Crown Castle Inc (CCI) 2005 Q3 法說會逐字稿

Good afternoon. My name is Shannon, and I will be your conference facilitator, today. At this time, I would like to welcome everyone to the Global Signal third quarter 2005 earnings conference call. (Operator instructions). Thank you. Ms. Donohue, you may begin.

Thank you, Shannon, and good afternoon, everyone. I'd like to welcome all of you to Global Signal's third quarter 2005 earnings call. Joining us, today, are Wes Edens, our Chairman and CEO, David Grain, our President, and Bill Freeman, our Chief Financial Officer. Before I turn the call over to Wes, as the operator mentioned, this call is being recorded, and the replay number is (800) 642-1687, or for non-U.S. holders, (706) 645-9291, with an access code of 1690417. This call will also be available on our website, www.gsignal.com.

I'd also like to point out that statements, today, which are not historical facts, may be deemed forward-looking statements. Actual results may differ materially from our estimates or expectations expressed in our statements. Certain of the factors that could cause actual results to differ materially from Global Signal's expectations are detailed in our SEC reports. I would also like to direct you to Global Signal's earnings release for the full forward-looking statement legend.

Now, I would like to turn the call over to Wes Eden. Wes?

Thanks, Lilly. Good afternoon, everyone. Welcome to our quarterly call (audio gap - operator speaking) In fact, if you look at the company when we took it public, only a year and a quarter ago, we had about 3,000 towers, which had a lot of concentration of our revenue still in the older technologies - the narrowband technologies, paging, etc. Today, we have in excess of 11,000 towers. Virtually, all of the 8,000 towers that we have bought since the time we went public have been predominantly telephony based.

The quality of our real estate has changed, dramatically. At the time we went public, 59% of our assets were located in the top 100 sites or MSAs (ph) in the country. Today, it's over 75%. I think it's just a shade over 76% of the portfolio, in the top 100. 61% in the top 50. We think when you look at the numbers empirically we have now the best quality real estate in the tower business, and obviously, we think that the correlation between quality real estate, location of the real estate, and the lease up should track each other. And I think based on the scant evidence of one quarter, we feel pretty good about that.

The numbers for the quarter - EBITDA, 65% from where it was a year ago, $0.79 per share in the third quarter of this year. Cash flow and dividends - we raised our dividend in the quarter to $0.50 a share, so an annualized $2.00 dividend, up 60% from the time we took the company public and from IPO, so I think that Bill will spend some time running through a number of the other financial metrics, but really across the board, it ended up being a very, very good quarter for us.

The acquisition side of our business, now that we have actually acquired as many assets as we have, is quite a bit less relevant for us, and that's good fortune and good timing because the acquisitions market has gotten considerably harder (audio gap) to have under definitive contract. 748 sites, $224 million in assets, away from the Sprint portfolio. In total, if you look at all the assets we have bought since we began our acquisitions program, it's a total capital expenditure of about $1.8 billion, so obviously, we've been very busy in the acquisition side. That's great news, because as I said, the less great news is that the market, today, for the acquisition of portfolios of assets has gotten quite competitive.

It's competitive. Interest rates have inched up, a little bit, making the spreads a little bit less attractive, and fortunately, for us, it's just less of a relevant aspect of our business now that we are roughly a $3 billion company. So, we'll continue to pursue acquisitions, although while they played a material part of the earnings picture for us in getting from the $1.25 to the $2.00, right now, this business is very much of an organic business, and we think of our cash flow as having great exposure to the fastest running segments of the wireless sector, particularly the telephony-based businesses, and feel great about that.

In the first quarter we had with Sprint, we signed approximately four times as many leases as we did in the prior quarter. In the third quarter of this year, we signed 596 leases. In the second quarter, 158, so there was a bit of a backlog, we believe, at the Sprint sites. The backlog, now, for us going into the fourth quarter, is off to a very good start, and it seems like we've got a great pipeline of prospective leases in the future for us. We feel good about that, and again, that's going to be the focus of our business when you hear from us in the coming months and days.

In the market, the prospects for our tenants remains very, very bright, and David will spend a little bit of time and walk you through some of the big-picture numbers, in terms of the CapEx expenditures and how the overall climate has been, not only for the existing people that are leasing space from us, but from some of the new prospective folks that many of you heard about.

Net net, a terrific quarter. We feel great about the results and are delighted to have - you know, pass through the increase in the dividend as we have. So with that, let me turn it over to David.

