Crown Castle Inc (CCI) 2005 Q4 法說會逐字稿

Good morning. My name is [Un Lee] and I'll be your conference operator today. At this time I would like to welcome everyone to the Global Signal fourth quarter and year-end 2005 conference call.

(OPERATOR INSTRUCTIONS)

Ms. Donohue, you may begin your conference.

Thank you, Un Lee, and good morning, everyone. I'd like to welcome all of you to Global Signal's fourth quarter and year-end 2005 earnings conference call. Joining us today are Wes Edens, our chairman and CEO, Ron Bizick, our chief operating officer, and Bill Freeman, our chief financial officer.

Before I turn the call over to Wes, as Un Lee mentioned, this call is being recorded and the replay number is 800-642-1687 or for international dialers 706-645-9291. The access code is 6059566. We will also be making this call available on our website, www.gsignal.com.

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

Now I'd like to turn the call over to Wes Eden. Wes?

Great. Thanks, Lilly. Welcome, everyone.

Let me give a few overall statements and then I'll run through some of the numbers. The year recently concluded was a tremendous year for our company. A very good year for the industry in general, but Global Signal had really a tremendous year. From the time we took the company public a year and a half ago, we were a small regional tower company with obviously great ambitions, but we were about 3,000 towers, we had a high concentration of our revenues with still exposure to kind of aging and flat or declining technologies and had a lot of work in front of us. And really, the bulk of that work was completed last year on the acquisitions front. You're now starting to see very tangibly what the results of that are.

We've gone from about a 3,000-tower company to something just in excess of over 11,000 towers today. Market capitalization of the company is about $3.3 billion and the financial results from the quarter I think kind of highlight what the impact of that has been.

The dividend in the fourth quarter of 2005, up 25% from where it was at the beginning of the year, a $0.50 dividend versus $0.40, EBITDA on an adjusted basis of fourth quarter of '04 versus '05 up 43.9%, and cash flow has gone from $0.39 to $0.43, which is about 11.3% increase. But that really doesn't reflect the pro forma impact of the resecuritization that we just did, which itself will add a number of cents to that, as well as some of the one-time charges at the end of the year. If you pro forma all those adjustments, I think Bill will go through that a little bit, you come up just under $0.50 a share. So obviously the cash flows from the company very much in lockstep with the dividend and the growth prospects for it really tremendous.

The acquisition part of our business plan last year was the highlight of it. It was a year of growth for our company, growth not only in the size of the tower portfolio, adding high quality towers as we went from really last to first in terms of exposure, to the best market to now truly have the best towers in the best markets in the United States. You look empirically at our exposure to the top 50 and top 100 BTAs in the U.S., we have measurably more towers there than any of the other major tower companies.

The relevance of that obviously is that you generate leasing activity on places where there are lots of people, either people directly in terms of population density or in terms of people indirectly, i.e. by people driving past your sites every day. And the leasing impact that we've seen now in the short six months that we have owned the Sprint towers and what we see as the backlog of the business right now kind of fully reflects what the impact of that is.

The acquisition's story today is a much less robust one for us and I think for the industry broadly speaking. When you get to be a larger company, the marginal impact of deploying capital obviously is much less meaningful. When we were a smaller company, buying towers at very marginal yields relative to our cost of capital had a big impact. That's part of the reason we went so rapidly from $1.25 to $2 per share.

But as a $3.3 billion company, or some of our other competitors in the industry that are larger than we are, the marginal impact of buying the next tower is not that great on a standalone basis. What compounds this is that the prices for towers have increased substantially, even in the year since we bought the Sprint portfolio, to the point where you've had yield compression of 150 to 200 basis points. We still are active buying assets. We've got a very active program in terms of acquiring land parcels, particularly on those under our towers. We are buying -- still buying towers one by one, but it will not have as meaningful an impact on our business at this point given the pricing of it.

The business really on a fundamental basis is all about the organic lease-up. We signed four times as many leases in the second half of 2005 as we did in the first six months of the year. Obviously we had a bigger tower portfolio, but even proportionally you can see what a huge impact that had on having the best towers in the business. The fourth quarter was our best quarter as a company in terms of number of leases signed. It looks like, although we're only partway through the first quarter, that it could exceed the fourth quarter of last year and the prospects beyond that look very, very robust.

We don't know what the results will be at the end of this quarter, but I think that certainly what we see on the ground on a day-by-day basis looks really tremendous. Excluding the impact of USA Mobility, which we've got kind of contractual step-downs that'll happen this year and next year, we continue to see the churn stabilize. I mean obviously, as our percentage of our revenues on the telephony and the governmental side have continued to go up dramatically in the business, the marginal impact of the next dollar churn has been less and less and less and we expect that to continue.

