SBA Communications Corporation (SBAC) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started here with our next session this afternoon. It's a pleasure to welcome to the Communacopia + Technology Conference, Brendan Cavanagh, the CFO of SBA Communications. You've been with us in the past on the East Coast, and very gracious that you've decided to come and join us here on the West Coast.

Thanks, Brett. It's a pleasure to be here. Excited about it.

Well, let's jump right into it. So you had a solid second quarter. Domestic leasing activity was very strong on a year-over-year basis, and you signaled that domestic bookings have remained strong. What's driving this uplift in leasing activity in the U.S.?

Well, it's a mix among each of our customers. At its core, it's really the deployment of spectrum by each of the wireless carriers. In particular, we've had a lot of activity with T-Mobile over the last 12 months, primarily focused on deployment of 2.5 and 600 megahertz. They've been very, very busy. That's been the biggest driver, along with DISH signing a lot of new leases towards their network. They've probably been our 2 largest leasing customers in terms of activity levels, signing up new business. And then when you think about the backlog and what that consists of, we're seeing now an uptick in applications from Verizon and AT&T as well focused on, ultimately, C-band deployment. So all that activity, all that new spectrum that has to be put to work is really the main driver of the activity we've seen over the last 12 months and I think into the future.

And I think that the guidance you've given is that you anticipate that by the fourth quarter, leasing activity, you've got a $20 million per quarter run rate, which would obviously be a nice step-up versus what we had seen. It sounds like the visibility there is really high. So the question we get is do we start thinking about that as a run rate? Or the other way we get that question is, is that sufficient visibility to be confident that the amount of leasing that you're likely to experience next year could be greater than what you're seeing over the course of this year?

Yes, I mean, it's a little premature for us to talk about '23 numbers. And really, the reason we give guidance when we give it is because we obviously have greater visibility at that point in time. As we sit here today, though, just generally speaking, activity has been strong, as you said. We do expect the revenue contribution from organic U.S. leasing to be at its strongest point in the fourth quarter. So we're in a very good jumping off point going into next year, and the backlogs remain strong today. So if I were sitting here today, it'd be easier for me to guide through the first half, say, of next year. And I would say that we would expect that to be at a very attractive level, at least similar probably to where we are this year from an annual basis. It's really a little fuzzier as you get further out. But the way things are trending right now, we expect next year to be a strong year, too.

It was interesting that you noted that Verizon and AT&T are becoming more active, and it seems to be around their mid-band spectrum deployments. And the reason I asked the question is if we think through all the prior generations of mobile technology, and we've had 4 of them, there's been a fairly predictable leasing cycle, which is you have a new technology. Typically, you're taking advantage of the new spectrum that you've acquired to deploy that technology. You go to the sites that you already are on. You sign an amendment in order to deploy new equipment to take advantage of it. And then once you've done all that, you say, "Well, I need more densification. I need to go start finding additional towers, deploying there." It's been a really great virtuous cycle in 4 generations. What's -- because we're still, I think, in the first part of that for 5G, the part where they're going to their existing sites, I'm curious for your thoughts on how you think the densification piece of it is likely to play out in 5G, which is you ultimately expect they are going to be circling back to towers that they were not initially on as they densify. Or do you think that there could be other ways they use different types of infrastructure?

Yes, I think that generally speaking, we would expect it to follow a similar pattern to what we've seen in the past in other generations. And you're right when you say that it starts off typically with kind of an overlay cycle where they're upgrading existing sites. And we've seen a decent amount of that primarily through T-Mobile. They happen to be the furthest ahead in that regard, so kind of using them as a model. But I would say that we've seen new leases being signed by them that, I guess, you would put in that densification category perhaps at a slightly greater pace relative to previous generations of rollout at this stage in that deployment cycle. So I don't know whether that necessarily means anything will be any different than what we've seen before. It may just be a timing thing. But generally speaking, we would expect that the first wave of activity, particularly from the guys that are kind of in the earlier stages of it, will be focused heavily on upgrades to existing sites, which will come in the form of amendments to a lot of the existing leases that we have. And then yes, there will be some -- certainly, there'll be densification. I mean if you think about the difference here perhaps with 5G is that it's a little more mid-band focused in terms of the spectrum and doesn't propagate as far where you're looking for perhaps greater densification. Maybe that drives a little more infill in places that we haven't seen it before. But we're still a little bit early, I think, to make that as an absolute judgment call as to how it's going to play out. But either way, tons of work to be done on the upgrade side. And as they come back and they do infill, I think we'll see a decent amount of that as well.

