SBA Communications Corp at JPMorgan Global Technology, Media and Telecom Conference

May 19, 2015 AM EDT
SBAC.OQ - SBA Communications Corp
SBA Communications Corp at JPMorgan Global Technology, Media and Telecom Conference
May 19, 2015 / 06:10PM GMT 

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Corporate Participants
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   *  Brendan Cavanagh
      SBA Communications Corporation - EVP and CFO

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Conference Call Participants
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   *  Phil Cusick
      JP Morgan - Analyst

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Presentation
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 Phil Cusick,  JP Morgan - Analyst   [1]
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 Good, let's get started. My name is Phil Cusick. I cover telecom and cable here at JP Morgan. I want to welcome Brendan Cavanagh, CFO of SBA. Brendan, thanks for joining us.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [2]
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 Great. Thanks, Phil.

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 Phil Cusick,  JP Morgan - Analyst   [3]
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 You know I thought we would start with just the sort of industry sort of activity level, 2015 versus 2014? I think there's a bit of a confusion because you had a tough comp in the first quarter. I would -- and yet the activity level it sounds like is ramping through the year. Can you just help us think about what's going on versus last year?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [4]
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 Sure, yes, well we had a phenomenal year a year ago, really the last couple of years. We've seen kind of record levels of activity here in the US in terms of leasing activity. A lot of that outperformance was driven specifically by AT&T. They were by far are largest leasing customer. So, towards the end of last year, their spending activity started to slow down. We still have activity with them. We're still signing up leases and amendments, but not nearly at the same level that we were, which again was kind of a record level going back over the last couple of years.

 All of the other carriers have been pretty consistent and actually in the case of both Verizon and T-Mobile are actually up a little bit in terms of their activity levels compared to a year ago. But AT&T being such a large part of our leasing activity and I think just to be clear, specifically for SBA perhaps more than some of our peers, we had -- did not have some of the MLA agreements and things that existed that our peers had. So, the take rate that we had from AT&T was substantial. So, unfortunately, when they're the ones that slow down, I think we tend to feel it a little bit more.

 But basically where we are, is we're at a growth rate today that is very similar to where we were a few years ago. It's not nearly at the record pace that it was last year or the year before. But it's back to what is kind of a normal traditional level. So while it feels a little bit on the negative side, the reality is things are still very good, just AT&T is not spending quite as much as they were 12 months ago.

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 Phil Cusick,  JP Morgan - Analyst   [5]
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 What did you see -- what have you seen lately in terms of applications to lead into second half run rates?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [6]
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 Yes, applications are still at a decent level. We expect that as we get towards the latter half of the year here that we'll see a pickup with AT&T. Haven't necessarily seen it yet. The level, in terms of number of applications, is still very strong. The dollar value of some of those is not quite as high, which is really where the drop off comes in. But all indications are that I think as they start to move through some of their capital obligations that they have between the spectrum auctions and DirecTV and some of the other things that they've had going on that we'll start to see a pickup in activity levels with them and exit 2015 at a stronger run rate than where we are today. As far as the rest of the carriers go, we would expect their activity levels to continue and perhaps at least in one case, maybe accelerate a little bit as we move into the second half of the year.

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 Phil Cusick,  JP Morgan - Analyst   [7]
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 Okay, so you should see an acceleration on activity and sort of an easing in the comp year over year as we go through 2015?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [8]
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 Yes, I definitely think that from a comp standpoint 2015 is probably our toughest year, in part because 2014 was frankly so good. We also have, as we talked about here, a little bit of a slowdown from AT&T that should pick up and we also are kind of wrapping up the last of our iDEN churn exposure throughout this year. But as we get into next year, I would definitely expect to see 2016 on a year-over-year basis being much stronger than the current year that we're in.

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 Phil Cusick,  JP Morgan - Analyst   [9]
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 Okay. So you mentioned one carrier may be accelerating through the year and you may see that from AT&T as well. What's built into the guidance from those two? Is it the expected rate or the current rate?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [10]
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 Most of the guidance for this year is based on the current rate with some expectation of a slight increase as we move to the second half of the year. But most of the increase that starts to take place or that we foresee taking place in terms of activity levels as we get to the latter half of the year will mostly impact next year. We're getting to the point in the year, 2015, where you better start to see changes from where you are today to have any real meaningful impact on the current year financial statements. The guidance that we've given is really only though 2015. So much of what we expect to report for this year is baked in already. So, there's very little wiggle room I would say. But the earlier that we start to see some of these things accelerate, the more impact it could have on this year. But overall I wouldn't expect that to be too material. I think it's more about what it does for next year.