We have not really seen a material diminution in any of the telephony consolidations, so people really consolidating, taking down assets. That's something that's been written and talked about a lot in the press. It's something we're very focused on. We have, we think, a very modest exposure to it generically, but have yet to really see any tangible evidence of what that's going to materialize to. And with the third and fourth quarter lease-ups as they are, if you kind of carry that forward, that translates into 10 to 12% unleveraged growth, which is then cash flow growth of kind of 20 to 25%. So really, from a real estate perspective, which is again how I think of the business, the single most robust real estate business we've ever had exposure to. And given the size of the company, if the industry continues to do as it is, we think we could have a really tremendous year.

On the financing side the big news for us is actually a financing that was completed here in February but actually most of the balance of the work was done last year. And this is really a two-part financing. It was a financing to permanently fund the Sprint acquisition, which we had put onto a financing line at the time of the acquisition. In addition to that, it was a refinance of the first financing that we had done, really the pioneer financing in this industry, that was done a couple of years ago.

The leverage of that transaction, 7.37 times, you compare that to the first deal that we did, again a couple of years ago, at 4.5 times roughly, so substantially more leverage, although still on an LTV basis a very conservative amount of leverage kind of net-net. The cost of the leverage roughly 50% tighter in terms of the spread to the Treasury, so the market has come in dramatically. We think that now the financing markets realize the attractiveness of the business model, the stability of the cash flows, frankly I think that the leverage on this could have been a bit higher and still have been a very attractive deal for us. But we continue to utilize what we think is pretty modest leverage on it.

Last statement, and then I'll turn this thing over to the other folks, is the market and the prospects that we see. As I said, 10 to 12% unleveraged growth translates into 20 to 25% leveraged free cash flow growth for the portfolio. That's what we're shooting for this year. We'll see how it turns out, but a couple of months into it, kind of so far so good. The industry fundamentals right now are what -- obviously are what we're very focused on and they really are tremendous. And it's not just the same old fabulous increase in minutes of use. You had a 30% year-over-year increase last year, so obviously a terrific amount of growth there.

Data now is becoming very much of a reality with new device development to support streaming video games, Internet, et cetera. That was a very, very modest part of our cash flows a couple of years ago. It's increasingly a big share of our activity and something that Ron may talk about a little bit because it's been a big thing.

And last thing, which is a hard thing for us to quantify but it's something we're quite focused on is you have a very, very large spectrum auction which is scheduled for June of this year by the FCC. The largest spectrum auction since 1996. The government is basically releasing a lot of spectrum nationally for the first time in the last 10 years. It should be very interesting and the list of prospective purchasers of that and entrants into that is really a breathtaking list. And so it's not just the telephony folks, but there's a whole host of other people that could come into the marketplace. And obviously from our standpoint, all that would translate into prospective new tenants and people that lease some space on us. So all that, again it's a mouthful, but it was really a terrific year.

Let me turn this over now to discuss some of the details with Ron. Ron?

Thanks, Wes.

As Wes said, the fourth quarter and 2005 were both really terrific years for Global Signal. We're seeing carrier demand for our towers to be very, very strong. We think this will continue throughout 2006. My focus today really will be threefold -- first to highlight a little bit of the state of the marketplace or the industry; second to discuss our lease-up; and third to discuss our capital investment strategy related to both towers and the ground.

First on the marketplace, it's really a great time to be an owner of wireless towers, especially assets that are as well located as ours, as we believe the majority of the growth in wireless will continue to take place in the top 100 BTAs. If you were watching the Q4 carrier results you saw 7.2 million subs from the Big Four, just tremendous amount of new subscribers using cell phones and data devices. We continue to see aggressive EDVO, UMTS and iDEN buildouts, plus, as Wes also pointed out, new technology deployments continue. In fact, we know that this year Cingular plans to complete the remainder of the top 100 BTAs as it relates to the UMTS overlays.

We continue to see Cricket, Rebel and Clearwire and we have new market launches in backhaul players like FiberTower have entered the marketplace and we're starting to see leases from them. And in addition, mobile TV has hit the radar screen and we've actually signed a number of leases with both -- with Modeo and MediaFlow. What this translates into is many, many more cell sites that'll be required this year in the industry. The analyst forecasts that I've seen range in stats somewhere between 15 and 17,000. I think what's meaningful here is that about 80% of those new cell sites will be co-locations on existing towers. So of course we expect to, because of the location of our assets, to get our fair share of that.

