SBA Communications Corporation (SBAC) Q2 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the SBA Second Quarter Results Webcast. At this time, all participants are in a listen-only mode and later you will have an opportunity to ask questions. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mark DeRussy, Vice President of Finance. Please go ahead.

Thank you. Good evening everyone and thank you for joining us for SBA's second quarter 2019 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer. Some of the information we'll discuss on this call is forward-looking, including, but not limited to, any guidance for 2019 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, July 29, 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 of our Investor Relations website. With that, I'll turn the call over to Brendan.

Thank you, Mark. Good evening. We had a great second quarter with strong operating and financial results in both our leasing and services businesses. Total GAAP site leasing revenues for the second quarter were $459 million, and cash site leasing revenues were $456.1 million. Foreign exchange rates were modestly weaker on average than our estimates for the second quarter, which we've previously provided with our first quarter earnings release, negatively impacting leasing revenues by approximately $350,000. FX rates were also a headwind on year ago comparisons. Same-tower recurring cash leasing revenue growth for the second quarter, which is calculated on a constant currency basis, was 6.4% over the second quarter of 2018, including the impact of 2.4% of churn. On a gross basis, same-tower growth was 8.8%. Domestic same-tower recurring cash leasing revenue growth over the second quarter of last year was 8.3% on a gross basis and 5.6% on a net basis, including 2.7% of churn, a large portion of which continues to be related to Metro/Leap, Clearwire and iDEN consolidation terminations. Domestic same-tower recurring cash leasing revenue growth continues to increase, climbing to its highest point in 4 years due to our strong operational domestic leasing activity over the last year. Domestic operational leasing activity, representing new revenue signed up during the quarter, was again very solid in the second quarter. Amendment activity in particular was very high, with newly signed up domestic leasing revenue coming about 80% from amendments and 20% from new leases. We again saw contributions from each of the Big Four carriers. The Big Four carriers represented 86% of total incremental domestic leasing revenue signed up during the quarter. We also continued to have contributions to our domestic operational leasing activity from new lease executions with DISH. Our domestic backlog continues to be strong with new applications coming in every day, giving us confidence for the remainder of the year. Internationally, on a constant-currency basis, same-tower cash leasing revenue growth was 10.2%, including 0.8% of churn or 11% on a gross basis. We had another solid leasing quarter internationally, with Brazil the largest contributor. Gross same-tower organic growth in Brazil was 13.6% on a constant-currency basis, and we continue to have solid contributions from all four major carriers there. During the second quarter, 86.2% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S dollar-denominated revenue was from Brazil, with Brazil representing 12.1% of all cash site leasing revenues during the quarter and 8.8% of cash site leasing revenue, excluding revenues from pass-through expenses. With regard to second quarter churn, as we continue to see churn from leases with Metro/Leap and Clearwire a little higher than the previous couple of quarters but consistent with our expectations. As of quarter-end, we have approximately $7 million of annual recurring run rate revenue from leases with Metro/Leap and Clearwire that we expect to ultimately churn off over the next two years. Also, our same-tower churn numbers continue to include the impact of approximately $6 million of annualized churn incurred in the fourth quarter of 2018 from certain legacy iDEN-related leases, the impact of which will affect our reported same-tower churn results for one more quarter. Domestic churn in the second quarter from all other tenants on an annual same-tower basis was 1.5%, at the high end of our long-held estimation of 1% to 1.5% of annual non-consolidation churn. Tower cash flow for the second quarter was $367.9 million. Our industry-leading domestic tower cash flow margin was 83.4% in the quarter. International tower cash flow margin was 69.2% and was 90.1% excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the second quarter was $347.2 million. Our adjusted EBITDA results in the quarter were again driven by strong performances in both our leasing and services businesses. Services revenues in the second quarter were $41.1 million, up 55.6% over the second quarter of 2018, driving almost twice as much services gross profit as the year ago period. Our adjusted EBITDA margin was 69.8% in the quarter, down slightly year-over-year due to the larger contribution from our services business. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74.3%. Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter. AFFO in the second quarter was $240.1 million. AFFO per share was $2.09, an increase of 14.2% over the second quarter of 2018 or 15.8% on a constant currency basis. During the second quarter, we continued to invest in expanding our tower portfolio, acquiring 82 communication sites for $83 million and building 87 sites. All of the acquired sites were located in the U.S., and most of the built sites were located internationally. Subsequent to the end of the quarter, we acquired 59 additional sites for $17.9 million. As of today, we have under contract for acquisition and anticipate closing by the end of the first quarter of 2020 on 125 additional sites at an aggregate price of $45.7 million. In addition, during the third quarter, the company intends to exercise its option to acquire all but 6% of Atlas Tower South Africa, a previously unconsolidated joint venture with sites throughout South Africa. The joint venture currently owns and operates approximately 900 sites, with many more in development. The acquisition is anticipated to close in the third quarter, and the company's 2019 outlook has been updated to include the impact of this transaction. Jeff will discuss this transaction in more detail in a moment. We also continued to invest in the land under our sites, which provides both strategic and financial benefits. During the quarter, we spent an aggregate of $12.6 million to buy land and easements and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 71% of our towers. And the average remaining life under our ground leases, including renewal options under our control, is approximately 35 years. In today's earnings press release, we included our updated outlook for full year 2019. We have increased our outlook across the board. We anticipate increases in site leasing due to both organic and inorganic growth as well as some assumed modest improvements in future FX rates. Increases in organic growth are due to both higher leasing volumes and earlier average timing of rental commencements. Given the typical time delay between lease executions and revenue commencement, we do not expect any material impact to our 2019 leasing guidance as a result of the Sprint/T-Mobile merger. Inorganic growth in our outlook is being boosted primarily by our increased investment in, and consolidation of, our South African joint venture. We also anticipate incremental contributions to our results from our services business due to our strong Q2 performance and our healthy backlogs. However, our full year 2019 services guidance still contemplates a slowdown in the second half of the year due to the Sprint/T-Mobile merger. The balance of our outlook for AFFO has also been improved for anticipated better results in net cash interest expense, non-discretionary CapEx and cash taxes. Shifting gears now, as announced in our earnings press release earlier today, we are excited to be formally initiating a quarterly dividend payment to our common stockholders. The initial dividend will be a payment of $0.37 per share, payable September 25, 2019, to shareholders of record at the close of business on August 28th, 2019. After our conversion to a REIT in 2016, we have regularly discussed our eventual requirement to pay a dividend upon using up all of our existing federal net operating losses, which were $755 million as of year-end 2018. As previously discussed, the anticipated timing for this was 2021. We have decided to shift the timing of initiating these quarterly cash distributions for several reasons. First, commencing the dividend approximately 18 months earlier will allow us greater flexibility in the amount we pay in the early period following commencement and the pace of growth in the dividend rather than simply being required to pay out all or almost all of our taxable income. The earlier dividend will allow us to preserve a portion of our NOLs for a longer period of time, in turn providing us the opportunity to have steady, more substantial dividend growth over an extended period of time. With the commencement of this dividend and based on our expectation for future growth in our business, we believe we can grow our dividend by at least 20% annually for the next several years. The second reason we have commenced the dividend plan now is that it will allow us to continue to transition our investor base to more traditional REIT investors and other investors who have investment objectives that price free cash flow-generating businesses. We believe commencing our dividend plan now will continue to broaden our investor base and may also facilitate a smoother transition from traditional telecom investors, the REIT, equity income, dividend growth, and other investor classes that place a premium on the growth of a long-term, predictable income stream. And thirdly, initiating a quarterly dividend now requires no strategic or operational changes to our business. The initial dividend level, which is less than 20% of our current AFFO per share, will not require any changes in leverage and will still allow us to focus on building and acquiring high-quality assets as well as opportunistically buying back our stock. Our substantial amount of high-quality, internally-generated cash flow, significant liquidity, and historically strong access to incremental debt capital all give us significant financial flexibility if and when great investment opportunities arise. The dividend will not impact our ability to pursue these opportunities. We are excited to have a new tool to return value to our shareholders for many years to come. I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

