SBA Communications - Q3 2024
October 28, 2024
Transcript
Operator (participant)
Thank you for standing by, and welcome to the SBA Communications Third Quarter Results Conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require any assistance during the call today, please press star then zero. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Finance, Mark DeRussy. Please go ahead, sir.
Mark DeRussy (VP of Finance)
Thank you. Good evening, and thank you for joining us for SBA's third quarter two thousand and twenty-four earnings conference call. Here with me today are Brendan Cavanagh, our President and Chief Executive Officer, and Marc Montagner, our Chief Financial Officer. Some of the information we will discuss on this call is forward-looking, including but not limited to, any guidance for two thousand and twenty-four and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, October twenty-eight, and we have no obligation to update any forward-looking statement we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics.
The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page on the Investor Relations website. With that, I will now turn it over to Brendan to comment on the third quarter.
Brendan Cavanagh (President and CEO)
Thank you, Mark. Good afternoon. Operationally, the third quarter ended up rolling out largely as we expected, with leasing results in line with our outlook and services results a little ahead of our outlook. Foreign exchange rates were a little stronger than our estimates a quarter ago, and domestic new carrier activity was up from the first half of the year. All of these items combined to allow us to increase our full year 2024 outlook across all of our key financial metrics. In the U.S., new business executions were up from the prior three quarters, and applications and inquiries have increased as well. We are beginning to see a shift in the makeup of our new business signed up and applications, with a growing percentage coming from new lease co-locations versus amendments to existing leases. We anticipate this trend continuing into 2025.
All of our major customers have significant network needs over the next few years as mobile network consumption continues to grow at a healthy pace. The limitation of new spectrum availability over the next several years will challenge our customers to meet the demands on their networks through incremental equipment deployment and densification of sites. Our macro tower portfolio should be a beneficiary of this dynamic. Other growth drivers, which we have discussed before, such as fixed wireless access, the incorporation of new generative AI capabilities into handsets, regulatory build-out commitments, and remaining 5G coverage expansion, will all contribute to a healthy network investment environment over the next several years. In addition, our customer relationships are strong. We are a trusted and valued partner to each of them. We are very focused on helping them to achieve their objectives through providing exceptional service and quality.
As I mentioned on last quarter's call, we are in the business of long-term assets and long-term customer relationships. Things don't change much from quarter to quarter, but consistently delivering over time, as we have done for the past 35 years, is the best way to be our customer's first choice provider and ultimately to maximize growth for our shareholders. Internationally, we have adopted the same philosophy, and as a result, we are seen as a valued partner to our carrier customers in each of our largest markets. The quarter was solid, with international leasing results in line with our expectations, and we expect a solid finish to the year. The broader market internationally, though, still presents some challenges as we manage through customer consolidations and network rationalizations.
However, we see light at the end of this tunnel as the surviving customers are stronger and better positioned to invest in growing their wireless product offerings and their ARPUs. To accomplish this, increased network investment will be required. 5G upgrades across all of our international markets are really just at the very beginning, and wireless broadband consumption is growing across our markets just as fast, if not faster, than the U.S. Overall, we believe our international business will continue to be additive to our organic growth profile over time, and the long-term prospects are still very good. As part of maximizing the long-term prospects of our international business, we continue to strategically review our operations and future potential in each of our existing markets.
As I have shared with you before, we believe that in order to create the greatest, excuse me, long-term stability and opportunity to maximize growth in a particular market, it is important to be of scale and positioned as an industry leader in that market, and to be closely aligned with the leading wireless carriers in the market as well. In alignment with that effort, we are very pleased to share with you today's announcement of a purchase agreement signed with Millicom International Cellular for the acquisition of over 7,000 sites throughout Central America for an initial cash purchase price of approximately $975 million. Pro forma for this transaction, SBA will be the largest tower company across the region.
We are very excited to increase our partnership with Millicom and to help them grow their business for many years to come. The assets are located across five countries in Central America, increasing SBA's scale in four of those countries where we already have operations. The assets are anticipated to produce approximately $129 million in site leasing revenue and $89 million in tower cash flow during the first full year of operations after closing, and significantly, all of the cash flow will be denominated in U.S. dollars. Millicom will be a tenant on each site under a leaseback arrangement, in which they have committed to an initial 15-year term.
In addition, as part of the leasing arrangement, Millicom has agreed to extend all of their approximately 1,500 existing leases with SBA that exist on our existing assets in the region for a new 15-year term. SBA and Millicom have also entered into a new build-to-suit agreement, under which SBA will exclusively build up to 2,500 new sites in Central America for Millicom over the next seven years. The transaction is subject to regulatory approvals and customary closing conditions, and we expect it will close sometime in mid- to late 2025. The Millicom transaction demonstrates one way in which we are carrying out the learnings from our strategic review of each market, increasing our scale in existing markets and establishing long-term relationships with the leading customers in those markets. In some markets, however, we may conclude this type of opportunity is not available to us.
In those cases, we will consider divesting markets where we are subscale. One example of this is in the Philippines. Our original strategy in the Philippines was to gain scale through build-to-suit arrangements with local carriers and continue to grow our portfolio through organic growth, smaller acquisitions, and further builds. Unfortunately, over the past two years, the market has changed, with the leading carriers awarding large build-to-suit opportunities to tower companies as a component of significant sale-leaseback transactions with those tower companies at very high valuations. We have successfully built a valuable portfolio of tower assets in the Philippines, but today there are over thirty independent tower companies in the market, and our market share is still less than 1%.
Given our lack of broader presence in the region and a limited path to scale over the near to medium term, we have begun a process to exit the market through a sale of our existing business. We will continue our strategic review of all of our operations and markets with a focus on stabilizing long-term cash flows and positioning ourselves to maximize organic growth opportunities in each market. Some markets may grow and others we may exit, but I am confident that each decision will strengthen SBA's prospects for the long term. Pivoting now to our services business, we had a very good third quarter. Revenue was up over 23% from the second quarter, and gross profit was up over 33%. Our carrier customers meaningfully stepped up their construction activity in the quarter, contributing to better results than we had anticipated.