And as Wes pointed out, the -- although we won't see any near term, I don't think, effects of this this year, the AWS spectrum auction, big piece, 90 megahertz of spectrum, two 45 megahertz swaths, 1,122 licenses, and I think what this just spells for the industry is just good things for the tower guys. Regardless of whether the incumbents use this to augment their existing spectrum positions, whether we see 3G overlays like -- by the likes of T-Mobile or regional players gobbling up some of this spectrum or a new WiMAX provider, it just means more leases on towers and I think that's really great for Global Signal obviously. So in all, 2006 lining up to be as good but likely better than 2005 and we're seeing that most notably in our leading indicator, which would be the lease-up.

Our full year and Q4 results on lease-up were actually very good. And as we've talked a lot about, I think it's a testament really to the health of the industry, our customers and the quality of our assets. Our Sprint assets and our other acquired assets, which I would call non-core, things we've acquired over the last two years, continue to perform really the best, about 75% of our lease-ups occurring on these 7,500 or so sites with the remaining 25% really being on the core assets that we had prior to 2003.

Generally our customers are the guys that you would like them to be. 75% of our revenues are coming from the Big Four plus the regional players like Metro, Cricket, Leap and Alltel. And as Wes pointed out, Clearwire, FiberTower and other of these new technology type players make up another 5 and 2% respectively.

Just some brief statistics here. In 2005 on an annualized run rate revenue basis we added $24 million worth of lease-up, 85% of that came via new co-location revenue, which is a complete install on a tower, and 15% through the relo reconfig. I think some of our competitors may call that amendment revenue. A full 80% of that was telephony revenue and in Q4 we added $8 million of annualized run rate revenue. 85% of that again was new co-location, 15% relo reconfig and about 85% total was telephony only.

As far as our pipeline goes, Wes pointed out that we are expecting a really nice Q1. We see that in our pipeline. We think that will translate into Q2 as well and it also is coming from the Big Four and regionals, which make up about 80% of our lease-up pipeline today. Applications at the company are really at an all-time high, again indicating the health of the industry. And we really don't see and have not seen, as again was mentioned earlier, any industry -- any effect in the industry consolidation or the overlap on our towers. I mean notably Sprint/Nextel. I think what I'd like to point out here is that number one, we haven't had any decommissioning on our towers associated with Sprint/Nextel, and number two, in fact we've had plenty of iDEN installations, brand new iDEN installations on our Sprint towers. So I don't see any near term effect there.

On the AT&T/Cingular side we have 246 sites where both Cingular and AT&T have a lease on the same tower and we've seen only 12 of those leases churn off in 2005. Like others in the industry, we are experiencing exceptionally high levels of lease-up activity from Cingular, so we think that over the long term, even though we do expect churn and we can't necessarily time when it will come because they haven't disclosed it yet, that the lease-up activity will more than offset any of the churn activity.

Acquisitions, our capital investment strategy, really hasn't changed since 2003. It's two part. We're looking to accretively invest in towers as well as to buy the dirt under our -- buy the dirt or get professional easements under our towers. 2005 was certainly a very competitive year, although we did buy 556 towers the mom-and-pop way and, of course, the Sprint asset. We've seen tower cash flow multiples, at least on the seller basis, move two to four turns above where they were in 2004. And while we've seen a lot of larger deals in the offing -- in the offering out there, we think that the price has gotten pretty sporty. And we continue to also have focus on the smaller deals where we see a pipeline of about 40 to $50 million quarter over quarter. And we think we'll convert in the neighborhood of 30% of those over time.

On the ground side we've got about 8,800 individual landlords that we can identify as potential opportunities to go out and purchase our ground. We think over the period of 18 to 24 months that it's a reasonable goal to buy 15 to 20% of those. We think we're ideally suited to do that in that we have contact with these folks every month, we either send a check or have reason to be in touch. And that's actually an important advantage that we would have in going out and securing the rights under these ground, these long-term interests, since you have availability of data and the ability to talk to these folks on a monthly basis.

Buying the ground really delivers three things to the company. We think it's a great use of our capital, it extends our long-term interest in our real estate, and it gives us tower cash flow margin expansion. And since we started the effort late in 2004 we've bought about $37.5 million worth of ground, or 221 sites. The pipeline here looks exceptionally strong. We're currently looking at about $75 million worth of deals that are either under definitive agreement or in active negotiations.

