Bank of America. I lead the North American Telecom Data Center and Tower Equity Research team. Really pleased to have Marc Montagner here again from SBAC. I am sure you all know Marc. We will go ahead and get kicked right off. Marc, thank you again for coming.
Michael, thanks for having me.
Do you have any safe harbor to review quickly?
No.
We can go right into Q&A then.
Let's go straight to Q&A.
Great. Why don't we start high level, Marc? Growth has been relatively constrained for domestic tower operators for a number of reasons. But if you're looking out for the next couple of years, what lead indicators are you watching for acceleration in domestic tower leasing?
Right. I think I've been in the wireless industry for 30 years now.
Yeah.
In the old analog, the GSM, CDMA, 2G, 3G, 4G, 5G, it's just a big cycle. MNOs either buy or receive a new spectrum band. They roll out a new technology, get a 10x increase in capacity, a massive drop in the cost per bit that is being delivered, and then they'll harvest that, basically, that capacity that's being put to use. If you look at CapEx as a percentage of revenue for wireless operators, when they deploy a new technology, it runs at about 25% of revenue. Again, massive capacity increase. They basically start selling aggressively and harvesting that new capacity, and they cut CapEx because they don't really need it, because they got the coverage and the capacity with the initial rollout.
If you look at 2022, 2023, when 5G was rolled out by the three MNOs in the U.S., CapEx as a percentage of revenue was running at about 25%, and they spent over $40 billion per year building the 5G network. In 2025, 2026, I think we are in harvest mode. CapEx as a percentage of revenue is probably at an all-time low, below 15%. Even in this environment, we are still seeing lease up on our portfolio.
Last year, excluding Dish, lease up was about $35 million. This year, our midpoint of our guidance is about $35 million a year, and it is steady. At some point, 6G will come, and the CapEx cycle will start again. I feel pretty good about the next few years. The FCC is auctioning 160 MHz of upper C-band spectrum by June of 2027.
It will probably take 18 months to clear, but I think by 2029, or maybe late 2028, 6G rollout may start. The OEM from Nokia, Ericsson, Samsung, all have basically 6G equipment in beta test, and they will be ready to roll out the new technology. That is going to, basically, it is going to be more spectrum efficient. It is going to deliver more bits per hertz than 5G, and also it is going to dramatically cut the cost per bit that is being delivered to the end user.
I think it is just going to help the MNOs to provide new services, and support new application from AI agent to fixed wireless access, self-driving car and so on. We feel pretty good about the next few years. In the current environment, I think the MNOs are still spending money, still expanding coverage, doing densification, collocation. I think our role is really to support their build, support their network. We try to provide a high-quality network, be very responsive to their need, and be there for when they roll out 6G.
Marc, can you bridge me from 2026 to 2029, right? Because you mentioned the C-band auction. That is the next big event, right, for carrier wireless spending. You already mentioned, probably 2029, 2030, before that spectrum is cleared. 4G standards and technology also will probably be deployed in lockstep. What is the bridge from 2026 to 2029 that could be an incremental catalyst for growth, right?
A couple things come to my mind, and add more, please, if I am missing anything. You have the 600 MHz spectrum that AT&T acquired that they could not deploy with a simple software upgrade like they could for 3.45, right? That will be deployed. That is number one. Love to hear, I guess, how meaningful that could be to SBAC. Second, you mentioned Dish briefly, and we all know that Dish basically just stopped making payments to vendors last year.
I'm not going to talk about litigation, but they were a contributor to revenue for SBAC. Love to have you round up how much. Then one of your competitors mentioned that they felt that Starlink, if it wanted to have a terrestrial component, could potentially just take over some of the old Dish equipment and resume those payments. So that's number two, as I'm thinking about potential drivers of revenue growth.
Then third, in my mind at least, would be Carrier if they're deploying FWA for their broadband strategy, potentially needing to densify, add capacity as they are overselling existing capacity in certain areas. So those are the three things in my mind between 2026 and 2029. Can you walk through each one maybe and add any that I missed?
Yeah, sure. There are some other use cases.
Please, yeah.
I'd like to point out. So let's address Dish first. For us, it's $36 million a year.
Yep.