Thanks Brendan. SBA ended the second quarter with $9.8 billion of total debt; $150 million of cash, cash equivalents, short-term restricted cash and short-term investments; and $9.6 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 6.9 times, just below the low end of our targeted range of six to 7.5 times. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.6 times. The weighted average coupon of our outstanding debt is 3.9%, and our weighted average maturity is approximately four years. As of today, we have no amounts outstanding under our $1.25 billion committed revolver. On May 23rd, we entered into a four-year $750 million interest rate swap, effectively fixing the interest expense on this portion of our outstanding Term Loan B at 4.08%, which is about 20 basis points below the rate we are paying under our term loan today. The unhedged portion of our Term Loan B will continue to accrue interest at one month LIBOR plus 200 basis points. As a result of this transaction, approximately 95% of our debt outstanding is fixed. During the second quarter, we purchased 0.5 million shares of our common stock for $94.6 million or an average per share price of $204.06. Subsequent to quarter end, on July 29th, our Board of Directors authorized a new $1 billion stock repurchase plan, replacing the prior $1 billion plan, which had a remaining authorization of $110 million. The new plan authorizes the company to purchase from time to time up to $1 billion of our outstanding Class A common stock through open market repurchases in compliance with Rule 10b-18 or in privately negotiated transaction at management's discretion. Shares repurchased under the plan will be retired. The new plan has no deadline and will continue until otherwise modified or terminated by the company's Board of Directors at any time in its sole discretion. Stock repurchases continue to remain an integral part of our strategy. Our shares outstanding at June 30th, 2019, are 113.1 million, which is down 1.5% from 114.8 million at June 30th, 2018. So, with that, I'll now turn the call over to Jeff.

