Q3 2022 SBA Communications Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the S. P. A third quarter results conference call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions instructions will be given at that time if.
If you should require assistance during the call you May press Star and then zero.
Remind you. This conference is being recorded I would now like to turn the conference over to our host Mark <unk> Vice President of Finance. Please go ahead.
Good evening and thank you for joining us for Sba's third quarter 2022 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 will discuss on this call is forward looking including but not limited to any guidance for 2022 and beyond.
<unk> press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today October 31, 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.
Filiation 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 will now turn it over to Brendan to discuss our third quarter results. Thank.
Thank you Mark good evening.
We continued our very strong 2022 with another outstanding quarter, our third quarter results were well ahead of our internal expectations and have allowed us to again increase our outlook for our full year results.
Total GAAP site leasing revenues for the third quarter were $587.3 million in cash site leasing revenues were $575 6 million.
Foreign exchange rates represented a benefit of approximately $600000 when compared with our previously forecasted FX rate estimates for the quarter, but they were a headwind on comparisons to the third quarter of 2021 negatively impacting revenues by $3 $3 million on a year over year basis.
Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis was four 9% over the third quarter of 2021, including the impact of four 2% of churn on.
On a gross basis same tower growth was nine 1%.
Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was 8% on a gross basis and four 8% on a net basis, including three 2% of churn.
Domestic operational leasing activity or bookings, representing new revenue placed under contract during the third quarter was very solid again with meaningful contributions from each of our largest customers.
The combination of our strong third quarter leasing activity level and faster than anticipated commencement of new amendments have allowed us to increase for the second consecutive quarter, our outlook for new 2022 domestic site leasing revenue from organic lease up.
During the third quarter amendment activity represented 58% of our domestic bookings with 42% coming from new leases.
The big four carriers of AT&T T mobile Verizon and dish represented over 94% of total incremental domestic leasing revenue signed up during the quarter.
Domestically, we also experienced less churn than we had projected due to timing of merger related decommissioning being later than we had previously estimated.
Our reduced 2022 domestic churn amounts are expected to shift to 2023.
Internationally on a constant currency basis same tower cash leasing revenue growth was five 4% net including eight 4% of churn or 13, 8% on a gross basis.
International leasing activity was very good again, as we had our best quarter of the year in terms of new revenue signed up.
In addition to strong customer activity levels across many of our markets. We continue to see healthy contributions from inflation based escalators.
In Brazil, our largest international market, we had another very strong quarter.
Same tower organic growth in Brazil was 13, 6% on a constant currency basis.
As anticipated international churn remained elevated in the quarter due primarily to carrier consolidations and digit sales previously announced exit from Panama.
During the third quarter 81, 1% 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, 5% of consolidated cash site leasing revenues during the quarter and nine 2% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the third quarter was $464 1 million.
Our tower cash flow margins remained very strong as well with a third quarter domestic tower cash flow margin of 84, 8% and an international tower cash flow margin of 67, 3% or 91, 3%, excluding the impact of pass through Reimbursable expenses.
Adjusted EBITDA in the third quarter was $446 8 million.
The adjusted EBITDA margin was 67, 3% in the quarter impacted slightly by outsized services revenue.
Excluding the impact of revenues from pass through expenses adjusted EBITDA margin was 72, 2%.
Approximately 95% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter.
During the third quarter, our services business again produced new record level results with $88 $3 million in revenue and $22 $8 million of segment operating profit.
We also continue to replenish and build even higher our services backlogs, finishing the quarter once again at a higher level than the prior quarter, notwithstanding our record third quarter results.
Based on this backlog, our strong third quarter and the continuing high activity levels by our customers. We have raised our outlook for full year site development revenue by $26 million.
Adjusted funds from operations or <unk> in the third quarter was $339 $4 million.
<unk> per share was $3 10, an increase of 15, 1% on a constant currency basis over the third quarter of 2021.
During the third quarter, we continued to expand our portfolio acquiring 131 communication sites for total cash consideration of $54 $9 million.
We also built 113, new sites in the quarter subsea.
Subsequent to quarter end on October 11th we closed on the previously announced acquisition from Grupo Torras Sir.
Adding 2632 sites in Brazil for cash consideration of $725 million.
