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.”
Packet, a bare metal automation platform for developers, is collaborating with SBA Communications to create an edge data center operational model with direct wireless connectivity. The two companies have broken ground on the first Boston edge data center location at an SBA cell tower site in Foxborough, Massachusetts. Customer availability is expected by the end of 2018.
“We are excited to partner with Packet to bring the power of edge computing to our tower site in Foxborough, the first of what we expect will be many sites in our extensive portfolio to become distributed network connectivity points for emerging 5G and edge computing applications,” Clay Moran, director of strategy at SBA said.
Packet is expanding its edge computing presence with some 50 new sites under development. In a departure from the hyperscale cloud model, Packet is inviting physical and supply chain partners to participate in what is expected to be a highly disaggregated and rapidly expanding ecosystem.
“We view this initiative as one similar to what we are seeing from the other towercos, including CCI’s working relationship with Vapor IO (who is also working with other tower cos outside of CCI), and AMT’s goal of achieving 25% revenue from nonmacro sites,” wrote Jennifer Fritsche, senior analyst, Wells Fargo. “We continue to believe the “edge” theme is in its very early innings. In our view the towers are in a position to play a very significant role in this developing theme. The base of the tower is a logical place for a micro edge data center given the power and fiber to the location as well as the security in place. We look for more developments around this theme to come in 2019.”
The Boston edge location is the first of many planned site expansions in collaboration with SBA and other cell tower companies. In addition to offering its cloud services, Packet will also enable solutions for the 3.5 GHz CBRS band, while also offering a clear path for additional spectrum bands and the proliferation of 5G technologies and shared spectrum solutions.
“With our announcement today, we are delivering on our promise to reinvent the service provider model and deliver dynamic ‘one click’ cloud native infrastructure including wireless access,” said Ihab Tarazi, CTO at Packet. “Our customers will also have a clear path for IoT and Public Cloud integration providing high performance for their edge applications.”
Jeffrey Stoops was a partner with Gunster, Yoakley & Stewart, a Florida law firm, in 1996 when he met Steven E. Bernstein, whose company, SBA Communications, was a client of the firm. Bernstein was seeking legal advice after being approached by a blind public shell company that wanted to merge with SBA and give him a small payout.
“One day, I got a call,” Stoops said. “It was lunch time. I was at my desk working. It was SBA asking me if my law firm did any M&A (mergers and acquisitions) work. From that phone call, I met Steven Bernstein.”
Stoops ended up advising Bernstein against merging SBA with the shell company and instead to bring on investors. A partnership was born. “Steven really didn’t initially understand the value of SBA,” Stoops said. “I helped him see that value and avoid that deal. I think we all would agree that selling to the shell company would have been a big mistake.”
It was the beginning of the beginning. To understand the cell tower industry, it is important to go back to the time when the carriers still coveted control of their towers and few independent companies owned wireless infrastructure. Professionals like Stoops and Bernstein and others with SBA would eventually build a completely new sector of infrastructure landlords, which is now the multibillion-dollar wireless infrastructure industry. It is also story about a man who departs his position with a law firm to join a fledgling tower services company and leaves his personal and professional imprint on one of the three largest cell tower companies in the United States.
Making the Jump
Still working for the law firm, Stoops then began shepherding SBA through a round of $30 million in private equity financing, which saw immediate success. “It was uncanny, the reaction to SBA,” he said. “Some of the best investors in the country who looked at the opportunity immediately signed up.”
Before the round of funding was closed, Bernstein made Stoops an offer to join the company. Stoops decided to leave his comfortable position as a law firm partner to join the upstart firm as senior vice president and general counsel in March 1997.
“I have to say, another element of personal success is a comfort and ability to take risk,” Stoops said.
“Measured risk. What I like to call calculated risks. Certainly, leaving Gunster and joining SBA was one of those. When you look back in time, you have to agree that my timing was exquisite. And obviously, who could have known? I have to consider myself a very fortunate guy to have gotten into this business back when it was just getting off the ground.”
Stoops had been with the law firm for 13 years, working his way up from first-year associate to partner in the corporate, securities and mergers-and-acquisitions area of the firm. The move might have seemed strange to someone from the outside. But it wasn’t.
“I really did not dislike working in the law firm,” Stoops said. “In fact, I enjoyed it quite a bit. It was a very intellectually stimulating profession. But you’re always an advisor. You weren’t really the decision-maker. You weren’t the principal, and ultimately, the success or failure of the activity or the mission was not yours.”
Stoops wanted to be the principal. He wanted to be the person with the responsibility to bear the ramifications of a decision, right or wrong.
“Maybe from an early stage, rightly or wrongly, I was happy to be making decisions for others, whether they liked it or not,” he said. “Probably, one of my greatest skills has been my ease and ability to make decisions.”