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 Phil Cusick,  JP Morgan - Analyst   [11]
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 What do you see in terms of the -- on the investment side we talk a lot about sort of the amendments versus new cell sites. So one, what is that mix versus a year ago? But number two, does it really matter to you if a customer's going to spend a million dollars in CapEx, does it really matter to you whether it comes through as an amendment or as a new lease?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [12]
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 It really doesn't matter that much. I mean ultimately we're about adding dollars to the bottom line. If that comes through amendments or new leases, it's not that important ultimately. There are some minor differences between the two in terms of its impact on us. Typically an amendment actually commences much quicker than a new lease. So, if you're signing up more and more new leases, there tends to be a little bit more of a delay before you start to feel the impact of that on your financial statements whereas amendments generally start to kick in usually upon execution. But those are temporary, small differences. For the most part, it doesn't matter to us.

 In terms of the mix, in the first quarter, our last quarter that we reported on, we had about 60% of the new leasing activity coming through new leases and 40% coming from amendments. That's a very big change for us from where we were. If you go back to the beginning of last year, we were about 70%, 75% coming from amendments and only about 25% coming from new leases. So it's flipped around almost entirely.

 Again, a lot of that goes back to AT&T. They were our largest leasing customer and the bulk of what they were doing was amendment based. So in their pull back, that's really the thing that's kind of pulled back. While new leases are at a level that is higher than it's ever been in our history, the real change is having less amendment contributions rather than that many more leases.

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 Phil Cusick,  JP Morgan - Analyst   [13]
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 Okay. I would think with carriers densifying a lot and sort of exemplified by all the new leasing activity, you've got to see a lot of new applications for sites. Are people looking to build sites out there? What's the status of the sort of new build market today?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [14]
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 Yes, we are what I would call selective in terms of our new builds. We're talking specifically about the US.

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 Phil Cusick,  JP Morgan - Analyst   [15]
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 US only, yes.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [16]
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 This year I would expect that we'll probably build somewhere around 140 new towers here. We generally don't participate in any RFPs. We found that the pricing spreads, it's just too competitive and that it really isn't as attractive. So we're much more selective about the sites that we're building. We could build more in theory I guess if we were a little less selective in terms of the returns, but the ones that we build are homeruns. Now, 140 may not sound like a lot but it's probably the most that we've built in the US or will be the most that we've built in the US in the last ten years. So, we've been kind of steadily creeping up every year. I think last year we were close to 130 sites and this year should be a little bit more.

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 Phil Cusick,  JP Morgan - Analyst   [17]
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 So, how do those come in? Are those existing relationships? Are they places where you have an existing sort of piece of land that you can work on?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [18]
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 There are some strategic sites. A lot of them though come in through relationships that folks that we have internally or that we use externally who have existing relationships in specific markets with specific carriers. Primarily we try to only work in terms of our initial tenant with an AT&T or a Verizon. Usually, they're the first to market anyway.

 But it's usually through relationships that exist in specific markets that some of our folks have and they know that we do a good job. I mean really it's about delivering over the years and making sure that we get the sites done quickly, efficiently, on time the way we said we would on budget, all that stuff. So, we've had good success in that area and I think as a result, we've been able to kind of have repeat customers if you will in certain markets in particular.

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 Phil Cusick,  JP Morgan - Analyst   [19]
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 What's the typical return on capital on those new relationship sites? You said that the RFPs have been competed away a little bit. Have you seen your sort of relationship site value come down as well?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [20]
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 No, we don't -- every new build that we do we expect a minimum IRR of 15%. We've had great success. A lot of our sites have actually done much better than that because essentially we go through a very detailed process. We have a committee that looks at every individual site and we analyze a lot of factors. But ultimately what we're doing is we're striking an attractive deal in terms of the initial day one terms with the anchor tenant that we're building for, but we have very good visibility and comfort with regard to the needs for a second tenant and very often third. So, as long as we get to that second tenant, these towers are going to return at least 15% to 20%. So that's been one of our greatest investments. Unfortunately, it's just not big enough to really move the needle materially anymore. It used to a little bit more in the olden days but we're a lot bigger now. So, we'd love to do more of it, but to do more of it, you really start to sacrifice the return opportunity.