As a result, we have increased our full-year outlook for services revenue from the outlook provided last quarter, and our full-year adjusted EBITDA outlook also benefited from these strong results. Our services teams continue to execute very well, and they provide a true differentiation for SBA with our customers. During the third quarter, we also made significant progress in managing our balance sheet, with three very positive capital markets transactions, which Marc will discuss in a moment. These transactions demonstrate our access to attractively priced capital and our position as a preferred issuer across the debt markets in which we participate. Our leverage remains near historical lows. We have one debt maturity over the next two years, and our $2 billion revolver is fully undrawn. So we are in excellent shape in terms of capital structure and liquidity. In addition, we continue a targeted approach to capital allocation.
Completing our recent refinancings provides us with flexibility to opportunistically allocate capital into strategic and value-enhancing asset investment, with a key example being the Millicom transaction. During the third quarter, we also acquired a portfolio of high cash flowing sites in the U.S. at an attractive price, and we will continue to look for opportunities to grow our asset base at appropriate valuations, as well as to opportunistically repurchase our stock. Our business continues to perform well and our customers continue to enhance their networks. As a result, we are set up well for a strong finish to the year. Before turning it over to Marc to share more specifics on our third quarter results, I'd like to thank our team members and our customers for their contributions to our success.
Our operations teams deserve a special thank you for the tremendous job they did through the recent hurricanes affecting the southeastern United States. Between the two storms, we had over a thousand sites in the path of one or both storms. Our sites once again demonstrated their resiliency with relatively little structural damage. More impressive, though, was the quick and dedicated response from our team members to assess the damage, clear access, and assist our customers in getting their networks up and running as quickly as possible. I greatly appreciate the dedication and commitment of our teams on the ground in these challenging situations. With that, I will now turn things over to Marc, who will provide additional details.
Marc Montagner (CFO)
Thank you, Brendan. Our third quarter results were mostly in line with our expectations. Third quarter domestic same tower revenue growth over the third quarter of last year was 5.3% on a gross basis and 2% on a net basis, including 3.3% of churn. Of that 3.3%, 2% was related to Sprint consolidation. International same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis, was 3.1% net, including 4.3% of churn, or 7.4% on a gross basis. In Brazil, our largest international market, same tower growth, organic growth was 6.5% on the constant currency basis. We continue to see solid organic lease-up in our international markets.
Total international churn remained elevated in the third quarter due mostly to previously announced carrier consolidation. Pro forma for today's announcement with Millicom, approximately 80% of cash site leasing revenue and 84% of Adjusted EBITDA are expected to be denominated in U.S. dollars. Let's now cover our results outlook for 2024. Even excluding the impact of better-than-expected foreign currency exchange rates in the third quarter, we increased our full-year outlook across all key metrics, including site leasing revenue, tower cash flow, Adjusted EBITDA, AFFO, and AFFO per share as compared to our prior outlook. With regard to site development revenue, we're increasing the full-year outlook by $5 million due mostly to strong third quarter outperformance in that business.
Please also note that the outlook does not assume any further acquisition beyond those which, as of today, are under contract and expected to close by year-end. We also do not assume any share repurchases beyond what was already completed so far this year. However, it is possible that we invest in additional assets or share repurchase or both during the year. Our outlook for net cash interest expenses and for FFO and AFFO per share now assume the recent ABS financing and repricing of our Term Loan B. Additionally, we enter into a new forward starting interest rate swap starting in April 2025. It will have no impact on our 2024 outlook. We're quite busy with our balance sheet in the last two months.
During the third quarter, the company issued, to an existing trust, two tranches of tower revenue securities totaling $2.07 billion. This includes a tranche of $620 million issued at 4.654%, with an anticipated repayment rate of October 2027, and a final maturity date of October 2054. This also includes a tranche of $1.45 billion, issued at 4.831%, with an anticipated repayment date of October 2029, and a final maturity date of October 2054. The net proceeds from the offering were used to repay the six hundred and twenty million dollar total maturity, will be used to pay back the $1.165 billion ABS maturing in January 2025.
Cash proceeds to repay the January maturity will sit in an escrow account until then, at which time the $1.165 billion will be repaid. Our next maturity is a $750 million ABS, due in January 2026. Let me now turn the call over to Marc.
Mark DeRussy (VP of Finance)
Thanks, Marc. In September, we repriced our $2.3 billion Term Loan By lowering the spread above one-month Term SOFR, from 200 basis points to 175 basis points. This improvement represents approximately $6 million of annual interest expense savings. In addition to lowering the spread on our Term Loan By 25 basis points, we also further hedged the future floating rate component of the loan by entering into a forward-starting interest rate swap. This swap will fix the otherwise floating one-month Term SOFR at 3% for a notional amount of $1 billion, significantly lower than today's current one-month Term SOFR rate.
Similar to the existing $1 billion forward-starting interest rate swap we entered into back in the fourth quarter of 2023, the new swap has an effective start date of March 31, 2025, and a maturity of April 11, 2028. Together, the blended one-month Term SOFR rate we will pay starting in March 2025 on $2 billion notional will be three point four five, excuse me, three point one five%. Inclusive of the new spread of 175 basis points, the all-in cost for the $2 billion fixed portion of the $2.3 billion outstanding term loan will be 5.165%, starting in April of 2025.
The remaining unhedged portion of the loan will continue to float and accrue interest at one month Term SOFR plus one hundred and seventy-five basis points. Pro forma for the new swap, approximately 98% of our non-revolver debt outstanding is fixed, which will reduce the impact of future interest rate fluctuations and create greater certainty in our future AFFO. Our current leverage of 6.4 times net debt to adjusted EBITDA remains near historical lows. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a very strong 5.3 times. Pro forma for the ABS refinancings, our weighted average maturity is approximately four years, with an average interest rate of 3.2% across our total outstanding debt.
