Q2 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the S.P.A. <unk> second quarter results webcast. At this time all participants are in listen only mode. And later you will have an opportunity to ask questions.
Instructions will be given at that time, if you should require assistance during the call you May press Star and then zero.
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 SBH 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 will 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 detailed material risk material risk because 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 previously provided with our first quarter earnings release negatively impacting leasing revenues by approximately $350000.
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 four 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 us dollars.
The majority of non US 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 continued 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 us 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 a 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 continue 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 inorganic 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 37 cents per share payable September 25, 2019 to shareholders of record at the close of business on August 28 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 periods following commencement and the pace of growth in the dividend rather than simply being required to payout 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 we will continue to broaden our investor base and May also facilitate a smoother transition from traditional telecom investors to read equity income dividend growth and other investor classes that place a premium on the growth of the 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 SP 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 7% to seven and a half 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 a half 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 29, 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 over outstanding class a common stock.
Through open market repurchases in compliance with rule Tenb 18.
Or in privately negotiated transaction at management's discretion.
Shares repurchased under the plan will be retired.
The new plant has no deadline will continue until otherwise modified or terminate terminated by the company's board of directors at anytime its sole discretion.
Stock repurchases continue to remain an integral part of our strategy.
Our shares outstanding at June Thirtyth, 2019, our $113.1 million, which is down 1.5% from $114.8 million at June Thirtyth 2018, so with that ill 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 and Sps 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 in 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 depot Jay 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 fiveg ready nationwide networks over the next several years.
We believe the contemplated final terms of this merger are positive as they insure for 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 in our existing strong working relationships with our customers position SP, a very well for the significant network investment that will take place by our customers for their Fiveg 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 us 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 networked activity to provide fiveg service and with the increasing recognition of low and mid band spectrum as a primary component of nationwide Fiveg 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 us wireless carriers in Brazil.
The Brazilian real has rebounded some has 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 at a more conservative expectation for the rest of the year around the Riyadh.
We believe we are very good at 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 previously unconsolidated joint venture.
As BA 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 count of approximately 900 towers and an average tenancy of 2.2 tenants per tower.
Atlas is led by a CEO that I've known for 20 years Nate Foster.
Maintenance wife, Randy have build 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 or approximately $31 million us tower cash flow of approximately $23 million us and adjusted EBITDA of approximately $21 million us 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 telecom mobile and cell C.
All of these carriers are still in the process of implementing forging, 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 auctions and ultimately Fiveg deployments, we expect will keep us very busy for the foreseeable future.
New spectrum auctions at 700 megahertz 800 megahertz.
And two dot six gigahertz, our 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 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 us dollar over the past three years.
We are 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 to 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.
SP a.
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 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 in easy decision for us to begin today.
The level of the initial dividend at our current existing NFL balance allow us the ability to continue to meaningfully invest in new assets and share repurchases, while still providing a single 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 tool kit for additional value creation for our shareholders is now complete.
Our recipe for maximizing shareholder value stays largely the same but change is 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 a dividend our first priority is now to grow the dividend materially each year satisfying our redistribution 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 requirements.
Our next priority is quality portfolio growth that meets or exceeds our investment criteria.
Our us 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 SPX.
I'd like to thank our employees and our customers for their contributions to our success and with that Carolyn we're ready for questions.
Thank you, ladies and gentlemen, if you wish to ask a question you May press, one and then zero on your phone. If you are using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question press one and then zero at this time.
We do have a question.
From the line of Batya Levi.
From U.B.S. company.
Please go ahead.
Great. Thank you maybe one question if you could remind us your exposure to T. Mobile's in Sprint's decommissioning fines and how quickly do you think that you you could potentially see that impact and I guess from looking at dish potential deployments youve had potentially more insight than others into how they have been planning the network. How do you think your position to benefit from the incremental towers that they are announcing that they're going to spend and how quickly do you think oh, you will be able to see that revenue growth accretion. Thank you.
Oh got you on the sprint and T mobile overlap, we actually did put the information in the press release, but it is a in terms of site for what 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 sites is 4.6 years and force T. Mobile's 4.3 years. So.
Wouldn't be any immediate impact from that.
Just yeah, but on dish I 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 yes, 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 terms of what has been divested.
From the sprint T mobile deal because it will look very different than what I believe there.
Narrowband Aiotv.