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 Phil Cusick,  JP Morgan - Analyst   [21]
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 How much of that return comes through on that first tenant? Like what's the sort of return with a single tenant?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [22]
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 Yes, I would say typically we're probably in the 5%, 6% range. It really depends on the specific situation and agreement. But generally, it's in that range for the day one tenant. If that's all you ever had, that's what your return would be, which is certainly not anything particularly great. But it is -- it's better than nothing too and you know that that's what you've got in your back pocket. As long as you have confidence in the second guy coming along, which our history has shown that we do very well on that regard.

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 Phil Cusick,  JP Morgan - Analyst   [23]
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 How do you model that out? How do you see that that second guy's going to come? Is it in terms of like just the exclusivity of the location?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [24]
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 Yes, I mean usually we spend a lot of time on coverage maps for all the different carriers in a particular market, looking at competing site opportunities that they might have whether those be towers or roof tops or whatever it happens to be in that market. We have a lot of conversations, so a lot of it is anecdotal in terms of talking to the other carriers. Hey, this is where we've got a site going up. So we have a potential ring. How does this fit for you guys? That kind of thing. Typically we don't anticipate those additional tenants coming on until usually several years down the road. Where we've outperformed is we've added a lot of those folks much more quickly than that.

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 Phil Cusick,  JP Morgan - Analyst   [25]
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 I see. If that second guy comes on, you said sort of 15% to 20%--?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [26]
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 15% is really the minimum typically that we're modeling.

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 Phil Cusick,  JP Morgan - Analyst   [27]
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 Okay.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [28]
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 It never takes more than two tenants to get there.

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 Phil Cusick,  JP Morgan - Analyst   [29]
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 Help me think about churn. Just give us a progression of your sort of 2014, 2015, 2016 churn? What's the headwind look like this year versus last and what do you expect in 2016?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [30]
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 Yes, we've had -- I mean iDEN has been our primary churn issue for the last couple of years. We basically had two kind of groups of iDEN leases that we're going to churn off and impact us. One was the legacy SBA. I say legacy SBA I'm basically excluding like the TowerCo portfolio, which is the second group that we bought back in 2012. But the legacy SBA was subject to an agreement that we struck with Sprint many years ago. It also is in connection with their network vision rollout. But as part of that, we basically allowed them to terminate a certain number of leases each quarter for a period of time. The last quarter for those terminations is actually the current quarter that we're in, the second quarter and then their rights to terminate any additional leases are done after this quarter.

 The second group is what we inherited through the TowerCo acquisition that we did back in 2012. They had also struck an agreement with Sprint that gave them rights to terminate iDEN leases but theirs was more of a cliff and basically all of the rights that Sprint has are essentially concentrated in the fourth quarter of 2015. So we have kind of a big churn event in the fourth quarter of this year but after that time period, it's all gone. Now, our guidance reflects already the churn risk there and assumes basically the worst case scenario on all of those opportunities. If they don't actually cancel the leases, well then we'll be better off. But assuming that they take full advantage of their rights, that's already assumed in our guidance.

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 Phil Cusick,  JP Morgan - Analyst   [31]
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 But that would be really more impacting 2016 in terms of revenue?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [32]
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 It would be. The date, the earliest date would be October 1st so it would actually fully impact the fourth quarter. So that would be the quarter that you'd see kind of a baseline, if you will, in terms of run rate. But yes, comparative for the first quarter of next year to the first quarter of this year, you would be missing that particular chunk of revenue.

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 Phil Cusick,  JP Morgan - Analyst   [33]
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 Okay. So in terms of whether it's percent or dollars of churn, 2015 to 2016, would you expect a sort of bigger net headwind in 2016 than 2015?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [34]
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 No, no, no, because we've had -- we've actually had steady churn that's been affecting us approximately 3%, 2.5%, 3% depending on the given quarter, year over year for now the last I don't know couple of years, basically.

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 Phil Cusick,  JP Morgan - Analyst   [35]
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 (inaudible)

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [36]
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 Yes. So, you know I wouldn't expect -- it certainly won't be any worse as you get into next year and as you get towards the latter part of next year, it'll be really nothing. Outside of whatever normal churn we might see. Our normal churn, excluding iDEN has been in the 1% to 1.5% range. It's actually been slightly better than that in the number of quarters. We don't see any reason that that won't continue to be the case.

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 Phil Cusick,  JP Morgan - Analyst   [37]
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 So by back half of 2016, we could be looking sort of that 1% range versus a 2.5% or 3%, right now?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [38]
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 Yes.

