Crown Castle Inc (CCI) 2006 Q1 法說會逐字稿

Good afternoon. My name is [Deshanta], and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Signal first quarter earnings Conference Call.

[OPERATOR INSTRUCTIONS]

Ms. Donohue, you may begin your conference.

Thank you, Deshanta. Good afternoon, everyone. I'd like to welcome all of you to Global Signal's first quarter 2006 earnings conference call. Joining us today are Wes Edens, our Chairman; Steve Osgood, our Chief Financial Officer; and Brett Buggeln, Senior Vice President of Operations.

Three quick matters before I turn the call over to Wes Edens. First is the call is being recorded, as the operator mentioned. The replay number is 800-642-1687, or outside of the U.S. it's 706-645-9291. The access code is 8455782. This call is also available on our website at www.gsignal.com. And also, I'd like to mention that we are having our annual shareholder's meeting on Thursday, May 18, in New York at the Four Seasons Hotel at eleven thirty.

And lastly, statements today which are not historical facts 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 the actual results to differ materially from Global Signal's expectations are detailed in our SEC report. 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 Edens. Wes?

Well, lots to talk about, folks. It's been a very busy first part of the year for us. First and foremost, we have a number of new senior folks inside the company. Steve Osgood is our new Chief Financial Officer, and Steve is going to walk through the financial results here in just a moment. Jerry Elliot is with us here as well, though Jerry does not officially begin work, I believe, for another couple of days, but he is sitting with us here as well, and you'll be hearing from him instead of me in the future, which is probably good for everyone involved. And Brett Buggeln, who is one of our real stars in the company on the operations side, has really assumed the position of running the operations and leasing activities. You will hear from Brett for the first time, as he will walk through some of the leasing activity and give you some perspectives on the market.

The financial results for the quarter were really terrific. I know that the financials themselves, given all of the various one-time charges and the activity during the quarter, is a little bit difficult to make your way through. In particular, we had refinancing activity as we refinanced our first securitization, and that was a big event for us, as well as put the permanent financing in place at much lower cost than our interim financing for the Sprint portfolio, number one.

Number two, of course, we had a very active portfolio with respect to leases. A lot of that lease activity was signed up at the end of the quarter, though, so some of the financials don't fully reflect the run rate impact of that. We, then, had annual step-ups and escalators on some of them. We had some contractual step-downs in terms of the U.S. [seeing mobility]. So there are a fair number of things moving back and forth.

The numbers that I would point you to are adjusted EBITDA for the quarter, $0.84, from adjusted EBITDA in the fourth quarter, $0.80. Free cash flow yield, which is really what we focus on, is less clear, again, because of all of the one time moving back and forth. And kind of the most transparency that I can give to, that is, that we did increase our dividends from $0.50 to $0.52.5 to kind of reflect the run rate activity of the second quarter, just to put that in perspective.

At the beginning of the year, we had a $2.00 dividend on an annualized basis. We've now gone to $2.10 in the first quarter. If that was to continue, which I'm not forecasting, but I'm optimistic about our prospects here -- if that was to continue, we'd end up with really a 20% annualized increase, which, obviously, from a leveraged cash flow standpoint is terrific, in particular when you compare what our valuation is versus some of our comparable companies out there. So that's the kind of thumbnail sketch in the financials. Steve will spend a little bit more time on that, but just to give you kind of that perspective.

The market itself from a growth and leasing perspective, our experience with that, I think, was quite similar to the other tower companies. We had, in nominal terms, the greatest, kind of, leasing quarter ever. We signed in DVE equivalent leases, 473 leases. In the fourth quarter of last year, we signed 444, which itself was quite robust activity. Just nominally you can see that that worked out to be a very good quarter for us. Again, we expect net lease-ups, including escalators to continue at a similar clip based on what we see in the marketplace right now. I'd say there are a number of things, kind of, positive in the market and very few negatives.

[Carry] consolidation is something that people have talked about. We have yet to see any impact on our portfolio to date. And on the positive side, we are seeing leasing activity across the board from a whole variety of tenants. Of course, it's led by the telephony carriers, as you'd expect, the wireless folks, but there's a whole host of other folks. I think Brett will give you a little bit of color in terms of some of the specifics in what we're seeing there.