We are taking a churn in 2026, and there is no ongoing assumption as far as revenue is concerned. We have a litigation against Dish. Our total claim is less than $200 million between unpaid lease services.
The smallest of the tower carriers.
This much.
Other operators, yeah.
It's less than $200 million between decommissioning cost and unpaid lease payment. Don't know what the recovery will be, but in the scheme of them, it is not that material to us.
As far as let's just talk about them one by one. 600 MHz from AT&T. We have an MLA agreement with AT&T.
So is we going to depend, that is in place until June of 2028. How much we are going to benefit from the AT deployment in the 600 MHz band really depends of what type of equipment and the timing of it. So it's still a little bit unclear at this stage. Let's talk about SpaceX. I think, I give you the analogy of SiriusXM, for example.
It's a satellite radio service, but in order to make sure that when you drive down narrow streets surrounded by tall building in New York City, or if you're in a suburban environment with trees, you still get the signal. They have thousands of repeaters in the U.S. that receive the signal by the satellite, and then get rebroadcasted terrestrially.
If you look at SpaceX, or Starlink, if you really want to provide a direct-to-handset service, first of all, a base station has a capacity of about 100 satellite. There are about 200,000 base stations in the U.S., so just imagine how many birds you will need in the sky just to replicate that capacity. Satellite is great for coverage, is not that great for capacity. In addition, if you're in a city like New York or tall building, in an office, in a conference room, in a hotel room, under a tree, you're not going to have direct line of sight to a satellite.
In order to have coverage and capacity in urban and suburban environment, I think the physics would tell me that they will need some form of terrestrial network in order to reach those dual mode handsets, and that would call for some form of terrestrial deployment. I don't know what the timing will be. I don't know if that's what the plan is.
I don't know what type of scale they may or may not build in the future. You have at least two very well-funded potential LEO operators between Amazon, Blue Origin, and Starlink that are trying to get into this space at scale. I feel that there would be a lease up potential from us from either Amazon or Starlink just because of their ambition. I think it would be very difficult for them to fulfill their ambitions without having some form of a terrestrial network.
Just on that terrestrial portion quickly, we hosted some expert calls a week or two ago. One with Dr. Saw from T-Mobile, another one with Crown Castle, just to address Elon Musk's comments from the 2Q call about deploying femtocells for the terrestrial network. If you could give me just a quick comment on your thoughts on the ability of femtocell to replicate the reliability and coverage needed in a wireless network, I would love to hear that.
Well, I think it's going to be very difficult to get the scale, get the capacity, and roll out rapidly using femtocells. I think they walked back those comments since the second quarter call from what I heard.
Okay.
I don't see that as being a good alternative, but I don't know what their plans are. We shall see.
Okay.
But I feel pretty good about, I think, SpaceX and Blue Origin eventually getting into the space, and that would create a new customer for us.
Yeah.
And we have plenty of space on our towers. We'll be more than happy to accommodate them.
Let's assume timing that you get spectrum in the handsets, and you get the V3s launching 2027, 2028. So their timing's like a 2028, 2029 from when you deploy a wireless service, a direct-to-consumer wireless service. How far in advance of that launch would you start having conversations with a potential customer? Would it be a year or two in advance to start deploying equipment? Like what's-
I think it's probably two.
What's the focus, the lead time?
It's probably a year or two in advance because for the-
You'd be having conversations end of this year, beginning of next year, if their aspiration is to launch service in 2029.
I think at some point those conversation will need to take place. Obviously, we are monitoring the situation. We are very excited about the opportunity, but it's too early to say, Michael. I just don't know.
I understand.
I can't speculate. I just don't know. It's too early to say.
Yeah. I appreciate.
I feel better in terms of short-term opportunity. There are a number of edge data center companies that have been funded. They are looking to basically lease space at the bottom of the tower, horizontal space in order to put a cabinet and install basically computing power for AI. It's like a mini edge cloud where they would basically build it, and they will come, just build infrastructure. When you think about it makes a ton of sense because you don't have zoning issues. You own an enclosed space. You have fiber going to those tower facilities. You have horizontal space at the bottom of the tower. You have power, and you don't have a zoning issue.
