What was the reason for the move to the... Oh, oh, look. Good morning. Thanks for joining us at the 51st annual J.P. Morgan TMC Conference. I'm Phil Cusick. I follow communications and media space here. Welcome, Jeff Stoops, CEO of SBAC, since 2002, and retiring at the end of this year. Congratulations, and thank you for joining us one more time here.
Thank you, Phil. This has been a great conference for myself at SBA, and I'm gonna miss it.
I'm not sure I believe you.
No? True. True. True.
Thank you.
Good morning, everyone.
you know, I thought we'd start with if you look at the business running now and the next sort of three to five years, the outlook there versus the last three to five years in terms of activity and what carriers are doing as the conversations you're having with carriers, how should we think about that sort of level of business going forward versus looking backward?
Yeah. I think if you're looking to the next three to five and comparing it to the last three to five, you'll see a lot of similarities. There are cycles with all carriers and with all generational upgrades. You know, last year happened to be the early days of the 5G coverage deployment here in the U.S., and you had everybody very, very busy. You know, much like I would compare it to 2014 for the 4G. You had that. Now that's in the U.S. In our other markets, you know, we have varying stages of development. You know, Canada is probably a little bit closer to the U.S. South America would be a little bit behind that.
Africa, you know, they're still doing a lot of, a lot of 4G work, let alone, not even yet getting to the 5G. I think much like the last 25 years has been, there are cycles, there are times where there's more activity than not, but there's always activity. The one thing that has remained constant over the years, and I don't see that now is any different, is that the physical demands of the network, are always greater than what the today's investment and capabilities are. It's really, I mean, it's a business decision for our customers all across the globe as to what, type of investment they wanna make in that today.
That's really what drives the activity level, not the demand, because the demand is really quite great.
As I think about the driver of a lot of your business today, you know, people talk about 5G, but I care more about the spectrum bands that are being deployed, right?
Mm-hmm.
Right now it seems like a lot of the driver, T-Mobile with the 2.5 is mostly done, and a lot of the driver of the business is that 3.5 mid three gigahertz spectrum. How much of that has been deployed on your network? Where are we in that process?
Well, from a total mid-band spectrum, if you look at the aggregate of all four nationwide carriers, including DISH, we're below 50%. There is a long runway to go, and all the activity today is still primarily coverage based. I don't believe that's over yet. I mean, if you go back over history, you'll see that the big initial push, usually in the first year is coverage, but then there's two to three years of additional coverage infill, before... You know, the coverage, that's really the table stakes for our customers to compete with and attract customers. Then as you move to densification, that's really gonna be much more demand driven. I don't, I don't see for 5G that that has really started just yet.
You know, for a long time that I've been doing this space, we would add spectrum in 10 or 20 megahertz at a time.
Yeah.
They're adding 150 MHz. Do you think the timeframe between coverage and then the later densification is gonna be a longer lag than we've seen before because of that huge increment?
You know, on the one hand, you're right. There's a lot more spectrum swaths out there. The uses, both existing and proposed are huge consumers of bandwidth. You know, that extra spectrum may be used up quite rapidly. I don't know if you saw, but CTIA sent a request, a plea to the White House to free up additional spectrum because they think we're gonna be in bad shape if we don't get something else besides what we have today. In terms of, you know, when coverage turns to densification, I think a lot of it has to do with use cases, economics, and demand. The coverage has to be there, our customers will watch the demand and densify appropriately.
Whether it's gonna be longer or shorter, I think a lot of that will be dictated by the demand on the network, which in turn will be influenced by, you know, the killer 5G application that we all have to rush out and buy.
Still waiting for it.
It's not here today.
Not here yet.
It's in the works.
John Stankey is gonna tell us about it at 5:00 P.M.
That's great. I'm anxious to hear.
Everybody should show up. Maybe he will. You know, this year you've talked about leasing activity, very front-loaded.
Yeah
... sort of flowing through the year. How should we think about that being... I mean, it's the end of May. Are we essentially set on what the year is gonna look like at this point?
Yeah. I would say we're 95%-ish, booked and baked. I think you're talking about the, the $72 million?
For the U.S., correct.