Our backlog at this point in the quarter is as robust as it has ever been. So without knowing how the second quarter -- the nature of the lease-up of this business is that it all seems to happen in the last week or two of the quarter. So we're only about halfway through the second quarter right now. But based on all of the indications that we see right now, this should be an excellent quarter for us, we think, on the lease-up side, as well.

The acquisition side of the business is, again, I think I foreshadowed this, talked about this a bit when we had our last call, acquisition side of the business is very different. We are quite focused on the ground lease program. We closed about $15 million in ground acquisitions at an average yield of about 8.5%. So those are good accretive acquisitions for us even on an unleveraged basis. They're also good protective things for us to invest in as it [hits] the ground [inaudible] Towers. That is something that is affirmed.

We have made a real commitment to continuing and expand. We have a fully staffed team for this, and we are hopeful that we will see robust results in particular in the second half of this year. So that's something to keep an eye on, and I hope that it will lead to, as I said, both good investment activity, as well as a good prophylactic measure with respect to the value of our towers and owning land.

On the marketplace, with respect to the other things that we see out there in terms of towers, it's considerably less robust. If you look at -- there were some transactions that were announced here recently, one in particular that we took a look at. The valuation that these towers traded at on an unleveraged basis is approximately 5.5%. So if you just kind of hold that 5.5% constant, look at financing them on the margin, which is how we would finance them or, I think, anyone would reasonably finance them, even with the very efficient forms of asset finance that we use and now others use as well, you'd be looking at an all-on financing cost in today's market of about 6.5%. Well, if you buy assets that yield 5.5% and you leverage them 2:1 and 6.5%, you're talking about net/net returns of about 3.5%.

Even with great growth prospects in the industry, which I think that there are, it's going to take a long time for those assets to turn into the kinds of accretive returns that we have been seeking. I think specifically, as we look at it, if you were to have a .2 annualized BBE lease-up rate on portfolio price like that, you wouldn't generate a 10% cash-on-cash return until year four.

So just from our perspective, just to give you a little bit of color in terms of how we think about the marketplace, we don't want to mistake busyness for productivity, and so we don't want to pursue assets and invest in them at levels that aren't really accretive to us immediately. And I think our expectation is, at the current point in the marketplace, there's not going to be a lot accretive acquisitions on the tower side certainly. So, I think this business is today and organic lease-up story from our standpoint and I suspect from the other folks, but I just wanted to give you a little bit of color with respect to that.

The financing side, which I think that Steve will also touch on, we did close on February 28 our third and the industry's second largest securitization to date for $1.55 billion; total weighted average [coupon] of 5.7%. That was 63 basis points over in terms of the spreads. If you include the transaction costs, that goes up to 80 basis points over, so extremely efficient forms of finance. Still modest leverage, in my opinion, versus what you could generate down the road, but very, very efficient finance.

Total leverage of the company now is just a shade over seven times. So for a real estate based business, which of course we believe this is, very, very conservatively leveraged, full cash flow up pass through so we can pay out dividends, very, very good position to be in from a financial standpoint.

Prospects for the market -- the big news that a lot of folks are focusing on is the AWF auction scheduled for next month. Very interesting to see who actually shows up as prospective bidders. Of course, you'd expect to see, again, the telephony companies leading the charge there, but I think we could see a whole host of other new entrants to the marketplace. Obviously, the implications for our portfolio, our towers, given our geographic locations, which is to say we're located in the best markets where we think we're going to see a lot of incremental leasing activity, it can be nothing but positive news for us.

We're very excited about the new management group that we've got -- Jerry, Steve, Mike Schmidts is our new technology person. So we feel like we've got a great group on the field and are excited about things to come. So with that, let me pass it over to Steve.

I'm going to start with the highlights for the first quarter of 2006, and then go into more details with respect to the results. For the first quarter of 2006, Global Signal had adjusted EBITDA of $58.9 million, an increase of approximately 86% over the first quarter of 2005's adjusted EBITDA number of $31.7 million. That's $0.84 per diluted share for the first quarter 2006.

Adjusted FFO in the first quarter came in at $33.3 million, an increase of 54% over the same quarter in 2005's adjusted FFO of $21.6 million. That's $.47 per diluted share for the first quarter 2006. For the quarter, we had a net loss of $35.1 million, which is $0.51 per share. The largest component of this loss is a loss on early retirement debt in the amount of $21.1 million. This loss was incurred in association with debt that was retired by the proceeds from the February, 2006 mortgage loan issuance.