Thanks Mark and good evening everyone. We had a truly great second quarter, exceeding our own expectations both financially and operationally. For the first time in SBA's history, we reported quarterly revenue of $500 million, reflecting the strong financial results from both our leasing and services segments. The strength of these results helped us grow our AFFO per share by 15.8% on a constant-currency basis. The level of operating activity was very high in both leasing and services, and both segments have healthy backlogs moving into the second half of the year. As a result, we have increased our full year 2019 outlook for all key metrics. While it is a little early to be able to comment on the specific implications of the recent announcements regarding the DOJ approval of the T-Mobile/Sprint merger and the related transactions with DISH, we are looking forward to supporting all of our wireless customers in their efforts to build out high-quality, 5G-ready nationwide networks over the next several years. We believe the contemplated final terms of this merger are positive as they insure four facilities-based nationwide carriers, two of which will have significant nationwide deployment deadlines to meet. All of this is positive for the tower industry. Our high-quality, large-scale nationwide network and our existing strong working relationships with our customers position SBA very well for the significant network investment that will take place by our customers for their 5G network deployments. Returning to our second quarter results domestically, the strong operational leasing activity we've experienced over the last few quarters continued into the second quarter. All four major U.S. wireless carriers, as well as DISH, were active during the quarter with significant contributions from amendments. Activity at our tower sites remains predominantly focused on deployment of new spectrum bands, capacity builds and technology upgrades. As the industry accelerates network activity to provide 5G service and with the increasing recognition of low- and mid-band spectrum as a primary component of nationwide 5G networks, we are well positioned in the macro tower business and remain confident in our ability to capture additional organic growth for years to come. Internationally, we also had another solid leasing quarter with steady contributions across all of our markets, particularly Brazil. The contractual revenue signed up during this quarter in our international markets came about 42% from new leases and 58% from amendments. Similar to the last few quarters, we once again had solid contributions from all four major wireless carriers in Brazil. The Brazilian reals has rebounded some as prospects for the Brazilian economy have improved and seems to have settled in around current levels. And as you can tell from our outlook, we've actually put in a more conservative expectation for the rest of the year around the reals. We believe we are very good in identifying high-potential international markets and bring the operational, legal and financial expertise to maximize returns in these markets. In line with that, we are excited to announce our operations in South Africa, our first outside the Western Hemisphere. As mentioned earlier, we intend to exercise our option to acquire all but 6% of Atlas Tower South Africa, a previously unconsolidated joint venture. SBA has been invested in Atlas Tower South Africa for approximately four years. And during that time, Atlas has grown primarily through new tower builds to a current site tower of approximately 900 towers at an average tenancy of 2.2 tenants per tower. Atlas is led by a CEO that I have known for 20 years, Nate Foster. Nate and his wife, Randi, have built a tremendously talented team that build and operate first-class assets with deep customer relationships. Including amounts to be paid in connection with the upcoming closing, we will have invested approximately a cumulative $140 million in Atlas. During the first full year of operation after the acquisition closing date, Atlas is expected to generate annual leasing revenue of approximately $31 million, tower cash flow of approximately $23 million and adjusted EBITDA of approximately $21 million, all using current exchange rates. Atlas will be neutral to our leverage ratio and immediately accretive to AFFO per share. As you can tell from those numbers, the financial returns on this investment are already quite attractive, but we believe there is significant opportunity for additional high-quality growth in South Africa. South Africa has a number of active wireless carriers, including their Big Four: MTN, Vodacom, Telkom Mobile, and Cell C. All these carriers are still in the process of implementing 4G, which we anticipate will continue for the next couple of years at least as well as focusing on cell densification efforts. These projects, in addition to anticipated new spectrum options and ultimately 5G deployments, we expect will keep us very busy for the foreseeable future. New spectrum options of 700 megahertz, 800 megahertz and 2.6 gigahertz are expected soon in South Africa. In addition to a healthy and active wireless market, South Africa also has other characteristics that are well suited for the tower business, including an established rule of law, stable land-use regulations and direct availability of electric power. As it relates to power, each customer has their own power meter, and all of the sites are connected to the power grid, which is a major difference from virtually all other sub-Saharan African tower markets. In addition, our involvement with the joint venture from very early on has allowed us to witness the high quality of both the contracts and the towers being built. We believe the experience of the Atlas management team and their focus on quality has made this the top portfolio in this market. From a macro level, with the recently completed elections, we are optimistic about the prospects for South Africa, with an administration that we expect to be supportive of business, particularly those businesses focused on critical infrastructure like communications infrastructure as well as the desire to attract foreign investment. Our contracts and operating expenses are all denominated in the South African rand, which has been a relatively steady currency against the U.S. dollar over the past three years. We're truly thrilled to be in South Africa. It gives us a well-scaled access to a new high-growth market and a high-quality local team who has a strong track record of organically growing the business. This is exactly the type of portfolio growth we see allocating capital towards high-returning tower assets that drive incremental value for our shareholders. We look forward to reporting on our progress in South Africa over the next several years. Moving on from one exciting announcement to another, SBA today declared its first cash dividend. Brendan went through most of our thinking around initiating a cash dividend now, but the bottom line is we believe it is simply another way for us to create value for our shareholders. The strength of our operating results and financial condition, along with the future flexibility created for managing the dividend, made it an easy decision for us to begin today. The level of the initial dividend in our current existing NOL balance allow us the ability to continue to meaningfully invest in new assets and share repurchases while still providing the same incremental benefit to our shareholders. We are very pleased to add dividends to the list of ways we target to return value to our shareholders. With the initiation of a dividend, our toolkit for additional value creation for our shareholders is now complete. Our recipe for maximizing shareholder value stays largely the same but changes slightly as to capital allocation. First, we will continue to have a laser focus on operational excellence as we always have. Second, we will look to continue to optimize and appropriately leverage our balance sheet, and we continue to pursue that goal from a position of great strength. Balance sheet optimization drives the target amount of capital allocation each year. With the initiation of the dividend, our first priority is now to grow the dividend materially each year, satisfying our REIT distribution requirement along the way, yet while keeping the vast majority of our AFFO available for portfolio growth. This is the primary reason why we started the dividend ahead of our REIT requirements. Our next priority is quality portfolio growth that meets or exceeds our investment criteria. Our U.S. tower acquisitions this quarter and our South African news are perfect examples of the types of portfolio growth we will continue to see. Finally, to the extent we have capital remaining available for allocation; we will repurchase our stock where we believe it is trading below intrinsic value. We did some of that as well this quarter. So, this quarter, with the initiation of the dividend, represents a great example of our use of all three capital allocation tools to create additional shareholder value. We've had a great first half of 2019 and are excited about what the future holds for SBA. I'd like to thank our employees and our customers for their contributions to our success. And with that, Caroline, we're ready for questions.