Because if you just think about where your towers are relative to where some of your peers, you have historically focused on less dense areas. And I think sometimes it's mistakenly construed to be like rural or sparsely populated. I think [ it's actually a lot of ] highways and suburbs and so forth where tower colocation is very effective. Not surprisingly, they began their densification in their more densely populated markets in part because that's where some of that spectrum was actually cleared to begin with.

Right.

And so it would seem, knowing the pace that they've been on for a year plus in some of these other markets, that there should be pretty good visibility in terms of how much work they're inevitably going to have to do on your site. And that's why one keeps asking about the leasing environment, but it feels like there should be.

Yes, no, I think that's true. I mean we obviously internally can look at our own population of existing leases. We could see what the -- how many of those have been upgraded, for instance, with C-band spectrum and have a pretty good confidence level that there's a long runway ahead because it's a fairly small percentage relative to the overall population. So the opportunity set is strong going forward. It's -- all of this, I think, comes down to a timing question more than it is a population of potential revenue. I think that population is fairly well defined in the sense that we've got a large number of sites, the vast majority of which will have to be upgraded with the spectrum. It will drive amendment activity, which will be additive to our revenue profile. The question is just more about, well, how quickly does that come? Over what period of time? Is it spread out more over a couple of years? Is it more concentrated? And I guess we'll have to see on that. I think each carrier may, in fact, be different amongst themselves, too. So -- but ultimately, in a long-term business like ours, if you look at the long-term run rate potential of it, there's no question that there's a lot of opportunity.

And now that you're starting to see more leasing particularly from AT&T and Verizon, what do the amendments look like relative to the historical amendment profile that you've seen over many cycles?

Yes, pretty similar. Usually, the amendments are -- it's equipment-driven really, how much equipment is required. And each site is its own animal. I think in the past, we've had an average that's been probably around $500 a month or so has been the average amendment price. It's -- I don't think it's all that different today, but the variation is pretty wide. I mean we have amendments that we do for $100, and we have those we do for $1,200. And it really is a function of that individual site, what are the needs there, what are their existing equipment entitlements and that's the big driver. But I think the average will be fairly similar to what we've seen in the past in terms of how much we're able to achieve per site.

You mentioned DISH and how they're one of your biggest sources of new leasing activity right now. You signed an agreement with them. I think it was in February of last year.

Yes.

Could you just remind us, what have you disclosed about the nature of the relationship with DISH and the nature of that contract?

Yes. So we signed an agreement with them, as you said, early 2021. At that time, we signed it with kind of -- first of all, there's several components to it, but their situation is a little bit different. They're obviously building a brand-new nationwide network kind of from the ground up. It's not an overlay type of situation like the other. So it was really a function of what is the equipment? What does the deployment look like at an individual site? And what are the different variations of what that might be? In some cases, it might be a little bit bigger, might require a little more equipment. And so we basically looked at setting price points around what the type of deployment might be, and there are different ones at different levels. So the more equipment, obviously, the higher the price. As part of that deal in order to give them that certainty around what the pricing would look like, they had to make certain volume commitments. So there's a minimum number of agreements they'd have to sign over a multiyear period. And so we felt good about what it presented for us. It was several thousand leases that they were committing to. So we said, "Okay. This is a good uptick opportunity for us over the next few years." What we didn't appreciate is how quickly they were going to move because they've already blown through the minimum commitment in terms of signing agreements. Now not all of those are deployed and on air yet, but that's a matter of time until that happens. But once they've executed the agreement, they've committed to that site. So they've signed at a greater pace than we would have expected during this first 1.5 years of the agreement. And we're continuing to sign agreements with them. It has certainly slowed a little bit because they've signed so much in the early going that the shift now and focus has turned to getting those sites deployed and on air, but it's turned out really well.

But to your point, the fact that they have signed the agreement means there is revenue that's coming behind it. There's just the typical book-to-bill cycle...