Yeah. A lot of that, of course, comes from activity that we booked last year. Signing up leases, signing up amendments. We really have, you know, not only good visibility there, but you have to understand that that number is a trailing kind of indicator in terms of activity. Your question was, you know, where are we this year? Is it gonna be front half? It will be front half baked on that number, in large part because a lot of what went into that number got signed up last year. That was a reflection of T-Mobile's activity levels, which are still very strong, but peaked last year. DISH, of course, which is moving towards the June coverage requirement date, which I think they're in very good shape for.
Of course, a lot of that work had to have already been done by the time, you know, we get to this point.
Yeah. Speaking of DISH, how do you think of the lull that we are sort of walking into as they finish up this June build requirement and then so have some time before they get to the June 2025? What's the thinking on the level of lull that we're gonna see here?
You know, I think it's good business sense on their part. They're very much managed towards meeting their deadlines. They're doing it. They're very good, frankly, at what they're doing in terms of the network. Their people are smart, they're experienced, and, you know, we've enjoyed working with them and think that they're, you know, they're very good on the ground. It doesn't really surprise me that once they get to this monumental date of June, if they have concluded that they have a little bit of time to get ready for the next deadline, that they take that. That seems to be, you know, the right thing for them to do, actually.
Yeah.
In terms of how long it takes, you know, can't take a year. It's gonna be something less than a year before they have to come back and get started on that next wave of deployment to meet the 2025 deadlines.
Have you seen the applications or the beginning of applications for that next-
We have. We've actually gotten into a fair degree of planning with them, so we know it's coming. We've had extensive siting discussions with them in terms of, you know, which of our sites are gonna meet the next phase of their obligations. We have a great relationship with DISH. I mean, we're well ahead of our minimum commitment with them, which was struck over a five-year period of time. You know, we're not even into the last phase of buildup.
Yeah. You know, the markets are concerned with DISH's viability.
Yeah.
I imagine that your accountants have looked at this pretty hard and tried to figure out where your position is in different scenarios. How do you think about the sort of worst case for DISH and implied for SBAC?
Well, obviously, we all want DISH to succeed. You know, the way we have conducted our business with DISH, we lease space to them on existing towers, so there's not any amount or certainly any material amount of new capital that we are putting into that. In terms of our leases, you know, I don't wanna get into a detailed bankruptcy analysis, because I don't think they're gonna get there, frankly. If you wanted to go down that route, I would say, you know, we've obviously looked at all that and believe we're well positioned. You know, the goal here for everyone in our industry is for them to succeed and, you know, be a viable nationwide fourth player for a long time.
I think that makes sense. You know, as we've seen inflation picking up, there's been discussion about, you know, how do tower companies respond to that? Is there some flexibility in leasing or when you go through renewals and amendments to sort of address the higher level of inflation going on? How do you think about that? Is it a discussion with carriers today?
Yes, there's always a discussion, although the discussion is a little different back compared to when inflation was at 1.5%, as to, you know, who wants to change that dynamic, as you can imagine. I mean, in our case, we have master agreements that generally provide for à la carte pricing on amendments and new leases, and those escalate every single year, much like a co-location, a new lease would. You have that built-in mechanism. Then, of course, when the agreements would expire, and they're typically 5-year agreements, you would have the right to renegotiate your pricing at that time. In terms of the embedded base, you know, we're still 3.25% on average as the escalator.
You know, today, maybe we're not on the right side of that from a pure inflationary perspective. If you look back over time, you know, I think we're pretty pleased with where things have turned out.
1% rates worked out pretty well.
1% inflation.
1% inflation.
Yes.
Worked out pretty well.
Yeah, we're rooting for that too.
Yeah.
Yeah.
You know, there was a contract a couple weeks ago announced between Verizon and.
Mm-hmm.
another build-to-suit player. Is that a business that SBA is in these days, looking at those build-to-suit contracts?
You know, we are in the build-to-suit business. We're very selective, and that particular, you know, announcement that you're talking about, on the surface, it looked like something that could be attractive. Obviously, it's all based on the terms and whether it's mutually beneficial or not. I will tell you that the new build business has gotten a lot tougher because costs have gone up quite materially over the last 18 months, and the rents that carriers pay have not gone up, you know, commensurately. The new build business has gotten incrementally tougher. You really have to be very confident about that second or even third tenant to make your numbers work out.
While we're, yes, very interested in pursuing the business, it's gonna be as it has been on a selective basis going forward.
Costs have gone up, so the cost of money has gone up, absolutely.
Cost of money.
The cost of, I imagine, construction...