In addition, as has been discussed in previous quarters, there are year-over-year increases in non-cash items such as depreciation, amortization and accretion with respect to the Sprint sites.

Now, let me review the quarter in more detail. Revenue in the quarter came in at $120.9 million. That's up $67.1 million, or 125%, over the first quarter last year. Our Sprint sites contributed approximately $62.2 million to the quarter's revenue, which is approximately 51.4% of total revenues.

Our original core sites contributed about $41.2 million of the quarter's revenue, and acquired sites excluding Sprint contributed approximately $17.5 million of the quarter's revenue. If you looked at our mix of revenue for the first quarter, approximately 80% of our revenue in the quarter came from telephony's tenants. As stated in previous calls, we continue to expect this mix to increase as we focus on signing more telephony leases as a percentage of our total lease-up.

Our gross margins during the quarter or tower cash flow came in at $67.7 million. It's about 1.8 times the tower cash flow we had in last year's first quarter. If you look at our tower cash flow margins as a percentage, you'll see that on a year-over-year basis, they're down. That's primarily due to the Sprint sites which have lower tenants per towers and higher ground rents based on the urban and suburban locations. We expect those margins to increase as we add more and more tenants to the Sprint sites.

The Sprint sites contributed approximately $26.3 million, or 39% of our tower cash flow in the quarter. Other acquired sites contributed about $12.6 million to our tower cash flow, with the balance of it coming from our original core sites.

SG&A for the first quarter of 2006 was $11.1 million. This compares to $6.8 million for the first quarter 2005, and is down sequentially from our fourth quarter 2005 SG&A of $12.9 million. The increase of G&A for Q1 2006 over Q1 2005 was $4.3 million. This difference is primarily due to, one, increased personnel and other cost tied to the Sprint acquisition, two, higher IT and professional fees due to our efforts to comply with Sarbanes-Oxley. It should be noted that SG&A declined in Q1 2006 to 9.2% of revenues from 12.6% in Q1 of 2005.

Sprint integration costs, which have been reported in the past, for the fourth quarter were $254,000. As discussed on previous calls, these historically have been non-recurring costs incurred to integrate the Sprint sites and their operations, primarily costs for site inspections, mapping and document audits. It does not include the ongoing cost of running the sites on a long-term basis. Due to the lower amounts expected going forward, we will no longer be commenting on these costs on our earnings call as a normal course.

As Wes mentioned, the major event of the first quarter occurred on February 28 when Global Signal closed on a $1.55 billion dollar mortgage backed debt issuance. It's a five-year interest-only loan. The maturity is February of 2011. The weighted average [coupon] on this loan is approximately 5.7%.

From an accounting standpoint, the all-in interest rate is approximately 5.5% after considering debt issuance cost and the hedges that were in place. The proceeds were used primarily to repay the Sprint bridge loan, our acquisition credit facility and to refinance the February, 2004 mortgage loan. As stated earlier, as part of this financing, we were required to take a non-cash charge of $21.1 million for a loss on early retirement of debt.

Finally, I would like to address a few additional items regarding our capital structure. At the end of the first quarter 2006, the company had $1.84 billion of long term debt, or 35% of firm value. Our debt service coverage ratio for the quarter was 2.4 times, and Global Signal had $184 million of cash on the balance sheet at the end of the quarter. And with that, I will turn it over to Brett.

Thanks, Steve. As Wes said, the first quarter of 2006 was very good from an organic growth perspective. This growth was fueled by continued strong interest in our sites, for coverage and capacity, and from changes to existing installations, the reconfiguration, or amendment revenue, as it's sometimes called.

The content on my review today will be focused on three elements. First, to go over the state of the market for our sites. Second, to discuss our lease-up for the first quarter. And finally, to review our capital investment related to both towers and the ground under our tower assets.

So with regard to the marketplace, we saw and continue to see tremendous demand for our tower assets, driven by the vitality in the wireless market today for new features, for handsets and data devices and sustained subscriber growth. So far this year, two of the big four have exceeded subscriber additions from the same period in 2005.