Finally, in closing, I just want to acknowledge a couple of groups out there that I know either dial into these calls or listen to the recorded call, first the employees at Global Signal. It was an exceptional year, as Wes pointed out. We tripled the size of the company and that's a lot of leases to process, a lot of bills to pay, a lot of invoices, a lot of sites to visit, and I couldn't say more thanks yous to the hardworking group that we have there. And then secondly, our customers. We really appreciate your patience as we integrate the Sprint assets and I'm looking forward to seeing our cycle times return to normal. So again, thank you all.

And with that, I'd like to turn it over to Bill.

Thanks, Ron. I'm going to start with the highlights for the quarter financially and then go into a little more detail with respect to the results.

For the fourth quarter we had adjusted EBITDA of $56.5 million. As Wes said, that's $0.80 per share and it's up about 43% over same period last year. For the year, our adjusted EBITDA came in at $184 million. That's $2.86 per share and up 39% over 2004. Adjusted FFO in the quarter came in at $30.6 million and that's $0.43 per share and that's up about 8% over the same period last year. For the year we had $106.5 million of adjusted FFO, $1.65 a share, and that's up 14% over 2004.

During the fourth quarter we had a loss of $18.8 million, which is $0.26 per share, and for the year we had a loss of $39.7 million, which is $0.64 per share. And as we previously discussed on other calls, these losses principally relate to the increased non-cash depreciation and amortization on the Sprint sites and other sites which we've acquired, the Sprint integration costs, as well as interest on financing the Sprint and other sites which we acquired during the year.

Now let me review a little more detail with respect to the quarter. Revenue in the quarter came in at $120 million. That's up $71 million from the fourth quarter last year. Our Sprint sites contributed $60 million to the quarter's revenue, which is about half. Our original core sites contributed about 35% to the quarter's revenue and acquired sites contributed 15% to the quarter's revenue. If you look at sort of our mix of revenue for the fourth quarter, over 78% of our revenue in the quarter came from telephony tenants. As we told you previously, we continue to expect this mix to increase as we sign more and more telephony leases as a percentage of our total lease-up.

Our gross margins during the quarter, or tower cash flow as we refer to it, came in at $67.9 million. It's about two times the tower cash flow we had in last year's fourth quarter. If you look at our tower cash flow margins you'll see that on a year-over-year basis they're down. That's principally because of the Sprint sites, which have lower tenants per towers and higher ground rents based on their urban and suburban locations. We would expect those margins to continue to climb as we add more and more tenants to the Sprint sites.

Sprint contributed -- or the Sprint sites contributed about $25 million, or 37%, of our tower cash flow in the quarter and this part of our tower cash flow we would expect to be the fastest growing over the next few years based on the attractiveness of these sites. Other acquired sites contributed about $13 million to our tower cash flow, with the balance of it coming from our original core sites.

SG&A in the fourth quarter was $12.9 million. This compares to $6.2 million in the fourth quarter last year and is up sequentially from our third quarter SG&A of $10.5 million. SG&A was higher than we had planned and we expect on an ongoing basis. There're a couple of sort of items in SG&A that gave us this impact; principally we had higher year-end compensation costs, as well as some employee separation cost during the quarter. There're a couple of pennies of sort of incremental cost in here during the quarter and additionally we had higher non-cash stock-based compensation costs in the quarter.

Sprint integration cost in the fourth quarter was $1.7 million. As previously discussed, it relates to non-recurring costs incurred to integrate the Sprint sites and their operations, primarily cost for site inspections and mapping, document audits and purchasing [missing] documents. It does not include the ongoing cost of running the sites on a long-term basis. We are substantially complete with these activities. However, in first quarter you'll see about 300,000 to $400,000 roll over and these costs that are rolling over into the first quarter essentially relate to some final document audits, as well as the organization of these documents.

Now, to quickly hit on some of the financing activities that Wes talked about earlier. On February 28th we closed on a $1.55 billion mortgage-backed debt issuance. It's a five-year deal with interest-only. Maturity is February of 2011. The weighted average coupon on this deal was 5.7%. At the time we priced it this would have been 63 over swap, so very good execution. The all-in interest rate for accounting purposes on this will be 5.5% after considering debt issuance cost and the hedges that we had in place. The proceeds were used to repay the Sprint bridge loan, our acquisition credit facility and, as Wes mentioned, to refinance the February 2004 mortgage loan. This new financing will add about $0.15 per share annually to FFO when you consider the cost of the debt that we've refinanced.

We had excess proceeds from the financing of about $130 million, which we will use to invest over time. And if you look at our leverage on a net debt basis as debt less cash to EBITDA, fourth quarter EBITDA annualized, we're about 7.5 times, which is a very comfortable level.