We continue to use cash on hand to repay amounts outstanding under the revolver, and as of today, our $2 billion revolver is fully paid down. Finally, during the third quarter, we declared and paid a cash dividend of $105.3 million or $0.98 per share. Today, we announced that our board of directors declared a fourth quarter dividend of $0.98 per share, payable on December twelfth, 2024, to shareholders of record as of the close of business on November fourteenth, 2024. This dividend represents an increase of approximately 15% over the dividend paid in the fourth quarter of 2023. Operator, with that, we are now ready for questions.
Operator (participant)
Thank you. And ladies and gentlemen, if you would like to ask a question at this time, please press one, then zero on your phone. You may remove yourself from queue at any time by pressing the one, zero again, and if you are using a speakerphone, please pick up the handset before pressing the numbers.Once again, on the phones, if you do have a question, it is one, then zero. One moment, please, for our first question. And we'll go to the line of -- Excuse me, one moment. Batya Levi, your line is open.
Batya Levi (Equity Research Analyst)
Great, thank you. A couple questions. First, domestically, you mentioned that carrier activity is increasing from the first half levels, and it's shifting to more co-location versus amendment. Can you size that mix? And if this holds up into Q4, how should we think generally about 2025 leasing for versus 2024? Can it be flat to up? And on the Millicom deal, can you provide more color on the AFFO per share creation in year one, and maybe the lease-up opportunity on these sites? Thank you.
Brendan Cavanagh (President and CEO)
Sure. So on the carrier activity mix, we have seen an increase in carrier activity in the U.S., in terms of new business signed up. The third quarter was higher than the first half of the year, really than the last three quarters, actually. And we would expect, based on the backlogs growing, that we'll continue to see that move up. It's not at levels of where it was, you know, during the height of a couple of years ago, but it's, it's moving up in the right direction, and obviously, that's favorable for the future. The mix of that shifting, we've begun to see, as I mentioned, a little bit more of that revenue coming from new co-locations as opposed to amendments.
We've had such a large percentage from amendments over time that now as we start to see more new leases, it's starting to shift a bit. I guess what that really means is that we're obviously getting more points of presence with those carrier customers, which is a good thing for future growth as a baseline. It does mean, I guess, slightly on the negative side, that there's a little bit greater delay from when those leases when that revenue gets signed up to when it commences. The amendments typically commence a little bit quicker, but if we continue to see something similar in the fourth quarter to what we saw in the third quarter, you know, we'll be in okay shape for next year, but I can't really comment on how it'll look relative to this year.
There's a lot of moving parts, so we'll see where we are when we get there. As it relates to the Millicom deal, I think it's a little premature for you, for me to give you the exact AFFO accretion. I think you can look at the numbers that we released in our press release in terms of the tower cash flow. It will be, because we're in many of these markets, there'll be limited overhead increases associated with that. In addition, I would expect we'll have, you know, some income tax implications, but it definitely will be accretive to AFFO per share once it closes. The issue is really just the timing of when it closes.
So, you know, as we get a little bit further down the road, and we have a better sense of timing, you know, we'll share that more specifically with you, Batya.
Batya Levi (Equity Research Analyst)
Got it. Thank you.
Brendan Cavanagh (President and CEO)
Oh, and I think, yeah, yeah, you asked one other question, too, which I don't think I answered, which is about the lease-up potential on those sites. You know, the current tenancy ratio on those sites is one point two, with the one obviously being Millicom's leaseback. So they're fairly underpenetrated in terms of co-location. So we think it actually will set them up pretty well to see some nice growth in the future.
Batya Levi (Equity Research Analyst)
Sounds good. Thank you.
Operator (participant)
Next, we'll go to the line of Ric Prentiss with Raymond James. Your line is open.
Ric Prentiss (Managing Director)
Thanks. Good afternoon, everybody.
Brendan Cavanagh (President and CEO)
Hey, Rick.
Ric Prentiss (Managing Director)
Hey, I'm glad you all made it through the hurricane, okay, and got the networks back up and running. As a Florida-based firm, we feel you there. Glad everybody's doing well. I want to follow up Batya's questions on the Tigo deal. Can you help us understand kind of maybe a rough magnitude of EBITDA? I know you said it'd be limited added overhead, but trying to get at an understanding. It looks like the multiple on tower cash flow was about eleven times for the initial payment. Just trying to get a sense of what the EBITDA multiple might have been ballpark.
Brendan Cavanagh (President and CEO)
Yeah, I would expect that the incremental SG&A will be between $3 million and $5 million, Ric.
Ric Prentiss (Managing Director)
Okay.
Brendan Cavanagh (President and CEO)
So, you know, maybe a half a turn or so higher on the multiple.
Ric Prentiss (Managing Director)
Yeah. Yeah, so still something, you know, kind of in the sub six times, probably for EV, the EBITDA multiple paid for the assets?
Brendan Cavanagh (President and CEO)
No, the eleven.
Ric Prentiss (Managing Director)
Yeah.
Brendan Cavanagh (President and CEO)
Yeah, eleven and a half.
Ric Prentiss (Managing Director)
Eleven and a half. Sub twelve, like eleven and a half, sorry.
Brendan Cavanagh (President and CEO)
Yeah.
Ric Prentiss (Managing Director)
Okay, so help us understand maybe a little bit more about, you know, why that price? Can you talk a little bit about the quality of the assets? How robust are they, as far as adding tenants? And then just what's the carrier universe like in each one of those markets, so we can understand the leasing potential, given the multiple is kind of like 11.5 times.