In addition, subsequent to quarter end, we have purchased or are under agreement to purchase 34 sites in our existing markets for an aggregate price of $28 $5 million.
We anticipate closing on these sites under contract by the first excuse me by the end of the first quarter of next year.
In addition to new tower and other assets. We also continue to invest in the land under our sites.
During the quarter, we spent an aggregate of $9 1 million to buy land and easements and to extend ground lease terms at.
At the end of the quarter, we owned or controlled for more than 20 years, the land underneath approximately 72% of our towers and the average remaining life under our ground leases, including renewal options under our control is approximately 36 years.
Based on results and activities during and subsequent to the third quarter, we have updated our outlook for full year 2022.
We have increased our outlook across all of our key metrics due to outperformance in the third quarter lower churn expectations as a result of timing and the earlier closing of the GTS acquisition.
These items were partially offset by higher interest costs and higher estimated cash taxes from the outlook previously provided with our prior quarter earnings release.
We are very pleased with our third quarter and year to date performance and excited for a strong finish to 2022.
With that I'll now turn things over to Mark who will provide an update on our balance sheet. Thanks, Brendan we ended the quarter with $12 4 billion of total debt and $12 1 billion of net debt our net debt to annualized adjusted EBITDA leverage ratio was six eight times below the low end of our target range, our third quarter net cash interest coverage ratio.
So of adjusted EBITDA to net cash interest expense was five three times equally in the last few quarters all time high.
Subsequent to quarter end, we used cash on hand, and borrowings under our revolving credit facility to fund the GTS acquisition closing as a result as of today, we have $995 million outstanding under our $1 5 billion revolver.
The current weighted average interest rate of our total outstanding debt is two 9% with a weighted average maturity of approximately four years the interest rate on 90% of our current outstanding debt is fixed during.
During the third quarter, we did not purchase any shares of our common stock as we allocated capital for the closing of the Brazilian acquisition. We currently have $504 7 million of repurchase authorization remaining under our $1.0 billion stock repurchase plan.
The company shares outstanding at September 32022 were $108 million compared to $109 5 million at September 32021, a reduction of one 4%. In addition, during the quarter, we declared and paid a cash dividend of $76 7 million or <unk> 71 per.
Sure.
And today, we announced that our board of directors declared a fourth quarter dividend of 71 a share.
Payable on December 15th 2022 to our shareholders of record as of the close of business on November 17th 2022 with that I'll turn the call over to Jeff. Thanks, Mark.
Good evening, everyone as is appropriate on Halloween, we are pleased to present, a treat of an earnings report the third quarter exceeded almost all expectations and benefited from the significant level of wireless deployment activity by our carrier customers.
Notwithstanding the broader challenging macroeconomic environment, our business was extremely busy and we were able to again increase our full year outlook across all key metrics. We raised our full year outlook for total revenue by $49 million after raising it by $64 million last quarter domestic organic contributions to leasing revenue growth in the third quarter were.
The highest of the year and our outlook implies an even higher contribution in the fourth quarter. Our services business produced the highest quarterly contribution of revenue and gross profit in our history and we again grew our services backlog a rate of return on invested capital was 10, 6% for the quarter the highest in at least 10 years it really.
Was a remarkable quarter in the U S. Each of our carrier customers remain busy during the quarter as they have throughout the year building out their networks through the deployment of new spectrum bands T. Mobile was our most active customer during the quarter continuing their nationwide deployment of two five gigahertz and 600 megahertz spectrum.
<unk> and AT&T and dish were again very active in the quarter with five <unk> related new lease amendment signings site leasing revenue growth from domestic new leases and amendments has been strong this year growing throughout the course of the year, we expect the contribution to revenue growth from domestic leases and amendments to be good again next year as well based on the <unk>.
Strength of the organic leasing activity during 2022.
Internationally, we had our best organic leasing quarter of the year during the third quarter, we saw more of a shift toward upgrades at existing sites with 63% of new business signed up in the quarter coming from amendments to existing leases and 37% coming.
Through new leases.
International leasing activity was again led by strong contributions from Brazil, and South Africa, our two largest markets. Brazil has performed very well this year not only has lease up been above our internal expectations for the year, but we have also had larger contributions from CPI based escalators, while maintaining a relatively stable foreign exchange.