Thanks, Wes. As Wes pointed out, it was really a strong quarter. My focus is really going to be on the lease up, the investment activity, and the operations of the company. The thumbnail of lease up activity is really the pipeline and the activity is really more robust than we've ever seen, particularly on the Sprint assets. In terms of the investment climate, yes, it is much more competitive, although we maintain our disciplined focus and also remain active, particularly when it comes to ground rights. On the operations side, this was the first quarter that we completed managing the Sprint towers, and now, we're in the midst of our final quarter of the integration process, and we'll talk about that.

Turn to fundamentals. The tone of the market is really terrific. Carriers are working hard to meet demand, which really is continuing to come from subscriber growth and minutes-of-use growth. We're also seeing more attractive rate plans, which is also increasing the flow of their business, as well as data offerings. We're beginning to see some flow there, as well.

Customer focus is really on network quality improvements. So the site additions that we've seen continue to come from both coverage and capacity. The data rollouts are actually accelerating, and in Q3, we saw about 10% of our new revenue coming from pure data providers. And year-to-date, about 5% of our revenue has come from pure data providers. We also continue to see about 15% to 20% of our new revenue coming from relocation and reconfiguration of existing equipment on our assets, and some portion of that is likely data, as well, as we're seeing more of the EVDO rollouts, which are scheduled from Verizon and Sprint.

Overall, we remain pretty optimistic about the fundamentals going forward, particularly as we see entertainment-to-wireless on the horizon, and also, additional spectrum auctions as they come about. This isn't without risks. Obviously, any unexpected slowdowns from consolidation or any rationalization of redundancy can have an impact, but to this point, we haven't seen anything to date. At this point, we're pretty optimistic.

In terms of the new revenue mix, by asset and also our customers, we've been extremely active on the Sprint sites. Roughly 75% of our new revenue came from on our Sprint sites, and it is really beyond our internal expectations. The mix of the customers, obviously, we continue to be dominated by the big four carriers - Cingular, Verizon, Sprint, and T-Mobile, in order of their activity for us, this quarter. The big four carriers made up roughly 70% of our new revenue, and the regional carriers were also very active and made up about 20% of our revenue. That includes MetroPCS, Rebel (ph), and Cricket.

On the data side, again, we've seen about 10% come from the data providers, in this quarter, in terms of new revenue. And Clearwire and FiberTower, as their merging provider, were very active for us in that area.

The pipeline beyond this quarter remains at its peak as it was, last quarter, with telephony and data demand on the Sprint sites continuing to be very strong. And in terms of pricing, we continue to see very stable lease pricing - a slight uptake on the Sprint assets. We hope to continue to see that. On the churn side away from USA Mobility, which we talked about last quarter, year-to-date, it's actually slowed to a great extent that is primarily coming from the mobile radio customers, where we have thousands of customers that churn off but we replace them as they churn off, as well.

Let me move to the investment side. In terms of tower acquisitions, no question, the market's more competitive. There are more players out there, they're reasonably well capitalized, and they're very aggressive in terms of their pricing. We remain very disciplined and our focus is on doing deals that are accretive on day one. The carrier portfolios may come out, which we may see some activity going forward, but we can't control that so our focus going forward is going to really concentrate as much on ground rights as it is towers.

In terms of year-to-date, how we've put capital to work, excluding the Sprint portfolio, we expect to complete about $230 million worth of acquisitions, this year, at an average yield of about 7.2% for 2005 and about $25 million to $30 million of that will really be the first wave of the ground rights purchases that we make. In terms of the ground rights, as I mentioned, we're becoming active there, and we expect to ramp further. These are accretive investments with yields in the 8.5% range. They increase our cash flow margins, eliminate the renegotiation risks that we'd experience on these ground rights, and extinguish the revenue sharing that we might have on new revenue that we add to these sites.

So the current pipeline is actually very strong. If you think about the total opportunity, we pay roughly $130 million for ground rent, each year, and at the yields that we've been purchasing the ground that we bought up to this point, that would mean that there's a roughly $1 billion to $1.5 billion opportunity under our own sites. So, we're really going to be focused on that. I think we could keep ourselves pulling capital in that area.

On the operations side of things, we're really focused on blocking and tackling - the blocking and tackling that's associated with integrating and managing the Sprint assets. Again, we completed the first quarter, owning these Sprint assets, and we'll complete the integration process, as Bill will point out, by the end of Q4, and our main focus beyond here is really controlling the costs and leveraging the systems that we put in place to keep our costs under control. With that, let me turn it over to Bill to talk a little bit more specifically about the financials.