By all accounts, projections are for another strong year in new site deployment across the board to meet coverage and capacity. We see this translating into needs for new network equipment on the ground and on the towers to meet the growing expectations of wireless users for seamless and high quality signals to their handsets.

The subscriber ads staying strong, we also see UMTS and EVDO build-outs continuing for the likes of Cingular, Verizon, and Sprint through 2006. While these efforts are underway, we still see plenty of markets where we have towers if these overlays are not yet deployed. New technology ideas and applications such as TV type services to phones and deployment of those networks by Modio and Media Flow, as well as heightened interest in the space potential new entrants indicate that wireless is more and more a part of daily American life, further fueling growth and the need for tower sites.

With the AWS auction coming up this year, we see a lot of opportunity for regional and national players to emerge, and the news continues to be exciting on other fronts, especially with the newly announced Clearwire/AOL relationship. We project that the actual network build-out for the use of the AWS spectrum will probably trail some months behind the actual auction process and may not affect our 2006 numbers, but the net/net for the tower industry is demand for sites, and that is a great thing for Global Signal.

All the positives in the wireless industry and the significant presence of our assets in the top 100 BTA's resulted in a great lease-up number for the quarter. As Wes mentioned earlier, our lease-up for the quarter annualized to right about $8.5 million, with 80% of that number coming from new installations, [inaudible percentage - technical difficulty] from reconfiguration or amendment revenue. The mix of that new revenue by type of asset base was led by our spread assets which captured 69%; 12% on other new acquisitions after 2003; and 19% on our core assets which were in our portfolio before that year.

Additionally, our revenue mix by customers in Q1 continued to be of the type that improve our revenue base, with just over 81% being the big four plus regional telephony carriers. These regional carriers include strong results from business with Metro PCS and Cricket, for example. We are busy building out and launching various markets across the country.

The remainder or generally non-telephony lease-up revenue was led primarily by customers such as Fiber Tower and Clearwire at 7% and 2% of the total new lease dollars respectively. We also see continued strong participation from these data and back hall providers as we view our current pipeline.

Equally compelling is that our current pipeline remains strong as it has ever been, with the flow of applications continuing week over week at very robust levels. The mix of potential revenue totaling a backlog of about $14.7 million on an annual run rate basis continues to track along the lines I mentioned above in terms of our Q1 results. Telephony type applications make up about 80% of the pipeline both on a share number and a dollar value basis.

And new build or reconfiguration -- versus reconfiguration revenue appears at this [point] should to be similar to our Q1 results, with about 75 to 80% of the pipeline being new co-location revenue based on dollars per value of lease.

We continue to be realistic in our approach to the Sprint / Nextel and Cingular/ AT&T consolidation in terms of site decommissioning. While we are focused on this issue and have had conversations with each carrier regarding those plans, we still see those discussions as ongoing as we gather information and gain a better understanding. However, our experience in the first quarter was very few leases that were lost due to decommissioning from these customers. All in all, we continue to see the strength of our new lease revenue growth as the big story this year.

Acquisitions in capital investment strategy have stayed the course in terms of towers and ground. Our tower purchase opportunities continue to be challenging for us as multiple evaluations climb in terms of seller expectations regarding cash tower cash flow. We continue to participate in all deal venues and evaluate all opportunities. Overall, the upward trend in tower evaluation has limited our purchase of towers for the quarter, as we bought 10 tower sites at $4 million.

[Inaudible] purchase average for the real estate on our towers continues to be a major focus of the company. We see this effort as positive in several respects, including as a great use of capital, extending our interest in the real estate, and expanding our tower cash flow margins.

During Q1 2006, we invested almost $15 million in ground for 109 sites, with the yields ranging between 8% and 10%. That pipeline remains very strong, with about $72 million under definitive agreement or active negotiations.

As Wes indicated, we are just getting the ground acquisition team and program to full strength. We expect to continue to see the effort gain even more momentum as we touch more and more of our site landmarks. With that, I'll turn the call back over to Lilly.

Great, thanks. Deshanta, we'd like to open it up for questions, please.

[OPERATOR INSTRUCTIONS]

Your first question comes from Rick Prentiss of Raymond James.

A couple of questions for you guys. First, Wes, you mentioned leverage at seven times, and you thought it might be conservative. What do you think the right leverage for a target kind of range is in the tower industry? The second question is, I'm glad you mentioned on the leasing activity, I did not catch the Fiber Tower or Clearwire percentages, so you could give that to us again. And why would you not consider Clearwire to be telephony?