Brendan Cavanagh (President and CEO)
Yeah. So Ric, first of all, let me just kind of go to the overall premise, which, you know, I tried to lay out a little bit in my scripted comments. But, you know, we're operating throughout Central America today. We're one of the leading tower companies there. But as we kind of and I talked about this earlier in the year, as we kind of looked through each of our markets and where we're operating, we tried to kind of say: What's the future look like? What's the potential look like for us? And we came pretty early on to the conclusion that you need to be a leader in the market in terms of your size and scale, to be of the most relevance and importance to the carriers that operate there.
Not only that, you needed to be aligned as closely as you could with the leading carriers in the markets, so that you weren't as subject to some of the challenges that we faced when we've been indexed to maybe some of the weaker carriers in certain markets that we've been in. And it, you know, obviously has created churn and some disruption to the stability that this business is well known for. With that in mind, you know, this was an opportunity to, one, take a leadership position where we're clearly the largest, most dominant tower company across the region, and two, to partner with the leading carrier across the region, so that was really the biggest driver.
The fact that we could do it at a price point that was good for us and good for Tigo, I think made it work very well. You know, obviously, it, it's a way for them to unlock value and assets that are not core to their operations, and for us, it's a way to make the most of our skill set, which is delivering these types of infrastructure assets at the highest quality, and making them available not only to Tigo, but also to the other carriers in the region. Now, when we look at the growth potential across the markets, we have, you know, a number of these markets.
One of the good things about where we are today as we look forward, is that many of them have already experienced the consolidation that kind of disrupted things for a little while over the last few years, and because of that, we feel very good about the remaining carriers in each of the markets, so each one's a little bit different, each country's a little different. Some only have two carriers that are fairly well balanced, with Tigo being one. Others have more carriers than that, but the fact that there's only one point two tenants on these sites, and looking at where a number of them are located with Tigo as the leading provider in many of these markets, it we believe it leaves a nice opportunity for some additional growth in the market.
Ric Prentiss (Managing Director)
Okay, and any CapEx that's required, kind of, to get them up to handle that additional tenancy?
Brendan Cavanagh (President and CEO)
There may be some, but that would obviously be figured into the analysis as we sign those leases with new carriers. So, you know, there's no required CapEx other than to the extent we see that it's appropriate in connection with the lease-up opportunity.
Ric Prentiss (Managing Director)
Okay, thanks.
Brendan Cavanagh (President and CEO)
Yep.
Operator (participant)
Next, we'll go to the line of Jim Schneider with Goldman Sachs. Your line is open.
Jim Schneider (Senior Equity Analyst)
Good afternoon, and thanks for taking my question. I guess first question would be, relative to Millicom deal. Clearly, you're doubling down on the Central America footprint. What should we draw away from this in terms of anything it may say about, you know, or not, about foreclosing the possibility of a larger out-of-footprint deal in Europe or elsewhere?
Brendan Cavanagh (President and CEO)
I don't think that it necessarily means anything as it relates to that. Our top priority was certainly to look at the markets where we already are operating and to improve our position in those or frankly, to look at exiting those if we don't see a clear path to doing that. But that in and of itself isn't a commentary on expansion into other places. I think the expansion into other places is simply secondary to strengthening the position in the markets where we already are.
Jim Schneider (Senior Equity Analyst)
Understand. And then in terms of the commentary on greater proportion of new leasing on the domestic sites, can you maybe just talk a little bit about qualitatively how much of that is sort of new leases in say rural markets and sort of outside of urban suburban areas? And are you seeing anything on the margin in terms of densification?
Marc Montagner (CFO)
Yeah, I'd say it's a little bit of both, Jim. I mean, it's fairly early that we started to see this shift. We've really just seen an uptick in the sheer number of brand-new leases that we're signing, relative to the pace we've seen over the last two years. So some of that is definitely in more rural markets, as at least one of our customers has an initiative, regulatory requirement, frankly, to build out some of those areas. So that's a part of it. But other parts of it are definitely densification as well, in some of the more suburban markets.
Brendan Cavanagh (President and CEO)
I think, you know, it's our best guess based on what we're seeing in the conversations we're having with our customers, but I expect both of those things to actually continue into the future, particularly given the lack of new spectrum that's gonna be made available.
Jim Schneider (Senior Equity Analyst)
Great. Thank you.
Operator (participant)
And next, we'll go to the line of Brandon Nispel with KeyBanc Capital Markets. Your line is open.
Brandon Nispel (Equity Research Analyst)
Thanks for taking the question. Brendan, I'll try to leave the leasing activity question a little bit away. I was hoping you could quantify the growth in the lease applications in terms of the backlog of new leases that are signed, but not commenced. And then, you know, Marc, just looking at the guide implied by Q4 leasing, looks like something just shy of $9 million. Is that the bottom, and when do you actually think there is an inflection in the leasing activity? Thanks.
Brendan Cavanagh (President and CEO)
Yeah, Brendan, I'm sorry to do this to you, but it was a little hard to hear you. I think, I think you were asking about the organic growth and the timing of the inflection. Is it possible for you to just repeat it a little bit?
Brandon Nispel (Equity Research Analyst)
Yeah, sorry. I can try again. I was hoping you could take the activity question a little different direction, and hoping you could quantify the application backlog in terms of signs, but not commenced new leases. And then just looking at four Qs implied by guidance, seems like new leases domestically is just shy of $9 million. Is that correct? And when is the bottom for that leasing metrics? Thanks.
Brendan Cavanagh (President and CEO)
Yeah. So the application backlog is of a similar shift in mix that we talked about. Your number for the fourth quarter is pretty close, I would say, within, you know, $500,000 or so of what we estimate. And, you know, on the timing of the bottom, I think it, you know, that's around it. I can't tell you for sure yet, as we get into next year, but I think, we would expect to see that sort of right around the bottom area. I mean, some of that is dependent upon what we continue to see happen here as we move to the balance of the year in terms of leasing activity.