You would distribute the power across thousands of base stations, distribute the computing. The electricity would be distributed, the computing power would be distributed, and you could sell that computing power to companies selling AI application, with basically a very low latency, which could be attractive.
Other markets are starting and deploying drone detection technology. We have not seen that in the U.S., but you think about it's cheaper and with less latency than doing it by satellite. It's happening in Europe, it's happening in some countries in Asia. I don't know if it's going to happen in the U.S. or not, but that's another potential future use case. The infrastructure is in place. Self-driving car. I was told a Waymo car, for example, goes back to a warehouse twice a day to get the battery recharged. The car is cleaned up, and someone takes the hard disk out of the trunk, downloads the data, and puts it back in the trunk.
There's no reason why this couldn't be done wirelessly at some point in the future once you have 6G or more capacity on the wireless system. I think the infrastructure is in place. It's almost impossible to replicate it given the inflation and how much it costs to build a tower now. The zoning law really makes it very difficult to replicate that infrastructure in urban and suburban environment. If you're, I don't know, a satellite operator, you're wireless carriers, you're an edge AI company, it's so much easier to go to an existing facility than trying to build something from scratch. You piggyback on basically the power and the fiber that has been already put in place.
You mentioned edge data centers, and this is not a new idea, right? We were talking about it in 2016, 2017, and then I think the use cases failed to appear. Because the idea back then was that, I think it was going to mostly be for autonomous cars, right? Let's assume, though, the use case is developed now. How large of a market opportunity are the edge data centers? I'm assuming these are tenants. They're paying you rent per month for space and whatever else power and the access to the transport. How large is the opportunity? How many tower sites have you identified that could be attractive for edge data centers?
We don't know what the demand is going to be, but we probably have a few thousand sites that could basically a few thousand sites.
What would the rent be?
I do not know yet. I cannot speculate yet.
Okay
I think it could be a real opportunity going forward.
Okay, perfect. I want to shift gears and talk about international, where I think we are seeing stronger growth opportunity. Can you identify the markets where you see the strongest growth potential internationally, and then the drivers of that growth?
Sure. Let's start with the one closest to home, Central America.
Yeah.
We bought 7,000 sites from América Móvil about a year ago. We like Central America. It is a consolidated market, two wireless operators, Claro and América Móvil. There is no more further consolidation risk. The contracts are in U.S. dollars with a CPI escalator, 15-year contract. We have a BTS commitment from América Móvil to build 2,500 sites over the next few years.
We are probably going to build 400 BTS in Central America this year, approximately. We probably locked in a mid to high single-digit growth rate. The governments are pushing hard for expanded coverage. América Móvil is very aggressive in terms of growing the top line and capturing market share. Any tower we build could potentially accommodate collocations from Claro. We feel really good about Central America. The largest market is Brazil. It is probably 15% of revenue, 15% of EBITDA.
Brazil is being consolidated from four into three. Oi, the fourth wireless operator, is being carved out to Claro, Vivo, and TIM. We have been facing elevated churn in Brazil for the last few years. Oi Wireline is going out of business, so it is $14 million of churn this year. We are going to have elevated churn in Brazil this year. I think we have about, midpoint of our guidance is $38 million of international churn.
Three-quarters of it will be Brazil this year. We are probably going to see elevated churn again in Brazil in 2027. Then it should be a much more stable market once the Oi churn is behind us. We like Brazil as a country. The population is young. The number of base station population density is still very low, about 25% of what it is in the U.S.
5G is less than 50% deployed. The operators have coverage requirement. There is more 5G auction spectrum coming to market. The country is doing very well. Balance of payment is positive, $4 billion-$5 billion a month. Large exporter of mineral, agricultural product, energy. We feel pretty good about Brazil in the long term, and once it is consolidated with three operators and Oi churn is behind us.
That should be probably a mid to high single digit market long term. It is kind of flattish today because of the churn. Tanzania, it is still small, but growing at double mid-teens for us. Probably going to build close to 200 sites in Tanzania this year. The government is pushing the operators to expand coverage. It is probably the only telecom infrastructure in most of the country is wireless.
People use wireless and wireless app for payment and all sort of application. We feel very good about Tanzania. Then we have three very small markets in Latin America, Chile, Peru, Argentina. They are all very immaterial. We do not have scale in those markets. We are harvesting those markets, running them for cash basically, and not growing.
