Hi, my name is Richard Choe. I cover communications infrastructure for JP Morgan. I'd like to welcome Marc Montagner.
Excuse me, gentlemen.
Guys.
Gentlemen.
I'd like to welcome Marc Montagner, EVP and CFO, SBA Communications. Thanks for being with us today. I just wanted to start off, for people that don't know, you have 46,000 tower sites, most of them in the U.S., but also internationally. When you look at your portfolio, how should we view kind of the growth opportunities for both the domestic and international assets?
Yeah. In the U.S., we always talk about the threee plus three minus one or three plus 2.5 minus one, 3% growth from escalators that are in our long-term contract. About 2.5%-3% growth rate from new lease activity from the big three MNOs, minus 1% churn from non-Dish and non-Sprint. You get to 4.5%-5% growth rate. In international markets are all very different. In Central America, we just bought 7,000 towers from América Móvil. They gave us a 2,500 new build commitment over multiple years. Between, I think, co-location, new BTS, we are looking at a high single-digit growth rate. The agreement is all U.S. dollars. It's indexed to CPI, all in U.S. dollars.
Tanzania, that's a growth market. We're probably gonna build over 200 sites. The government is really pushing for additional coverage. That's growing in a double-digit. Our largest international market is Brazil. Brazil is about 15% of revenue. I think on the top line, I think it's really CPI driven, a local CPI, which runs at about 5%-6% in Brazil. New lease activity is probably around 4%. I think the issue in Brazil for the last years has been consolidation. Oi, the number four operators, has been consolidating to the other three, TIM, Vivo and Claro. We have many years of churn, and I think we're gonna see churn for probably for the next two years.
This year is peak churn in Brazil for us. I think, long term, if you rate that CPI at 5% or 6%, lease up at about 4%, it's high single digit growth.
Yeah. I think that's something that we kind of lose sight of sometimes, is that if we look at the U.S. business, you think long term, we should be growing at kind of that 4% or 5% level. Internationally, we should see that high single digit level when things kind of normalize, which at some point they will. Do you think those are the right way to think about the two parts of the business?
I think that's right. Even in the U.S., when we say 4.5%-5% long-term growth rate, this is assuming a three-carrier market. It doesn't take into account new use cases. New use cases could be drone delivery services like they do in other market where I think GPS may be not precise enough, has too much latency. It could be self-driving car, it could be computing at the edge for inference data center. I think the big question mark is what is Starlink going to do with the spectrum that is acquired. That spectrum eventually is gonna make its way for the market. It's way too valuable not to be deployed.
I think if Starlink were to deploy and then the band, I think that would probably mean a higher growth rate for us in the U.S.
Sticking with the three big carriers, it seems like a lot of them have kind of moved along with their 5G deployments, but they haven't really done as much of the densification as we might need. Do you still see a wave of co-location densification coming at some point? You know, it seems like there could be different points in time when each does their own thing. Given what you see on your sites and how they're looking at their kind of networks, do you see that coming at some point?
Yeah. They're all at different stage of development. I think T-Mobile was our most active carrier last year. They stepped down this year. We signed a new tenure master lease agreement with Verizon in November, they've been very active. They are going to be our most active carrier customer this year. AT&T signed an MLA with us in 2023, that's valid until mid 2028 in November. Yeah. Densification is definitely ongoing. I think, I don't know if it's fixed wireless access or other use cases, but the carriers have to add more capacity to the network, which is good for us.
A lot of the, I guess, expansion of domestic tower portfolios has been done by private companies, but it seems like there might be more opportunities or conversations to have with the carriers about build-to-suit domestically. Is that something that SBA might be more interested in? I know it's probably not to a scale that will move the needle a lot, but you know, every bit helps over time.
You know, I think we still build towers in the U.S., and we have the muscle, we have the people, we know how to get the licensing done, the permitting done. It's just the rates that the big three carriers were offering for new BTS, new build-to-suit were not attractive, so I think we were not participating. It looks like the dialogue is shifting a little bit and that those conversation are happening again. I don't really know where it's going to lead, but I think we are more than willing to do our share, yeah, and build for the right return.