Network was going to look like under their prior efforts. So theres going to have to be some time that goes by before I think you're going to have clarity on what.
Dishes exact plans are going to be and what timeframe is going to be.
Okay. Thank you.
Next we have a question from the line of Colby Cindy steel from Cowen and company. Please go ahead.
I agree I guess as a follow up on that.
So dishes then in theory I guess.
Leasing.
Sites with you for their narrowband LTE network, which there.
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 then and could that have some impact on your 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 happened or either shipped those leases into a more.
Maybe the dollar commitment if you will that they were using for the narrowband idea I otieno or they can shift those dollars towards.
Leases for a more traditional network and then secondly, and separately for South Africa up 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 that way. Thank you.
Well, we don't have any plans at this point to do anything beyond South Africa, but just like we decided to go into South Africa. It's our job to continue to evaluate every place that around the globe that were not so.
Nothing on the horizon today, but.
Stay tuned.
And as far as this is concerned you know 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 I mean this is a pretty big change. It's a it's a different kind of network for them. So we'll have to see what all this does to.
To their efforts going forward.
But as far as our guidance is concerned there is 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 statements. 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 JP Morgan.
Please go ahead.
Hi, This is for Phil Thanks for taking my questions. Two if I may 1st 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 default zero. After four Q 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.
Yeah.
I'll take the churn question on the domestic churn theres been.
Theres been no.
Change in.
Behavior from anybody we do expect on the iden side most of that churn was a fourth quarter event that happened October onest of last year. So when we report that we're giving you basically the impact over a trailing 12 months. So next quarter in the third quarter will 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 be 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 the normal level for the coming years.
Yeah, and with respect to services is not really any change in the way.
Our customers architect their network I mean, what it really reflects as 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 from that particular customer.
Cherilyn do we have another question, we do from the line of Simon Flannery from Morgan Stanley . Please go ahead.
Great. Thanks, very much I'm Brenda can you just talk about that the leverage policy now mature initiated a dividend I think in the past you've talked about kind of getting it more into the mid sixes.
So any update there and.
Perhaps Jeff just a broader comment on the M&A environment.
Here in the U.S I think you bought some towers 18 to you talked about potentially selling some howards last week. What are you seeing there in terms of supply and valuations et cetera. Thanks.
On the leverage Simon.
What we 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 and share repurchases.
But we would expect to still be close to our historical target range of seven to seven and a half that probably more towards the lower end going forward.
Yes, the M&A environment.
Simon continues to be.
Competitive, but you can find.
If you are experienced and.
I have a lot of.
Tentacles out there, which we have both.
Good good opportunities, we we tend to focus on the the we try to tend to focus on the highest quality sites. The particular sites that we bought in the second quarter were mid Atlantic areas sites extremely tough zoning very very good high quality sites that.
We think we will enjoy very good growth over the years those are the kind of things that.
Our out there.
And we will we will be very I think competitive around those types of opportunities.
Not everything.
Out there fits that bill.
So you have to you have to be careful and picky.
But there's 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 will continue to seek over time.
Great. So you still have that 5% to 10% goal over the next few years.
We do we'll we'll hit it this year for sure.
And.
I don't know why wouldn't be a goal going into next year as well.
Great. Thanks, a lot.
And once again, ladies and gentlemen, if you do have a question on today's call press, one and then zero at this time.
Again, if you do have a question press, one and then zero.
We do have a question from the line of Nick del Deo from Moffettnathanson. Please go ahead.
Hey, Thanks for taking my questions.
Regarding Atlas.
Few questions there.
One is the leadership team going to remain in place.
Two can you talk about the newbuilds runway and the sort of development yields they've been getting.
And.
Three how much are you spending in Q3 to bring your ownership 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 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 is the beauty of this.
Opportunity is that most all of these towers were built.
And they were built for and varying amounts for the big four in South Africa that will continue.
And they have been running at a fairly a fairly high annual clip.
So we expect that the 900 goes to 1000 beyond here in the in the not too distant future.
Okay, and any commentary on the development yields.
The development yields.
I mean, you guys said that sure.
The day, one you mean the day, one newbuilds, yes, and anything you care to share.
Yeah, I think they would be high single digit to perhaps low double digit on day one.
Yes.
Got it and then.
You know I guess, it's sort of switching gears a bit I know that when you look at acquisitions and generally go tower light tower lease by lease.