Well, the first question with respect to the leverage, Rick, is that we are leveraged right now at about the level that I think you're going to see going forward in that we draw the line is the point at which the leverage becomes incrementally more expensive and kind of dips into the non-investment grade kind of slice of these CMBS [inaudible]. So basically, in so much as we can finance ourselves at very low costs all the way up through the investment grade step, once it kind of dips below that that's basically where we do draw the line.

I think the tower business and its financing through the capital markets is obviously a pretty new activity. There's only been three transactions done and we've done two of them, as is the case in many, many asset classes. The [inaudible] tend to start off fairly conservatively with regard to the asset values, and then over time they become incrementally a bit more aggressive.

If you look at this not so much from a cash flow perspective but from a loan to value - take the example of the portfolio that we just saw change hands here recently, a multiple on that tower portfolio was roughly 17 times tower cash flow. We've got financing on our side of about a little over seven times. So from an LTV standpoint when you think of the real estate world, 7/17 is only about a 40%, 41% LTV is pretty modest leverage. So my own view is I think the business could over time support more leverage, although where we are right now is likely to be about where we're going to stay here going forward.

So pretty much the banks need to wake up to what the right rate is for what you can carry in this industry.

Yes. I just think if you look at lots of other asset classes, and in fact many other asset classes that have considerably more volatility in their cash flows, whether it's apartments or office buildings or retail shopping malls, etc., those assets routinely get treated much more favorably from a loan to value standpoint then our assets do. I think that's natural in as much as we are a new asset class or relatively new asset class. But I do think you'll see those things increment over time as they get more comfortable with the real estate model here.

Rick, with regard to your second question, just to repeat those Fiber Tower and Clearwire numbers, it was 7% for Fiber Tower and 2% for Clearwire on the total lease-up number for the quarter. And then I think the second part of your question regarding how we classify or why don't we classify Clearwire as telephony, really I think it's a matter of semantics at this point. Granted, they do behave, look and feel a lot like the traditional telephony type customer, really we do that from an analysis perspective in terms of grouping together the traditional big four and regional players to understand our lease-up and our pipeline a little better.

And then a quick follow-up for Steve. You haven't been on the ground for too long there, but if you could share with us a little bit about your first view on the tower space, what your initial thoughts are and any kind of surprises on the upside or the downside of what you're seeing so far in looking at this kind of business industry?

Well, I'll start with what's not a surprise, which is basically the valuation on acquisitions. It's getting extremely expensive as in every other form of real estate. So that was not a surprise. What really is positive is that the internal growth and the ability to add additional tenants or additional leases to any given tower to me is what really gets excited with the industry. Not very many forms of real estate that really provide that type of internal growth opportunities as the tower business seems to have in front of it for the foreseeable future.

Coming from a REIT background at least recently, what do you think the right valuation multiple should be in this type of industry then?

Very high.

Your next question comes from David [inaudible] with Bank of America Securities.

Welcome to Steve and Jerry and the team over there. First, you guys gave us a number about the tower lease-ups in the quarter and the strength. And one of the interesting things about this quarter is that you didn't do any tower acquisitions. So we kind of have a rough look at the organic kind of sequential growth in the business here. And what kind of stands out right now is American Tower saw 4.4% sequential revenue growth; Crown saw 4.2; and you guys saw 0.5. And I know you were talking, Wes, about the step down in the USA mobility run rate, some late trades in the quarter in terms of the lease-up rate. But could you kind of reconcile the commentary about organic strength of the business and kind of the relatively flattish kind of sequential numbers we saw in the quarter?

How about I'll answer that question first just to kind of go through the math. The gross lease-up for the quarter was $8.522 million right. And so net of churn, which is negative and escalators which were positive our quarterly lease-up in total was $8.99 million. So $8.99 million in annualized cash, all things being constant, divide that into the number of shares, you end up with a about $.10 cents incrementally of cash flow and its about a .18 BBE lease-up rate.

So I think all things considered, I don't have the numbers that you gave on Crown Castle and American, I don't know what that translates into in terms of a BBE lease-up rate. It's probably modestly higher than ours, but only modestly higher. So I think the metrics that you were looking for in terms of 4% versus .5% really don't reflect kind of the net/net activity of them when you actually look at the numbers.