You kind of mentioned it earlier, like, I think the way investors look at things now is on the traditional three-carrier market in the U.S. Even with them, I think they're talking about, you know, both Verizon today and I assume AT&T tomorrow, and that there might be other opportunities, not just their normal kind of wireless mobile service, that you might see more deployments to the edge. Are your tower sites well-positioned to kinda take on, I guess, new use cases, add more equipment, and even maybe longer term kind of mini data centers or edge deployments?
You know, there's a lot of talk about edge data center. I think that's something the industry talked about a lot about 10 years ago, that didn't materialize. In the age of AI, assuming you have a AI agent on your phone and your tablet, I think latency is gonna be critical because you wanna make real life decision, you're not gonna get the data from a massive data center in Montana or Texas. You want that information to be right at the edge of the network as close as possible to the user. The question, I don't have the answer to this, are you gonna see edge data center in a metro, the 50,000-100,000 sq ft facility in a metro that's gonna be a few miles away from the tower?
Is that gonna be good enough or does the data center has to be right at the bottom of the site? I just don't know, but we have the space, we have the power. For us, we are a passive infrastructure provider. We rent vertical space on our tower for radios and we rent horizontal space at the base of the tower for generator batteries, routers, a fiber cabinet. We're more than happy to make that space available to the carriers.
Yeah, no, I think people forget how much equipment's actually at, on your tower and then also at the base of the tower.
No, actually, you know, when I visited my first tower when I joined the company, I was really impressed by how much equipment there are between the generator.
-for the fuel, the batteries and so on. There's a massive amount of equipment there, plus multiple fiber conduits going there for the various operators. It's not an easy infrastructure to replicate, to be honest with you.
Yeah, no, it's so distributed over the geographic area.
It would be hard to replicate, especially if you need that low latency infrastructure. I guess we talked a little bit about international, but I think people don't understand or realize how much of the international markets are reliant on towers and there's not as much of a fixed line infrastructure. Can you talk about, I guess your Brazil, Central America assets, how longer term you see them playing as part of their technology infrastructure?
Well, I'm personally, I'm very bullish on Brazil. I have like 30 years of experience in Brazil in various company I worked for in the past. I think Brazil is a large country with a very high GDP per capita. It's four or 5x the GDP per capita of India. It's the largest country in Latin America. It's 15% of our total revenue, 5G is less than 50% deployed. It's a healthy carrier market now with three operators. You probably have around four towers per 10,000 people there versus 16 towers for 10,000 people in the U.S. It's a very young population and those markets have we pretty much bypassed the fixed line market.
I think the mobile market, and I think having gone through the Oi consolidation, I think one will not come back at, you know, another year or two with three carriers. They need to, they still have coverage requirement they need to meet, need to deploy 5G. I feel pretty good about Brazil long term. The country is doing very well. Inflation is under control. Central bank was very aggressive early 2025 in getting inflation under control. The country has a large positive balance of payment, exporting oil, commodities, mineral, agricultural products. I feel pretty good about Brazil long term, and I think we're happy with our position there. Yeah.
I guess, one of your peers is kind of pulling back from the emerging markets, but it seems like you still see a significant amount of opportunity in your kind of emerging markets. Is that fair?
Well, we remember when Brendan Cavanagh became the CEO in January of 2024, he announced a portfolio review. I think the screen that we use, which is in any international market, we either want to be the dominant operator, one of the leading tower operator in the market in order to have a seat at the table when a carrier wants to deploy any technology, expand coverage, or in subscale market, either we try to be the leading carrier or tower operators or exit the market. Applying that screen, we exited Colombia, we exited Argentina, we exited the Philippines, and we exited Canada. Canada was a great market for us, but with just a few hundred towers, we never had a seat at the table with the operators.