A Change in Strategy
When Stoops joined SBA, it was the largest site acquisition, consulting and construction firm in the tower industry, but Bernstein was not confident the company was going to continue to grow long-term. In the mid-’90s, carriers had begun to relinquish control over their wireless infrastructure, however, and were open to selling their towers as they embarked on a massive buildout.
“The idea came up that we could use our existing skillsets and customer base to turn the company into an asset-ownership business,” said Stoops.
Stoops was perfectly positioned with his experience in securities and M&A to secure funding and execute purchases of tower portfolios, so he began leading SBA in the hunt to acquire towers, in addition to building them.
“Through purchasing small mom-and-pop companies, the company began to grow,” Stoops said. “We started learning how to be good tower owners and operators.”
SBA purchased its first 12 towers in upstate New York in June 1996. By 1998, it owned 150 towers. SBA also landed the first build-to-suit construction project in the industry with BellSouth, the predecessor of modern-day AT&T. “I had a chance to help create and shape this industry for Wall Street and for everybody else, because when I joined SBA, there was no book on the shelf that said here’s what you need to do. We got to make it all up as we went along.”
When the Bottom Dropped Out
SBA Communications went public in June 1999 at $9 a share and Stoops moved up to become chief financial officer. The stock rose to a high of $57 in 2000, but there was no playbook for what would happen the next year. After extensive speculation on internet companies created a bubble on Wall Street, the stock exchanges came crashing down, bringing SBA’s stock and the rest of market with it.
SBA found itself overleveraged at 15 times cash flow and hanging by a thread with a stock price of 19 cents a share in October 2002. There were five public tower companies at that time. Two of the tower companies, SpectraSite and Pinnacle Towers, had already declared bankruptcy. It looked as though SBA would join them.
Advisors told the tower company it, too, should declare bankruptcy, and it began going down that path. But Stoops, who had become CEO in January 2002, opposed it. “Where I grew up, bankruptcy was a dirty word and something to be avoided at all costs,” Stoops said. “People like Steven Bernstein would have been directly wiped out. No matter how the advisors tried to spin bankruptcy, it was not an OK thing to do.”
Stoops engineered a plan to sell towers and renegotiate with the banks. During the bankruptcy discussions, SBA, which had grown to 3,000 towers, decided to sell 800 towers to AAT Communications to pay off the credit facility that was causing the financial problem. The plan saved the company.
“That was quite a chapter in our history,” Stoops said. “It might be the one that I’m most proud of, because we did not go bankrupt, and our shareholders were saved from being wiped out. One of the things that I take a great pride in is the ability to cut through a lot of noise and advice that you get from all kinds of crazy sources and do what’s right.”
The lesson that Stoops learned through the event was the importance of the financing structure to the success of the tower company. Today, he keeps leverage at about 7.5 times cash flow.
The dot-com crash and the subsequent Great Recession in 2008 actually strengthened Stoops’ belief in the tower industry. Even as the markets tumbled and money dried up, the tower industry remained resilient. SBA’s tower leasing business continued to grow.
“Each of these crises were capital markets-driven events,” he said. “We’ve learned some and adjusted accordingly. In 2008, we restructured our debts so that we have a variety of markets that we now use to finance.”
Growth, Growth, Growth
After the dot-com crash, SBA began to grow again. In 2006, that growth went into high gear. Only three years after selling towers to AAT Communications, SBA bought those towers back, along with the rest of AAT. At the time, AAT was the fifth-largest tower owner. SBA bought it for $1 billion, thereby increasing its tower portfolio by 55 percent to 1,855 owned tower sites and 250 revenue-producing managed sites in 44 states. In 2012, SBA would more than double that number when it bought 3,252 towers from TowerCo and 2,300 towers from Mobilitie.
The management staff at SBA realized a number of years ago that the company would eventually reach a point where it wouldn’t be able to find opportunities to buy towers in the United States to continue to grow at the rate at which it was accustomed. Instead of expanding into related businesses, SBA decided to expand its tower business internationally.
An acquisition in Canada in 2009 marked the first time SBA had ventured beyond the U.S. border. Latin America was next, with a purchase in Panama in April 2010. The company then entered Costa Rica right after it opened up. It expanded substantially in Central America with more than 2,000 towers and, in Brazil, another 7,000 towers. SBA is now operating in 12 foreign countries, allowing it to continue its growth.
During its short history, SBA has had many growth milestones, beginning with its public stock offering in 1999, expanding internationally in 2009 and topping 10,000 towers in 2011. Today, seven years later, SBA owns and operates more than 27,000 towers across North, Central and South America. And it manages 5,000 communications site locations on behalf of third-party landlords. It became a real estate investment trust in 2016, and Standard & Poors added the company’s stock to its S&P 500 Index in 2017.
Big Company, Small Company
SBA looks like a big company from the outside because of its capitalization and assets. Actually it operates much like a small company, as evidenced by its flexibility and nimble decision-making. Stoops stays in close touch with the field without using committees. His leadership style is straightforward and transparent. He believes in being upfront with staff on the direction of the company.