In addition, we closed on the previously disclosed GTS acquisition of over 2600 sites earlier in October the integration of these sites has only recently begun but is proceeding smoothly and ahead of plan. As a reminder, these sites have two one tenants per tower and we believe there are opportunities for growth.
Early with recent <unk> spectrum auctions in Brazil as a driver. These sites do contain some legacy oi leases, but a smaller percentage than the rest of our portfolio with regard to <unk>. We have begun conversations with some of the carriers that are absorbed absorbing the oi wireless business to discuss potential mutually beneficial.
Efficient arrangements around the integration of these networks, we still anticipate total churn of approximately 20% to $30 million associated with the <unk> merger on our legacy sites plus an additional estimate of approximately $3 million associated with the GTS or Grupo tourists or sites. These.
Numbers do not include any potential impact to pass through reimbursements as those items will be neutral to tower cash flow.
We also continue to produce revenue from Tennessee's tenancies associated with always wireline business, which is unaffected by these mergers.
We have a strong relationship with our Brazilian customers and look forward to working with them through this process.
With respect to our balance sheet due to early refinancings completed over the last few years and some well placed interest rate swaps, we have positioned ourselves well to address more challenging debt markets. We ended the third quarter with a net debt to annualized adjusted EBITDA leverage ratio of six eight times below our target range at.
Our lowest level in years.
And even with our large fourth quarter Brazilian tower acquisition, we expect to be at or below seven point out times at year end, we have only one $640 million debt instrument maturing between now and October of 2024, representing approximately 5% of our debt outstanding that instrument matures in March.
Of 2023.
And while interest rates are certainly higher today, we still have great access to incremental and refinancing debt capital given the strength of our cash flows we expect to refinance our pending first quarter maturity during the next several months.
During periods with an elevated cost of capital and increased interest rates. It is even more imperative to continue our disciplined and opportunistic approach to investing capital. We are fortunate to be in a strong industry benefiting from the continued growth in wireless, but also having the strength of significant free cash flow generation largely fixed.
Cost and scaled operations Historic times like these that we really appreciate the strength of our underlying business.
We're very pleased with the third quarter performance as indicated by our updated outlook. We are also well positioned to finish out 2022 on a high note we will be providing our initial 2023 outlook on our next quarterly earnings call, but based on this year's organic leasing activity in our significant network projects ahead of our customers.
We anticipate our leasing results to continue to be strong into next year. We will continue to be disciplined in our approach to capital allocation focused on maximizing returns for our shareholders I want to thank our customers and team members for their support and contributions to our success and we look forward to a strong finish to the year and.
With that Caroline we are now ready for questions.
Thank you and ladies and gentlemen, if you wish to ask a question on today's call. You May press, one and then zero on your phone you are using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you do have a question on today's call you May press, one and then zero at this time.
Our first question comes from the line of John Atkin from RBC Capital markets. Your line is open. Please go ahead.
Oh good afternoon.
So it was interested in two topics one is.
What you might be seen in terms of seller expectations or just general observations about the.
Domestic M&A and handle on whats going on with that with Tcf multiples and then secondly in your conversations with your.
<unk> customers interested in or to what degree.
Infill or densification or cell splitting starting to come up as opposed to overlays, which I think has been driving the majority of the growth ex dish. So Paul thanks, Yes.
Yes, I'll take the last one first John we're still.
At least with respect to SBA and its assets and the capacity stage and the overlay in the initial deployment of mid band spectrum.
While we fully expect densification to come.
Capacity for US continues to be the current driver now we take that as a good thing because that really just lengthens out the extent of the activity timeline for us in terms of seller expectations, you know they're changing some.
They have not fully reset to the degree that the public company.
Multiples have compressed.
What that means for SBA is.
There'll be a lot of things that we take a pass on unless the price is right.
We loved what we did in Tanzania, we loved what we did in GTS.
But theres a lot of things that we passed on because those expect there is still a gap in those seller expectations, but they have started to move.
Actually down.
And then lastly, just on international M&A and tuck in opportunities built to suits, what's what's your appetite for that at the moment.
Well, we like build to suits provided they're the right terms.
Tuck in acquisitions and and for that matter New markets would all fall into kind of the same comment I made about finding things that are right for us.
And we're only going to do things if we believe that it's right for us from a price and a growth perspective.
And.