The other caveat to that, the reason I'm hedging a little bit, is just that shift in the mix of the lease-up has some impact on timing. These are, you know, the two different things. They're obviously related. One is what we sign up, and two is when does it commence and hit the financials, and that shift in the mix, to some degree, can push it out a little bit further. So until we see how that plays out for the balance of the year, it's hard for me to say exactly, but you know, we're seeing an uptick in the overall leasing activity, so I'm pretty confident we'll start to see it move upward.
Brandon Nispel (Equity Research Analyst)
Great. Thank you.
Brendan Cavanagh (President and CEO)
Sure.
Operator (participant)
And next, we'll go to the line of Simon Flannery with Morgan Stanley. Your line is open.
Simon Flannery (Managing Director and Senior Equity Analyst)
Okay. Thank you very much. Good evening. I want to come back to the Millicom deal. You did a, an additional build-to-suit agreement with them. Could you just talk about how you think about underwriting that in return on investment and so forth? And it's a seven-year deal, so is that ratable over that time period? And then, I think leverage stayed in the sort of mid-sixes. How are you thinking about where you want leverage to go over the next, you know, year or two as you balance in M&A and buybacks and, you know, keeping flexibility on the balance sheet? Thanks.
Brendan Cavanagh (President and CEO)
Sure. So yeah, the build-to-suit agreement was actually a piece of it that we're very excited about because it allows us to continue to expand our partnership with Millicom. You know, basically what it is is we are their exclusive provider of build-to-suit opportunities over that next seven years, up to a total of 2,500 sites. We underwrote that with, you know, as we looked at what we expected, the estimated costs and the pricing of it was tied into those estimated costs. We expect it to be a high returner, certainly north of double digits, without any lease-up.
We think that, you know, there will be plenty of opportunities to see second tenancies on a number of those sites as we add them over time, because they're typically going in locations where there isn't any coverage today. So I think, you know, it'll be certainly additive over time. In terms of the timing of it coming in over that seven years, you know, there isn't an expected time frame. It may come in evenly over that, or it may come in quicker. So we'll just we'll report that as it progresses. There's no requirement in that regard. On the leverage front, yeah, you know, our leverage is still, it's still hovering around the lowest level that it's been at for us historically, at 6.4 times.
Even with the Millicom deal, pro forma for that, that's a fairly small impact. You're talking about point two turns, is what I'd estimate of incremental leverage when that eventually closes. So, you know, I don't really have the desire to necessarily see the leverage go lower. It's really more a function of good places to use the excess capital that it generates. This deal is an example of an opportunity that we saw that we thought would be very value enhancing, and so, you know, having that flexibility to do that is a nice place to be. And that leverage being lower allows us the opportunity to do that. But going forward, we'll continue to look for places where we can invest in assets, and if we don't see asset opportunities, we'll invest in share repurchases.
And if that doesn't seem like the best spot at a given time, we'll obviously continue to pay down debt. But, my preference is to do one of the first two.
Simon Flannery (Managing Director and Senior Equity Analyst)
Great. Thanks a lot.
Operator (participant)
Next, we'll go to the line of Jonathan Atkin with RBC Capital Markets. Your line is open.
Jonathan Atkin (Managing Director)
Thanks. Thank you. A couple questions. So, as you managed your Latin American portfolio, my recollection is that you had somewhat of a centralized model, doing a lot of it out of Florida. And, is that still the case now that you've got a couple quarters under your belt as CEO? And does the Millicom transaction change that at all?
Brendan Cavanagh (President and CEO)
Yeah, John, it's basically still the same. And really what it is, is the things that can be done centrally, we try to do centrally, meaning back office functions, accounting, HR, legal, those types of things. We obviously have to have a presence, of course, in the markets for operational purposes, for sales purposes, interactions with our customers, those sorts of things. And we do have local representation of these other functions there, but we try to have everything kind of funneled back through our core systems here and our teams here. And the reason we do that is one, it's cost effective, but two, it gives us a much greater insight into what's happening across all of our international markets by having it run that way.
And three, it also allows us to have consistency across all these various markets in the way that we operate and the way that we approach our business. And I think over time, that has generally benefited us relative to our peers. So I don't expect to change that going forward. And even with this Millicom deal, we'll obviously have to have a few more people in the field and maybe one or two more here, but I think the general structure will stay the same.
Jonathan Atkin (Managing Director)
And then a couple of U.S. questions. Just wondering if you're seeing any kind of different impacts or activity from some of the build to relocate tower development activities, as well as any impacts that you might expect to see on the industry with a Verizon portfolio sale changing hands into an independent operation?
Brendan Cavanagh (President and CEO)
Yeah. We're not really seeing too much on the reload stuff anymore. It was a little bit hotter a couple of years ago, but it's largely died down. We see, you know, very limited situations for that, and I think most people have come to realize that building towers next to other towers is kind of a way to mutually assured self-destruction in those particular situations, so we're seeing a lot less of that. In terms of the Verizon sale, yeah, I mean, there was a nice sized portfolio here in the U.S.
There's obviously very few portfolios of that size available in the U.S. market, and looks like it went for a very nice price, which I think is representative of the value of towers here in the U.S., and we think is supportive of the fact that SBA has a very high quality, high value platform and portfolio.
Jonathan Atkin (Managing Director)
Thank you.
Brendan Cavanagh (President and CEO)
Yep.
Operator (participant)
Next, we'll go to the line of Richard Choe with JPMorgan.
Richard Choe (Executive Director of Equity Research)
Hi, I wanted to ask about the site development. The revenue picked up and the guidance was moved up slightly. Is that following, that type of work following with the increase in co-location and new leases, or is there something else going on there? And how should we think about it as we roll into next year?