Thanks, David. I'm going to start by reviewing some of the highlights for the quarter, and then, I'll get into a little more detail with respect to the P&L. As Wes indicated, earlier, $55 million of EBITDA, which translates to $0.79 on a per-share basis, which is up 65% from the third quarter last year. FFO of $30.3 million, which is $0.43 a share. That's up 26% over the prior year and up 10% on a sequential basis from our second quarter. We had a net loss of $15.4 million, or $0.23 per share. This loss relates to the increased non-cash depreciation and amortization on the Sprint sites, Sprint integration costs, and interest related to financing of the Sprint sites.

Now, let me get a little more into the detail for the quarter. Revenue during the quarter came in at $116 million. That's up $65 million from the third quarter, last year. Sprint contributed $58 million of the increase and represents about half of our revenue. Our original Pinnacle portfolio contributed 36% of our revenue, and acquired sites contributed about 14% of our revenue in the quarter. 78% of our revenue now comes from telephony tenants, and over 80% is from telephony and investment grade tenants, and we expect this mix to continue to move toward telephony tenants as we continue to experience strong lease up from these customers.

Our gross margin or tower cash flow in the third quarter came in at $65.4 million. This is about twice what it was in the third quarter, last year. If you looked at our tower cash flow margins, you'll see that they're down, and that primarily relates to the Sprint sites. These sites have lower tenants per towers and higher ground rents than our other sites. Sprint contributed $23 million, or about 37%, of our tower cash flow in the quarter. But we expect the cash flows on these assets to be our fastest growing cash flows over the next few years. Our acquired sites contributed $11.2 million to our cash flow with our core sites contributing the balance.

SG&A in the third quarter was $10.5 million. This is up about $1.6 million from our second quarter, and the increase is largely related to our operation of the Sprint sites for a full quarter. As we mentioned on our last call, we've added about 100 employees to help us manage the Sprint sites. SG&A was a little higher in the quarter than we originally thought and had planned, and there's a couple reasons for that. First is we had better lease up, and we spent more money to convert these leases on a quicker basis. And second, we spent a little more money on our SOX 404 implementation than we had originally planned.

Sprint integration costs in the third quarter came in at $2.2 million. As discussed last quarter, these costs relate to non-recurring costs of integrating the Sprint sites into our operations. Costs such as site inspections and mapping, document audits, and purchasing missing documents. We would expect all of these costs to be completed in our fourth quarter, and as you get into next year, you will no longer see this line item in our P&L.

We also have a new line item in our P&L during the third quarter, which is gain on derivatives. During the quarter, we recognized a $2 million mark-to-market gain on $200 million of our five-year interest rate swaps, which no longer qualify for hedge accounting. We will continue to mark these swaps to market, in the future. This item does not impact the $850 million of swaps that we have related to the Sprint financing, or $100 million of swaps related to our acquisition facility, both of which do qualify for hedge accounting.

From the financing side, we've been spending our time during Q3 and will continue to spend it in Q4, working on the next securitization, which is targeted for the first half of next year. Currently, we have about $850 million of debt outstanding under our bridge loan, and $135 million of debt outstanding on our acquisition credit facility. We expect to refinance both of these in our next securitization.

We currently have $950 million of hedges related to these at a 4.35% effective interest rate, and assuming similar execution as our last securitization, we'll have an all in-effective interest rate of about 5.5% on this $985 million of debt. This is about 85 basis points less than the effective interest rate on our interim financing, which will give us an annualized interest savings of about $0.12 a share, going forward. With that, I think we can open it up to questions.

(Operator instructions.) Sir, your first question comes from Jonathan Atkin with RBC Capital Markets.

Thanks very much. Both of my questions are operational, in nature. One of them regarding the CapEx for the quarter. It looks like the proportion of total CapEx classified as EBITDA enhancing grew as a percentage of the total, and I'm wondering what are some of the moving parts, there, and how do you view the different CapEx categories, going forward? And then, I'm wondering if David can repeat the order of the big four, in terms of contributing to the lease up.

Jonathan, this is Bill, and I'll take the first question with respect to CapEx. We had very strong lease up during the quarter, and that drove higher levels of CapEx during the quarter. We had planned and expected it on the Sprint sites, we would spend a little more CapEx for lease up than we did on our core portfolio, and we are doing that. In addition, we have sort of a one-year project going on, where we're converting our lit (ph) sites from the plain old copper wire telephone lines for monitoring to satellite monitoring, which is a significant savings for us from a cost perspective, and that is also included in that line item.