Yes, yes. The way the agreement works basically is that with an individual site lease, it would commence at the earlier of the start of construction at the site or a drop-dead date which, in our case, is a year from the time that they sign the individual agreement. So the maximum time frame would be a year out. And so actually, that's been kind of the one factor for us as we've set guidance is trying to figure out exactly what's the right time frame for when we expect those commencements. We've shifted more to going on the conservative side because I think we found that sometimes they've been ahead of us and sometimes behind us, but it's hard to be that precise. So the good news is that when you talked about the revenue pickup for the second half of the year, a lot of the reason that you're seeing it step up so much is a lot of those DISH leases starting to commence in the second half of the year, and some of that certainly will roll into next year as well.

So that would imply that a lot of leasing is related to the second buildout requirement that they have to meet because they have one coming up in June, so you want to be commencing those leases now.

Yes, I think that's right.

How important do you think DISH is to the leasing profile of your domestic business as you just think out over the next few years? And the reason I ask is that DISH obviously has the 70% population requirement they have to meet next year. They actually have some other population and geographic buildout requirements they'll have to meet over the next few years as well. They also have 2 very significant MVNO network partners. And so it would seem that as they meet the buildout requirements, they have a lot more optionality to decide, do we want to keep deploying our own network based on what's happening with our wireless business? Would we rather use our partners' networks? So the question we get a lot is that if DISH were to decide for some period of time the MVNO partners are a better solution, how much could that augment the leasing opportunity for a company like SBA?

I think -- obviously, the more or the less they do has an impact on our leasing results. In terms of what they've already signed, they've already committed to, it's a pretty substantial commitment. And so that's all locked in. It's really about incremental leasing opportunity, and it really is deployment and equipment-driven. So if they were to find a way to do this through MVNO partners or otherwise with less equipment deployment, obviously, that has an impact and would restrain a little bit what our lease-up potential would be. I think though that, ultimately, over the longer term, they've got the spectrum holdings that they have, and that spectrum is going to be used. If for some reason, it's not used by them, it's going to be used by somebody and it's going to require incremental equipment at tower sites. And so the opportunity to monetize that investment into network is still there. Really, what you're getting at, I think, goes back to the question of timing it drives to: How quickly does that happen if they take one approach over another. And can they even take that approach? I think it's -- I think if they have success with their deployment in terms of subscribers and growing their business, which obviously we hope that they do, the more success that they have, the more inclined they'll be to add capacity, to deploy more spectrum, to add equipment and be less reliant on somebody else's network and therefore be giving economics to that somebody else. So I feel okay about it. It's really more of a big question of their ability to be successful in what they're doing, which we feel good about their prospects.

Your portfolio has been built over 20-plus years. A lot of it done by yourself, a lot of it made -- done through acquisitions. I can't remember what [ the specific is ] anymore, but the last time I looked into it, overwhelming percentage of your U.S. towers were either built by you or by another tower developer for the purpose of colocation. They were very purpose-built assets. And I think it's one of the reasons actually, at an asset level, your towers have performed so well over the years. You did an interesting deal last year with PG&E. You actually bought some infrastructure that maybe was not initially designed to be wireless infrastructure. It was energy infrastructure. I'm curious how that asset is performing relative to what you had expected and whether there could be an opportunity to do some interesting things like that going forward?

Yes, so far, it's performing well. I think its performance is going to be driven as much by the things that we were just talking about before as anything else. It's the basic wireless build-out needs and the pace at which the carriers are on. So the same factors that affect our core business, core towers, if you will, affect these assets as well because -- when we look at these, yes, it's utility infrastructure, and it allowed us actually an opportunity to do something creative, perhaps coming at a price point that is lower than what alternative assets would have been available for at the time. So that was the advantage. But the underlying benefit of it is that they're basically the only tower solution in a lot of the markets where they sit. This is Northern California. Yes, they weren't designed specifically for colocation. But for carriers who are looking to cover these exclusive areas due to zoning restrictions and others, it's really the only option that they have. And so that exclusivity is what attracted us to it. And I think as a driver of growth to this point and going forward, it's going to be driven by the same needs that the carriers have for upgrades to 5G, deployment of new coverage, density of coverage, all the same things. And we've seen pretty good activity. I think there will be opportunity for that to improve even more as we see C-band deployments start to come with both AT&T and Verizon.