If we do things great. If we don't you'll see what happened in the third quarter, which was that we delever pretty quickly until we do see those REIT capital allocation opportunities.
Okay.
Excellent thanks very much.
Our next question comes from the line of Michael Rollins from Citi. Please go ahead.
Thanks, and good afternoon, I'm curious if you can.
To share a little bit more details of the backlog and are you still seeing an extended book to bill where it's just taking longer for that backlog to get.
Into the actual revenue numbers, and then separately on data centers and edge opportunities any updates on how you're looking at the opportunities have some of your tests are coming along thank you.
Yes, I don't know, where and then correct me if I'm wrong, but I don't know that we've had any changes in the book to Bill.
Nothing material I will say that actually if you noticed in our.
On our bridge for domestic contributions from new leases and amendments that we did up that contribution for 2022 was <unk> 66 last quarter and 67 now and that change is really largely due to a slight acceleration in timing and that's mostly around amendments that just kicked in a little bit quicker.
And we had projected but it's a pretty small change relative to the big picture I don't think theres been any material move in and that you would point out.
And on the on the edge business, Mike, we've actually seen some great progress, but it's still it's great from where we started which was of course it zero but.
It's not really material I would say, we probably have either.
In operation or under construction.
30 to 40 of these facilities and the primary demand for them has been.
Edge computing and fiber and cable regeneration.
But what we found to be the key to success in this area is really the state locate the state of and the location of the tower site.
Because where it's ready to go and it's.
It's close to or on top of existing fiber makes all that much more attractive so on an absolute basis, yes, we've seen a lot of growth.
On a financial basis, it's still you know of course.
Very small, but what we're encouraged by what we've seen.
And within that context is there a base expectation of the value enhancements have you look at what the 30 to 40 sites could you.
On the incremental cash flow incremental value perspective is there a number that we all should be keeping in mind as the opportunity set.
No because it's still small what I will tell you, though is that we're really happy with the <unk> with the incremental return on invested capital for these projects and at its core that's what I think you have hired us to do so we're very happy with that and as long as we can make that return on invested capital.
Albeit small perhaps for at least a little while we're going to keep doing it.
Thank you.
Okay.
Our next question comes from the line of Ric Prentiss from Raymond James Your line is open.
Yes, good afternoon everybody.
Hey, Rick.
And certainly it's nice to get treated versus tricks Tonight. Thanks, Jeff.
Sure.
First question I would like to get into is Theres been a lot of debate out there. When you look at the U S business. It sounds like you have good visibility so.
The leading indicator of services business shows strong with record backlog, but we get the questions of arent the carriers trimming Capex budget. If you look at 'twenty three versus 22, not a perfect indicator capex.
Potential for a recession in the U S interest rates are high as anybody needs to go borrow to pay their capex help us understand how you're feeling what sounds quite positive Jeff as far as looking exiting 'twenty two strong and then looking into 'twenty it's neutral.
Well keep in mind because of the nature of the business, where you sign things up today, but you don't begin to recognize revenue until later that were today already shaping next year's financial results. So that's.
That's a that's a point of confidence.
The other thing I would say is that we track.
To the tower, which of our customers have have upgraded.
They're mid band spectrum on our sites and the number is actually fairly low across the board for us at this point.
You know our customers will do what they will do but knowing what this means for them in terms of.
The amount of money frankly for first of all what they spend on the spectrum.
At least as reported competitive differences between some of them from a spectrum perspective, and others, where they are on our towers and the fact that you know the capex numbers that you get from them are extremely broad.
We we feel next year is going to be pretty good.
Okay.
The question, obviously, you've closed group hotel resort.
How should we think about the funding for that.
Business in this environment.
And as we look into 'twenty three how much more interest expense should we be kind of already starting to think about from Orissa, even though you haven't given guidance, yet, but thinking about what that headwind might be and does do stock buybacks come back on the.
On the radar as we get through into this year early next year.
Yes, well Grupo Tory serves funded I mean, that's that's you say think about the funding that's already funded that got funded from cash on hand, and our and our revolver. So the next thing. We're looking at is the refinancing of the $640 million ABS.
<unk> in March were.
Got that teed up ready to go.
I don't want to speculate too much on the interest.
Increase there will be of course of interest increase I mean Brennan once the instrument bearing today. The one that's getting paid off is just below three 5%. So you should expect that that will be.