Yes, to Bill's point, also. We're pretty careful about how we invest that CapEx, EBITDA enhancing and make sure that it has the appropriate return, so it's really kind of a high-class problem. In terms of the carriers that we were most active with in the quarter, as I mentioned - Cingular was number one, Verizon number two, Sprint, and then T-Mobile.

And then, within Sprint was it more active on the CDMA or the iDEN side, or is it kind of hard to tell, these days?

It's hard to tell, although I believe it's from the former on the CDMA side.

And then, back to the CapEx, if you look at the relative mix of EBITDA enhancing relative to the total for the most recent quarter, is that a decent way to think about it, going forward, in terms of the mix?

Yes, I think our maintenance CapEx probably is at a relatively steady level. We can see ups and downs over time with it, but that's probably not far off from where we'll be. And EBITDA enhancing CapEx, because of the strong lease up, was a little higher than you might see over time, but I think it's probably not a bad mix of CapEx.

And then, the 25 million of ground rights purchases, going forward - is that a quarterly run rate or...? I didn't quite catch what that was in reference to.

That is the purchase price of those ground rights.

Over what period?

Well, that's what we would -- 25 to 30 million is what David indicated that we would acquire by the end of this year.

By yearend. Okay.

That's right.

Okay, and then, finally, on the churn. You mentioned that it slowed. I'm guessing a lot of that's due to the USA Mobility resolution. Within the mobile radio category, is churn constant, or is that picking up or down?

Churn is relatively constant, although it does drift off a bit as of a percentage of total, and we are seeing it begin to drift off. The sort of customers that you'd expect to go away - the very small customers - we do replace them, but in the large part, it's beginning to slow down.

Okay. Thank you.

Your next question comes from Clay Moran with Stanford Group.

Yes, thanks. I have a couple questions. Could you share with us the same tower revenue and cash flow growth? Also, when is the next time that you'll review the dividend policy? And, I guess lastly, there was significant non-cash ground expenses and revenues this quarter. Can you give us some guidance on how to consider that, going forward? Thanks.

I'm sorry. What was the last part of your question, Clay?

Can you repeat that?

The last question that you had?

Yes. On the non-cash revenues and expenses associated with the sites, the straight- lined portion. It looked like it was significant, this quarter, I guess from the Sprint sites. Can you just give an idea of what to expect, going forward, with the non-cash portion?

I'll start with the last question, and we would expect what you saw in Q3 to be relatively consistent as we move forward from a straight-line perspective. If you look at sort of our same tower cash flow growth and you look at the acquired sites, the acquired sites and you can only really measure them after we've owned them for a year so we have some basis for comparison -- so if you look at the acquisitions we've done and owned for a 12-month period of time, we're getting on the acquisitions about a 13.5% revenue growth during the quarter. And that's a small component that we've owned for a year. If you go back and look at the original Pinnacle sites on a cash flow basis as a result of sort of the reset of the USA Mobility contract, we're down about 2% on those sites, year-over-year.

Okay, and can you share with us when the next time is that you'll review the dividend?

Yes, the dividend policy is reviewed every quarter. Our policy is to pay out our estimate of the quarterly run rate in the next quarter, so it's really the only formal guidance we use and if we get to a point where we think that the cash flows from the company support a dividend increase, then we go ahead and make that. And that's why we've had periodic increases - that number, I guess, in the five quarters that we've been public. And we anticipate having the same policy, going forward.

Okay. Thank you.

Shannon, are there no further questions?

I'm sorry, ma'am. I'm having a technical difficulty. Your next question comes from Vance Edelson with Morgan Stanley. Mr. Edelson, go ahead, sir.

Thanks a lot, and congrats on the quarter. You're seeing prices increase for small acquisitions, as have other tower operators. Is this always from competition in the field from other acquirers, or would you say the sellers are just becoming more savvy? And if it's the latter, then is it fair to assume that ground rights pricing is going up for you, as well? Thanks.

What I would say is that below $5 million acquisitions, the pricing is really not changed all that much. It's picked up a bit, but it hasn't changed all that much. But acquisitions over $5 million, there's substantially more competition, I think. Really, that's kind of the source of it. There are brokers involved, and those are larger deals. In terms of the ground rights, we have - it's hard to say what we want to see, going forward. Our experience up to this point is between 8.5% and 8.7% in terms of the net yields that we've been able to find assets, and we'll be able to evaluate it as we go forward.