Thank you. [Operator Instructions] We do have a question from the line of Batya Levi from UBS Company. Please go ahead.

Great. Thank you. Maybe one question. If you could remind us your exposure to T-Mobile's and Sprint's decommissioning spend. And how quickly do you think that you could potentially see that impact? And I guess from -- looking at DISH potential deployment, you've had potentially more insight than others into how they've been planning the network. How do you think you're positioned to benefit from the incremental tower that they are announcing that they're going to spend? And how quickly do you think you will be able to see that revenue growth accretion? Thank you.

Batya, on the Sprint and T-Mobile overlap, we actually did put the information on the press release. But it is -- in terms of site, both companies have leases on the same site. Sprint represents 6.4% of our consolidated cash site leasing revenue, and T-Mobile represents 6.5%, so fairly equivalent in size. And the average remaining term for the Sprint leases on those dates is 4.6 years. And for T-Mobile, it's 4.3 years. So there wouldn't be any immediate impact from that. DISH?

Yes. And on DISH, I would say that we do have an excellent relationship with DISH, and I would believe that will suit us particularly well for the future. But I would also guess, and this would only be a guess at this point, that there will be a fair amount of consideration on their part as to what they will want their network to look like going forward under the new firms, what has been divested from the Sprint/T-Mobile deal because it will look very different than what, I believe, their narrowband IoT network was going to look like under their prior efforts. So, there's got to have to be some time that goes by before I think you can have clarity on what DISH's exact plans are going to be and with the time frame is going to be.

Okay. Thank you.

Next, we have a question from the line of Colby Synesael from Cowen and Company. Please go ahead.

Great. I guess so just a follow-up on that. So, DISH is then in theory, I guess, leasing sites with you for their narrowband IoT network, which they're, in theory, no longer going to be pursuing. Is it possible we could actually see a pause now in terms of the demand that you're seeing from them? And could that have some impact on your expectations? And then to that point, was there any provision in the leases that they did sign that allows them to cancel then to the extent something like this happen or either shift those leases into a more -- maybe the dollar commitment, if you will, that they were using for the narrowband IoT network, they can shift those dollars towards leases from more traditional network? And then secondly and separately for South Africa, I know you mentioned that this is very unique and there is a relationship that's already there. But is it possible that we could see you now going into other countries in Africa? Or is this really a one-off, and we should think of it that way? Thank you.

Well, we don't have any plans at this point to do anything beyond South Africa, which is like we decided to go into South Africa. It's our job to continue to evaluate every place around the globe, but we're not. So, nothing on the horizon today, but stay tuned. And as far as DISH is concerned, their leases are -- they have the regular terms. They don't have any particular outs for something like this, Colby. So, we'll have to see what this -- yes, I mean, this is a pretty big change. It's a different kind of network for them. So, we'll have to see what all this does to their efforts going forward. But as far as our guidance is concerned, there's really not anything that is left to be done operationally in 2019 that affects the outlook that we've given, given the lag between operational lease-up and the impact on the financial statement. So, whatever happens, we're very comfortable with the new outlook that we've put out.