Yeah.
Significantly higher.
Well put.
Let's let's put a little parameters around that.
Again, we're thinking it's going to have a six handle on it.
Okay, Okay, but that nicely, but then but then keep in mind, we're going to be producing over $1 billion of <unk>.
Don't have another debt.
Instrument due until October of 2024, so we're going to be in great shape, we're going to have capital too.
Invest and.
It's either going to get.
We're either going to see value in.
Portfolio acquisitions based on my earlier comments, we may or may not.
We're going to be continue to be opportunistic around stock repurchases.
Or third and I would say this is somewhat unlikely given the first two you're going to see a big decline in our leverage ratio.
Okay.
Okay that helps a lot there they say well.
Our next question comes from the line of Simon Flannery from Morgan Stanley . Your line is open.
Alright. This is Brandon on for Simon Thanks for taking my question.
I was wondering if you could expand on.
Any specifics domestically.
What youre seeing from some dish or are any of the other carriers in terms of where you think they're at in their.
Their deployments.
Yes, I don't want to get too granular all all of the.
Well, let's say T mobile Verizon and AT&T all still have.
Work to do with US based on our analysis of where they are with their mid band spectrum. Some of those are further ahead than others and I think the.
The answer to that question has been well reported.
And then dish has really got a lot of business signed up and their focus right now is getting all of that on air to meet the June 2023.
Requirements, which based on everything we can tell they are in a very good position to do and then we expect them to come back and begin to work on the 2025 requirements.
So.
While while it's varied landed in terms of <unk>.
Which of those are busiest.
You know I don't think they want made actually commenting on that I will tell you that there is a high level of business from all of them and they all at least based on our.
Analysis still have a lot to work a lot of work left to do on our portfolio.
Yes.
Thanks for that color and then just just one follow up on the edge.
Deployment commentary, but can you maybe describe what.
But these sites look like the 30 to 40.
Marine operation are under construction.
Costs, a size of the facilities and maybe what are some of your sites do you think are.
Potentially eligible overtime to have such deployments.
Yes, I think they're mostly six by 12 or 10 by 20 foot shell.
<unk> that looked like the traditional wireless shelter that certain carriers have used historically, they've got air conditioning they've got.
A lot of.
<unk> to check temperatures and alarms and things like that they basically are four racks of equipment.
And they start out with.
Two or three rack capacity and can be expanded beyond that.
And Brendan what what are we what's our average cost on those well it depends on the size and the scale obviously.
The deployment there.
For something along the lines of what Jeff described Youre looking at somewhere in the $100000 range, but if we do a bigger more fulsome.
Edge compute a true data center, where it's a bigger operation it can be as much as four or 500000.
And how much.
Power, Dave do you have would you have gone into those facilities.
Yes, they are not at that size they are not being sold on a traditional data center.
Power bases, a lot of a lot of the users today are for regeneration of signal for cable and fiber companies.
And that's that's not really how that's priced and sold.
Okay. Thanks, very much for the color.
No.
Our next question comes from the line of Walter <unk> from <unk>. Please go ahead.
Thanks.
Jeff just going back to Ricks question can you give us or define what low means in terms of.
The number of sell sides that mid band and you're talking like sub 10% sub 20% something in the ballpark.
The the most.
Sure.
The most populated of the carriers would be it.
They're there.
Satisfaction rate on our towers would be in the 50% ish range and others are below that.
Got it.
And then.
Comcast has this radio from Samsung that does $2 five.
And.
It has low band in there.
I guess first first part of the question is have you had any type of meaningful dialog with Comcast and charter about.
Helping them with their offload strategy, but then more importantly, I guess when that inevitability does happen.
If you if you could look at like three scenarios, one where they just said hey, we have a radio that does just as CVR SME and then.
Antenna that goes along with that.
Scenario two is we were doing low band and CVR. So that's probably a different type of antenna may be larger.
And then the third alternative is the low band that they have is deeper meaning like rather than five megahertz in Comcast case they'd go out lately, some additional low band and they're using 10 megahertz of spectrum.
With the leases differ between those three scenarios because I seem to recall over the past. Many years that you would argue that like hey, when someone put on spectrum and we'd get more money.
So for a new leaser or a new tenant.