And that's why I started the call by saying basically apologies, you have lots of moving parts inside the quarter between timing of the REIT securitization and financing on time charges, SG&A charges, a whole host of things that go in there. What we try and do that makes it as transparent as possible is as a company, as a Board of Directors, we set the dividend rate to reflect what the then current run rate is, and so the then current run rate we sat was $.52.5. That is annualized 20% increase in terms of the cash flow.

And so again, what I would at, my view is what I look at is two things is one is, what are the absolute level of valuation today versus those other two companies? In other words, if you really normalize them to look on a net yield to net yield basis, I think that we are actually trading at materially lower multiple. So the initial valuation is quite a bit lower.

Number two is, what was then the growth in cash flow on a leveraged basis, our growth for the quarter annualized, 20 percentile growth with lots of things moving around? So I don't know it that's helpful or not, but a least that's how we kind of structure the argument and think our valuation and growth independent of how the others guys do.

I appreciate that, Wes. I guess looking at your numbers and the 8.99 millions divided by four for the quarterly pro-rate addition to 120.31 fourth quarter would give us about 1.9 percent sequential growth, which would be apples and apples. I appreciate the detail.

The second question I had if I could follow up was the ten-year financing ambitions that it looks like American Tower, Crown Castle have. Obviously, you guys pioneered the approach here. And they're trying I think extend their lease picture in order to get maybe some access to maybe the ten years kind of collateral as your asset backed securitization market.

If you've got any commentary kind of what you see, the pros and the cons of pursuing that market are and if you guys have ambition to do that?

We could have issued ten year debt now; so it's actually not something which is unique to them or us. I mean, basically, we picked five years as term that we wanted to finance the company because we think that that a] is a long enough period to provide lots of interest rate stability for our company, on the one hand, but b] what you have to recognize is that with the growth of these kinds of assets your business gets less and less and less leveraged over time.

And again kind of from a start from a stop with the conversation we just had with Rick, if you've got a 41% LTV today as kind of a leverage to investment grade, and you're going to grow your company or your assets at 20% or 15% or 25% annualized cash flow growth, after just a couple of years these things are going to be pretty unleveraged assets.

If you chose to pick a ten-year financing rather then a five-year financing, you're going to have very, very, very underleveraged assets at some point, to the point where we think when you look at it it's just not - that's not the right way to run the balance sheet of the company.

So it's not so much of a - there's not a arithmetic response, which is the appropriate one here. It's more of a judgment call with respect what's the right level in terms of financing given the nature of the asset; and that's how we determined that five years was the right thing for us to do.

Kind of a trade off between flexibility and kind of stability in terms of the capital structured cost?

Yes. If you finance these for ten years, you have got a relatively inflexible balance sheet and assets that are deleveraging. And if you're going to then break that financing, you're going to have to pay incremental expenses when you go and do so. So that's why we picked five years. This is a very slow growth asset. We would think that ten years would be a more appropriate form of financing. But I think frankly five years is the outer edge of what is really the right - this is my opinion this not a matter of fact - but our opinion what the right way to finance this assets are.

Thanks, Wes.

You next question comes from Jim Ballan from Bear Stearns.

Thanks a lot. Wes, I want to follow up on David's question. If you're saying you that did just about $9 million of growth lease-up, is that an operation number or is that actually a gap number, because it would seem to me that we should see a quarter of that or maybe two and a quarter million of sequential revenue. Are there any other one time items that we're missing in your reported numbers?

Sorry if I'm sounding like I'm repeating myself, but I'm repeating myself, Jim. There are actually a number of things that happened in the first quarter that are anomalous to the quarter. There are escalators with respect to some of our Sprint portfolio that happened at this point in the year and don't happen at any other points in the year. There are step down previsions in our U.S. mobility, things that are not - we don't detail the turn or our portfolio and the escalators of our portfolio, nor do I believe anybody else does. And so I'm trying to give you as specific a response as we can, say pay attention to certainly the $9 million, because that is the result, even though it's constructed from lots of moving parts; and then the 52.5 versus $.50 cents is kind of the purest way that we can reflect what our views are as to the ongoing run rate.

But a lot of that growth came from your ability to reduce the operating expense. I'm trying to stick with the top line. Is there anything else that we're missing there?

