SBA Communications (NASDAQ: SBAC) is optimistic about what’s ahead. The company sees growing demand for its wireless communications infrastructure where it operates in both domestic and international markets. SBAC anticipates new revenue-generating activity from the same confluence of factors that the overall industry sees: the T-Mobile/Sprint merger approval, the prospect of DISH as a fourth U.S. wireless carrier, and mid- and high-band spectrum auctions in the U.S. and in international markets over the next two years.
Given those factors, the company states: “We believe we are on the cusp of a material increase in operational activity and demand for our infrastructure likely to begin in the second half of 2020 and continue for years thereafter.”
To that end, SBAC is upping its network investments. In its 4Q19/FY2019 earnings call, SBAC provided guidance for its 2020 capital expenditures in a range of 22 percent to 35 percent above the 2019 level.
As a wireless communications infrastructure company, SBAC owns and operates towers, rooftops, distributed antenna systems (DAS) and small cells. The bulk of its holdings is its base of towers that tallied 32,403 at the end of 2019. The U.S. and its territories account for 16,401 towers or 51 percent of the total with the balance of 16,002 in international markets including Canada, Central and South America, and South Africa.
Since 2015, the number of international tower sites grew at an 11 percent CAGR while the U.S. tower portfolio ticked up only slightly over the same period. The tower base grows organically with hundreds of new sites built every year. In international markets, though, SBAC actively grew its tower portfolio to equal the U.S. tally by buying large blocks of existing sites. Typical of such an acquisition transaction is the deal SBAC made in 2019 to acquire 1,313 sites from Grupo Torre Sur in Brazil.
SBAC generates revenues through two main sources: site leasing, and site development. Site leasing involves leasing space for antennas, radios, cables and other ancillary equipment on its multi-tenant towers and other structures to a variety of wireless service providers under long-term lease contracts. Site development is a services business where SBAC assists wireless service providers and operators in developing their own networks through site acquisition, zoning, construction and equipment installation.
Of SBAC’s $2 billion in revenues for 2019, site leasing is the primary source accounting for 93 percent or nearly $1.9 billion of the total with site development revenues of over $150 million bringing in the balance. Of the total site leasing revenues, the U.S. market produces 80 percent. Lower rents and currency exchanges affect the U.S. dollar value of leasing revenues generated in other countries.
SBAC’s capex enables that revenue stream. Guidance for SBAC’s overall 2020 capital investment is $277 to $307 million, consisting of both discretionary and non-discretionary expenditures. That expenditure is up nearly 30 percent on a year-to-year basis from $227 million spent in 2019.
At $240-260 million, discretionary capex accounts for 85 percent of the budget and involves new tower builds, tower augmentations (add-ons, modifications and upgrades), communication site acquisitions already under contract, and ground lease purchases. Non-discretionary capex at $37-47 million makes up the balance, consisting of tower and grounds maintenance, and general corporate expenses. The cost of new site acquisitions is not included. SBAC points out that it “may spend additional capital in 2020 on acquiring revenue-producing assets not yet identified or under contract, the impact of which is not reflected in the 2020 guidance.”
SBAC typically invests $200-300 million a year in its infrastructure base. However, its capital spending has been in a trough since 2016 due to a combination of 4G LTE deployments winding down, site construction stoppages around the T-Mobile/Sprint merger and wireless carrier planning for 5G.
With the uncertainty clearing, SBAC is raising its stakes for a bigger piece of the action.
By John Celentano, Inside Towers Business Editor