SBA Communications Corporation (SBAC) Earnings Call Transcript & Summary

Well, there's a couple of questions there. First, I think there might be a bit of a misunderstanding. We actually have an MLA with T-Mobile today that covers all the work that we're doing and is being done, and we recently amended it post-merger to tweak a few things. So we're kind of full speed ahead, and there's really no need to do much else. So obviously, we're not against them, not all of them anyway. But in terms of our dividend policy and the comfort that you would get from an agreement that goes out many, many, many years, it is something to consider, but you also -- I mean you weigh -- it's just like anything else in our business, Jonathan. You would weigh that against the assessment of your own assets, the confidence or comfort that you would have in the future of what attractiveness those assets will have in terms of bringing additional growth and the needs of our customers to continue to come back and work on those assets. So I mean there's -- I'm not sure there's a right or wrong answer. It really does get down to the finer point of what folks are willing to agree to. But I would say, given where we started on our work with them at a very low percentage of AFFO payout ratio, we can materially increase our dividend every year for the foreseeable future with or without an MLA.

So audience question. Noted that T would expect growth to pick up from DISH, C-band and T-Mobile amendments, should net leasing also accelerate? Or does that churning at Sprint sites somewhat mute this?

Well, it was certainly somewhat muted. And the question is, what is the ultimate net put and take. The big driver, the big change from a year ago as you look kind of year-over-year, will be the coming back to market of T-Mobile. And they're busy and they are gaining in terms of their levels of activity. A year from now, we would expect them to continue to be very, very busy, perhaps at an even higher rate and you will also now have -- we would expect DISH and Verizon and perhaps others. Verizon, I only suggest because they've been so publicly vocal about their interest in the C-band. And then all through this period of time, T-Mobile will be decommissioning Sprint sites every year a little bit as they come up on their renewal periods. Our average renewal term is 5 or 6 years. But remember, that's spread out probably over 10 years, where every single year, there are some that have renewal dates. So it will all kind of work in a -- one will work to the positive against the churn. But net-net, a year from now, we would expect our growth rate to probably be higher -- well, not probably, to be higher than it is today, particularly the way we calculate it, which is on a trailing 12-month basis off of revenue.

Right. 2 more questions came in on that topic. Would also be interested in timing of commenced revenue from T-Mobile for them and whether that's first half '21 or second half '21.

Well, commenced revenue is going to be a function of the document that we sign that comes out of the activity, and that's going to either be a new lease or a new amendment to an existing lease. Revenue recognition on amendments comes a lot quicker. Sometimes it starts on the day the amendment is signed. And it never lags the date that the equipment is installed and those installs generally go much quicker, and that's the primary focus. So we are doing business today that some of which starts revenue recognition today. More of it will start in Q4 and even more of it will start in -- after the turn of the calendar. It's a function of really what we're signing up and what we negotiate. Some of our customers, and of course, we work with them on these requests, they'll say, well, hey, I'm kind of -- I really want to do this now, get it done. We've got the planning, and we need to move our planning people along. But I don't have the budget until 2 months from now. So can we sign all this stuff up and then commence revenue in 2 months for the right relationship and the right deal, we say, of course. So I mean, that's how this works. When you sign up the agreement, it generally takes a little bit of time which depends on what actually you've signed up before that revenue actually starts to hit and then recur for your financial statements. But this is nothing new. This is the way this industry has worked ever since we started it.

Right. I think this will be the last U.S. question, and then we'll move on to other topics. Would be very interested on their expectations for Sprint churn over the next couple of years if the 6% of revenues from overlapping sites is enough? Or is it closer to SBA's total Sprint revenue exposure 12% of revenues?

Well, I would -- I would have -- I would -- this will be a guess, but I -- just based on how the bell curve of leases is structured in terms of renewal dates, it would certainly be on the low end. And I don't even think -- I think the 6% might actually be too high.

Very interesting. Okay. So let's maybe move on to some international topics. You've had a -- I guess, maybe one way to start is Brazil. You have an overall portfolio growth goal company-wide of 5% to 10%. Most of that has come from international. And as we think about Brazil, whether it has been kind of ongoing M&A for a while. What are you -- what is kind of your view of buyer and seller expectations for tower assets in Brazil should they come up for sale?

Well, much like anywhere else in the world, I think there are still a bit of a gap between buyers and sellers. There is a strong interest in communications, infrastructure, assets and a lot of money chasing that. Now some of it is justified. We find the biggest disappointment or the biggest area of concern and to be wary of is where high multiples seem to be uniformly thought to apply to any type of tower or any type of asset, and that's certainly we know is not the case. So you really have to pick and choose. There are good opportunities out there, which we really focus hard to find and execute on but not all assets are created equal and particularly at some of the multiples that we're seeing today, you really have to understand that and focus on that.