Great. Thank you.

Next, we have a question from the line of Philip Cusick from JPMorgan. Please go ahead.

Hi, This is [Indiscernible] for Phil. Thank you for taking my question. Two, if I may. First, domestic churn has been a little more elevated over the past few quarters. Can you talk about the trends you're seeing there? And should we still expect iDEN to fall to 0 after 4Q? And then secondly and separately, we've seen a pickup of site development as a percentage of site leasing revenue. Is this a reflection of normal course leasing activity or maybe a shift in a way in which carriers are choosing to architect their networks? Thanks very much.

Yes. I'll take the churn question. On the domestic churn, there has been no change in behavior from anybody. We do expect on the iDEN side, most of that churn was fourth quarter event that happened October 1st of last year. So, when we report that, we're giving you basically the impact over trailing 12 months. So, next quarter and the third quarter, we'll show that one more time on a year-over-year basis. When we get to the fourth quarter, we would expect that it probably will drop to zero. In terms of the other non-consolidation churn, we've seen a slight uptick, but it's really a timing issue. We've -- we're still comfortable with our annual 1% to 1.5% churn range in a given period. It might be slightly higher than that. As you've seen in the past, it's also been slightly lower, but we're still comfortable with that being kind of a normal level for the coming years.

Yes. And with respect to services, there's not really any change in the way our customers architect their network. I mean what it really reflects is we were doing a lot of services business for Sprint, which we did in the first half. And as we've discussed now several quarters, we're not contemplating that same level of business in the second half of 2019 from that particular customer. Caroline, do we have another question?

We do, from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Great. Thanks very much. Brendan, can you just talk about the leverage policy now that you've initiated a dividend? I think in the past, you've talked about kind of getting it more into the mid-6s. So, any update there? And perhaps, Jeff, just a broader comment on the M&A environment. In the U.S., I think you bought some towers. AT&T talked about potentially selling some towers last week. What are you seeing there in terms of supply and valuations, et cetera? Thanks.

On the leverage, Simon, what we have said in the past is that we would look to have something with a six handle on it. We actually have that today. We obviously reported 6.9 turns. I think it's really going to be driven more by opportunities to continue to add quality portfolio growth in share repurchases, but we would expect to still be close to our historical target range of 7% to 7.5% but probably more towards the lower end going forward.

Yes. The M&A environment, Simon, continues to be competitive, but you can find if you're experienced and have a lot of tentacles out there, which we have both, good opportunities. We tend to focus on the -- we try to tend to focus on the highest quality site. The particular sites that we bought in the second quarter were Mid-Atlantic area sites; extremely tough zoning; very, very good high-quality sites that we think will enjoy very good growth over the years. Those are the kind of things that are out there. And we will be very, I think, competitive around those types of opportunities. Not everything out there fits that bill, so you have to be careful and picky, but there's enough out there for us globally to achieve the high-quality exclusive asset characteristics that we've kind of built the company on and we'll continue to seek over time.

Great. So, you still have that 5% to 10% goal over the next few years?

We do. We'll hit it this year, for sure, and I don't know why it wouldn't be a go going into next year as well.

Thanks a lot.

[Operator Instructions] We do have a question from the line of Nick Del Deo from MoffettNathanson. Please go ahead.

Hey thanks for taking my question. Regarding Atlas, a few questions there. One, is the leadership team going to remain in place? Two, can you talk about the new build runway and sort of development yields they've been getting? And three, how much are you spending in Q3 to bring ownerships stake up and for what share of the company?

We're not going to cover the last one, Nick. That's got to be between us and the Fosters. As to the first question, the -- yes, they are staying on, and they have arrangements and build-to-suit relationships with all four of the South African carriers. So, this -- the beauty of this opportunity is that most all of these towers were built, and they were built for -- in varying amounts for the Big Four in South Africa. That will continue, and they've been running at a fairly high annual clip. So, we expect that the 900 goes to 1,000 and beyond here in the not-too-distant future.