Maybe just thinking more broadly about the M&A, the tower M&A opportunity in the U.S. We're obviously in a more difficult economic environment, an inflationary environment, a rising rate environment. So an established operator with a low cost of capital, access to a lot of capital, it seems like you'd be in a great position to buy things if things were available. There has actually been a lot of private tower development over the last many years. It's not necessarily under terms, I think, that you are thrilled with. So I'm just kind of curious, how is all this shaping up right now? Do you think that there is an emerging opportunity to start doing some sizable acquisitions in the U.S.?

In the U.S.? I think it's limited in the U.S. One, because I think the number of available assets and portfolios are somewhat limited. And when I say that, it's not just sheer numbers of towers, although it is that in part, it's also quality of assets. As you mentioned, a lot of the sites that have been built over the last couple of years have not necessarily been done with lease terms that we would find appealing or at least that would require a valuation that perhaps then the seller wouldn't find appealing. So I think it limits that pool of assets. So I think just the overall population is reduced. I think the observation around cost of capital and what that might mean, given our access to capital, is a logical conclusion. But as of yet, I haven't really seen the cost of capital weigh into the decisions the way that you might think. And I think that's a delay issue. Maybe there's money on the balance sheets of some of the investors who're looking at these assets today where they're not necessarily considering cost of capital the way that we might. But at some point, you would think there'd be some contraction in pricing that might facilitate that.

Well, then let's talk about the international side. And you recently agreed to buy a portfolio in Brazil. Obviously, you've had a presence in Brazil before this, but I think this is about a 25% increase in the size of your portfolio down there. Why was this an attractive time to start ramping up acquisitions in Brazil again?

Yes. Well, it was a specific acquisition. It was fairly sizable, but it was the opportunity -- the individual opportunity. This was a tower portfolio from an independent tower company. It was actually the last of their portfolio. They had a larger business. Previously -- we've previously bought assets from them actually. And it was -- they're high-quality assets. I think the opportunity in Brazil remains strong over the long term. One of the issues that's facing Brazil right now is the consolidation of the carriers. You've got -- Oi is 1 of the 4 major carriers there, just had gone through bankruptcy, but is now -- their wireless business has been sold and broken up basically among the 3 existing carriers down there. Those carriers have some consolidation and rationalization of the network to do. And I think how that weighed into the valuation prospects that maybe some put on this portfolio impact valuation. But the positive thing is that I think we've got pretty good insight into that. And I think the mix of this portfolio with our existing portfolio actually is positioning us in a better place for those discussions with the carriers around the rationalization of the network. And so we were able to buy it at a price that we think is very attractive relative to where assets are trading today and take advantage of that insight and the relationship. So I think all of that factored into an individual decision on an individual portfolio of assets in a market that we know well and are comfortable with, and we've got a very -- we can do it with basically no SG&A adds because we've got the infrastructure there already to handle the additional sites. So all that was a factor. But I think that's where you're going to see us be, back to the earlier point about just capital allocation and investment decisions. The places where we found success over the last couple of years in terms of large deals are things that are a little bit off the beaten path, maybe not the norm, so PG&E, GTS, Tanzania even. Things like that, that are a little bit different where we can bring our expertise and perhaps buy assets at a lower price. The stuff that's broadly bid, that's an auction type of process. We just -- prices being paid today, we just don't see as being rational. And so we've been less successful in those opportunities.

Just sticking with Brazil for a moment. You noted that there's going to be some slight rationalization related to Oi, so that essentially is carrier consolidation churn, for lack of a better phrase. How about the gross leasing side of it? How is that looking right now?

For Brazil in general?

Yes.

Yes, I think it looks very strong. I mean the interesting thing will be that there's this Oi consolidation is taking place that I think will influence the carriers. Their focus will be heavily on that and rationalizing those networks over the next couple of years. So there will be a process to work through there. But I think once that's complete, you've got a much healthier market dynamic with 3 stronger carriers. There were recent 5G spectrum auctions down there. I think those factors will drive them more towards what we've seen here in the U.S., which is competition on network quality, and you've got a healthier carrier dynamic. It was a little too spread out for the size of the market. I mean think about it in the U.S., we've sort of gone to 3 carriers. There's a fourth one coming up. But we're a much bigger -- 50% bigger in terms of population than Brazil. It just didn't work efficiently to have 4 carriers there. So I think that dynamic will actually drive greater leasing in the longer term in Brazil, and it will be healthier for us.