And with that, I think, operator, we can open it up for questions.

Un Lee, we're going to take questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from Ric Prentiss with Raymond James.

Yes, good morning, guys. A couple of questions for you. First, glad to see the discipline there on the acquisition side. Given your scale and your balance sheet, you certainly don't need to be doing the acquisition side of the story unless you can get good deals.

The questions I've got for you, on the SG&A, Billy, you mentioned some year-end comp and separation costs, so should we expect SG&A to kind of drop back to that 10.5 million level starting in first quarter?

The second question is also for Billy. The non-cash items, the kind of extending over lease terms both on the revenue and the expense side, seemed to shift a little bit between third quarter and fourth quarter. If you could talk a little bit about what happened there, what we should expect going forward in '06?

And then the final one on the Sprint side. Sprint on their conference call mentioned approaching tower company owners with about 1,000 towers to try and change the master lease agreements. If you can just update us about what you think is going on with those kind of master lease agreement changes, that'd be great. Thanks.

So, Ric, first on the SG&A, we would expect you to see that number drop back as you get into the first quarter. Obviously some of those non-recurring costs are one-time in nature, so you will see that drop back.

On the non-cash charges, those will move around a little bit over time, but I think if you sort of look at the average of Q3 and Q4, you'll probably get a pretty good sort of level going forward.

Ric, this is Ron. On the master lease side, we actually signed an amendment to our master lease agreement associated with the original Sprint transaction to include some of the -- or to include the Nextel equipment in January. And essentially what it gave them was the ability to actually use any excess capacity on our towers, on the Sprint towers where they had or wanted to put Nextel equipment, and then provided for market-specific pricing when they exceeded that capacity that was already grandfathered in. So while they may be approaching the others and they may, in fact, want to approach us, I think we've completed that activity.

Okay. And then Sprint's got their analyst day coming up on Tuesday of next week. We're expecting them to talk a little bit about their 2.5-gigahertz frequency that they own and their plans to build that out. Have you heard anything from Sprint so far about interest in putting the higher frequency equipment out there and is that covered by the master lease agreement concept also?

The answer to the first question is no, we haven't really heard much of anything about that. There's been rumblings. We certainly haven't seen it in our pipeline, at the moment, of applications. As far as it being covered under the master lease agreement, I really would have to look, Ric. I don't -- I think that it would cover any Sprint technology provided that it was within the footprint and within the capacity that was allocated to them at the time of the master lease.

So if they do have to put it on a different [rad] center , if they have to add stuff in different spots, you'd be able to get paid for that?

It'd be incremental revenue, correct.

Okay. It looks like an exciting year coming up. Good luck, guys.

Thanks.

Your next question comes from Ken Leon with S&P.

Yes, since your peers give guidance for upcoming quarter and year, can you give us guidance for March and for '06 for revenue and EBITDA?

Ken, this is Wes. We don't provide guidance on any of the public companies we're associated with. I mean really the sole form of guidance, this kind of effective guidance, is when we set dividend levels, we set them to the run rate of what we think the then kind of next quarter is going to be. But no, we don't provide guidance. I just think it's much more constructive to talk about what you have done as opposed to what you expect to do. We've told you what we think the organic growth prospects of the business are, but with respects to making any specific forecast, that's not something that we intend to do.

Sure. And if you can just talk a little bit about your dividend policy and how you're structured again as a company?

We are structured as a REIT and we've got a very efficient capital structure in that with the total amount of depreciation and interest costs that we've got, as Bill walked through the financial numbers, we actually report from a tax perspective a net loss. Obviously we're very cash flow positive. So the dividend that is paid is all essentially a return of capital, so it's very efficient from a taxable perspective, if you happen to be a taxpayer as, for example, I am.

And we basically change our dividend policy to reflect the then current economics of our business. So if you look at just the brief history that the company has been public, we started our public life at $1.25 a share annualized in dividend and as the earnings of the company have grown incrementally, we've adjusted our dividend policy accordingly. And we anticipate doing the same thing this year. So kind of throughout the year if, indeed, the growth translates into what we think it should on a cash flow basis, we'll change our dividend to reflect that.

Okay. And then for tax purposes, if you're structured as a REIT, and I'm not a REIT analyst, for a third party interested in acquiring your company, would they get the benefit of net operating losses carried forward or not?