Would it be the same way, where if they came to you with with one of those three alternatives that there would be different pricing.
Just based on the nature of the spectrum is being transplanted.
<unk> and <unk>.
Yeah, Yeah, probably not probably it's all going to be based on on the way the equipment looks and based on your description of the third.
Alternative the lower band deeper lower band I mean.
As youre, describing I'm envisioning, that's going to be the most intensive on the equipment side.
So they.
It would be based on that wallet as opposed to the fact that their transmitting their own.
Even though <unk> shared and not necessarily owned.
We wouldn't.
We wouldn't differentiate somebody's use of C brs versus their use of their own spectrum I don't believe.
I don't think we ever have but that way.
And has there been any meaningful discussions up to this point.
We're always in discussions with with.
Charter and Comcast.
But I would say that those scenarios that you lay out.
For my personal opinion, I think there is still somewhat in the future.
Got it. Thank you if they occur at all.
Understood very well I believe well see.
Hey.
Our next question comes from the line of <unk> Levi from UBS. Your line is open.
Great. Thank you can you remind us the overall financial impact of the GTS side. If there are any changes to the original expectation and how much revenue was pulled forward and network services. You mentioned that Shang you added more to the backlog could we expect a similar performance next year on that segment. Thank you.
Yeah.
At GTS, it's the numbers aren't any different than what we gave last quarter. So the total revenue on an annualized basis is expected to be approximately $72 million U S.
The impact from the pull forward of closing a little bit early was about $3 million.
Yeah and in terms of services I mean, we have a backlog that supports a fourth quarter.
Performance.
Similar to what we enjoyed in the third quarter, that's not what we've guided to because we exceeded our expectation. So greatly in Q3 and Q4 has some holidays and all that and in terms of next year.
We really wouldnt hazard, a guess until we have the benefit over the next four or five months prior to when we give out full year 2023 guidance.
Great. Thank you.
Our next question comes from the line of Nick del Deo from Moffett Nathan Your line is open.
Hey, good evening guys. Thanks for taking my questions.
First just looking at the change in guidance, what's the jump in other revenue in the U S. Coming from is that is that decommissioning fees or something similar and how much of that was in Q3 versus what you're expecting in Q4.
Yeah. It was almost all of the jump is related to Q3, I would say and it is related largely it's a variety of things, but cash basis revenues a portion of that a big chunk of that is related to.
What we might call hold over fees extra fees that are paid for somebody staying on the tower, that's coming off but they stay longer than they should but it also.
<unk> includes <unk>.
Internationally payments from Digicel, We mentioned Digicel is a big contributor to the churn number internationally, which they are but they've.
Actually continue to make a number of payments and so those payments are showing up basically in other now.
Okay. Okay, that's great and I guess I also wanted to ask about expense trends that you're observing in the U S. Obviously.
Obviously, the majority of your Opex is ground rent escalators in that are fixed so it takes a lot of risk off the table, but you know what are you seeing and expecting as it relates to the rest of your expense base like corporate field operations and so on.
We are seeing definitely some some inflationary pressure there Nick and we're going to we're going to be given out average compensation increases next.
Next year at a higher rate than we've given in the last couple of years, but when you look at.
I think we're our SG&A is only like 6% or <unk>.
SG&A, 6% of revenue.
It just really doesn't.
Matter on the overall financial numbers, but you know we'd be lying to you if we.
We said that we were immune to that kind of stuff, but for us it's just.
It's just so much smaller percentage than it is for a lot of other companies.
Okay. Okay, that's great and if I can squeeze in one last quick one obviously.
Obviously as we look at the growth overseas the value of the CPI linked escalators really showing the value in the current environment or are there any caps on on major contracts that we should be cognizant of where you guys untapped on that front and hence.
Essentially totally protected.
Largely uncapped next I'm trying to think if there are any or there may be one or two somewhere out there but for the most part it's not cast.
Okay. Okay terrific. Thank you.
Yeah.
Our next question comes from the line of Greg Williams from Cowen Your line is open.
Great. Thanks for taking my questions I have two if I may can.
Can we talk about your Latin American churn if I look at your guidance it should be still up here on these 8% levels and just trying to figure out how much of that spills over into 2023, and we remain at eight 8% levels for the next few quarters.