Okay. That's good to know, David, and do you plan to update us when significant tower acquisitions are made, going forward, or should we basically expect to hear on a quarterly basis?

If you do something of the size that we would have to file an 8-K, you'd obviously see that in the 8-K, but otherwise, we'll do it at quarter end.

Okay, and for what it's worth, other tower operators have already confirmed that carrier consolidation is not a material threat, but could you give us your thoughts there, especially considering the exposure to Sprint? Thanks.

As I've said, we haven't received any notifications of any deconstructs on our sites. I think, again, we're going to continue to monitor this, going forward. That is one of the risks overall, which I pointed out, to our space. But again, at this point, we haven't been notified of anything major.

Okay, that's great. Thanks, guys.

Your next question comes from Rick Prentiss with Raymond James.

Yes, hi guys. Sorry if I repeat some questions. I think I was in limbo land there for a while. On maintenance CapEx, you mentioned how you've been doing some augmentation on the Sprint sites for leasing, but what kind of maintenance capital are you seeing on your towers on a per-year basis?

On the maintenance side?

Yes, on the maintenance side.

From a maintenance perspective, we think next year that we will be somewhere around $500 a tower is what we've got in our plan. Originally, if you go back to the original Pinnacle sites, that number was substantially higher than that, but as you come into more of the Sprint portfolio where you have more monofolds (ph) and you don't have sort of common shelters and a lot less lit sites, that number comes down substantially.

Okay, and then if you have the augmentation capital, how does that flow into your dividend policy? Because I assume you're kind of funding out your AFFO concept, which is just the maintenance capital.

We really think of the EBITDA enhancing CapEx, Rick, as just another form of investment capital, and so, we don't really take it into account when we look into the dividend run rate. Because the way we think of it, if you're spending $100 on augmenting a site to bring a new tenant onto it, it really is philosophically no different than simply buying another site or another ground right. And so we don't really include that when we think of our run rate churning. So really, the cash flow that we're focused on in evaluating dividend policy is cash flow from the tower businesses less maintenance CapEx after debt service is the cash flow that we view as suitable for distribution.

Right, so seeing that maintenance capital come down, it looks like a pretty good thing for the dividend side.

Yes, absolutely.

As Bill said, that's a direct function of the nature of the assets that we now own, and we have a lot of tall towers that were lit that have more substantial maintenance needs that was a higher number for us nominally, as you end up with monofolds and more telephony-based sites. That number has come down quite a bit.

And then, as you look at the ground rent program that was asked earlier, the 25 million to 30 million - what do you think as you look out into the next couple of years of how much you can do per year? Because I assume it's a pretty diffuse ownership base of the land out there, so it's probably a long process to go after it.

It is a long process, but in the process of actually boarding these assets, we've had an opportunity to interact with these landlords, getting estoppels, et cetera, et cetera. Who knows going forward, Rick. I think it's a big opportunity out there, and we're going to really focus on it, but it's really hard to say what that's going to look like.

Okay, and then, on the integration cost, Billy, you mentioned fourth quarter you'd be done with the one-time, non-recurring items. How much do you expect the impact to be in the fourth quarter? Similar to the 2.2 million you saw in third quarter?

I think it'll actually be down as we go into the fourth quarter. We spent a lot of money in the third quarter on guys going out to sites and changing the signs, changing the locks, and sketching the compound. So, what we're substantially through with those kinds of costs.

Alright. My final question is you all kind of hit on the fact that M&A market pipeline for deals is getting more competitive. A lot more people there with improved balance sheets. What do you see in the prices that are going out there and that you guys then walking away from? Where are we seeing prices go in the environment out there?

We're very focused on the marginal return on capital, Rick, and I think it was either David or Bill who said our net net return on capital on the stuff we have bought thus far has been in low double digits - 10, 11, 12, 13%, on average, depending on which cohort you're looking at. The assets that we have seen priced recently, including some from some of the larger competitors, have actually been low to mid, single-digit, unleveraged returns, and so, if you're buying assets at 4 or 5 or 5.5%, current returns unleveraged, the current financing market's cost of debt is going to be something north of 5.5%.