How do you underwrite in value contributions from from upstart carriers relative to establish players on it yes, I guess I'm trying to understand what your general framework is and it might be useful as we think through.
What would what dish might mean for you guys.
How we value them.
Yes, I know what it what are the puts and takes you consider for Kemper upstarts versus established players.
Well it really comes down to whether youre.
Allocating capital are you building for them are you buying for them or are you simply leasing up space that you have available on an asset that you've already spent money. That's that's a that's a wildly different outcome, depending on which of those cam few fallen.
Yes, so it's not so much.
I'm, sorry, I was just going to say, we do on our existing sites 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.
It's not really a credit.
Quality decision that were making.
Okay. Okay. It was the latter point I was trying to get to.
Thanks for the commentary, Jeff and Brendan.
Sure.
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 us with respect to what you're seeing from Colo versus amendment.
And second I think over the last.
Couple of quarters, you'd be talking about a broadening of your investor base Im curious as Youve had an opportunity to talk more with where investors are you seeing any changing priorities for then in terms of what they would like you to do as a company whether it's the way you invest or allocate capital. Thanks.
On the amendments versus new call as in the US I think we mentioned in our comments.
What it was this quarter, which was in terms of the business that we signed up in the U.S. It was approximately 80% amendments that is pretty high relative to where its been over the last few quarters.
We're actually 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 this is 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 of activity that our customers are involved in.
Yeah on your second question Mike.
We are seeing more of the traditional re infrastructure investor.
That investor.
Typically looks for some kind of dividend in fact, we have had a number of.
Interested investors, who previously so they were very interested but precluded from their internal policies in charters, because we did not pay a dividend.
But in each case, we made it clear that our.
By US set 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.
FFO that was left for other investment obviously subject to our reap requirements and everybody seemed to be very happy with that because they understood that that was going to satisfy the the dividend requirement that they were looking for and also provide over time, a very fast growing dividend.
So.
You know 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.
Could you just talk about I mean, so first off should we sort of think about you being in the high sixs 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.
Well you 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 are.
Where leverage ultimately comes in whether it's higher or lower you know 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 sandal.
It's the same thing that we you know we factored in before but instead of.
Before we had no calls on our on our cash flows now we have the dividend fall and then we back in from there.
But but the the basic premise of a leveraged capital structure as the most rewarding for our 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.
Just run through thoughts on when carriers consolidate you tend to see a pause in spending.
Before they ratchet up their new network plans.
Or do you just talk about it.
Yes, what you're expecting.
As a result of that merger thanks.
Well.
I don't know that any historical consolidation is going to be instructive here because none of ever had the aggressive date specific coverage requirements for the Fiveg 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 and 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.
After 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 assume you're talking about the same tower growth percentage. It would imply that from a 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 Brent in there Mark.
I think Mark you said that now that you've kind of done these financings refinancings, you're at 95% fixed historically, you've expressed a comfort level with 20% variable.
And to Jeff's point.
Rates are kind of coming back down again thanks.
Yes, we don't we are 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 we will evaluate whether it makes sense at any point to refinance that but for now I think you should expect to see it.
Stay about where it is.
Great and then just with respect to the re Fi and your kind of expectations.
In Brazil for the foreseeable future.
All right are you I don't know I guess the question is are you banking on Bolson aros kind of government being able to kind of rain in the race.
Where do you expect to see tightening.
And maybe could there be potential to see some opportunities for more affordable hedging and that marketplace or.
You can I'm not prepared to make a call on the market right now and just kind of ride it out.
Well we haven't.
So that's.
What you just suggested is not really a part of our outlook.
What 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 us dollar.
Which may weaken of its own accord.
But also.
Favorable telecom.
Regulation, which could be to the benefit of the entire wireless world down there. So there's a number of things that.
Our actually.
Very favorable that are kind of right on the cost for recurring down there and it's already actually pretty good market.
Relative to where it's been in several years ago.
Okay, great. Thanks.
I don't I would just add that I.
No matter I mean, the re I 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.
Comms economically viable.
I know 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 Brendan Misspell from Keybanc capital markets. Please go ahead.
Okay suite.
Not going to talk about T mobile sprint, but I'm curious.
And your backlog of activity.
In terms of new leases signed but not commenced have we seen that level of AG.
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 you know.
Tower climbers Uzi I guess do you see any labor shortages coming thanks.
Yes, backlogs 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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