targeting.

And just given some of the questions on leasing activity and what it might mean for growth rates over the next few years, is there a range or an average domestic organic growth rate that SBA is targeting, aspiring to that would be helpful for investors to be mindful of?

[Brendan Cavanagh, executive]

No, there's not a specific target. I think, excluding Sprint churn, I would expect that we'll be able to produce mid-single digits growth rate in the U.S. But at this point, we're not comfortable to lay out a long-term target. .

And some of that, Mike, just to be clear, it's -- there are a lot of factors that really aren't about wireless needs. If it was just about what do our customers need to do in terms of their network deployments, we perhaps would be able to do that a little bit more comfortably. I think some of these factors around cost of capital and other things that may affect timing of when our customers are spending influence that. So that just leads us to be a little bit more cautious in kind of naming specific targets.

[Operator]

And our next question comes from Nick Del Deo with MoffettNathanson.

[Nicholas Del Deo, analyst]

Jeff, first of all, I just want to echo others' comments, and thank you for all the time you spent with us, and all the insights you shared with us over the years. I really appreciate that.

You -- Jeff, you emphasized in your comments that the carriers will need to invest to support traffic growth over time, just like they always have. I don't think many people dispute that.

I guess, is there any reason to think that they have more capacity runway today than they have typically had over the years, given the amount of 5G spectrum they've rolled out? Or do you not believe that's the case?

[Jeffrey Stoops, executive]

I do believe that there's a lot of spectrum out there, which is why now all of the 3 largest carriers have now all, or either have, or are beginning to deploy fixed wireless. Don't know that, that technology's been available in the last generation, it would have worked out.

I mean, just on that point, from some things that I've read, the fixed wireless subscriber takes up 20x to 30x the wireless -- the spectrum capacity.

So I mean, it's statistics like that, Nick, that give us great confidence that over time, the connection that's existed forever, at least as long as I've been around, the connection between wireless data growth and the need for additional physical infrastructure is going to continue.

But yes, I mean there's a lot of spectrum out there now, but it's rapidly getting used up. And it's going to continue to rapidly get used up the more success that the customers have with fixed wireless.

[Nicholas Del Deo, analyst]

Okay. Okay. And then I also thought it was interesting that you lowered your site development revenue forecast, but you left the bottom line contribution unchanged, which implies a pretty -- a not insignificant bump in your expected margin.

So I guess, can you talk about what's behind that dynamic and how sustainable it might be as we look into the coming year?

[Brendan Cavanagh, executive]

Yes. I don't -- I think, Nick, it does speak to the higher-margin type work that we're doing. I'm not sure that it's sustainable at that same level that we are experiencing right at the moment. Some of that is really tied to an estimate of costs as we put these jobs on the books, and we're ending up actually finding ways to operate more efficiently and come in at lower cost levels. And then as you kind of [indiscernible] up those jobs, since they're accounted for on a percentage of completion basis, that helps.

But I think, it just is evidence of our intent to focus on high-quality, high-margin work. And we'll continue to do that. But I don't know that 30% margins are the story for the long term.

[Operator]

And next, we'll hear from Eric Luebchow with Wells Fargo.

[Eric Luebchow, analyst]

I just wanted to echo best wishes for Jeff and retirement.

Brendan, I just wanted to get your latest thoughts on how you kind of prepare the balance sheet for the debt maturity staff that's coming due in a more material way in 2025. I know you don't have to make a decision on that today, whether you'll pursue investment grade. But just how might that impact your capital allocation policy into 2024 as you kind of look at the puts and takes of buybacks, M&A or further deleveraging with excess cash?

[Brendan Cavanagh, executive]

Yes. Well, first of all, I think that we have tremendous access to capital. So from a refinancing perspective, I'm not concerned about that. We're actively evaluating all of our options there. And I'm confident that there are numerous markets available to us. Obviously, the costs are higher than they've been in the past. But in terms of access to capital, so that -- that part of it doesn't concern me. I think, when we think about allocation of capital, though, it really is just a matter of what is the best return on investment, what is going to create the most shareholder value. So that sounds simplistic. But ultimately, that's what we're looking at.

And so if we can use our capital, and maybe our leverage goes a little bit higher, which it's been in the past, certainly, because we see opportunities to invest that capital into either buybacks or new assets, we'll do that. We'd like to do that.

But recently, we found that paying down debt has been the better way to go. And at some point, we'll be at a level where it's just going to be a natural shift. If that doesn't change, will be the natural shift to investment grade. And then it's just a matter of finding the right instruments that fit our capital structure to allow us to retain flexibility, but also get the best cost possible.

[Jeffrey Stoops, executive]

Yes. I think said differently, if we continue to operate the way we have the last couple of quarters, we naturally will have the optionality of being an investment-grade issuer. That really, for us, is not so much more a matter of material leverage reduction as it is commitments and policy changes and things like that.

We would, of course, before we materially increase leverage for allocation of capital, we would think long and hard about whether that was the right thing to do in advance of 2025. But it kind of is on a path. And Eric, we think, as we look around the world, look at portfolio pricing and things like that, it's very likely that we end 2024 at a lower leverage level, or certainly not a higher leverage level, than where we end 2023.

[Eric Luebchow, analyst]

Okay. I appreciate that color. And just one follow-up question. Just quickly on domestic churn. I think, excluding the Sprint churn, you'll be at about $30 million this year, maybe around 2% of your revenues. And it's been in that ballpark for the last couple of years.

As you look further out over the next few years, are there opportunities to bring that run rate churn level lower? We've heard from some peers about some of their run rate tower churn moving closer to 1% of revenue.