Brendan Cavanagh (President and CEO)
Yeah, Richard, it is a little bit. We had actually a better quarter than we had anticipated when we gave guidance three months ago, which is why we're moving our outlook up for the year. And I would say a lot of that, you know, there's a couple of carrier customers that were particularly busy, but, and it does seem to be because of this shift to more new leases and the fact that actually we're doing a lot more of the full turnkey work than we used to, so there's a heavy construction component to it. That, doing that heavy construction piece drives the total volume up, even on a same number of agreements.
I do think that's one of the contributing factors, and I would expect, as we move into next year, we'd see the same types of drivers for it.
Richard Choe (Executive Director of Equity Research)
Great. And, you know, you talked a little bit about domestic M&A, but you did have a smaller deal that you said was highly cash flow accretive. Do you think there's more of these smaller deals to kind of build upon, or is it just a one-off type thing?
Brendan Cavanagh (President and CEO)
Yeah. Unfortunately, I would say it's somewhat limited. You know, we do our best to look at everything that's available, and the volume of opportunities in the U.S. is somewhat limited, which is part of the reason that they go for such high valuations, because the folks chasing them outnumber the folks making them available for sale. But, yeah, I mean, we're gonna continue to look, and I think every so often we're gonna find opportunities to jump in and take advantage of something, or maybe somebody else has missed it, or we see value unlock opportunities that others don't. But I do think, unfortunately, it's more limited than I would like.
Richard Choe (Executive Director of Equity Research)
Great. Thank you.
Operator (participant)
We'll go to the line of Matt Niknam with Deutsche Bank. Your line is open.
Matt Niknam (Director of Equity Research)
Hey, guys. Thanks for taking the question. Just to dovetail on some of the questions that have been asked around the U.S., can you talk maybe a little bit more around what necessarily changed in 3Q that drove the uptick in activity? Was it one carrier in particular or more broad based? And then maybe just to follow on to that, on the DISH front, any changes in activity and any thoughts you can offer up on some of the moves they've made of late? Thank you.
Brendan Cavanagh (President and CEO)
Sure. Yeah, the change in the third quarter, I would say it's more broad based, but, you know, in any given quarter, one carrier can be a little more active than another. So I don't know that, as I kind of look at the pieces of it here in front of me, I don't see too much to highlight, and we don't really like to get into the individual customers. I'm not sure that it would mean anything anyway, because the next quarter, that shift can turn around a little bit and just be a different carrier. It all depends on when they're hitting our specific sites, I think. With regard to DISH, you know, obviously some positive news that I think sets us up well for the future, just the fact that, you know, they're one of our key customers.
They have a lot to do. The fact they got some relief on the regulatory deadlines, I think, is clearly positive because it allows them to actually be able to achieve this build-out that they seem very, very committed to. And the funding that they've raised through the sale of satellite business, I think is also obviously positive. It's really just a question of timing. You know, what they've done here is they've raised the funding, they've got themselves, you know, a schedule that they can work with, but I do think it'll take some time for them to go through that. And so, you know, it's a little early for me to know what the short-term impacts will be, but I do know long term, it's obviously very positive.
Matt Niknam (Director of Equity Research)
Great. If I could just throw in one more follow-up. In terms of colo relative to amendment in the U.S., what's the mix now and how does... I mean, because you mentioned, you know, more of a mix of colo, but I'm just curious, at least in the third quarter, what that mix was in the U.S.
Brendan Cavanagh (President and CEO)
Yeah, and this is based on dollars, but it was roughly 60%, a little over 60% from new leases.
Matt Niknam (Director of Equity Research)
Great. Thank you.
Operator (participant)
And we'll go to the line of Nick Del Deo with MoffettNathanson. Your line is open.
Nick Del Deo (Managing Director)
Hey, thanks for taking my questions. First, a couple clarifications on Millicom. The Millicom press release highlighted the potential for them to get earn-outs over time if you meet certain financial milestones. Are those likely, would they be material to the purchase price? And, you know, from a churn perspective, is it fair to say that the 15-year MLA kind of locks Millicom in without any opportunity to get off any of the towers over time?
Brendan Cavanagh (President and CEO)
Well, yes, on the second one, it's a fifteen-year committed term. On the first question on the earn-out, there are some potential earn-outs for them. Those would only be paid if certain financial milestones were reached, and that would be actually a great win for both parties. I don't think it overly materially will change the numbers, and it actually will be certainly enhancing to the overall multiple of the deal if it happens.
Nick Del Deo (Managing Director)
Okay. And then, you know, you cited a deal with a nice yield on it that you closed. I think you're referencing the TelevisaUnivision deal. Can you share anything about the expected contribution there, or the degree to which that thesis is based on the existing broadcast revenue stream versus, you know, potential lease-up? And how big of share of your business is broadcast today?
Brendan Cavanagh (President and CEO)
Broadcast is a fairly small percentage of our business. We have some existing embedded broadcast towers that we've had for a lot of years in our portfolio. This particular portfolio was something that we spent a number of months with them on, looking at each site and what its potential was. Obviously, the price point is well below where the typical wireless towers are trading here in the U.S., so that allows for a lot more flexibility in terms of what you could do from an organic growth standpoint. But we do think some of the sites have potential for some growth, but it doesn't really require much, and we have a long-term commitment from Univision on that leaseback.
Nick Del Deo (Managing Director)
Okay, great. Thanks, Brendan.
Operator (participant)
Next, we'll go to the line of Eric Luebchow with Wells Fargo. One moment, please. Your line is open.
Eric Luebchow (Director of Senior Analyst)
Can you maybe touch on kind of how you see non-Sprint churn in your domestic markets looking, you know, beyond this year? I think you've talked about getting that down to the low 1% range, but any update on kind of timing to when, you guys think you could get there?
Brendan Cavanagh (President and CEO)
Yeah, I think that, and guys in the room, correct me if I'm wrong. I believe we were, for this quarter, it's at about 1.3%, the non-Sprint churn. So it's already down into the lower ones, and I think it will probably improve from there. So I think that next year, I would expect that we're gonna get somewhere close to 1% or so. So it, it continues to dwindle, in terms of overall numbers and impact.