The way we look at it, and of course, we think we've got the most efficient form of finance as evidenced by the fact that now a couple of the other tower companies are basically doing exactly the same form of finance that we started with here, a year and a half ago. But if financing rates are at 5.75% or 6%, if you're buying an asset at 5 or 5.5, it's a negative form of finance. And so, I think the stuff we've looked at, we actually do a fairly robust evaluation of those assets which we have bought competitively and those assets which have traded away, and there's a substantial difference in terms of current returns where the average return on the stuff that is traded away is marginally positive to where financing rates are.

We just don't think, especially when you get to be a larger company as we're now a larger company - that is just not an accretive activity for us, and we don't want to do more work and make the same amount of money for shareholders, so that's just a less important aspect of our business. If, on the other hand, a larger transaction, as David said, one of the other tower companies that are owned by the wireless folks or something along those lines came along, that is something that we would certainly be interested in and then pursue, I think, aggressively. But there's nothing like that in the pipeline as we sit here, right now.

It certainly shows that the Sprint acquisition was a very fortuitous acquisition for you guys.

Yes, from a lot of different respects. It's an extremely competitive acquisition, at the end of the day. I think that the second-place bid was very, very, very narrowly behind us. When you look at the lease up activity in the third quarter and the composition of what it does, now, to our organic lease prospects to kind of grow the business at 15% or 20%, the kind of cash flow growth that we hope is in our future if all things worked out well, it was a very, very kind of fortuitous transaction for us.

Great. Well, good luck, guys, and I look forward to a strong, organic growth.

Your next question comes from David Barden with Bank of America.

Hey, guys. Thanks. I just want to ask maybe a couple questions. First was just a housekeeping item. I know the - I think the Q's going to come out, maybe tomorrow, but just for modeling purposes, today, it would be helpful to get some basic cash flow information, operating cash, investing cash use, financing cash.

The second thing would be just on the Sprint sites. Obviously, you guys talked about your anticipation that you'd be able to sell these Sprint sites better. Now that you've had a quarter to realize this, what's the secret sauce here? What are you guys doing that's at the margins that Sprint wasn't doing with these towers that's leading to this more successful lease up strategy?

And then, third, on these data guys that are about 10% of the revenue's increment in the quarter, do you get a sense that there's some depth there? Is there more money being put to work, and is this kind of a sustained emphasis or are these kind of one-time network trial type exercises that are nice to see, this quarter, but might not be sustainable on a going-forward basis? Thanks.

Yes, you were kind of breaking up there, David, but I think what you were asking was what sort of data activity we're seeing, and is it sort of a flash in the pan, or are we seeing if this continues? The answer is I think it's continuing. All of the indications that we've had that have been publicly announced about EVDO rollouts within the CDMA space, as well as the activities we're seeing from ClearWire and others, are positive, and it's been very consistent during the course of the year. So we're hopeful that that will continue. Your information is as good as ours in terms of what's being announced. I'll let Bill talk about the cash flow information.

We are going to have our Q filed either probably tomorrow morning at some juncture, but you would I think to expect to see some sort of operating cash or cash flow from operations of a little north of $85 million, per se.

On the Sprint assets, we are simply managing these assets as best we can. We were fortunate enough to have a very good quarter with them with a fair amount of backlog that we're looking at going forward, and we just think that they're in great locations, and we're just doing the best we can to market them and get leases signed.

Alright. Great, guys. Thank you very much.

Your next question comes from the Jonathan Atkin with RBC Capital Markets.

Yes. Two quick follow ups. On the revenue line, how much of that is recurring versus one time? And then, the second question is you're talking more about organic growth as the primary driver. Should we be -- and you're talking about the backlog being pretty healthy. Should we anticipate that lease up over the next couple of quarters, perhaps exceeds what you saw in the third quarter or maybe the same level?

Let me, first, we really don't have non-recurring revenue. Substantially, 99% of everything that hits our revenue line is from tenant leases and is recurring, in nature.

And then, in terms of what we see going forward in lease up, we're just going to work our backlog. We don't provide guidance in terms of what we're going to see, going forward. We're hopeful that the market fundamentals are strong. We've got attractive assets, so we're optimistic, but we really can't forecast what it'll turn into.

And then, from kind of an accounting perspective, in cases where you do incur EBITDA enhancing CapEx and get the new tenant, perhaps to chip in a little bit. Does that flow in through the revenue line, or is that kind of a contra CapEx type item? How do you classify that?

It's a contra CapEx item.

Okay. Thanks very much.

You have no further questions at this time.

Great. Thank you all for joining us, this afternoon, and we look forward to talking to you, next quarter. Thanks, everyone.