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Q1 Results Look Good for SBA Communications

SBA Communications reported that it had a “great start” to 2019 with strong carrier leasing and services results, and it increased expectations for the year, during its first quarter earnings call yesterday.

“Our first quarter was about as simple, straightforward and solid as we could have hoped for,” Jeffrey Stoops, president and CEO, said. “We exceeded our expectations across all financial metrics. We continued to see healthy operational leasing activity and our services business again had a strong quarter.”

Total revenues rose 7.6 percent year over year in the first quarter of 2019 to $493.3 million. Domestic cash site leasing revenue rose 6.7 percent to $361.2 million.

“Our customers rolled into the new year with the continued strong levels of activity we saw in the second half of 2018, and that level of activity continues,” Stoops said. “In the U.S., both our leasing and our services results in the first quarter were ahead of expectations, contributing to the increase in our full year Outlook.”

SBA anticipates increases in site leasing, both organic and inorganic during the rest of the year. Increases in organic growth will come from a higher concentration of amendments versus new leases. SBA has a healthy backlog in services business, but the full year services guidance anticipates a slowdown in the second half due to the Sprint/T-Mobile merger.

During the first quarter, SBA acquired 54 towers for 36.1 million and built 72 sites, mostly internationally. An additional 256 sites are planned to be purchased by the end of the third quarter for 123.9 million.

New Lease Revenue Grows at SBA Sites

By J. Sharpe Smith, Senior Editor

In a sign that carriers are adding coverage as well as capacity, new leases increased during 2018, almost catching up with amendments. In the fourth quarter 2018, SBA Communications’ new leases accounted for 47 percent of site revenue compared with 33 percent of revenue in the first and second quarters. Accordingly, amendment dropped to 53 percent of revenue from 66 percent of the revenue in the first half of the year.

Domestic leasing activity is being driven by new spectrum deployments, the rollout of FirstNet, and 5G preparations. The Big Four accounted for 84 percent of revenue for SBA, and Dish Network provide a “nice contribution” to revenue, according to Jeffrey Stoops, president and CEO.

“We exited the year with a solid domestic backlog, which we expect to provide us with a continued healthy level of new lease and amendment signings as we move into 2019, and earlier activity has been consistent with that,”  Stoops said during the SBA’s fourth quarter earnings call.

During the quarter, SBA purchased 79 sites at a cost of $28.5 million and built 169 sites. “We met our portfolio growth goals, growing the portfolio by 6 percent in 2018,” Stoops said.

SBA’s 2019 services guidance assumes that that the Sprint/T-Mobile merge receives approval and all Sprint activity ceases in the third quarter. However, the merger will not impact the company’s 2019 leasing outlook.

Total revenue in the fourth quarter of 2018 grew 9.2 percent to $483.8 million from $443.1 million year over year. Domestic cash site leasing revenue was $356.4 million in the fourth quarter of 2018 compared to $332.9 million in the year earlier period, an increase of 7.1 percent. Site leasing operating profit grew 8.5 percent year over year to $351.3 million.

Infrastructure Investors Driving up Value of Towers

By J. Sharpe Smith, Senior Editor

The marketplace for tower assets continues to be very competitive on a global as well as domestic basis, in part, because of the increased involvement of long-term investors, SBA Communications President and CEO Jeffrey Stoops said the recent earnings report. Investors, such as infrastructure funds pension funds, insurance companies and sovereign wealth funds, are attracted to industry’s with low competition and high barriers to entry, and they also invest for the long term.

“In the last 12 months, these funds have outbid strategic investors for a number of communications assets around the globe,” Stoops said. “Now why is that important? Because I know that the assets being purchased by these funds at much higher multiples are nearly of the same quality as ours.”

In an interview with AGL eDigest, separately, Tarpon Towers CEO Ron Bizick agreed with Stoops, saying towers are attractive to infrastructure funds, because they are stable, long-term businesses, with steady cash flows.

“It is not surprising that pension funds and infrastructure funds would gravitate toward that stability,” Bizick said. “They accept much different returns on their investments, compared with private equity. They can underwrite returns in the high single digits or low double digits, which is a far cry from the many of the traditional private equity funds in the United States.”

Infrastructure funds have enormous amounts of money, which they invest over a much longer period of time. Their deals can be written for less in annual returns.

MacQuarie Infrastructure and Real Assets, for example, has been investing in cell towers, along with bridges, roads and tunnels, among other things, for more than 20 years.

“We set out to offer investors a new kind of investment.  One with long-term horizons offering sustainable, predictable returns and low correlation to traditional asset classes: infrastructure,” the firm’s web site said. “Today we have an unrivalled track record in infrastructure asset management.  We take a responsible, long-term approach to building sustainable value throughout the investment cycle by investing wisely, managing with discipline and selling at the right time.”

4Q Site Leasing Rise Predicted for SBA

Zacks predicts fourth-quarter site leasing will come in at $443 million, up from $414 million in Q4 2017 when the SBA Communications releases its results after the closing bell today.

Site development revenues are also expected to top last year: $30.2 million compared with $29 million. Total revenues are projected to be $472 million, well over $443 million in the year-earlier quarter. The firm said those positive numbers have plenty of catalysts to continue in the future.

“SBA Communications is poised to benefit from strong customer activity both domestically and internationally, coupled with healthy backlogs with each of its big four U.S. customers. The company expects the positive momentum, backed by investment by these customers in their networks, to have resulted in new leases and amendment signings in the quarter,” Zacks wrote.

SBA Communications Sees Best Domestic Leasing Numbers Since 2014

Third quarter 2018 financial results for SBA Communications were ahead of its expectations with domestic cash site leasing revenue topping $350 million compared to $327.9 million in the year earlier period, an increase of 6.9 percent. Domestics site leasing profit rose 8.9 percent year over year, as well.

“Customer activity remained strong both domestically and internationally for SBA Communications in the third quarter, we executed new domestic leasing business at a rate which was well above the year ago period and the highest since 2014. That new business will certainly positively impact future financial results, said Jeffrey A. Stoops, President and CEO.

The Big 4 carriers all contributed to SBA’s growth, with newly signed up domestic leasing revenue coming from 60 percent amendments and 40 percent new leases. And the big four carriers represented 95% of total incremental domestic leasing revenue that was signed up during the quarter.

During the third quarter of 2018, SBA purchased 679 communication sites for $106.9 million. SBA also built 90 towers during the third quarter of 2018. As of September 30, SBA owned or operated 29,357 communication sites, 16,249 of which are located in the United States and its territories, and 13,108 of which are located internationally.

“Our domestic and international backlogs remain very healthy. We continued to allocate capital opportunistically to a mix of portfolio growth and stock repurchases, materially investing in both while staying within our target leverage range,” Stoops said. “We believe the combination of strong customer demand, operational excellence and disciplined yet opportunistic capital allocation will allow us to continue to drive shareholder value through growth in AFFO per share.”