They would. The net operating losses, whether you're a REIT or not a REIT, would be subject to the same change of control provisions that anyone else would have, so you would have the same issues if we were to be acquired by somebody or if, in fact, we acquired somebody else that had NOLs. The analysis would actually be very similar in either case.

Okay. And if I can, on an operating business you mentioned Modeo and MediaFlow. Will that be material to your business possibly in '06 or '07?

I don't think it'll be material to the business in '06. It kind of remains to be seen in '07. They're doing a number of test markets at the moment and I think it's largely in the beta stage.

Okay, thanks so much.

(OPERATOR INSTRUCTIONS) Your next question comes from Mark DeRussy with Raymond James.

Hi. Good morning. I want to talk a little bit about your EBITDA enhancing CapEx. I think it was around $5 million. If you could kind of break that down between augmenting towers and I think there was some discussion about changing, Ron, how you monitor the towers, if I'm not mistaken.

Yes, that's right, Mark. We are in the process of changing out all of our monitoring systems to a satellite monitoring system as opposed to the old POTS line methodology; a. it's cheaper, and b. we think it's more effective. I don't have the exact number that's in there of what would be monitoring equipment, but that is a piece of it.

Secondly, as we planned and thought, the Sprint sites do require a little more CapEx at times to get tenants on there and you're seeing a little bit of that because there is a lot of demand in lease-up on those sites today.

And given kind of your outlook for the demand for the Sprint sites, what's your sense of how much CapEx you're going to need to devote to those towers, say over the next year or so?

It's not really possible to forecast it; it is such a site-specific case. The way we think of EBITDA enhancing CapEx is it really is a new investment, right.

Yes.

Maintenance CapEx really belongs in the cost of operating the tower, maintenance. EBITDA enhancing CapEx you're basically -- it's as if you're buying another tower, in effect, right, because you're putting more money out to generate marginal revenues. The Sprint stuff is built -- it has been a little bit more intensive in terms of some of the capital. They had smaller footprints, smaller towers, there's been a lot of work done obviously by our folks to enhance those assets and that will continue, we think, this year. But it's not really constructive to guess at what the marginal cost of that is just because it is so site-specific.

Okay. All right, thanks.

There is a follow up question from Ric Prentiss with Raymond James.

Can't let you go that quick. We'll make it the Global Signal/Raymond James call today.

Right.

A couple of questions for you. Wes, you talked a little bit about the auctions coming up and the new technology -- potential new participants in those auctions. Have you guys received any inquiries from some of those type of new tech players, whether it's a technology company, a satellite company, a content company? What kind of discussions are you seeing out there since you guys own a large portfolio of assets in the top 100 markets?

And then the second question is we're hearing a lot about backhaul. As more and more, not just minutes, but megabytes start hitting the cell sites, carriers are trying to find alternative means to get the signal back to the switches and back to the internet cloud. Are you guys looking at the backhaul business or are you seeing, I guess you did say FiberTower is a tenant of yours, but what are you thinking about the backhaul potential of the business?

First on the spectrum stuff, Ric, it's a -- it is a very lively topic inside the company and up here. We have received a lot of inquiries, a number of inquiries, from people that are prospectively going to participate in those auctions. I think that it's a separate topic of conversation but it's something we think has some very interesting implications, not only for our business but for the industry on kind of a broader sense. And so without having anything specific to report on, it's something that we are quite focused on at this point.

With respect to the other, Ron, you want to --?

Yes, Ric, I'll take the backhaul question. It's Ron. On the backhaul side of the business we have talked to all the players out there, both small and large, about opportunities to not only just enable lease-up on our towers and get them as a tenant, but looking at ways in which we could participate in the upside. And we continue to do that. Frankly, given our status as a REIT dividend paying company and the capital investment involved with deploying one of these backhaul networks, the two just don't always match up really well.

So the economics for us in terms of making significant investment in backhaul, unless it has a dollar for dollar sort of return here in the near term, just hasn't been attractive to us. So we've opted to lease for the moment to pursue putting these folks on our towers and having them become rent payers.

Would it be considered, I don't know if this is the right REIT term, Wes, keep me honest here, but dirty revenue kind of non-REIT revenue, then, if it was backhaul revenue?

Actually I don't know the answer. The generic term that they use is rental income, it's good income. But we actually are so far above the line in terms of the percentage of good income versus bad income that it's not really that so much. What I think Ron was talking about is that when we have looked at the business models of people that are either in the backhaul business or want to be in the backhaul business -- and of course that's an interesting thing to consider when you just look at the raw economics. The sheer amount of money that is paid on backhaul is actually substantially more than tower rents, so it's obviously something that is worthy of consideration. But the business models that we have looked at have been -- have been not really cash flowing models so much as very, very kind of hockey stick growth kind of venture capital like investments.