We did very well on the exit. We looked at Central America. We were already in the region, not being a leading operators. When Millicom put their towers up for sale, I think we saw an opportunity to be a leading tower company in a market where that has been fully consolidated already with Millicom and basically Claro, part of the Carlos Slim empire, as being the two main wireless operators and signing a 15-year lease in US dollars with a CPI escalator and a commitment to for 7,000 BTS for 2,500 BTS, I think, really made it a very attractive market for us. Yeah, I think it's really on a case-by-case basis. Where we see-
Uh-
We have expertise in operating, building, leasing towers, and if we see an opportunity to bring that expertise to bear, we are going to use it.
It seems like you've approached it from kind of a risk-adjusted basis where you feel like you have a leading position, but also, not a hopeful growth opportunity.
Contracted. Contracted. That's right.
Yeah, a contracted growth opportunity. It seems like without that, you probably wouldn't have done the deal.
I think that's right. I think that's right.
Yeah. That's great. I guess as you look at these portfolios that you have, are there any remaining that you might need to down or exit?
Well, we still have a few markets where we have a small position. If we see an opportunity to maybe become a leading tower operator, we may exercise it. Otherwise, we are very happy with the yield and the free cash flow that those markets are generating today.
Given, I guess, some of the changes in the U.S. market, with EchoStar, I guess maybe the growth has kind of been interrupted a little, but it seems like your leverage is coming down kind of regardless of that and will continue. Do you see a need to go to lower leverage, or do you feel like that's just kind of the natural way the business is gonna grow, is that your leverage is gonna come down, as your existing markets kind of continue to grow?
I think we have been an operator that earned 6.5 times of leverage for the past three or four years, I think it's the right leverage for us. I think S&P changed the methodology that they use for tower companies last summer, given the long-term nature of the business, the long-term MLA that we have with our customers, the fact that our customers are all investment grade. They basically came up with a new methodology, and if your leverage is below seven times, they rate you investment grade. Now we are investment grade at the corporate level with Fitch and S&P. I think our next step will be to issue an investment grade bond at some point this year.
Got it. It seems like you don't need as much kind of debt reduction per se, as we move forward over the next few years. As you know, you have your build-to-suit, it seems like if there are not good, I guess, reinvestment opportunities for the operating business, how should we think about your capital return profile over the next few years?
I think in terms of creating value for shareholders, obviously we need to operate in a very efficient way, serve our customers, do a great job for our customers, capital allocation is also a key factor in creating value for our shareholders. Last year, we spent about, with excess free cash, we spent about $500 million buying our share at an average price of about $200. Those numbers are public. I think I've used them in the past. Should we look at our guidance, using raw numbers, it's about $1.9 billion of EBITDA, minus about $530 million dividend. Another $250 million of maintenance and growth CapEx, about $70 million of cash taxes, about $500 million of cash interest expenses.
That leaves you with an extra $600 million to allocate to either M&A debt pay down or share buyback. Last year, I think given the level where our stock was trading, we spent $500 million to buy our shares. I think this year, I think we're probably gonna index towards buying back shares as well.
I think something that gets lost is that how much you're growing your dividend by. How should people think about the long-term growth rate of the dividend? Because it's a significant amount, but it's not static.
Right. I mean, last year we increased the dividend by 13%. Our payout ratio is about 41%. We believe that we could keep growing the dividend in low teens for the next few years. I think probably low teens for next three years is probably a good way to think about it.
It's interesting because, you know, you're growing your dividend double digits and you're buying back shares. It seems like there's this perception that the domestic tower business is not a good business anymore. Whereas, I think, you know, history has shown that it has been a very good business and probably should continue. What do you think investors are missing in viewing the domestic tower business today that they don't see in the future? Because there seems to be this big disconnect.
Well, I think it's, it goes I've been in the wireless industry for 30 years, the cycle repeats itself. Carriers buy spectrum, they roll out a new generation technology, they get a 10x increase in terms of capacity. The cost per bit that they deliver gets cut exponentially. When they roll out the new technology, their CapEx as a percentage of revenue goes to 23%-25% of revenue, then they go to harvest mode. If you look at 2022, 2023, CapEx as a percentage of revenue was about 25% for the big three operators in the U.S. Last year it was below 15%. It's gonna be below 15% this year again. Even in this environment, I think the tower business is still a great business.