Cost of steel, cost of labor, cost of concrete, all those things have driven, the cost of a new build up at least 50%.
Five-zero.
Yeah, in the last two to three years. That's a big change.
Yeah. When we saw a different one of these BTS deals signed at one point a few years ago, there was a lot of controversy about it. It was interesting that no one was really excited about it when it came out. I didn't see a lot of pressure from tower companies or pushback. Do you see carriers sort of, you know, moving forward, and these BTS deals are mostly rural and expansion?
You know, I think our customers are looking for, you know, a lot of solutions because, you know, go back to my earlier comments about the network demand always being greater than the amount that's being invested. They're looking for solutions. I mean, some of them have obligatory build-out requirements based on either the auctions or the acquisitions. You know, what our customers have done is they've found, for them, good sources of cheap money with this influx of private equity and infrastructure dollars, which has really, you know, provided them some very good and different alternatives. Which is in part why we did not play in that space to a greater degree than we did because this rush of money coming in kind of upset the economics.
As long as that is still out there, and I think it is today, I think our customers are gonna have some different solutions.
You know, you mentioned that the costs have gone up, but we're a year, more than a year into the higher rate cycle.
Right.
We've started to hear in fiber about companies walking away from, you know, new builds, not just the big headline companies.
Right.
Some of the private equity backed ones as well. Are you seeing that all in the BTS world, or are you seeing any pain among sort of private equity?
We have seen across the board a pullback in numbers. I don't think you will have this year the same number of towers built in the United States that you had last year. A number of these private more build-to-suit focused companies have announced some layoffs. If you look around the general wireless services industry, you'll see that things are a little bit slower on the new build front. Whether it's cost of money or the cost of the actual construction, it's obviously the combination of both that I think is impacting some things.
Are they starting to call and look for a lifeline from you?
There's The phone rings more. Yeah, there's a little bit more conversation than there used to be.
Yeah. For your own cost of capital, in the past, you've raised secured debt and then within spitting distance of investment-grade rates.
Right.
How should we think about that today? What are the banks telling you? You've got this revolver that's pretty expensive. How do you think about that over time?
Within the last 12 months, the historic relationship between investment grade and, say, triple B and single A ABS has flip-flopped. The ABS used to be cheaper, and today it's not. It's maybe 50 basis points, you know, more expensive. We're watching that carefully. I don't know, but we're watching as to whether that is a permanent change, or whether things will as rates peak and then begin to pull back down, whether that will reverse itself to its historic norm. We're watching that carefully, and that's one of the reasons we could, if we decide that that is more of a permanent change, we could decide to go or not more, but in fact, investment grade. Paying down the revolver helps with that.
It's kind of an easy position to be in today because it's accretive, obviously. It's a cost of debt that 6.5%-ish is, you know, we may as well take that out. By delevering and then building that capacity back up, we're very well positioned for what we do believe will happen, we just don't know when, will be a peak in rates and then a, you know, a decline. For us, we think it's a, it's a smart, no-risk way to build optionality and build flexibility for the future.
The only thing I don't understand about that is that if you believe that rates will roll over at some point, then the cost of that revolver will come down as well.
Mm-hmm.
Your stock should go up.
Mm-hmm.
taking out effectively permanent capital by taking out equity today rather than taking out that revolver just makes more sense to me at a certain price.
You're right if you know that rates have peaked and are ready to begin to come down. I agree with what you're saying, theoretically, but I don't know that today rates have peaked, and with the debt ceiling and all those things going on, it's a little bit, in my opinion, a little bit of a dicey time to increase leverage with a high-cost revolver that maybe the cost is even going higher.
Right. Not willing to take that bet?
Not today.
Yeah.
Theoretically, I totally agree with you.
Okay.
Yeah.
I'm gonna switch to international. We have a small enough room that if anybody wants to ask a question, if you raise your hand, I'd be happy to take it. Let's flip over and talk about some of the international markets. Start with Brazil and the new government there. Does that change at all the situation with the carriers? I mean, it seems like they're gonna do their thing regardless. Have you heard anything changing?
Have not. We entered Brazil back in 2010 when Lula was president, so we have experience with him. You know, their situation today is a split government, much like it is in the United States. There has been no discussions by either party down there of anything that would be materially adverse to the wireless carrier industry or the tower industry. You know, from our perspective, and, you know, obviously we're watching it carefully, but I do feel like it's gonna be business as usual. Business in Brazil is good. I mean, they're working their way through the Oi consolidation. In general, I think it has been the positive event that we had always long discussed, that that was a market that really was better rationalized to three carriers instead of four.