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 Phil Cusick,  JP Morgan - Analyst   [39]
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 Okay, okay. So we've got the potential for an acceleration in revenue on the sort of new leasing coming in late 2015 into 2016 and churn sort of backing off by the second half of 2016?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [40]
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 Yes.

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 Phil Cusick,  JP Morgan - Analyst   [41]
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 That's fair. Okay.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [42]
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 The actual churn itself will be done this year. I mean you're talking about it in terms of looking at a year-over-year comp, but basically once you get the first quarter, the second quarter of next year, there won't be quarter over quarter any additional iDEN churn. There would only be whatever natural churn we might see.

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 Phil Cusick,  JP Morgan - Analyst   [43]
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 Okay.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [44]
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 Again, it's usually in that 1% range.

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 Phil Cusick,  JP Morgan - Analyst   [45]
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 So some real reasons we could see sort of 4Q and 1Q real acceleration from a variety of things?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [46]
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 Yes. If you're looking at the first quarter compared to the fourth quarter of this year, you would not have that same headwind that we've experienced for a while now.

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 Phil Cusick,  JP Morgan - Analyst   [47]
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 Okay, okay good. So let's switch -- stick with the US for a few minutes and talk a little bit about small cells. As I remember, you bought an asset a few years ago. There was a small cell component in it. You sold some of those to ExteNet but you kept others. Have you sold the rest of those to ExteNet?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [48]
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 No, we only -- the only thing we hung onto at that time was a couple networks in the Chicago market.

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 Phil Cusick,  JP Morgan - Analyst   [49]
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 Right.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [50]
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 Which we still have today. We did not sell them. They're not really material to anything, but we do still own those. Whether we sell them at some point or use them in some other way, we'll see, but it's not really been a primary focus for us. We're kind of just doing the basic maintenance. In fact, the carrier, which is Sprint that's on those networks, they're really the only carrier there. They are responsible for all the maintenance and costs associated with running it. So, our involvement is somewhat minimal.

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 Phil Cusick,  JP Morgan - Analyst   [51]
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 So you don't have any --

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [52]
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 Other than they pay us.

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 Phil Cusick,  JP Morgan - Analyst   [53]
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 Expertise in that market that you could use into other areas?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [54]
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 We have a little bit of expertise there. We actually do have an in-house team that's kind of a nascent group that is focused on exploring opportunities where we may see ways to participate in, I don't know if I'd call it small cells, but participate in venue opportunities or that kind of thing. But it would really be on a one-off basis as we saw you know an opportunity that maybe we could lock up a particular location and provide some sort of indoor DAS service there where we knew it was going to be a quality opportunity to see multiple carriers come in and use that location.

 But to be honest, that's really not our primary focus. We have an investment in ExteNet. That's how we participate primarily in the DAS or small cell arena. They've had a good year over the last year. It looks like that business has turned the corner somewhat in terms of acceptance by some of the carriers. So we think it's a very good business. But ultimately it's not nearly as good as the tower business. So our focus has been on continuing to invest so long as we see opportunities in the tower business as our first priority. We think even in international markets, which is what is required ultimately to continue to use all of our available capacity, that there are better returns to be achieved internationally in towers, certainly domestically in towers than perhaps expanding into small cells.

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 Phil Cusick,  JP Morgan - Analyst   [55]
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 Okay, okay. Well last one on that, Jeff has said that his opinion of small cells has improved over the last year or so. So it doesn't sound like you have any sort of internal group building up or not much of it?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [56]
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 No, I mean what we're doing is really taking a very targeted approach as it relates to that internally. To the extent that, as I said, we have a small number of folks that kind of look at some of these opportunities that come up. It's really more just to have our hand in it to the extent that one of our customers says, hey, you know what, this would be great for us. That we have an expertise where we can actually try to satisfy that request or question or need. Sometimes that involves getting other parties involved, such as ExteNet, which we've done over the years many times.

 But in terms of it being our own internal big focus, it's really not. Requires a lot of engineers, a lot of expertise and a lot of focus, given again the alternative return profile, we just don't see that as the best use of our focus and capital.

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 Phil Cusick,  JP Morgan - Analyst   [57]
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 Okay. Let's shift gears to international. Can you just give us a sort of 30 seconds on where your portfolio sits now?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [58]
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 30 seconds, okay.