You have optional spectrum next year. The FCC by law has to auction off the upper C-band. That's going to happen in the first half of 2027. It's probably 18 months of clearing. All the OEM have already 6G radios and equipment in the lab or in beta test. I think 6G is coming to market. If you're a carrier, you need to keep delivering bits at a lower cost. I mean, remember 20 years ago, you used to pay $0.25 for a minute of voice and $0.10 for SMS text.
The carrier is at 45% EBITDA margins, now it's unlimited. You could watch YouTube all day and pay $55 per month, and they still have EBITDA margins at 45% just because they have been able to lower the cost per bit that they deliver, and that's because of more spectrum and more radios on the towers and better technology. They're gonna have to keep doing it. Fixed wireless access is chewing up a lot of capacity. I think you have 15 million fixed wireless access customers in the U.S., hundreds of millions of handset users, and those 15 million fixed wireless customers are probably using 50% of the tonnage, 15% of the capacity on wireless networks today. The industry is gonna add another 10 million fixed wireless access customer this year.
The carriers are gonna have to build, I think more colos, more densification, but also bring 6G to market. I think if you take a long-term view between 6G in late 2028, 2029, maybe Starlink's deploying in the spectrum that they have. New use case like edge computing, drone delivery services, drone detection technology, self-driving car and so on. You're gonna see more use cases and the three plus three minus one could be something much greater than that.
It's funny, I was on a fiber call earlier last week. The person was saying how much fiber is actually going into drones. We don't see a ton of drones here today, but I assume we're just going to see more and they're gonna need connectivity.
That's right.
that way. It's one of those things that I feel like the carriers have spent a lot on spectrum and their network and we're kinda in this period where they're using up their capacity, but all the spectrum options coming down the line, and technology use cases that at some point they're gonna have to reengage in spending on their network. Is that kind of the way you look at things right now that we're kind of in this, you know, pocket of maybe lower new activity, but you see the new activity coming at some point.
I think that's right, 22, 23 was I think a peak of 5G deployment. The carriers are all in harvest mode. They have repaired their balance sheet. They're buying back shares. At some point, they are going to have to spend money on next gen, and then that's gonna drive, I think, a lease up for us, more colos, more densification, more coverage. I mean, remember, this infrastructure has been built over the last 35 years, and it's almost impossible to replicate, in a very I mean, you look at Florida, where we are headquartered, you look at Long Island, Connecticut, California. First of all, even if you could get the zoning to build a new site, the cost of the land is so high.
If you're a carrier, it's always easier to just add another piece of equipment on a site where you have fiber going in, you have a generator, batteries, you have all your equipment. It's just very difficult and very expensive to build a new site in those highly populated area, which is where basically people need coverage and people need more capacity.
Yeah. It seems like people keep thinking that the networks are built out enough, but I still have dead zones. I still have-
That's right.
Not great coverage everywhere. The FCC kind of approved the order for EchoStar to transfer its licenses, but with that there came an escrow fund and then also a build requirement for AT&T for 600 MHz. How does SBA view those two things and how does that impact you?
Yeah. 600, we are currently in a MLA with AT&T signed as mid-2023 until mid-2028. I think 600, we need more new equipment for AT&T. I think we'll be able to, depending on the timing, where they deploy in the 600 MHz band, we'll be able to monetize it at some point in the future. As far as the escrow agreement with EchoStar is concerned, I think it's good that there's an escrow account and there's a mechanism for resolving those claims. For us, it's not that material. I think we disclosed in the past that between unpaid leases and future lease commitment, we only had short-term leases with Dish and no lease up in our plan for this year.
Our exposure in terms of unpaid and future lease commitment is about $100 million. We hope to recover as much as possible. Remember, I mean, any payment has to either be support the settlement with Dish or approved by a judge. We just don't know the mechanics of it very well yet, but we hope to recover as much as possible.