You know, things have stayed very busy down there, and I think will continue to be, given the dynamics. They're even more of a wireless society than we are, if you can believe that, and they have less fiber, and more and more people are relying on wireless as their source of broadband than in this country. We like Brazil, and I don't think the Lula situation is going to be material.
Okay.
Yeah.
Where is carrier activity? Just compare where we are today versus, say, three years ago.
In Brazil?
Yeah. Five years.
Yeah. Well, they had a big auction last year, which is just getting off the ground. That was their 5G auction. They're gonna be behind the U.S. That auction brought with it some coverage requirements that, I don't know if it's every single part of Brazil, but certainly the vast percentage of the population has to be fully covered with 5G service by 2029. A lot of activity to go down there.
That's not that far away.
Nope.
They're just getting started on the 5G deployment, right?
Yeah, just getting started.
4G was effectively fully rolled out?
No. Still not-.
Still not.
Still not fully rolled out yet. Yeah.
Okay.
Most of their development is not, 5G standalone, so it requires the 4G base to build upon. You know, we look at Brazil as, you know, much like our history has been in this state, this country, that while there are peaks and valleys of activity, there's always activity.
Yeah. You own towers in a bunch of other Latin American markets as well.
Mm-hmm.
Anything getting better or worse in any of those that's worth calling out?
You know, from a political or a country perspective, they're not any better or any worse. What they are most influenced by, just like here in this country, is how much money do the wireless carriers wanna spend? That's really the driver for our industry across the world because, the demand is so great. The wireless consumption curves, traffic curves continue to climb at, you know, double digit rates. It's all about how much investment do the carriers choose to make in any given year.
Okay.
There are some countries where that's going, in Latin America, where that's going greater than other countries, just as it always has been.
Okay. Okay. shifting to Africa, you recently bought an asset in Tanzania. How has that gone since you bought it? You know, better or worse?
It's going little bit better than expected, because we've gotten in and have brought some operational expertise and some techniques that were not, you know, previously applied. We really like where things are. It's a stable market. The government is very much pro-investment, very much pro-wireless because they believe that that will be one of their main tools to help elevate the middle class. The market and the conditions are good. We're learning the power business because it's a little bit different there than it has than it was in South Africa, which is mostly connected to the grid. We're learning it well and, you know, coming up with some great solutions that the prior owner, which was the carrier, Airtel, who we have great relationship with, you know, they weren't using.
We're very happy with that investment and happy we made it.
I asked you about power on the last conference call.
Mm-hmm.
Maybe talk about that. Expand on what's going on in Tanzania versus what's happening in South Africa. Then you also mentioned that security is a requirement there as well. Talk about those opportunities for SBA.
Tanzania is a market where a lower percentage of the towers are connected to the power grid.
Mm-hmm.
South Africa has the greatest percentage of connection to the power grid. having said that, South Africa is having some very well-publicized issues.
Yeah
...with its power grid and the, and the blackouts and the, you know, the rolling blackouts, and we can talk about that and how we're dealing with that. In Tanzania, you're providing, the strategy there is to extend the sites to the grid where you can, and then if not, you're provisioning diesel and generators. It's a bit of a fuel and energy solution as much as it is, you know, the operation of the towers, which frankly is pretty much the same all the way around the world. Where security comes in in Africa is a power solution is more than just connecting to the grid. It's batteries, it's rectifiers, it's equipment, and you have concerns about theft in some cases. To really provide a power solution, you have to also provide a security solution. That security solution typically involves hardening sites, hardening cabinets, you know, making it more difficult for people to come in and take, you know, what they shouldn't be taking.
I think of like a lighthouse keeper. Do you hire a guy to sit on the top and have his family?
That's probably something we've looked at, yes.
Yeah. Well, you know, companies like IHS are spending a lot of money on what they consider GreenPower What about batteries and solar and things like that in Tanzania rather than generators?
Yeah, those are options as well. When you collect the solar, you have to have a battery.
Yeah
...solution to make it all work, and storage, and then you still have the transfer equipment. Those are the issues that really bring the security to bear. Sure, solar in Africa is going to be a great partial or in some cases, entire solution to the power issues.