[Brendan Cavanagh, executive]

Yes. I do think, Eric, there's definitely opportunities to bring it lower. For one, a big chunk of that is due to kind of smaller customers that frankly, as you start to have less and less of them or they are less of a percentage of our business, obviously, there's less opportunity or supply for that churn.

And then with our agreements with some of our bigger customers, I would expect that any churn that's come from them will be significantly reduced as well.

[Operator]

Next, we'll hear from Brendan Lynch with Barclays.

[Brendan Lynch, analyst]

Jeff, want to echo everyone's congratulations as well.

Maybe we could just start with the international market. You kind of described demand being above your internal expectations. And a component of that, I believe you mentioned, was the escalators. But if I understand correctly, those are more backward looking. So I'd imagine that you have pretty good visibility on that for the year.

So maybe you could just get into some of the other drivers that are driving the international exposure and international profitability higher than what you had been expecting?

[Brendan Cavanagh, executive]

Yes. The above expectations comment was specifically associated with new leasing revenue signed up through new leases and amendments. And that was -- we kind of obviously target based on backlog, and what our market intelligence is telling us what we think those numbers are going to look like in each market. And on average, across our international business, we were successful in signing up more new business than -- from a dollar standpoint than we originally expected. So that's that comment.

And I think it's driven really just by the significant needs that certain of our customers have across our markets for all the basic things that we talked about before, continued expansion of both 4G and even a little bit of 5G coverage. The coverage that exists in these markets is not nearly where it is in the U.S., so there's much greater needs in some cases.

And so we're seeing that play out in a number of our markets. The escalator piece is not really a part of that. That varies and just moves based on where inflation is, and in certain of our markets, inflation was -- has been a little bit higher. So that's helped the growth rates stay elevated.

[Brendan Lynch, analyst]

Great. That's helpful. And maybe just one on the build-to-suit program. You had some more activity there in the quarter. Maybe just give us an update on where you see those opportunities over the next couple of quarters?

[Brendan Cavanagh, executive]

Yes. I think there's -- most of that is being done internationally, first of all. I'm sure you see that in our release. And that will probably continue to be the case.

There's definitely opportunities for new builds, for the same reasons as I just mentioned. In responding to the previous question, there's just a lot of coverage needs that exist in these markets.

The real question for us is just making sure that we're doing -- we're making worthwhile investments, given the cost of capital that's increased, that we're building sites, that we're confident are going to make a nice return, and that usually requires the addition of a second tenant at some point over the next several years after you build the site.

So we're pretty diligent in kind of watching those sites. I think opportunities exist. But we're going to be selective about where we build sites.

[Operator]

Our next question comes from David Guarino with Green Street.

[David Guarino, analyst]

Brendan, I think this one will be for you. On the comment you made about U.S. tower validation staying high. Could you provide some more color on why you think that is? And I asked just because I guess I'm surprised, given we've had a pretty meaningful rise in interest rates over the last few months. While at the same time, we've had some concerns about lower macro tower growth that have emerged. So any additional color would be great.

[Brendan Cavanagh, executive]

Yes. I think you've got a lot of different parties out there that have demands or their -- their mission is to invest in digital infrastructure. And they have capital that's already been raised that needs to get deployed. And so I think that has -- that plays a role in it.

The supply, frankly, in the U.S. is somewhat limited, so there's still some competitive tension that exists there among many different parties that are investing.

So that's really a driver. And so if you've got different return expectations, and you've got different views on what the growth profile of assets look like, you may be able to make a decision that's different than we're seeing the public companies, including SBA, make.

[David Guarino, analyst]

Okay. That's helpful. And the second one, maybe sticking with you. I'm guessing next year, you guys are going to be accessing the secured market to refinance some debt. And I know that, that's still a few quarters away.

But could you maybe give us an idea of where secured borrowing costs sit today for tower assets?

[Brendan Cavanagh, executive]

Yes. I mean it depends on what market you're in. If you're talking about the ABS market, which has been our primary source of secured financing today, you'd be somewhere in the mid- to high 6s, would likely be where we play out.

[Operator]

And our next question comes from Brandon Nispel with KeyBanc Capital Markets.

[Brandon Nispel, analyst]

Just one for me. And hopefully, it haven't been asked. But Jeff, hope you could talk about what you're seeing during the quarter, more specifically from an activity [indiscernible] perspective. Specifically, I was hoping you could help us understand where you are from a year-over-year perspective, from a backlog of unsigned lease applications, and how that trended versus last quarter?

[Brendan Cavanagh, executive]

Yes, Brandon, we've -- our backlogs are a little bit lower than they've been in the past. That -- it probably shouldn't be a surprise, given the carriers' investment levels have been little bit slower as we've talked about. And obviously, executions have been down. The backlogs have trended the same general direction.

But it will be interesting to see how that plays out as we get into next year, as the carriers have new budgets in place and so forth. So for now, though, it's definitely trended down.

[Operator]

And we have no further questions at this time.

[Jeffrey Stoops, executive]

Well, I usually sign off. But I'm going to let Brendan sign off.

[Brendan Cavanagh, executive]

Well, thank you all for joining us. We appreciate it. And thank you, Jeff, again, for all of your years. Appreciate it.

[Jeffrey Stoops, executive]

It's been an honor and a privilege. And I'm not able to say, as I have in my last 100, that we -- that I look forward to talking to you next quarter. But you're in good hands.

[Brendan Cavanagh, executive]

Thanks, everyone.

[Operator]

That does conclude our conference for today. Thank you for your participation. You may now disconnect.