Okay. And you mentioned Tanzania. And of course, you also are in South Africa. So you've been making more of an investment in Africa. I know you've been evaluating opportunities for a long time. Why have you gotten to this point where you're starting to see real growth potential in Africa?

Yes. I mean these were 2 -- they're actually very different the way that they came about South Africa that where we've been now for 5, 6 years or so, was basically almost entirely a greenfield operation. We built the vast majority of the sites that we have down there. We're today somewhere around, I believe, 1,400, 1,500 sites in South Africa. And we were able to do that quietly, kind of a little bit under the radar, start building those sites and it allowed us the opportunity to build up a high-quality portfolio. The return on builds is typically much better than the return on an acquisition because that premium that you pay a seller you're keeping for yourself. And so that's actually been our best-performing international market when you consider all factors. Brazil has been great, but the FX has hurt it. South Africa has actually been our best-performing international market today in terms of return on investment. Tanzania was a different sort of dynamic in the sense that it was an acquisition through a relationship that we had. It was not widely or competitively bid. So we were able to actually take advantage of that dynamic to work through some challenges with the carrier who are selling those assets and get it at a price point. We paid roughly 8x for those assets and we have a long-term relationship now with Airtel, who is the seller of those assets. So it was its own special opportunity. We spent probably a year researching the market, talking to the carriers there, getting comfortable with all the factors that affect operation in a new market. So each of those were a little bit different. So I wouldn't say that it's a broad Africa approach, I guess, is the point. It's a specific opportunity that arose in these markets, and we were able to use and leverage our South Africa presence a little bit for -- from an overhead standpoint to support Tanzania. So beneficial in that regard. But it doesn't necessarily mean that there will be broader African expansion. There could be if there was a right opportunity, but there's no need for there to be.

How is the Tanzanian business performing relative to your expectations?

Well, it's been fine, but it really hasn't been that long. I mean we just closed on at the beginning of the year. So in all fairness, there's not been a lot of opportunity to see how it progresses. In terms of operations, though, it's been fine. We've got our arms around the individual issues around power and things like that. So it's been perfectly fine. No problems, which I think is a positive at this stage because it's so early.

And where is it on the technology curve right now?

Very early. I would say they're just now approaching trying to work towards 4G. So we have -- that's one of the things that's attractive about a market like this is that you can see, because you've already been through it in other places, the trajectory and the opportunity in terms of generational upgrades. So we feel good about the growth potential there.

Okay. You noted that South Africa was essentially a greenfield for you. Philippines is also going to be a greenfield. I feel like you and so many other tower operators have been looking into Southeast Asia for a very long time. And ultimately, you decided that this was an interesting way to get involved. So I think the first question would be, broadly speaking, why is the market so compelling? Why is it something that so many people have been trying to solve for? And then what ultimately got you comfortable entering the market on a greenfield basis when historically you've looked for some local expertise and partnership to enter new markets?

Yes. There's -- well, in the case of the Philippines, just like I mentioned with Tanzania spanning a year or so, we spent a lot of time looking at this before deciding to kind of move forward with it. There are a number of things that are attractive about it. One, it's a very large population market. I think that's why a number of tower companies have expressed interest in the past. So you've got a broad potential customer base for your customers. There's obviously going to be a heavy demand towards wireless solutions. And that's going to drive infrastructure investment for many years to come. So the general dynamic around wireless is attractive. There are other factors in terms of how rule of law works around how contracts are written, where we felt like there's an opportunity to do really well here. But leading up to this time, we also spent a lot of time on the ground and developed relationships with carriers, with equipment providers, with services companies to the point where we felt like we had a good network of folks that we would be working with that would be supportive of our efforts to build sites. And frankly, we know how to build sites really well. So we already bring that expertise. So doing it as a newbuild opportunity is really just more of a matter of what's available to us. I think from -- the acquisition opportunity is, there may be some smaller deals. I think there probably will be over time. The bigger deals, which are carrier tower portfolios, much like the rest of the globe, have been priced at points and with terms of just nowadays seem to be more commonplace, but don't sit well with us. And so we've stayed away from that, and we think we can get our share of newbuilds to get to scale and make it a very worthwhile investment, even if it's a little bit smaller.