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 Phil Cusick,  JP Morgan - Analyst   [59]
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 40, 40.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [60]
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 We are in the same markets that we've been in now for the last several years. Our primary international markets consist of Canada, five countries in Central America, and then our biggest international market is Brazil. Today, we have almost 7,000 towers in Brazil that we've added over the last 2.5 years or so I'd say. A lot of those come through bigger acquisitions. They've performed well. They've been performing basically in line with what our modeled expectations have been for the deals that we did in Brazil. I would expect that they'll continue to perform well. Unfortunately, we've had the currency fluctuation has worked against us, so that's undone a lot of the good story that we could otherwise be telling I think about Brazil.

 But, overall, Brazil as an economy, has had some issues recently. It's no secret. There have been some struggles down there. I think that that has impacted the carriers down there, their profitability and thus their spending and investment in their networks. So, I actually think that notwithstanding having done fairly well in terms of our lease up to date, it could really be much better. Our belief and our goal for that investment is that it will be much better in the future. I think there's no doubt because they're materially behind in terms of their wireless network development there relative to the US. If they're ever really going to kind of reach their manifest destiny, if you will, they're going to have to invest a lot more into wireless down there. I think it will happen, but the economy's got to improve a little bit. The carriers have to see real profitability I think to be committed to putting that kind of investment back into the networks. So I think the future is bright. Today's okay but I think it will be actually much better over the coming years.

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 Phil Cusick,  JP Morgan - Analyst   [61]
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 So which of the international markets are you most excited about right now in terms of its organic growth, regardless of size?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [62]
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 Looking forward from here today, I'd say Brazil certainly. We've had great success in Central America. It's been a homerun, the investments that we've made there. But we've seen a lot of lease up activity. So the returns there are kind of locked in today. I think when you look at the potential for material growth going forward over the coming years, Brazil certainly has the greatest potential. You've got a very large market. They're well behind in terms of the technologies that they're running.

 I think if we could get to the point, I don't want to be too repetitive on this point, but ultimately what's driven success here in the US is that you have end users like you and me putting -- saying hey I'll pay for this cause I want to have faster service. I want to have access to more data. I want all these things and I'll pay a little bit more for it. So the carriers are more than happy to say, okay, great. Then I'll turn around and I'll invest in the network to make sure I can deliver that and be competitive.

 That dynamic just doesn't exist fully yet in Brazil I think in part because the consumers don't know what they're missing, necessarily. The carriers have, one, they buy all their equipment often in US dollars. So the currency issue has hit them. The taxes are very high. So I think they're struggling along. Ultimately what probably is needed in Brazil is a consolidation of the four big carriers into three. While that's not something you typically would hear a tower company saying as a positive, in this case in Brazil I think it definitely is because three better capitalized, more profitable companies that are able to truly compete I think will drive material growth for our industry going forward and frankly there's very little in terms of churn or overlap risk that we see.

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 Phil Cusick,  JP Morgan - Analyst   [63]
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 You have -- you bought a lot of towers from Oi, right. So what's your exposure there if they are merged into another company or if there is M&A involving them? What's sort of the worst case scenario in that portfolio?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [64]
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 You know we actually feel pretty good about where we are with Oi because while they certainly are probably in the worst position financially of the four carriers down there, because we bought most of our sites from them, there are tenants on most of those sites. We're really not counting on them for any lease up activity. So from a future growth standpoint, they're not somebody we need to rely on. We're actually relying on the other carriers. So that's actually probably a better position to be in. If we were counting on them to be spending a lot, it may be a little bit more concerning.

 In terms of just general risk in terms of their long-term viability, we feel very good about where we are. Contractually they have 30-year terms with us that they're locked into. We have protections in terms of guarantees that go all the way up to the top of their parent company. So we feel very good that there's really no risk as it relates to that. Then when you look at them next to the other carriers that perhaps they would potentially merge with, TIM's the one that's talked about mostly, we have almost no overlap between the two. So there's very little in terms of any kind of risk. In fact, TIM is probably our smallest or is our smallest contributor in terms of our Brazil revenue. You know they're about 50, 60 basis points of our total leasing revenue for the Company.

