Q3 2024 Earnings Summary
- Increased carrier activity in the U.S. with over 60% of new lease revenue indicates strong future growth potential. Brendan Cavanagh stated that new leases accounted for "roughly 60%, a little over 60%" of domestic leasing activity, and they expect this trend to continue into 2025 due to growing backlogs.
- Strategic acquisition of over 7,000 sites from Millicom enhances SBA's scale in Central America, adding approximately $129 million in site leasing revenue and $89 million in tower cash flow, positioning the company for significant growth in the region. The transaction also includes an exclusive agreement to build up to 2,500 new sites over the next 7 years, with Millicom committing to an initial 15-year lease term on each site.
- Decreasing churn rates support stronger net revenue growth moving forward. Non-Sprint churn has decreased to approximately 1.3% and is expected to improve to around 1% next year, according to Brendan Cavanagh.
- Limited Domestic M&A Opportunities: The CEO stated that opportunities for domestic M&A are "somewhat limited," which may limit growth in the U.S. market through acquisitions.
- Slower Dividend Growth: The company acknowledged that the dividend growth was 15% this year, noting it is "the lowest it's been actually at any point in our history," which could indicate constraints on future dividend increases.
- Uncertainty in Future Leasing Growth: When asked about the outlook for 2025 leasing, the CEO responded, "I can't really comment on how it will look relative to this year. There's a lot of moving parts," suggesting potential challenges in maintaining or increasing leasing activity levels.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -2% | The decline was primarily driven by lower site development revenue and unfavorable foreign currency exchange rates impacting international operations, partially offset by modest domestic site leasing growth. This reflects reduced carrier activity (e.g., T-Mobile and DISH Wireless) and FX headwinds. |
Site Development | -7% | The decrease resulted from reduced construction and development activity among major carriers, including T-Mobile, DISH Wireless, and Verizon Wireless. Although there were some ongoing projects carried over from the prior period, they did not fully offset the overall decline in carrier investments. |
Brazil | -11% | Weaker performance in Brazil was mainly caused by currency devaluation of the Brazilian Real against the U.S. Dollar and churn from carrier consolidation. While new leases and amendments provided some uplift, they could not compensate for the FX-related revenue drop and lease non-renewals. |
Operating Income | +51% | The substantial increase was driven by reductions in depreciation and amortization expense, lower asset impairment costs, and improved site leasing margins. These factors outweighed the impact of slower site development activity, resulting in a strong year-over-year rise. |
Net Income | +206% | The large jump in net income reflected favorable currency remeasurement gains, lower non-cash interest expenses, and certain tax benefits, which together more than offset the year’s challenges in site development. Additionally, lower asset impairments further improved the bottom line. |
EPS | +201% | EPS growth closely tracked the increase in net income, aided by the currency remeasurement benefits, tax-related gains, and stronger operating profitability. These factors boosted earnings on a per-share basis, despite the modest decline in consolidated revenue. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Site Leasing Revenue | FY 2024 | Slightly increased on a constant currency basis | Increased outlook due to better-than-expected foreign currency exchange rates and strong performance | raised |
Site Development Revenue | FY 2024 | Lowered by $10 million | Increased full-year outlook by $5 million | raised |
Adjusted EBITDA | FY 2024 | Slightly increased | Increased outlook | raised |
AFFO per Share | FY 2024 | Full-year outlook was increased | Increased outlook | raised |
FFO per Share | FY 2024 | Increased by $0.09 | Increased outlook | raised |
Tower Cash Flow | FY 2024 | no prior guidance | Increased outlook | no prior guidance |
-
Millicom Deal Details
Q: What is the EBITDA multiple for the Millicom deal, and how will it impact AFFO per share?
A: The incremental SG&A will be between $3 million and $5 million, leading to an EBITDA multiple of around 11.5x for the initial payment. The deal is expected to be accretive to AFFO per share once it closes. The 15-year MLA with Millicom locks them in, providing stable revenue. -
Lease-Up Potential and Tenancy Ratios
Q: What is the lease-up opportunity on the Millicom sites?
A: The current tenant ratio is 1.2, with Millicom as the primary tenant. We see significant lease-up potential as competitors were less inclined to co-locate when the sites were owned by Millicom. Now, we have the opportunity to unlock value by adding additional tenants. -
Build-to-Suit Agreement with Millicom
Q: What are the details of the build-to-suit agreement with Millicom?
A: We have an exclusive agreement to build up to 2,500 sites over the next 7 years for Millicom. These builds are expected to generate double-digit returns without any lease-up, and additional tenants could further enhance returns. -
Domestic Leasing Activity Uptick
Q: What drove the uptick in U.S. leasing activity in Q3?
A: The increase was broad-based, with more new leases signed compared to the past two years. Both rural expansion, due to regulatory requirements for some customers, and densification in suburban markets contributed to the uptick. -
Shift to Co-Locations Over Amendments
Q: How is the mix shifting between co-locations and amendments in the U.S.?
A: Approximately 60% of new leasing revenue came from new co-locations in Q3. This shift indicates more points of presence with carrier customers, which is favorable for future growth. -
Leasing Outlook for 2025
Q: If current trends continue, how should we think about 2025 leasing versus 2024?
A: If current activity continues, we'll be in okay shape for next year, but it's too early to provide specifics due to many moving parts. -
Leverage and Balance Sheet Management
Q: How are you thinking about leverage levels over the next couple of years?
A: Leverage remains historically low at 6.4x; even with the Millicom deal, it will increase by only about 0.2x . We prefer to invest in assets or share repurchases rather than reducing leverage further. -
Dividend Growth Expectations
Q: Is there a floor for dividend growth as we look ahead to 2025 and 2026?
A: While not explicitly set, we expect to have one of the fastest-growing dividends in our industry. This year's growth was 15%, the lowest in our history, but we anticipate healthy growth going forward. -
Outlook on DISH Network Activity
Q: Any updates on DISH's network build-out and its impact on SBA?
A: DISH's relief on regulatory deadlines and recent funding are positive developments. While it's early to determine short-term impacts, we expect long-term benefits as they continue their build-out. -
Non-Sprint Churn Outlook
Q: How is non-Sprint churn trending, and what do you expect going forward?
A: Non-Sprint churn was about 1.3% this quarter. We expect it to improve further, potentially getting close to 1% next year. -
Application Backlog and Leasing Inflection
Q: Can you quantify the application backlog and timing of leasing inflection?
A: The application backlog reflects the mix shift we've discussed. The implied new leasing of just under $9 million in Q4 is close, within $0.5 million. We believe we're nearing the bottom and expect an upward trend, though timing may be affected by the mix shift. -
Site Development Revenue Increase
Q: What's driving the increase in site development revenue, and will it continue?
A: We had a better quarter than anticipated, leading us to raise guidance. The increase is due to a couple of carrier customers being particularly busy and a shift toward more full turnkey work. We expect similar drivers next year. -
M&A Opportunities in the U.S.
Q: Are there more small M&A deals to come in the U.S.?
A: Opportunities are somewhat limited due to low volumes. We'll continue to look, but such deals are not expected to be frequent. -
Impact of Verizon Tower Sale
Q: Any expected impacts from Verizon's tower portfolio sale?
A: The sale went for a very nice price, reflecting the value of towers in the U.S.. It supports the high-value nature of SBA's portfolio. -
Adjustments to Escalators
Q: Are you considering CPI-based escalators in renewals?
A: While escalators don't change much, for new agreements we usually focus on a fixed rate rather than CPI-based adjustments. -
Time from Order to Implementation for Co-Locations
Q: What's the typical time from order to implementation for co-locations?
A: The typical timeframe is around six months.