Okay. And any commentary on the development yields?

Development yields?

Yes, sure, sure.

Day one? You mean the day one of yields?

Yes, and anything you can kind of share.

Yes. I think they would be high single-digits or perhaps low double-digit on day one.

Got it. And then I guess, and sort of switching gears a bit, when you look at acquisitions in general, you go tower by tower, lease by lease. How do you underwrite value contributions from upstart carriers relative to established players? Yes, I guess I'm trying to understand what your general framework is because it might be useful as we think through what DISH might mean for you guys.

How we value them?

Yes, what are the puts and takes you consider for upstarts versus established players?

Well, it really comes down to whether you're allocating capital. Are you building for them? Are you buying for them? Or are you simply leasing up space that you have available on asset that you've already spent money. That's -- and that's a wildly different outcome depending on which of those camps you fall in.

I'm sorry, Nick, I was just going to say we deal on our existing sites to evaluate obviously whether there's any remaining capacity when we're making that decision and who might be a potential user of that if there are. But for the vast majority of our sites, we're not leasing the last available space so it's not really a credit quality decision that we're making.

Okay, okay. It was the latter point I was trying to get to. Thanks for the commentary Jeff and Brendan.

Next, we have a question from the line of Michael Rollins from Citi. Please go ahead.

Hi, thanks and good afternoon. Two, if I could. First, if you can give us an update on site leasing activity in the U.S. with respect to what you're seeing from new colo versus amendment. And second, I think over the last couple of quarters, you've been talking about a broadening of your investor base. I'm curious, as you've had an opportunity to talk more with your investors, are you seeing any change in priorities for them in terms of what they would like to you to do as a company whether it's the way you invest or allocate capital. Thanks.

On the amendments versus new colos in the U.S., I think we mentioned in our comment what it was this quarter, which was in terms of the business that we signed up in the U.S.; it was approximately 80% of amendment. That is pretty high relative to where it's been over the last few quarters or actually over the last two years. Amendments have, generally speaking, always been higher over the last probably five-plus years than new colos, but it has gone a little bit higher in recent periods. And that's probably the highest we've had in a couple of years. So, we'll see, but we would expect to continue to see that kind of mix given the types of activity that our customers are involved in.

Yes, on your second question, Mike, we are seeing more of the traditional REIT infrastructure investor. That investor typically looks for some kind of dividend. In fact, we have had a number of interested investors who previously said they were very interested but precluded from their internal policies and charters because we did not pay a dividend. But in each case, we made it clear that our bias at our internal policy was such that it was going to be a minimal dividend going or a dividend on the lower side geared towards maximizing AFFO that was left for other investment, obviously subject to our REIT requirements. And everybody seemed to be very happy with that because they understood that, that was going to satisfy the dividend requirement that they were looking for and also provide over time a very fast growing dividend. So, in large part -- not entirely, but in large part, what we did today was responsive to a lot of that new class of folks that you were inquiring about and we've been recently meeting with.

Thanks very much.

And we have a question from the line of Spencer Kurn from New Street Research. Please go ahead.

Hey thanks for taking the question. I want to follow-up on leverage. So, I know you have a six handle today. Can you just talk about -- I mean so first off, should we sort of think about you being in the high-6s for the foreseeable future? And then can you talk about the considerations you have to make in leverage as your payout ratio grows over the next five years?

We definitely have to consider that. As the payout ratio grows, that is another reason to start smaller because it keeps the payouts smaller for more years. So, that definitely was a factor, Spencer. We'll see where we -- where leverage ultimately comes in, whether it's higher or lower. Big factor there is where interest rates settle out, and interest rates appear to be headed lower again rather than higher. So, that's going to bode towards perhaps a higher six handle than a lower six handle. It's the same thing that we factored in before. But instead of before, where we had no calls on our cash flows, now we have the dividend call and then we back in from there. But the basic premise of a leverage capital structure as the most rewarding for equity holders, that hasn't changed.