Okay. Makes sense. I want to turn another important component of growth in the next couple of years, and that is just the balance sheet and debt refi. I know investment grade was a priority of yours for a long time, Marc, so congratulations once again on getting to investment grade. You, as other tower operators, have debt maturing in the next year or two that carries relatively low coupons, right? Can you just walk us through what is maturing remainder 2026, 2027, and your thoughts about potential for refi rates versus the expiry?
Yeah, that is a good question. I think we had a number of low-cost debt that is being refi-ed in 2026, 2027. That is creating a higher cash interest expenses for us in 2026, 2027, and is putting pressure on FFO and AFFO per share. We just did a $3.5 billion investment-grade transaction on July 14 of this year. A very attractive pricing. I think we hit the market perfectly. We got lucky in terms of timing. We had $1.1 billion drawdown on the revolver. We fully paid down the revolver. We paid down our Term Loan B, $2.3 billion, and we still have about half a billion dollars cash in the balance sheet following that transaction. Coming up is a $1.2 billion ABS in November of this year. That was a one handle on it.
There is a $1.5 billion high yield maturing mid-February with 3% and 5%, 8% coupon, and there is another $900 million ABS in April with a one handle on it. We intend to refinance these securities in the investment-grade market, assuming low 5% coupon. This is going to create pressure on FFO and AFFO per share in 2027. But past this last wall of refi, I think by 2028 we will not see increased cash interest expenses. We will be in a more stable environment. We will have in place basically a long-term investment-grade debt deal in place and full access to capital. A $2.5 billion revolver is on top, so we have plenty of liquidity.
Okay. We've talked throughout 2026 just about your guidance for the year and the number of pressure points from the Latin American churn. Refi is a bit of a pressure in 2026, and then the carrier activity being slower domestically as well. As I'm thinking about 2027 of the conversation we've had so far about bridging to the growth further out, it feels as if carrier activity is probably relatively stable, maybe even down.
We don't know. More pressure from refi. You're working through most of the LatAm churn, I guess, but still some residual Brazil churn in 2027. So it feels to me, thinking about the growth outlook, that 2027 could look a lot like 2026, and then 2028 is when we start ramping into less headwind from refi and then potentially more carrier activity.
Am I framing that all correctly, just back of the envelope, if I'm thinking about FFO growth?
You know what? I would agree with you, Michael. I really think that 2027 is a transition year.
Yeah.
Still elevated churn internationally. At least the $56 million of churn from Sprint and $36 million of churn from Dish will be out of the way that's worrying us in 2026. International churn should be elevated but start to come down.
Lease-up, it is still unclear what 2027 is going to be. I do not think the network teams at the three MNOs have received their budget for 2027 yet. I am sure that work is being done in the fall, so we will probably get more visibility by December or January of what the CapEx spend is going to be for the MNOs in 2027. The pressure really in 2027 is going to be just like 2026, international return, higher cash interest expenses. But we will set up the company very well for a pickup in growth in 2028 going forward.
Okay.
Meanwhile, our dividend yield is 2.5%. Last year, we intend to keep increasing the dividend at low double digit for the foreseeable future. Our payout ratio is low 40%, about 41%, and we have room to increase the dividend for the next few years. Last year, we bought $500 m illion of share at an average price of $200. I think we believe that share buyback at the current valuation is accretive to FFO and AFFO per share, and creates value for shareholder in the long term. So we were not shying in terms of buying back shares last year.
We did not do it in the first half of the year because we had $1.1 billion drawdown on the revolver. We had to do our refinancing first. So the revolver is paid on. We have a new $2.5 billion revolver that is untapped. Access to investment grade market. We have plenty of liquidity, and we think that buying back share at this level is accretive, create value for shareholder.
The best use of capital at this moment. I wanted to talk about one potential positive, I guess, driver remainder 2026 and 2027, and love to hear your feedback. This past quarter, we heard from tower companies and then also some of the builders like Dycom and MasTec, that one or more of the carriers maybe had slowed or paused their activity in 2Q.