And then as you think about this year's guidance for international, your internal expectations for Brazil and South Africa, specifically, what are sort of the underlying assumptions that you're making around carrier activity and the industry structure, particularly in Brazil?

We definitely have, in our last guidance, when we addressed it in Q2, we put a little bit of a slight cushion in there for Brazil, in particular, and Latin America and South Africa, in general, but more so in Brazil, a little bit of the COVID factor. I mean, these markets have been hit in terms of the impact on their economy. And just the day-to-day life, much more so than we have in the U.S. So we've taken that a little bit into account. I think that has been very widely reported and very easily seen in some of the reports from around the world. We are pretty pleased, though, to see the latest round of carrier reports out of Brazil in Q2. It looks like things have improved. It feels like things continue to improve from an activity perspective. So perhaps that transition from late Q1 to early Q2 was the bottom as we kind of first had to wrestle with the whole COVID thing.

So inflation has been declining and you've had historically some unique downside protection because of the inflation floors on some of the Oi assets, I believe. Can you remind us how much of your Brazil portfolio still has inflation floors? And what are the remaining terms on those?

It's about 25%. And I think we have about another 2.5 years to go.

Thoughts on South Africa and growth outside the Western Hemisphere. What are you seeing in the South African business, thoughts on this.

South Africa has been really just a wonderful new market for us. It's new in the sense that we publicly disclosed it as a consolidated investment, but it was an investment that we had really for 4 years before we did that. And in getting to know the country, it's dynamic, it's growing. It's behind Brazil in terms of this level of wireless deployment and where it needs to go. So its growth rates are going to be just because of the baseline, much higher off similar levels of activity for quite a bit longer. Demographics are good. They have been hit hard by COVID. They took a different response than most of Latin America. They took a very strict lockdown approach in South Africa, which, while it helped stem the spread of the virus, did some economic damage. So there was a trade-off there. But they'll come out of that. They'll come out of that. And there's just a good -- I mean, there's so much that South Africa has going forward as kind of the gateway to the rest of Africa. It happens to be the point where many of the undersea cables come in and then it becomes kind of the fiber starting point for the rest of the continent. So we're just happy to be there and think that growth is going to continue. And even with all of the difficulties that the coronavirus has presented this year, we've had a pretty good year in South Africa. And keep in mind that a lot of what we're talking about whether it's Brazil or South Africa, you're talking about results that more so than any operational issue have been impacted by FX. And when you go back and you look at this year, you saw a flight to the U.S. dollar with the coronavirus, you saw the Fed step in and take actions, which further made a flight to the U.S. dollar from some of these countries, even more pronounced. So when all this starts to reverse itself, you're going to see a number of these headwinds that we've experienced this year turn into tailwinds, and you're really going to see some of the just basic operating growth rates that we've enjoyed in these countries be able to speak for themselves.

So one last question came in from the audience on U.S. leasing and getting kind of away from guidance, but just kind of qualitative thoughts about the, call it, the medium-term. What would be kind of an optimistic versus base case scenario for reacceleration in U.S. leasing due to DISH, T-Mobile and then C-band deployments? Are we talking about going from 4% to 6% net leasing growth over time? More than that? Less than that?

Yes. I'm not going to give numbers, but I will tell you the optimistic case, and the one case that should produce higher numbers is DISH jumping into deployment midyear and the C-band work starting to hit the tower industry mid-2021, which I don't think is a stretch at all.

We have, I guess, one last question on the data center side. It's a new sector for you. You've made some acquisitions. How has your thought process evolved around that opportunity set, U.S. and potentially internationally?

Yes. It's a good exercise that we've undertaken to give us the ability to understand that business so that we can make a good decision as to how we want to ultimately monetize, for lack of a better word. The opportunity that exists in our cell sites when mobile edge computing reaches the true edge, which I believe that it will, which I view as the cell site. I will tell you, we're doing this to understand how that -- how data moves, how it's stored, what's important to the folks who purchase data services and how they're operated. But we're not doing this to build and operate a stand-alone data center business. This is all about and will lead to a -- must lead to the ultimate goal here, which is to be ready to have the data center opportunities at the cell site and figure out exactly how we're going to operate and capitalize on that.

That is it for time. I really appreciate your giving your views on a broad range of topics. And thanks again for participating in our event.

Happy to do it. Thanks, Jonathan.

Thank you.