Got it, makes sense. And if I might just switch gears for a second to Sprint and T-Mobile. Could you just run through thoughts on when carriers consolidate, do you tend to see a pause in spending before they ratchet up their new network plans? Or can you just talk about what you're expecting as a result of that merger? Thanks.

Well, I don't know that any historical consolidation is going to be instructed here because none have ever had the aggressive date-specific coverage requirements for the 5G service that are a part of the Sprint/T-Mobile transaction, the percentage of the population that must be covered within three years. So, I think there's going to be a lot of activity early on.

Got it. And just one more from me. It looks like you had a nice sequential increase in new leasing activity in the U.S. this quarter. What does your guidance imply for the rest of the year? Pretty consistent with second quarter levels or do you see the opportunity for it to continue to rise for the rest of the year? Thanks.

Yes, based on where our guidance is set and the numbers that are sort of implied in the bridge, I'd assume you're talking about the same-tower growth percentage, it would imply that from the domestic standpoint that we will be fairly consistent with where we were for the second quarter during the second half of the year.

Great. Thank you.

And next, we have a question from the line of David Barden from Bank of America. Please go ahead.

Hey guys. Thanks. I guess just one for Brendan or Mark. I think, Mark, you said that now that you kind of have done this refinancing, you're at 95% fixed. Historically, you've expressed your comfort level with 20% variable. And to Jeff's point, your rates seem to be trending down again. That might be a little bit of a surprise from kind of where we were a year ago. So, what is the strategy now? Is it to become more incrementally variable as we look ahead for the next year? Or is it just to fix everything we can now that rates are kind of coming back down again? Thanks.

Yes, we don't -- we're not planning to fix anything more than what we've already done. For the most part, our floating exposure throughout our history has come through our bank debt, and that is not due to mature for quite some time. Depending on how rates move there, we would evaluate whether it makes sense at any point to refinance it. But for now I think you should expect to see it stay about where it is.

Great. And then just with respect to the reals and your kind of expectations in Brazil for the kind of foreseeable future, are you -- I don't know, I guess the question is, are you banking on bows and arrows kind of government being able to kind of wane in the reals? And kind of would you expect to see tightening? And maybe could there be potential to see some opportunities for more affordable hedging in that marketplace or are you kind of not prepared to make the call on the market right now and just kind of ride it out?

Well, we haven't -- let's -- what you just suggested is not really a part of our outlook. What we believe has a very strong possibility is pension reform. I believe we're one vote away. And if that happens, we think that unlocks all kinds of favorable economic moves down there that will result not only in a strengthening of the currency against the U.S. dollar, which may weaken of its own accord, but also a favorable telecom regulation, which could be to the benefit of the entire wireless world down there. There's a number of things that are actually very favorable that are kind of right on the cusp of occurring down there, and it's already actually a pretty good market relative to where it's been in several years ago.

Okay, great. Thanks Jeff.

I would just add that no matter -- I mean, the reals could improve by a whole dollar against the U.S., but the cost of operationally hedging your results down there, I don't know if that ever becomes economically viable. I know people would like to believe that, but I don't know of any company that's ever successfully done that. Go ahead Carol.

And we do have a question from the line of Brandon Nispel from KeyBanc Capital Markets. Please go ahead.

Okay, sweet. I'm not going to talk about T-Mobile/Sprint, but I'm curious on your backlog of activity. In terms of new leases signed but not commenced, have we seen that level of backlog increase? And maybe could you remind us where it's at compared to a year ago? And then another one. Just in terms of the potential amount of activity that could be coming, what are the key constraints in terms of tower climbers? I guess do you see any labor shortages coming? Thanks.

Yes. Backlog is up from a year ago, but probably flat to six months ago. And tower climbers and other resources are short and at a premium and probably are somewhat restraining the pace of activity that would otherwise be able to be done.

Great. Thanks.

And there are no further questions in the question queue.

Great. Well, we appreciate everyone joining us and we look forward to reporting our next quarter's call. Thank you.

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