Given the order cadence in the consolidation churn and digital et cetera. Second question is just on the service revenue actually the service margin profile, how do you spiked out the Pan out are you shifting from a permitting to more construction I think you hit a margin close to 26% and wanted to see where that shakes out over the next few quarters. Thanks.
Yeah, I mean, they're all I'll take the latter question first and Brendan you can do the.
American churn.
The we're executing very well Greg on both the traditional permitting zoning side of the business as well as the construction side. So the margin differential that you saw years ago between those two lines of <unk>.
Our services business those are there they are not exactly the same but the gap has closed tremendously.
So we still get a better margin on the zoning and permitting side of things that we do on the construction. So the mix of that will impact the margins, but I.
I mean, I don't think it's going to be hugely different margin next year.
I think.
Based on the way the work will flow and how.
How we expect things to commend for business that has I mean, the first business that we typically see.
For any kind of new interest is going to be on the zoning and permitting side. So I think it's not going to change a whole lot.
And then Greg on the international churn piece I would expect that the next couple of quarters few quarters, probably will be in a similar range in terms of that percentage that youre looking at because of the timing of when some of this stuff started the one thing I'd also caveat about next year is just this off.
Obviously only takes into account what's happened now in theirs.
The one big thing Thats out there that we're in the midst of conversations about is related to the Oi consolidation in Brazil and as of today. There is nothing to report on that but as we continue to have conversations depending on where those end up.
That may influence what next year's numbers look like.
Got it thank you.
Our next question comes from the line of Dave Barden from Bank of America. Your line is open.
Hey, guys. Thanks, so much for taking the questions.
I've got a bunch, Jeff for you I think the first most important is what are you going out.
For trick or treating.
Tonight.
With your with.
The second.
I'm going as a grandfather.
Yeah.
[laughter].
I'm still interested in the costume.
Hmm.
The second question is you kind of highlighted the leverage being below the target.
You know there was a time when you guys implemented your dividend that you thought maybe a lower leverage target would be the right target.
I wondered if you would want to have a little bit of a conversation about how you're thinking about target leverage and.
You know given that there's not a ton to do an acquisition.
And you didn't do stock buybacks, even though the stock's been pulling back.
Whether there's been some sort of change there.
The separately has there really hasn't been a change there I mean.
Clearly we've maintained our target but have operated almost entirely at the low end now for some time and I think that's going to continue to be the case if not.
Dropping below but the dropping below if that happens is going to be more a function of our.
Dissatisfaction with poor capital allocation opportunities and some financial theoretical belief that this is the optimum leverage level given our access to capital.
And one of the thing and you may be driving it this Dave.
We're not going to turn into a you know a high dividend relative to <unk> company. We just don't think that's the right thing to do we will grow our dividend.
As faster faster than well certainly our peers than maybe anybody else in the REIT industry. As we have the last couple of years, but it's still going to be lower as a percentage of <unk> because we like the flexibility that it provides.
Okay right.
And then the second question I had.
Was.
You know one of the things that distinguish you guys from <unk>.
Here's has been a pivot to fixed.
Rate debt, obviously that changed a little bit with GTS I think someone asked earlier about the plan for.
The GTS that and you guys talked about the refinancing of the ABS.
But I don't.
What is the plan for the variable rate debt in the portfolio I guess this is one for mark.
Are you going to go or you're going to lock in higher fixed rates or are you going to try to ride it out in the meantime.
It'll be a mix of both we have as you probably have noticed from our prior ABS financings, where we have the opportunity to raise more than.
The amount to be refinanced we have.
We have been rated for an issuance well above 640.
Where.
We're trying to figure out exactly how far above that that we go so there'll be there'll be some.
Reduction in the revolver from that and then the rest of it is going to occur pretty quickly from a cash flow.
Perfect. Okay. Good. Thank you and then my last question if I could please Jess is I've always kind of considered you are a little bit of a Brazilian.
Policy Wonk now that the election.
He has over how what do you think is next in terms of implications for the telecom industry currency et cetera. Thank you.
Well, we all know the Lula is is.
Left of ball scenario, but he.
It has gotten elected by you know a coalition of not only the more leftist but also.
Some more centrist populations as well at.
At the same time that Lula got elected President and the Congress down there got actually more.
To the right so you're going to have a classic.