Is that security and power, is that best done by SBA? It's not really your core competence around the world. Is it, is it better to sort of create a new company to do that, or you wanna do it yourself?
There are a few companies that do it, I mean, much like we have done services on our own towers, if we can find a way to do that where we are the best ones doing it in the most sensible manner with the best margins, our customers want it. We have to be creative and figure out what's best for them and what's best for us.
Okay. Okay. Are you open to more African expansion?
We are, under the right circumstances. I mean, the Tanzania and the South African experiences have been great for us. Don't know that we'll find another one like that, but if we do, we'd be very interested.
As you look around the world, you know, we went through a period, and probably because there was a lot of cheap capital going around, where there were just a ton of carrier sales at high multiples.
Right.
Haven't heard about many of those lately. What do you see in terms of carrier momentum in terms of getting those done?
I think you're seeing more of that in Asia, and I think you're seeing more of that in the Middle East. You're not seeing a tremendous amount globally compared to what I would say we saw three, four years ago. I do think the current financial conditions and cost of debt are weighing on that a little bit. In general, the model of carriers selling their towers and the rest of their fixed infrastructure, that really has been universally adopted across the globe, and I think you'll continue wherever you have carriers who haven't sold their assets, they're either considering it or they will consider it.
You have a small business in the Philippines. Are Asia or the Middle East otherwise interesting? If those.
We like the Philippines. What happened in the Philippines is that there's two main carriers there. There were several large sales that had some BTS components. We did not find the sale terms attractive, so we did not participate in those. Now we're strictly a build-to-suit company there. We think there may be some consolidation. There's a number of small tower companies in the Philippines, and it's a market that we like. We'll continue to stay and grow in, but it'll be a different kind of growth probably than initially it could have been.
Okay.
The Middle East, I mean, we look at everything, but we've not seen anything there that we've found particularly attractive.
Okay. You know, we've talked, sort of about a long-term FFO per share growth for the company of high single or I think Brendan mentioned last week maybe low double digits in some years. Do you think that that's a sustainable growth rate given maybe a higher cost of capital world, a little slower, fewer carriers, going forward? Is that a growth rate that can continue?
You know, if you look at our last results and you equalized just the interest rate, the interest expense for the year ago quarter, Q1, we would've grown, I think, 11%-12%. We do have the ability to, when rates are stable, obviously when they're dropping, but when they're stable, to achieve, you know, those kinds of those kinds of numbers. I think when it becomes very difficult is when we are in a increasing rate environment, which is what we've seen over the last year.
If you have even at a higher level of interest rates, once you get that base, as long as it's not increasing, and in our case, you know, x the Sprint Churn years of 2025 and 2026, there's no reason why, given the operating leverage in the business model, that we shouldn't be able to grow at, you know, high single digit, low double digit AFFO per share. You just. It's very hard to do that, in an increasing interest rate environment.
Right. Right. We're running out of time, you know, last question I'll probably get the chance to ask you on stage. Just going back over your sort of 20-year career, as you look at SBA over the, you know, the next generation of leadership, how do you think about the potential for the company from here? Should this be a sort of an independent public company continuing to grow? Does it need to be part of a bigger company? How do you think about this?
You know, the beauty of it hearkens back to when we took SBA public and we got a lot of questions about, "Well, why do we need you?" You know, the people thought about a commodity type of a business model, which of course we've proven that the tower model is not. We don't need to do anything to be larger in terms of joining with someone else. We certainly are interested in getting larger on our own, because there's certain efficiencies that come along with that. You know, we've always run the business, Phil, as if we're gonna be running it forever as an independent public company. That hasn't changed.
I don't think it should change, because I don't think that's the way to run a company, to rely on something else that's gonna be outside your control. You know, we'll see what happens. I think the tower industry has proven itself out to be longstanding, long-tenured. You know, one of the things that I will look back on with great pride and great enjoyment is, you know, I had a ringside seat to the development of the independent tower, you know, business model. I mean, way back when, they didn't even know where to put us in the research ranks and the capital markets didn't quite know what to make of this and how to value us and evaluate us.
We've actually, you know, fully developed that and brought that along so where the business model now is global, and I'm sure that aggregate valuation is over $1 trillion. I think the industry is gonna be here for a long, long time, and I say the same thing about SBA.
Yeah. Excellent way to end it. Jeff, thanks very much.
Great. Thank you.