Are the economics of tower leases in the Philippines similar to what you see in most of your other markets?

Yes. Thus far, they are. We're doing more build-to-suits. The anchor terms are similar to what we've got elsewhere. We've signed a small number of colocations, but generally similar to most of the other markets.

And if this goes as you're expecting, could it be a model you could use to go into more markets across Asia?

I think it's too early to say at this point. That would be nice because as you kind of get a beachhead and you have some successful operation, if you can find other neighboring, from a geographic standpoint, markets with the similar dynamics, we would like to do that from a scalability standpoint, but it's a little early. Each market and each country has its own nuances. So we have to evaluate those one at a time.

For most of the time that I've covered tower stocks, the U.S. tower companies didn't really see a compelling opportunity in Europe. American Tower has obviously gotten quite big in Europe, particularly through some recent acquisitions. And the market has started to look a little more like the U.S. market, [ your independent ] tower companies, colocation has become more of the norm. So there's a lot of things there that seem comparable to the way you've typically run your business. Do you think that Europe is an area that you should be in? Are you seeing opportunity to get into or need to be in?

I don't think we need to be there, no. I don't think we need to necessarily be anywhere, to be honest with you. It's -- our focus and approach has been pretty consistent for the last couple of decades, and it's really one of a financial analysis. If we see the opportunity for a financial return, then we will explore a market further and perhaps move forward with it. So there's no need like we have to be somewhere just to be there to say that we're there. I think Europe has things about it that are certainly attractive. And we've looked at European opportunities ourselves over the years. We found more success in some of the emerging markets because I think we've seen our way clear to be able to handle some of the risks that appear to be there on the surface. Europe doesn't have a lot of those same risks on the surface. And so the price points are just at a point where it hasn't really worked for us. And there's always been some question about growth and maybe even negative growth in Europe. So when you combine all of that, we just haven't seen a fit for it. But it's got a lot of stability to it. So that's a positive, but it's really more about the opportunity set than it is about the market.

Supply chain challenges, inflationary challenges, these are things that we talk with investors about almost every day right now. To what extent are you seeing this in your business, either in challenges that you have if you're trying to construct a tower, whether it's the supply or even the price of the labor, or are you finding any of your markets, your carrier customers are seeing stresses on their businesses because of these factors that may be influencing the cadence of business that they're giving you?

Yes. I think, for us specifically, we've seen very limited impact from supply chain, almost no impact. In fact, our services business is doing record levels of business, and that's not just our supply, but our customer supply. We've got warehouses actually full of equipment for deployment. So it's not had a major impact. Labor costs, there's certainly been some impact on that, and we've had to adjust. But fortunately, we're in a very busy environment, and we're able to do that to help take care of our people. So there's been some impact there, but that's a fairly small percentage of our cost base. So it's not been major. As you move out internationally, it really varies by market and by carrier. There's certainly some places where you're seeing it have an impact, but I think it's more broad-based than it is, just access to a specific piece of equipment that they can't get. It's more just general economic weight that sits on them in some of these markets. But frankly, nothing that, I'd say, has directly impacted our lease-up ability probably in any market that we're in.

If we think about the inflationary aspect of it, you've had a fixed escalator model in the U.S. for essentially as long as you've been a U.S. tower operator, so going back to the '90s. I believe it is sort of in the low 3% range. And I think it was designed over 2 decades ago to sort of align with inflation. And it's worked out very favorably for tower operators such as yourself. Obviously, right now, inflation is well above that. And a question we've gotten is, have we seen inflation move so high relative to the escalators that you might want to change the nature of your escalators? Meaning, do you think that you should be asking for a higher fixed escalator? Is it even possible? Do you think to do that? Also, what are your thoughts on moving to a CPI-based escalator in the U.S., which is exactly what you have done in most of your international markets?