Draw between the President and between Congress and Congress has a lot of power in Brazil. So I think for us it's going to continue to be kind of.
A good business environment without a lot of policy changes, that's I mean, I think the whatever whatever.
<unk>.
And I don't know that he would have.
Proposed anything but assuming for hypothetical purposes that Lula proposed some things that would be you know very much to the left and detrimental to business I don't think that's going to happen because of the Congress.
Okay.
Okay. Thank you guys I really appreciate it.
Sure.
Our next question comes from the line of David Guarino from Green Street. Your line is open.
Hey, Jeff I wanted to make sure I'm understanding your enthusiasm for domestic new leasing activity next year.
Especially as compared to one of your peers.
'twenty three guidance it implies a step down sort of macro tower in new leasing activity. So I guess the question is really you know your 'twenty two guide this year for $67 million in new leasing activity do you think we're going to look back on that as a high watermark or do you think that theres actually a room for that to grow going forward.
I'm glad you asked that question because when when we're conveying.
Good feelings about next year, it's exactly around that number for 2022 that same calculation and that same thing that we will.
Be posting you know when we start our bridge for next year next earnings release.
That's really what we're speaking to.
So I think I just answered your question.
Alright, I can I can read through that.
A second one and then switching gears on it given the volatility in the pretty rapid change in the air.
And a lot of foreign currencies, maybe not be experienced in Brazil, but certainly a lot of other markets.
Have you reconsidered, how you underwrite the risk for international investments relative to what you might've been doing at the start of the year.
Yeah.
Not really because the.
Right.
Currency movement is largely been matched off by.
CP is in those countries.
And all of our revenues in those countries are escalated.
Escalate based on CPI.
Alright.
There'll be some minor exceptions to that plus or minus but in general that that relationship has held.
Thanks.
Our next question comes from the line of Brendan Lynch from Barclays. Your line is open.
Great. Thanks for taking my question.
Maybe just on the debt again, given the macro environment and your ability to tap into the secured debt market changed recently.
And do you think that will continue to remain a primary source of funding going forward.
Yes, Bryan we do we do think that it will remain a primary source of funding for us our ability to tap into it has not really been impacted this it's really just a question of cost. That's that's the only question mark, but the access to capital and having plenty of capital available to us in those markets still remain.
<unk> very strong.
Okay, Great and then just one other question it looks like your discretion.
Discretionary Capex guidance came down by about 35 million for the year is that related to the labor availability or supply chain constraints or.
Other rising costs that might be leading to a slowdown in development projects.
No. It's mostly just timing of some smaller acquisitions and when we think theyre going to close.
Okay very good thank you.
Our next question comes from the line of Brandon <unk> from Keybanc. Your line is open.
Great. Thanks for taking the questions two if I could Jeff you guys talked about commencement is coming in a little bit quicker than expected, but could you update us on the backlog of unsigned lease applications, where do you stand today relative to a year ago and last quarter and then for Brendan Obviously international CPI that then.
Hi, but have come down a little bit at least in Brazil, I guess, if we put estimates aside today inflation stayed where it's at what should we be looking for for that escalator next year. Thanks.
Yeah in terms of our backlog for leases new leases and amendments. We are just a tad off of where we were at the end of second quarter, which was one of the highest.
That we've had in many many many years. So we're still looking at a very very strong backlog, which as you know.
Underlies.
A lot of our optimism.
Going forward.
And Brandon I'm going to let you handle the second question, Yes, I mean, you're you're asking me to predict the CPI for next year in Brazil, which is hard to do with certainty, especially given the recent elections and all of that we have to kind of see how that all settles out but.
I think high single digits is a reasonable assumption today.
Perhaps it could be higher than that but.
I would target somewhere in that 8% to 10% range well I mean, there's going to be a forward curve out there I mean, when we for sure and we do planning around those things because nobody has the accurate crystal ball on that.
We rely on the published consensus forward curve, yes, I mean, the big thing no branded for Us is.
Some of it comes down to timing, obviously, we have concentrated periods at which our leases escalate so.
Depending on where things are during those windows of time it it has either a greater or lesser impact on our specific numbers.
Great. Thank you.
And there are no further questions in the queue at this time.
Thanks, Carolyn and thank you all for joining US we look forward to our next.
Released in February where we will talk about 2023 and happy Halloween.
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