During the recent Q1 2015 earning call, SBA Communications’ CEO, Jeffrey Stoops, along with Mark DeRussy, VP of Finance and Brendan Cavanagh, SBA’s CFO and SVP, discussed latest results in both domestic and international markets. Here is a snapshot of what we found out.
SBA’s site leasing revenue for Q115 was US$369.7mn (+19.5% from Q114) and the international cash leasing revenue saw an increase of 92.5% to US$57mn. The actual increase would have been 121.8% had it not been for the impact of unfavourable exchange rates.
With strong leasing demand both in the U.S. and internationally, about two-thirds of the company’s leasing activity came from new leases. The international organic growth rate (10%) is due to “a combination of quality assets, strong execution, good contracts and excellent demand from our customers” according to CEO Jeff Stoops.
Stoops continued explaining that the tower cash flow margins in international markets were solid but below the levels of 2014 in light of the two Oi transactions closed in 2014. The CEO concluded with an overview of the Brazilian market “I continue to be pleased with the progress we’re making in Brazil and look forward to continuing our positive momentum. While we are disappointed with the negative movement of the Brazilian real against the U.S. dollar and the resulting impact on our 2015 outlook, we remain convinced that Brazil will be an excellent long-term investment. […] While the near-term economic picture in Brazil is challenging, demographic trends, smartphone sales, network needs, new spectrum and the competitive carrier dynamic all lead us to continue to believe that Brazil will be a growth market for network investment for many years to come. Our investment focus for Brazil for the remainder of the year will likely focus on new builds and smaller acquisitions and we would like to reinvest all Brazilian reais we are generating back into the business.”
During Q&A, Stoops was asked about the drivers of SBA’s growth in Brazil and stated that 80% of the company’s growth is due to incremental revenue internationally – new leases are definitely driving the company’s business in countries like Brazil.
When commenting on DAS, Stoops admitted that SBA is starting to look at the opportunity and getting involved in a few small cells deployments. The deployments SBA is following are on urban towers where usually three small cells are placed, one on each base of the tower in what Stoops defined as “a sectorised installation”. At the same time, while deploying exclusively on their own towers, SBA is taking a look at other types of sites such as streetlamps to assess how that market evolves.
The Brazilian reais forex rate affects everyone, not only carriers
With regards to the effect of the Brazilian reais on the carriers activity, Stoops said that although there isn’t any evidence directly linking the status of the national economy with the carriers; activities, it’s generally believed that “there has to be some impact that has permeated all through the Brazilian society and the carriers down there are not immune to that.”
Stoops further explained that the escalators in SBA’s leasing contracts are linked to a cost-of-living index. “So to the extent that those are higher which tends to be the case when we have this weakness that we are seeing relative to the US dollar in terms of FX rate they tend to be higher. The timing of us to get the benefit of that though depends on when those leases escalate and so they all escalate to dates. A lot of them escalate on the acquisitions that we did in terms of the leasebacks typically on the anniversary of the closing date. So for instance on April 1, we had a fairly sizeable escalation due to the second Oi deal that we closed April 1 of last year and that was at a much higher rate than previous escalations we’ve seen but we generally don’t see it until we actually hit those escalation dates.”
Central America continues to grow while Brazil passes new Antenna Law
SBA’s Brendan Cavanagh explained that because several Central American currencies were pegged to the USD, or indeed were the USD, almost everything is actually paid in U.S. dollars. Activity-wise, Central America is going very well with a few large deployments (such as Panama) which put SBA ahead of the curve for 2015.
Cavanagh went on to comment on the Antenna Law which was recently approved in Brazil and admitted that SBA is optimistic about it. The Law presents similar characteristics to the one adopted in the U.S. and the real challenge will be the actual adoption of it by each individual municipality, as they lead the process when it comes to obtaining permits for greenfield projects.
In conclusion, Jeff Stoops commented on SBA’s tenancy ratio which hadn’t risen in Brazil due to new portfolios the company added last year, remaining stable at around 1.3 to 1.4 tenants per tower. On the other hand, SBA is experiencing continuing progress in the U.S. market where the tenancy ratio moved from 1.9 to 2, and they expect to see continuous increases.