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 Phil Cusick,  JP Morgan - Analyst   [65]
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 Okay, so even just real quick, if anybody has a question, just wonder up here and I'd be happy to take it, otherwise I'll keep going. So, given the little bit of a carrier backing off there, how does that still compare to the organic growth of the US?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [66]
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 Well the organic growth in Brazil is still stronger on an absolute basis than the US because you have higher escalators down there and you don't have the churn headwind. If you're talking about excluding those two things, the US has been a little bit stronger than Brazil. But to be quite honest, we have very little experience in terms of Brazil. Many of the assets that we have, while we've been there a little over two years, most of the assets that we've had, we've had a year or less. So, we've really not had a great opportunity to kind of see how that all plays out.

 I think based on the early discussions that we've had with a lot of the carriers, there was a lot of work to do up front with them in terms of getting kind of master lease agreement forms in place, so that we knew what the terms of the deal would be. That took quite a while and we've gotten all of that done now. So I think actually as we look forward over the next couple years, notwithstanding the economy issues down there, I think we'll start to see a lot more activity.

 Frankly, just over the last couple of months, we've had pretty good success in Brazil in terms of lease up. It's a little bit lumpy. So sometimes you don't know. You could be influenced by which month you're sitting in. If you're looking back at the last month, you may say hey, wow, we're really hitting on all cylinders. But you go back two months ago and you go, wow, there really wasn't much happening. So it's been a little bit kind of lumpy. But that's okay. It doesn't have to be steady and it's not going to be. It was our history here in the US too. But we see enough happening in terms of the carriers having an interest and having discussions and dialogue about expanding and investing in their network that we know that the future will be very strong there.

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 Phil Cusick,  JP Morgan - Analyst   [67]
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 Okay. Remind me what the contracts there look like? When you say the escalators are better in Brazil than in the US, is that over and above the CPI? Does that include the CPI?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [68]
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 That is -- that really is the CPI for the most part. The escalators in most cases are tied directly to the CPI. We do have leases that have a floor. So it's the greater of the CPI or a set number. Right now the CPI is higher than those floors because unfortunately the things that make the currency move against us, interest rates primarily, do impact this. So we do get a little bit of it back by having higher escalators than we might otherwise have because it's tied to CPI. But just as an absolute number is really what I was referring to.

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 Phil Cusick,  JP Morgan - Analyst   [69]
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 Okay.

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [70]
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 That it's a higher number than what you'd --

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 Phil Cusick,  JP Morgan - Analyst   [71]
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 So it's a higher absolute number but on a sort of inflation adjusted basis? Is Brazil not growing as much as the US at this point?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [72]
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 If you stripped out that piece, because the escalators actually have been in the US at a higher level than inflation has been for quite a while. So it definitely has been additive. If you do it on an inflation neutral basis, it has not grown as fast as the US. But again, it's a very small population to look at and to make that determination. We've not had most of these sites -- I mean the last 1,600 sites we just added in December. So, you know some of this is frankly too early to really kind of point to and say there's any meaningful trend to that.

 I think the reason for that though is it goes back to the economy and some of the issues that I was discussing earlier. But, when you look at the fundamentals of what has to happen, you've got a country of 200 million people. You've got wireless that's seriously lacking in terms of where it could be and should be and ultimately has to be for that country to move forward. We know that there has to be meaningful investment down there. You have a regulator that's kind of pounding the table. I think they're concerned with the Olympics coming and some other things that they're not where they need to be.

 So all of those things will push the carriers to ultimately have to invest because just like here, what do they really have? They have a network. That's what they're competing on. That's the biggest thing that that differentiates them from each other. So, we feel very comfortable that as a long-term investment, which is what Brazil is for us, that it will meaningfully contribute and add to our long-term sustainability of our growth rates.

 The US naturally has to slow and it is. But it has to slow just because we're getting that much bigger. If we had the same dollars this year that we added a year ago, we've lost 1% on our growth rate. So these markets like Brazil that are less mature and have a lot more opportunity will supplement that and I think we'll be able to sustain our long-term growth rate for years to come in large part because of the international markets we're in, particularly Brazil.

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 Phil Cusick,  JP Morgan - Analyst   [73]
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 Okay. Remind us how you financed those acquisitions and given what currencies have done, does that change how you would finance other deals going forward?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [74]
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 Well, we financed everything off of the US balance sheet. The reason for that decision was in looking at what we could do from a cost of financing standpoint, Brazil was substantially more expensive, but also on a leverage basis we were able to get substantially more leverage off of our US balance sheet. Sitting here today, it's very easy to look back and say well that was the wrong move because the currencies moved so dramatically, we could never have anticipated that kind of a move or we didn't anticipate it anyway.