Eric Luebchow (Director of Senior Analyst)
Gotcha. Good to hear. And then, just to follow up on the Millicom MLA, you know that it's mostly U.S. dollar denominated, but any kind of color you can provide on kind of the escalator structure, whether, you know, are those fixed, and are the new leases with them more comprehensive or holistic in nature, or will that growth be more subject to their kind of future activity levels? Just kind of comparing it with what we typically see in the U.S. Thanks.
Brendan Cavanagh (President and CEO)
Yeah, I can't get into too much detail on all of it. First of all, on the dollar piece, the MLA is 100% U.S. dollars are referenced to. Significantly, all the cash flow has to do with a few other small oddball things, mostly around expenses. But the MLA is all in U.S. dollars. You know, and it's got all of the typical things you would see. There are escalators in it, but I'd rather not get into all the detailed structure on that, if I can avoid it.
Eric Luebchow (Director of Senior Analyst)
Okay, great. Thank you.
Operator (participant)
And we'll go to the line of Walter Piecyk with LightShed Partners.
Walter Piecyk (General Partner)
Hey, can you just refresh my memory on how long it does take from order to implementation for a colo? I know you said it obviously takes longer than an amendment, but just kind of a ballpark number of months.
Brendan Cavanagh (President and CEO)
Yeah, I'd say ballpark six months, Walt.
Walter Piecyk (General Partner)
Got it. So if the order flow is kicking in now, then obviously, that revenue should kick in, in conjunction with the capital plans for these operators in 2025. And then on the dividend, obviously, you stated what you're doing in the fourth quarter. Last year, the growth was 20%. This year, it was 15%. It sounds like the outlook in terms of growth might be a bit better, maybe not. But is the expectation, or when you look at the investor base out there that's available to you on the yield side, is there kind of a, like, a floor that you think about in terms of growth in the dividend year over year as we contemplate 2025 and 2026?
Brendan Cavanagh (President and CEO)
Not explicitly. I would expect that we will be certainly the fastest-growing dividends within our small industry here, and one of the fastest among REITs broadly. It is 15% this year, which is the lowest it's been actually at any point in our history. Obviously, we're starting with relatively small numbers, so the percentage growth can be higher. Part of it, Walt, is that we're triangulating a little bit towards our REIT obligation. We have NOLs that we've been burning off, and so we've been able to use those, you know, as kind of a supplement to limit us from having to pay the full REIT dividend. But as we burn those NOLs, that starts to kind of lock in more and more what our number needs to be.
But I would expect, I don't really want to jump ahead because we're gonna look at our dividend increase next quarter, that we typically do it with our fourth quarter earnings. But I would expect it'll still be very healthy growth relative to the rest of the industry.
Walter Piecyk (General Partner)
Got it. Thank you.
Operator (participant)
We'll go to the line of David Barden with Bank of America.
David Barden (Partner and Senior Telecommunications/Digital Infrastructure Equity Analyst)
Hey, you guys. Thanks for taking the question, and apologies to ask, you know, when power companies do something new and exciting, we have to ask about it, so I'll have to ask about the Millicom deal. Brendan, the Millicom, I think, is operating in nine markets in Central America, and you guys bought, I think, five. Is there some sort of potential that there's something more that's going to evolve out of that? Or can you explain a little bit more about why you bought what you bought and didn't buy what you didn't buy?
And then, I guess, another question for the Marc, is, if I'm kind of reading this right, you've kind of swung from a worldview where having a 15% to 20% variable rate, that portfolio was the right mix. Now, you're 98% of non-revolver is fixed. Can you talk a little bit about why you chose now to make that decision? And you had a lot of activity in the quarter, a lot of it had to do with the $2.3 billion term loan expiring in 2025. Are there more moves to make, or is this kind of the balance sheet that SBA is gonna have for the next, you know, 12 to 24 months that we can kind of just chew on and put into our models? Thank you.
Brendan Cavanagh (President and CEO)
So on the Millicom markets, we, I believe, bought every market that they operate in, in Central America. I think when you're referring to their extra markets, you're including South American markets.
David Barden (Partner and Senior Telecommunications/Digital Infrastructure Equity Analyst)
True
Brendan Cavanagh (President and CEO)
David, and so, you know, what, what we focused on is the places where we had operations and frankly, where we have a good size presence, and this was a meaningful enough transaction to put us in a much stronger go-forward position. Some of the markets where they operate, we are not currently in some of those markets, and others we're well below scale, and it didn't really seem like it was gonna change things, and it was actually a much cleaner separation to do Central America versus South America. There's nothing that you should read into that in terms of future additional items. This was a one specific deal, and it stands on its own merits.
And then, your other question on the debt, which, Marc, you can take if you want, but you know, I don't think there's any change, though, in our philosophy. You know, you mentioned the fixed versus floating as though it was a change. You know, we actually already had hedges in place for the vast majority of our floating debt. Sometimes it changes because of the amounts outstanding on the revolver, which is obviously floating. And part of the reason is 98%, because there's zero outstanding on the revolver. But we already have most of our term loan, which is the other floating instrument, fixed today through hedges. And what we've done is enter into some forward-starting hedges to continue that fixing to provide some certainty.
We did that more to be opportunistic around the rate environment that we saw, locking in rates that were materially below where the rates are today, will require significant reductions in rates. So it's really to provide the certainty, but also to take advantage of what we thought were actually pretty good rates. You know, I don't, Marc, you want to add anything?
Marc Montagner (CFO)
No, I think the existing hedge on the term loan for $1.95 billion expires in April 2025. So we just put two new hedges in place, $1 billion each one a few months ago at 3.8%, and another one on the cap at 3% that we did last month. So the average or the max interest rate on SOFR now for the $2 billion of the Term Loan B would be 3.41%, and SOFR is at 4.7% now. So I think we just took advantage of a dip in interest rate to lock in a cap on the max interest rate we're gonna pay on the Term Loan B starting in April of 2025.