“If you communicate well and you stick to your principles — we’re pretty big on principles here, with integrity being the most important principle — the leadership part just comes pretty naturally,” Stoops said.
And the direction of the company is pretty straightforward as well, focusing on towers and nothing else. “Sticking to my knitting” is not the type of high-tech metaphor one would expect from the head of a major wireless tower company, but it is one that Stoops happily uses to remind people that SBA focuses on its core competency in every business decision it makes. It has never wavered.
“SBA is the opposite of ‘mission creep,’ ” Stoops said. “We stay narrowly focused. And that takes work, believe it or not, because there are all kinds of people who want us to get involved in all kinds of different things. I spend most of my days saying ‘no.’ That actually serves us well because today we are the most highly valued public tower company in the world, and we got there because we didn’t jump down a bunch of rabbit holes.”
The keys to Stoops’ continued success are that he is committed and hardworking, along with being inquisitive and open to learning new things.
“Learning new things helps keep you from getting entrenched in old habits,” he said. “That’s something that I preach around here all the time because, given our success, it’s sometimes a little easy. I fear complacency. The fact that we have been so successful, it’s easy for folks to say, ‘Well, why change? It has obviously worked very well,’ and we all know that that’s not the right answer.”
Back in 1996, Stoops was the right person at the right time with the skillsets to help Steven Bernstein move SBA into tower ownership. Today, with Bernstein continuing serving as chairman, Stoops steers the company with a steady hand as it heads toward deployment of the fifth generation of cellular.
J. Sharpe Smith
J. Sharpe Smith joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: firstname.lastname@example.org.
SBA Communications’ organic leasing activity was at the highest level it has been in years in the first quarter 2018, and backlogs were also the highest they have been in several years.
“These activity levels should bode well for future financial results,” Jeffrey A. Stoops, president and CEO, said in a company press release. “We are off to a very solid start to 2018. Our first quarter financial results were strong across the board, and our operating margins continue to lead our industry.”
Site leasing operating profit was $337.7 million, an increase of 9.6 percent over the year earlier period. Site leasing contributed 98.5 percent of the company’s total operating profit in the first quarter of 2018. Domestic site leasing segment operating profit was $276.7 million, an increase of 8.2 percent over the year earlier period. International site leasing segment operating profit was $61.0 million, an increase of 16.3 percent over the year earlier period.
Organic site leasing growth of 6.6 percent this quarter (6.2 percent domestic) was modestly slower than 7.1 percent in Q4, according to Matthew Niknam, analyst, Deutsche Bank Research. The numbers were the result of slow activity from mid-late 2017.
“We think commentary implies a pick up in growth over the course of the year, and potential upside to later 2018 and 2019 estimates (with emphasis on the latter). SBAC noted 1Q US organic leasing activity ‘was at the highest level it has been in years”, and that “backlogs are also the highest they have been in several years,'” Niknam wrote.
During the first quarter of 2018, SBA purchased 334 communication sites for $106.7 million. SBA also built 67 towers during the first quarter of 2018. SBA owns or operates 28,309 communication sites, 16,018 of which are located in the United States and its territories, and 12,291 of which are located internationally.
SBA Communications reported site leasing growth of 4.9 percent in the fourth quarter 4th Quarter 2017 with $414.1 million in revenues. Domestic site leasing revenue accounted for $333.5 million and international site leasing revenue totaled $80.5 million.
“We ended the year with solid results and strong momentum as we move into 2018,” commented Jeffrey A. Stoops, president and CEO. “In 2017, we saw steady activity across all our markets and we executed well, with results exceeding our plan and initial guidance.”
As far as the outlook is concerned, all four major U.S. wireless carriers are expected to be active through 2018, and FirstNet activity is growing and has begun to produce revenue, Stoops noted. “We are optimistic that the anticipated improved organic leasing activity and continued opportunistic capital allocation will keep us on track to achieving our goal of $10 or more of AFFO per share in 2020,” he said.
Matthew Niknam, analyst, Deutsch Telecom Research, wrote that his firm maintains a positive outlook for the towers. “SBAC’s 4Q17 results showcase the industry’s optimism around increasing activity across all four national carriers. The biggest swing factors this year (and drivers of potential upside to guidance) are AT&T’s FirstNet deployment and Sprint’s accelerating capex (including a ~20% increase in macro sites over the next two years).”
SBA added 1,165 sites to its portfolio during the fourth quarter and met its portfolio growth goals for the year, growing by 6.5 percent. It expects to again achieve its portfolio growth goals of 5 percent to 10 percent in 2018.
“We have moved into 2018 with solid momentum and the opportunity to build on the momentum we have,” Stoops said. “We are off to a fast start in terms of portfolio growth.”