Some attribute it to some headcount reductions at one or more of the carriers might have impacted that, with the thought being that the aggregate spending wouldn't change, just maybe the activity got pushed out later into 2026, early 2027. Do you agree with that hypothesis that we could see maybe some ramp in carrier activity from one or more in the back half of the year, or are you not seeing that?
I really think that the lease-up has been steady. The breakdown of the spend among carriers has shifted a little bit. We have a new MLA with Verizon. Verizon is very busy with us right now. But we think that all carriers are still active, and it's still early to see where 2027 is going to lead us to.
Okay. That's very clear. How are you? You mentioned a bit ago about some of the smaller Latin American territories that really are not contributing to growth, it's de minimis, not material. How are you thinking about M&A, right? Either potential acquisition to add scale to markets where maybe they're not material or even divesting markets where you've decided maybe that it did not play out the way that you and management had expected and now is the time to maybe monetize those assets.
I just go back to when Brendan Cavanagh became our CEO, having been CFO before for 15 years. In the first earning call in February in 2024, he announced a portfolio review.
We basically look at our market and realize that in order to grow and extract value, create value, and generate high margins, it was important to operate in a market that was consolidated, because churn, whenever carriers is being carved out to the other operators, it's a three to five year period of churn because the new owner wait for the lease to expire and does not renew it. So you basically see churn going on for three to five years. This is what we've seen in the U.S. with Dish when Brazil deployed.
We said we want to be in markets with either two or three operators that are stable. We also think it's important to have scale, because if you have scale, if you're one of the leading tower company in the market, you are the first one to get the call from the operators because they want to roll out a new technology or expand coverage or capacity rapidly. So you are part of the dialogue. If you're one of 30 tower company, it's very difficult to create value. We went through. If we don't have scale, then either you divest or you find an opportunity to grow through M&A. Through the last three years, we sold Colombia and Argentina.
We had very small operation there. We sold the Philippines. We only had a few hundred towers. We were one of 30 tower company in the Philippines. We exited that market. Canada was a fantastic market, but we only had a few hundred towers.
Yeah.
We didn't see a path to create a portfolio with few thousand towers. So we sold in a very attractive multiple to a PE firm. We have three markets in Latin America, Chile, Peru, and Ecuador. Those markets are being run for. They were in harvest mode. I think we're very pleased with the margins and the free cash flow we're extracting from those market. If someone were to pay us a number that is above our DCF value, I think we'll be happy to sell. Otherwise, we have staying power. They are generating free cash flow. But I don't see us at this stage going into new markets. I don't see any massive new international M&A at the current moment in emerging markets.
Okay. It seems like priority for use of capital is going to remain consistent for at least the intermediate term.
Disciplined and consistent.
Okay.
Discipline is important.
Okay.
We would firmly believe that in order to create value, yes, you have to support your customer, be fully behind your customer, make sure you respond to all their needs. Capital allocation is really a key driver of value creation through either accretive M&A, like the many transactions in Latin America, high single-digit growth rate in U.S. dollars for 11 times multiple, share buyback. in 2023, in a rising rate environment, we paid down, I believe, $700 million of debt.
We have all these levers. If you just step back a little bit, where is that cash coming from for either buyback or paying down debt or M&A? Guidance is about one point, I'm running the numbers. I've used those numbers before they're public. It's about $1.950 billion of EBITDA, about 250 of gross CapEx and maintenance CapEx minus about $500 million of cash interest expenses, about $70 million of cash taxes, about 530 in dividend, and you're left with $700 million of extra cash every year.
You could easily do buyback without changing the leverage. You could pay down debt. You could do small M&A. We have a target leverage of 6x-7x . We're currently levered at about 6.5x, and we have plenty of flexibility within that range to either keep buying back shares or doing small M&A, tuck-in M&A, or paying down debt if interest rates increase too much.
I want to go back higher level for the final question, Marc. Look, I agree with, I guess, your statement about buying back stock being the best use of capital and SBA stock price. I think the tower stocks in general are trading incredibly cheap, right? On a historic basis, also relative to the broader REIT universe based on what I think is longer-term projected growth.
Is the best way to recognize that value in the public markets working through the next couple of years of some of the growth headwinds, or is it better to be private and work with that owner partner maybe that has a longer-term horizon than the public equity markets? If not why, maybe recognize greater value going private rather than being public and trying to convince public investors that sort out the 2029 growth.