Brendan Cavanagh (President and CEO)
Yeah, I mean, they're really just replacements of what existed when they're set to expire. And I think, you know, going forward, you asked the question about whether the balance sheet looks the same here for the next twelve months or so. I mean, we only have one maturity during the next twenty-four months, and that's in January 2026. And frankly, it's only $750 million, which is really not that much, can be managed in many different ways. So I think the answer to that question is yes, David, it's gonna stay very much similar to what you see today. The only caveat to that is, you know, other opportunities that come along that will require some shift in the way we're capitalized to take advantage of them, but otherwise, you should expect it to be the same.
David Barden (Partner and Senior Telecommunications/Digital Infrastructure Equity Analyst)
Okay, great. Thank you, guys.
Operator (participant)
Excuse me, we'll go to the line of Mike Rollins with Citigroup. Your line is open.
Mike Rollins (Analyst)
Hi, and thanks for taking the questions. Two, if I could. First, as you're seeing more opportunity and leasing from your carrier customers. Does that increase the likelihood that you would enter into new multi-year comprehensive deals with additional domestic national wireless carriers? And then second, philosophically, how are you looking at updating escalators in the domestic business when you have renewal opportunities with your customers? Do you still prefer a fixed long-term rate? Or, just given some questions of inflation and future rates, are you considering taking a CPI-based approach with possible floors and ceilings? Thanks.
Brendan Cavanagh (President and CEO)
Yeah. So we have, as you know, we already have a comprehensive MLA that we signed with AT&T about fifteen months or so ago. So that is already set in place and isn't really impacted by what's happening now. I think as we have continuing conversations with our other customers, if we can find, you know, a way to agree on things that work for both parties that are comprehensive in nature, we're open to doing that. In either case, I would expect us to have what I'll call regular MLAs, meaning things that define the overall, you know, merits of the relationship. They don't necessarily have to be the all you can eat structure.
That really just depends on if it's something that works for what their needs are in the short term and what we think is the best way to monetize value. So I don't really know, honestly, Mike. We'll continue to talk to our customers, and whatever structure works the best for both parties is what we'll go with, but we don't have a disposition towards trying to do more of those. In terms of the escalators, you know, they don't really change much, 'cause even when we negotiate new agreements, sometimes we'll look at what the escalator will be for the brand-new co-locations that they sign. We don't touch the ones that are in the embedded base, and that's obviously the bulk of our business, so there's little impact on the base escalators.
For the new ones, we will discuss it, but we usually end up focusing on a fixed rate as opposed to a CPI. But really, that, that's a matter of just negotiation on each individual case.
Mike Rollins (Analyst)
Thanks very much.
Operator (participant)
Sure. And we'll go to the line of Brendan Lynch with Barclays.
Brendan Lynch (Director)
Great, thanks for taking my questions. A couple quick ones on Millicom. The first release alluded to seven thousand communication sites. Can you talk about the mix of towers versus rooftops? And then also on the tenancy ratio being one point two, can you talk about whether Millicom was pursuing a strategy of co-location, or perhaps they were trying to avoid leasing to some of their competitors to maintain a competitive advantage in some of these areas?
Brendan Cavanagh (President and CEO)
Yeah. So, the vast majority of these are towers, and even the ones that are rooftops, which is a fairly small percentage, are typically towers on rooftops. So it's basically all effectively towers. But I don't know the exact number off the top of my head. I think it's somewhere around 90% is ground-based towers, and the other 10-12% or so is rooftop-based. And then on the tenancy side, they Millicom did have these in a. They had established a tower company entity that they called LATI. That's where these towers resided, and the intention was to lease space on them to other parties, which so they did do some efforts around that.
However, it's our belief that a number of these sites were held back because they were better sites, and therefore, for competitive reasons for their wireless business, they did not make them available. Even in other cases, competing carriers were not as inclined to go on the sites when they were owned by one of their competitors. So we do think there's an opportunity to unlock lease-up value here.
Brendan Lynch (Director)
Great. Thank you.
Operator (participant)
We'll go to the line of David Guarino with Green Street Advisors.
David Guarino (Head of Global Data Center and Tower Research)
Thanks. I just wanted to go back to that earlier question about the earn-out, because it's really helpful for figuring out the valuation you paid. So I know in your FCC filings, you disclosed potential obligations on prior transactions, but those don't end up being shown up on your balance sheet. So I guess if we kind of think about when the deal closes, should we assume that line item in your queues is gonna increase materially, or is the earn-out not that material? And then also just an idea of the timeframe for when those earn-outs would be payable. Thanks.
Brendan Cavanagh (President and CEO)
Yeah, I don't think it's gonna change on our balance sheet. There may be some disclosure around potential earn-outs, but honestly, David, the deal was just signed today, so I'm not 100% sure what the disclosure will look like in our financials. That's something that maybe our guys could look at and just give a call offline on that. In any case, it's not that material to the overall picture. So I think even if you see what it might look like, I don't think it's gonna change the way that the deal looks. And as I said, to the extent that anything is paid, it will actually be a success because it means that we've added more revenue than perhaps we even expected.
David Guarino (Head of Global Data Center and Tower Research)
Thanks.
Brendan Cavanagh (President and CEO)
Sure.
Operator (participant)
Again, if we do have any questions at this time, it is one then zero on your phone.
Brendan Cavanagh (President and CEO)
Colin, I think we're probably ready. I think we've already used up our allotted time. So, I just want to thank everybody for joining the call, and we look forward to catching up with you next quarter to share our year-end results.
Operator (participant)
Ladies and gentlemen, that does conclude our teleconference call for today. Thank you for your participation and for using AT&T Conferencing Services. You may now disconnect.