Got you.

And that is just a less interesting investment given the nature of kind of how we view the world at this point.

It has a different return profile as far as when you get the money and how quickly you get it back?

It really is. You look at these things, if they're successful in deploying as many towers and assets as they think that they will, these things could have a substantial amount of growth. But you're really looking, I think for practical purposes, at not only -- not just 2006 and 2007, but 2008, '09 and '10 before they can be meaningfully cash flow positive. And so from our perspective, there are other things that we think are more interesting in terms of looking to deploy capital on.

Okay. Sounds good. Good luck, guys.

Thanks, Ric.

Your next question comes from Dave Coleman with RBC Capital Markets.

Good morning. Your comments earlier that 1Q site leasing growth could be stronger than 4Q '05 levels but full year would be about the same as full year '05, does this assume slower second half site leasing growth?

And then second question, just to follow-up on Mark's question on the revenue enhancing CapEx, do you pass any of that on to the tenants, either in higher rents or pass it on as -- make them pay the bill for the CapEx?

Let me answer the first question and I'll turn it to the other guys for the second. The forecasting how the year is going to turn out is a hazardous thing obviously at the start of every year. We've now had three full years under our belt of being involved in this business and really a little bit more than that since we started looking at the tower industry. We have found, generally speaking, that the third quarter and second quarter have been slower quarters than the first quarter and the fourth quarter, but it's on such a short sample that I don't think it's all that relevant.

The most meaningful indicator of future activity, obviously, is the current backlog of applications that you've got. As Ron said, right now the backlog is higher than it's ever been for us, not only in nominal terms but actually in percentage terms. So on the very short term, the first quarter, second quarter outlook is quite positive with respect to lease-up activity. Forecasting, whether the third quarter, fourth quarter, how it's going to relate to the first couple of quarters is a -- is not something that I think is all that meaningful.

On the revenue enhancing CapEx side, or we call it EBITDA enhancing CapEx, we are typically looking for a two to three year payback on any investment that we make in the form of rent. And at times, to get there, we will require the carrier to contribute to the enhancement in the form of a one-time payment. And we've been very, very successful in getting that.

We continue to find that speed is important, location of the tower is very important. They don't want to go through the permitting process of trying to put up an additional tower so the willingness to pay reasonable rates and contribute a reasonable amount of money to the enhancement has been there.

Okay, thank you.

Your next question comes from [Walter Morris] with [inaudible] Growth.

Good morning, gentlemen. Bill, could you go through the specific components and numbers that give you the pro forma fourth quarter AFFO of $0.50 a share that Wes referred to in his opening remarks?

I think when Wes said, if I remember exactly, said just pro forma sort of just under or right around $0.50 a share and, Walter, if you look at sort of we reported $0.43 a share in FFO and if you take the financing that we just completed, that's sort of $0.15 a year. So I think if you add that on there, you're going to be right at $0.47 a share of FFO. And then if you take the SG&A and add that, as I talked about sort of a couple of pennies there, you're right at $0.49, $0.50 with rounding.

Okay. Thanks, Bill.

Your next question comes from [Steve Valentine] with Valentine Capital.

Yes, hi. I just wanted to follow up on the tower acquisition side. A minor point this question. Third quarter release had 748 sites for 223.9 million and then the year-end numbers are 556 and 212. Is there a discrepancy between those two or are they not apples to apples or what happened there?

And then on the large portfolio side do the comments on acquisition multiples and not as much opportunity there apply or are there large portfolios of towers that are in the market or potentially in the market for you to look at?

I think I can look at the first. I think if you look at what we're saying in the release this time with respect to 2005, I think these are sort of done deals and that we've purchased. And I think in the third quarter the number included deals under purchase agreements and it may have, I'd have to look at the release, include LOIs, although I think typically it's just purchase agreement type deals that we have. So there is a different basis and this quarter it's just done deals.

On the large portfolio acquisition side, Steve, we are very focused on kind of marginal returns on acquisitions. And what's happened is two things. One, interest rates have gone up a bit. And the financing that we just did we had hedged, some time ago, interest rate changes that ended up being to our benefit, a fair bit actually, at the time of the financing.