Yes. I -- so you asked a couple of questions in there. One was, would we want to do that? Yes, we would want to do that. Can we practically do it, though, is a question. I think the answer, frankly, is no. And a lot of that is because we have long-standing agreements. The place where you have the opportunity to talk about changing an escalator is a brand-new lease agreement on a site that they're not on, all the embedded base. These agreements have existed for a long time, certainly have been favorable to us relative to inflation over the last 2 decades. It would be hard to suddenly suggest that we should amend those based on 1-year spike in inflation. I can assure you our customers would not see it that way. And they're terms of the agreement that are long term in nature, right? So that escalator that we agreed to 20 years ago is still being applied today and will be applied for the next 20 years. And so if you change it today, down the road, you're going to change it all the time. So that goes to your question of should you just go to CPI. And I think that that's something that's been discussed at various points in time. I don't know that the carriers love that either. We would be open to that. But it's not been something that either party has really pushed hard for. And I think at any point in time, somebody will feel differently about that, right? Somebody is always on the right side or the wrong side of this. And I guess I would quibble with a little bit whether the basis for it was inflation necessarily back at the beginning. That's one element of it, but there were other factors too that went into it. I think maybe at the time the appreciation for how much change would have to take place at the site wasn't as great as it is today and that may have led to an escalator that was fixed and beyond inflation even at the time because there was that understanding. And that's not necessarily been the way it's played out, obviously, but that was a very long time ago. So the reality is we've got long-standing agreements and I see very little realistic opportunity to change that component of it.

Another thing I just alluded to is the fact that interest rates have been moving higher, higher than we've seen recently. Your net leverage target for as long as I can remember has been 7 to 7.5x net debt to EBITDA. You're actually at the lower end of that right now. Do you feel comfortable or more appropriate being at the lower end because of the rates environment? Or is the rates environment not enough to really augment your view on where you should be?

No. Well, one reason we're at the lower end is we have the GTS deal under contract, which hasn't closed yet. So that will influence leverage a little bit. But it's not about absolute rates. The way that I think about it is more the relationship between rates and what we can invest that capital at in terms of return potential. And so earlier, we talked about people paying high prices for things that we haven't necessarily seen this change in the pricing dynamic related to cost of capital. So if you see that continue where there's not an adjustment because there should ultimately be an adjustment. So in other words, if you look back a number of years ago, interest rates were at the same level they are now, and we were still levered at the same level, in fact, even maybe a little higher. And that worked then. And the reason it worked is because the opportunity to invest that capital could create a return that was still incremental to the cost of the money. If today you have an environment where the cost is higher but the prices are now higher than they were back at that time, that opportunity doesn't exist at the same level. And so if that exists for an extended period of time, then I think you would naturally see delevering take place, but that delevering doesn't have to be permanent. It can be temporary during a period of time that it's a better economic decision. And it actually creates capacity for an opportunity in the future, perhaps, to lever up for something that now is more attractive based on an adjustment in prices. So that's kind of the way we think about it. It's not interest rates went up, leverage should come down. It's the relationship of all of those things together.

You do have other things you allocate your capital towards, including shareholder returns; you have a dividend; you have had buyback programs, that's very discretionary. If you were unable to find attractive acquisitions for an extended period of time, other than delevering, could you also potentially move more capital towards your capital returns program? And if it's the extent to which that's variable, should we assume that would most likely be buybacks? Or do you think there's different ways you can flex the dividends?

Yes. I think it would most likely be buybacks. And historically, that's what it's been. I mean if you look back, there have been periods of time where we've had less assets that we've been able to buy in given years, and we've done more buybacks and sustained our leverage. And so that certainly is a potential that we would do. I think on the dividend side, we've been a pretty healthy grower of our dividend. We've been growing at north of 20% for the last couple of years, and I expect the next couple of years will be similar 20% or so growth levels. So I don't see us necessarily trying to push that higher because that's really more of a permanent change. And if we're dealing with a temporary situation in terms of cost of debt, I don't think you make a permanent decision connected with a temporary change in rates, but buybacks fit the bill well.

Well, Brendan, we're out of time. Thank you so much for being here.

Great. Thank you, Brett. Appreciate it.

Great.

Thank you.