Well, listen, we are very shareholder-friendly. Our board has fiduciary duties to all stakeholders, and I think if someone were to approach us with an attractive offer, I'm sure our board will engage. But that's all I'm going to say. I think it's true that if you look at private valuation today in the transactions that are taking place in the U.S. tower business, the multiple being paid are greatly above the publicly traded value of our stock or our public multiple. It just speaks of the value of our company, and we think it's undervalued at this level. We are patient. We are coming to work every day trying to allocate capital to create value for the long term.
Our team, I think, from the service business to people operating in the U.S., operating in the regions, internationally, our sales team, everybody is aggressive out there trying to cover our customers to the best we can, grab market share, and create value for the long term. I think we are operators, and if someone would come to our board, I think our board will engage. But that's all I'm going to say. We are operators, and we care greatly about shareholders. We want to create long-term value for our shareholders.
Another reason I think that tower stocks are trading at a discount, and SBA in particular, is we have a transition of growth, right? Because the things you laid out earlier, the churn rate, moving it into 5G build, waiting for 6G, Dish, EchoStar. I think the market's had a difficult time resetting the evaluation to an appropriate level. Can you walk us through what the right long-term growth rate is for SBAC? Are we back to a mid-single digit type FFO growth longer term, thinking about escalators, new tower build contribution, other factors? What is the right level of growth?
I think the way we look at it is on the top line, escalator is about 3%.
Yep.
Lease-up, normalized lease-up is going to be 2.5%-3% of revenue.
Churn is probably stabilized at around 1%.
Yep.
You are looking at probably a 4.5%-5% top-line growth rate. Remember, any new equipment you put on the tower is almost like a 100% free cash flow conversion because of high fixed cost, low variable cost business. Through operating leverage, we think we could probably grow EBITDA at mid to high single digit. FFO, excluding refinancing risk post 2027, at mid to high single digit. You basically have a mid to high single-digit FFO per share growth, and you collect a dividend at 2.5%. That is basically growing at double digit, low double digit, and on top of it, you get accretion from share buyback. I think you could get to high single digit total return TSR.
Just to put that all in context for the investors not familiar with the broader REIT universe, I think you are trading at a four or five turn discount to the average REIT. The average REIT maybe grows low to mid single digits on FFO per share. You are talking about higher durable long-term growth once you get past some of these short-term headwinds with a stock trading at a four or five turn discount versus the average REIT, with arguably a more durable and defensible business model in the tower business.
No.
Does that frame it all pretty well?
We like the economics. It's 85% gross margins, TCF margins. It's mid single digit top line growth rate-
with an infrastructure that is almost impossible to replicate.
Yeah.
I just don't see how you could build those towers in some suburban or highly populated area. As you drive around Florida, you drive around Connecticut, drive around Long Island.
Yeah
California, Arizona, and you see those massive macro towers, and you just look at it.
You just can't get the zoning. You couldn't replicate it.
You couldn't replicate.
You couldn't replicate it today. They had to push back. Talk about NIMBYism for data centers. Can you imagine trying to build a bunch of new massive macro towers? Why isn't there a threat for less or slower rural, semi-suburban densification additions from carriers if there is a SpaceX direct-to-device, direct-to-consumer threat? Because that's probably the market where they can best serve people, lower population density. So why isn't there a risk of maybe less build, less activity in rural, semi-suburban areas?
Well, if you're a carrier, if you have a cell site today, first of all, that cell site cost much less to build. You could probably do backup by satellite using Starlink. Microwave is cheaper backup than fiber. And that site is built. It's probably really low cost to keep it going.
I think we're probably going to be low in urban area, that suburban urban, where there's less constraint, and you're going to capture the traffic going through that area. Why give up that traffic to Starlink? They are just going to cannibalize your customers. I think if I'm a carrier, I may just decide to keep that site and capture whatever traffic I can, as opposed to offloading this to Starlink.
Okay. Perfect. Marc, about out of time. Thank you so much. I really appreciate it.
Good. Thank you for having me.
Always good to see you, Marc.
Always good to see you.