If you look at where the marginal cost of finance if you're going to buy a tower today, and really be 100% intellectually honest with how you would buy and finance it in the marketplace, you've got five-year Treasuries at about 4.7%, I think, add on swaps, plus even using the spreads, which are much tighter in the deal that we just did, you're looking at all-in financing costs 5.75 to 6%. And we have seen multiples, at least kicked around, on some of the larger transactions that were basically negative to that. In other words, cash flow negative on a current basis where people were buying assets or talking about buying assets at 5 or 5.5 or 6%. So if these large portfolios trade, even net of SG&A savings, at a 5.5% rate and you have to finance them at 5.75 or 6%, from my perspective it's just not that interesting.

And the only transactions we want to do are ones that make us money. I'm stating the obvious. And I don't want to bet on some fabulous growth in the future in order to pay for the acquisitions today. And so it is something that we have taken a step back. We're very focused on being disciplined about the use of our capital. We think there's other things we can do with the capital that is more constructive about it. So we have not been -- we have not in the thick and there are a couple of large transactions that are kicked around right now and we are not in the middle of two of them that are out there right now because I just don't want to spend the time and energy to pursue transactions that we think are going to be dilutive to us on a fully adjusted basis.

Wes, does that lead to a thought about is this an opportunity to then put the portfolio up for sale and become a seller at a time of these kind of low yields on tower acquisitions?

No, I think the way I would kind of respond to that question is I think that the next phase of activity that's logical is more of an SG&A consolidation where you can put tower companies together. There's been some of that obviously last year with the SpectraSite transaction. I don't think it would be surprising to see other transactions on that. But there's nothing for us to comment on, certainly on that. We have no intentions of selling off assets or portfolios, I think. I'm very happy with the company, the growth prospects for it.

We haven't sold any of our shares and we have no intentions of doing so at this point because I think when we look at it, I'm in the role of not just from Global Signal but also from a Fortress perspective, we look at the businesses that we're involved in, businesses that have this ability, this amount of diversification and stability of cash flows with these kinds of growth prospects are few and far between kind of worldwide when you look at stuff.

So we're very excited about the business and think that there's plenty of challenges in terms of operating these kinds of businesses and scale them efficiently. But we're very excited about the business going forward.

Great. Thanks.

Your next question comes from Richard Feldman with Monarch Capital.

I wonder if you could explain your strategic thinking in setting a five-year maturity on the financing you just completed?

I would be happy to. It is really a judgment call as to two things you're trying to balance. One is locking in interest rates for a meaningfully long period of time so that the company is not subject to short-term changes in interest rates, which is something we're quite focused on, on the one hand. On the other hand, having leverage in place that is appropriate for the company as the cash flows continue to grow. Obviously, if the cash flows did continue to grow at 15 or 20 or 25% a year, five years from now this would be a very under-leveraged portfolio of assets. And that, in fact, is what just happened. That's why we refinanced our first transaction here just earlier this month.

And we looked at a range of outcomes, financing anywhere from the shortest, three years, to as long as 10 years. Three years we concluded was just too short in terms of exposure to interest rates and we didn't want to have that exposure, on the one hand. On the other hand, seven years or 10 years, if you have any kind of meaningful growth in the portfolio, you're going to end up with a 20 or 25% leveraged portfolio at that point in time, which is just too low a leverage to run this business at. So five years seemed like a happy medium for us and it was – it is not an analytical framework per se. It's just looking at the different outcomes under different growth prospects and then coming up with what we think is our judgment about it.

Relatedly, then, at the end of five years if the acquisition market hasn't improved, what would you then do?

(inaudible)

A long -- very long-term question.

Yes, it's -- what were you doing five years ago? Five years is a long time. Actually I'm being facetious. But the way we look at it is we expect to have a number of financings maturing at various times, so we won't have, I don't believe, all of our eggs in kind of one basket and exposure to interest rates at a specific point in time. But our expectation would be simply that we would go ahead and refinance the portfolios when they come due in the ordinary course.

I guess the question I had is that would free up a fair amount of cash and would you have opportunities to commit that cash at satisfactory returns?

Yes, well, we just did free up a measurable amount of cash. In our balance sheet right now, as Bill said, we have about $130 million of excess proceeds. So the company is very liquid right now. We have additional borrowing should we choose to do so and, of course, we could always access the capital markets. But we have a bunch of cash from the last financing and we're very focused on finding things to invest in. And I think that without having a specific view as to what those investment opportunities are, I think there's going to be lots of interesting things to look at.

Okay. Good luck.

Thank you.

At this time there are no further questions. Ms. Donohue, are there any closing remarks?

Great. Thank you all for joining us this morning and we really look forward to speaking with you next quarter. Thanks, everyone.

This concludes today's Fortress Investment Group conference call. You may now disconnect.