 So in retrospect, we certainly would have been better off with 13% debt and 4 times leverage than what we thought we were getting, which was 2.5% debt and 6.5 times leverage. You know it seemed like a no-brainer at the time. But the currency moved so substantially that in retrospect that actually was not a good trade.

 But I think going forward, it's hard to imagine that we'll continue to see those kind of substantial movements and for the time being, we'll focus on financing this off of our US balance sheet but we're also not putting additional capital in today. We're funding all of our investments in Brazil from the cash flow that's being produced locally from the assets that we've already bought. So long as we can continue to do that, it's really not a question. We're financing it with re-I's that we're generating.

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 Phil Cusick,  JP Morgan - Analyst   [75]
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 Good. There's a question here.

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Unidentified Audience Member   [76]
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 Yes, I guess on the whole small cell issue, one of your compatriots is quite bullish on it and you know you guys are not. So what are they missing or what are you missing? I mean could you talk more about that, please?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [77]
------------------------------
 Yes, I mean it's -- I think and it's hard for me to comment specifically on what our peers are doing and what their line of thinking is. I can tell you that our view is that small cells or DAS is a good business. It's just not as good as towers. I said it before, I mean really we're making decisions on how to allocate capital into what we think will be the highest returning investment. In our view, at least today, that has been towers, whether they be domestic or international towers. So that's why we've made the decision that we have.

 But, that doesn't make that a bad business. It is a good business. I think there's potential there. Our view is that you have to be very focused though on the types of networks or locations that you're investing. You have to be comfortable that you definitely can add multiple tenants, otherwise, just like a tower that only has one tenant, it's not a good investment if that's all you ever have.

 This business also requires a lot more capital to add those second tenants. While I know the carriers contribute to that capital typically, they're really just buying down their recurring rental rate that they're paying. So, over the long term, you're kind of losing the value that really should be there. You'd rather have them pay more rent and incur the capital yourself.

 So, there's a number of things with that business that we think you have to monitor. Doesn't make it a bad business. I think in our -- in Crown's case, is that's who you're referring to, they -- you know they have transitioned somewhat to more of a yield stock. They're a big dividend payer. I think some of the investments they're making are very good for what they're trying to do and support their dividend. In our case, we're not done being a growth company yet. We still see a lot of years of opportunity in that area. So it's a different model. If you're a yield stock and you can invest in something that you think will yield 6%, 7%, that may work if you're just supporting a dividend. In our case, that's not a high enough return frankly.

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 Phil Cusick,  JP Morgan - Analyst   [78]
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 Last question, what do you see in the private tower market, in the US right now? Have the return expectations changed from people you're competing with?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [79]
------------------------------
 Yes, I think things are definitely full in terms of price expectations in the US tower market. A lot of that's just driven by natural supply and demand. You've got less supply and more demand. All of us, meaning the bigger tower companies and some smaller guys frankly, are all out there very competitive in terms of trying to add assets. So, somebody who's got good quality assets is able to command a high price.

 So for us, you know we have return thresholds. I'm sure our peers do too. If we can get deals at levels that meet those thresholds, we do them. If we can't, we're ultimately kind of matching everything up against stock buybacks as kind of a base case. We haven't done any stock buybacks for four years. But that ultimately is the base case alternative for use of capital. That will return a certain amount, we believe, in terms of what it -- depending on the price you're buying at, to our shareholders. So we certainly don't want to do acquisitions that are going to return something less than that and have some risk associated with them in terms of lease ups.

 So, for us, you know we'll do alright. We're actually having a pretty good year this year in terms of domestic M&A. But we're not going to end up with everything and I think between all of us, the difference really comes in terms of views on future lease up or even churn risk, cause otherwise it's all pretty much the same. We're all kind of in the same boat.

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 Phil Cusick,  JP Morgan - Analyst   [80]
------------------------------
 So, with fairly full domestic prices and international a little more volatile, you think that buybacks are looking a little more likely over the next year than they were over the last?

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 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [81]
------------------------------
 Yes, I mean we haven't done as many because we had our convert to settle, which we did in the first quarter. I think now that we're through that, buybacks would be a reasonable supplement to our capital spending program.

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 Phil Cusick,  JP Morgan - Analyst   [82]
------------------------------
 Good. Thanks, Brendan.

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - EVP and CFO   [83]
------------------------------
 Great. Thanks.

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 Phil Cusick,  JP Morgan - Analyst   [84]
------------------------------
 Perfect timing.




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