No, that makes sense. In terms of your services business, it's something that I guess was running at a high level, has come down, but still is a decent amount. Can you tell us a little bit about the type of work you're doing and where you kind of see it going over the next few years? If I know you don't have a ton of visibility all the time.
That's a business where there's not a lot of visibility beyond one quarter really. It's really in the past was indexed towards one carrier. We're doing more work with a second carrier now, but that business is basically construction and engineering work. I think it's a good business because it keeps us in a dialogue with the customers. We understand where they're going, we could basically do the work for them. It's a good margin business.
There's just not a lot of visibility in that business. We think it's important for strategic reasons to be in the business. It's a great business, about $200 million of revenue for us every year.
Got it. It's not something you have to invest more in.
No.
It, it-
It's no CapEx in that business.
Yeah. It's one of those things where I see, you know, a lot of development, whether it is in housing or in kind of data centers, but a lot of growth areas of the economy are growing into new areas. Do you see more potential for tower activity as kind of we build out more communities, more areas of growth that aren't in the top, you know, 32 cities?
Yeah. No, I mean, you could look in Florida, Arizona, where, I mean, the, those exits keep going and growing. We work with developers. We usually, they own the land, they have exclusive right to the land. We work with them to build towers or even bring fiber to their development.
That's something we have a team that basically is directly involved with real estate developers trying to help out on that front.
Got it.
It's a real fact of life. I mean, developers are building tens of thousands of new houses, to grow those communities and, we wanna be part of it.
Yeah, no, I'm sure they want cell service in there.
They need cell service, yeah.
I guess the one thing we haven't thought about a little bit is the connectivity to your towers. You know, a bunch of years ago, there was a big upgrade cycle where you had to pull fiber to the towers and at a lot of towers, if not most, you have some type of generator backup. Can you go through kind of what kind of connectivity level you have at your towers? What kind of backbone, I guess, of the network there is.
Yeah, yeah. For us, I think we are passive infrastructure. We're a provider. We lease very cool space on the tower and horizontal space. The carriers are responsible for bringing the fiber to the site.
Most sites are gonna have three fiber connections. They lease space for a cabinet where they have basically the router, for the fiber, and space for the generator batteries and so on.
Yeah.
We are providing the space. It's with our passive infrastructure provider.
Got it. Do you feel like they're kind of maximize that space at your towers at this point? There's potential if we do see more edge capabilities that they could end up renting more space.
That's right. There's upside potential there.
All right.
I just don't know when or how it's gonna be materialized, but there's a lot of talk in the industry about edge computing.
Yeah. I guess of your tower portfolio, do you have a percentage or number?
Yeah, we've done the work. We're still doing the work. Not all of the sites have enough space or enough power for a small data center at the tower, so it's on a case-by-case basis.
It's probably a significant amount.
I don't know the number, to be honest with you.
Okay.
We're still doing a lot of work there.
Last thing.
It really depends how big a data center or a mini-.
Yeah
Data center you need and how much power. You probably need three-phase power. Not all sites have three-phase power, so it's a sort of up, bottom-up work that needs to be done there. We need to understand the demand. It's unclear what the demand is going to be.
Yeah, I don't think people quite know yet, but I feel like it's an opportunity would come down the line. Last thing I'd like to hit is that one easy way, you know, buying back stock helps, but also, buying ground leases kind of can help. What stock share are you there? I know you do a certain amount each year, but is that something that you kind of push harder on or is it?
Yeah. I think we started this 10, 15 years ago, way before I joined the company. We have been very aggressive on protecting our, I think our sites. We probably have the best team in the industry, very aggressive, looking multi-years ahead. I think we, annually, we spend between $40 million and $50 million buying ground leases to protect our site and also improve our margins. That's something we're going to keep doing. We have a very, very strong team. The gentleman running the team has been doing this for a very long time, and they look ahead and they create a lot of value for our company.
Great. You have a, kind of, a long pipeline of deals.
Yes. Yep, yeah.
That you end up closing on.
Yeah.
Okay. With that, I'll leave it at that. Thank you for joining us today.
Thank you. Thanks for having me.