No. Nine million dollars is actually the annualized cash flow number kind of net/net. You don't see that reflected in the quarter, because again, a lot of the leases were signed at the end of the quarter. Your securitization which is a refinancing that was done on February 28, that was two-thirds of the way through the quarter. Again, I don't want to dissect and turn the quarter into a monthly kind of P&L, but there's a lot of moving parts on it so.

Okay. And then just one other thing. I mean, you talked about loan to value. I mean I would imagine that once the industry gets more mature that that loan to value makes a lot of sense. Do you think they we'll see you know the whole industry kind of continue to step up in terms of the cash flow, the cash flow borrowing over time? Is that a good way to think about it. Is that the way it should go?

It's my opinion, but I think the answer is I do think it's going to step up. And I say that simply because that's happened in every other asset class as it has matured. As people get more and more comfortable with what the relative volatility of the underlying cash flows, they're more likely to put higher leverage on it without feeling like they're setting the forum to do so.

So I think this industry obviously was a very, very over leveraged industry five or six years ago. The natural reaction for that was to go and be much less leveraged, which I think has happened. And now the next phase of it is likely that as people get more transparency in the numbers and look at it, they're likely to put a bit more leverage on it. So at least that's how we looked at it. I can't obviously speak for the other folks.

Great. Thanks a lot, Wes.

Your next question comes from Scott [inaudible] with U.S. Trust.

Two questions. One is, can you give us some sense of the margin expansion capability due to the ground lease acquisitions that you anticipate this year and rolling into next? And then secondly, kind of parts and parceling the tower cash flow from the Sprint versus the rest, it looks like there was a - if I kind of back into the numbers, and correct me if I'm wrong here, but I'm getting roughly 42% plus on the Sprint portfolio margins versus 35 in the fourth quarter. But yet, I'm getting a step down to 70% on the reminder versus roughly 78%. Can you talk through those two number whether I'm roughly correct and why the step down on the other, if so?

I'm actually not sure. With respect to the first question, which I think is on the ground leases, we think that buying ground leases at an 8.5% yield mark or you can finance them at 6.5% to use again the same proxy for the overall financing is very accretive. Financing is two to one. You're talking about leverage cash flow yields on the underlying ground runs in the mid teens versus recent tower transactions where the leverage cash flow yield has been in low single digits.

So obviously the more that capital that we can deploy at that level the better that we're going to be from an accretion standpoint, and we do have, I think Steve mentioned, a fair bit of cash on balance sheets. So it would be net/net very positively accretive for us to do so.

Is that like a 50 or 100 basis point margin expansion in and of itself this year would you guys anticipate?

I'm not really sure I understand the question. I mean, margin expansion, do you mean -

You're taking out expenses, right? You're taking out lease expense?

We're taking out a little bit lease expense.

That's what I'm getting at.

I don't know. I haven't actually done the arithmetic, and I know Steve has been here a short period of time. I don't really know the exact answers to that, or I'm sorry, with respect to the margin questions with respect to the rest of the business.

You guys have given us kind of what your tower cash will generate from the Sprint portfolio versus its revenue. And you've broken it out by your legacy assets, as well as the acquisitions. And if I take the legacy asset plus the acquisitions, ex the Sprint and kind of do a quick tower cash flow margin on that, I get about an 800 basis points step down, and maybe I'm doing the calculations wrong quarter to quarter sequentially.

I think that's because of one time expenses during the quarter, because the actual operating expenses did not deteriorate margins during the quarter at all.

And Scott, this Steve. It's my first day of week number three with the company. If you wouldn't mind, I could get back with you either later today or first thing in the morning and take a look at that specific question.

I'd appreciate that, thanks.

Your next question comes from Jonathan Atkins with RBC Capital Market.

My questions were mostly asked, but just going forward for Q2, Q3, Q4 of this year, do you anticipate any one timers related to USA mobility, Sprint or anything in the way of step downs or one timers that would affect your revenue tower cash flow or EBITDA metrics?

There are contractual step-ups and step downs in the various quarters. I think one of the things which we're going to try to do is give more kind of guidance with respect to how those will impact, because in a given quarter it will be an idiosyncratic result over the course of the year. The net results and the things that I focus on, that we as a company focus on which are the cash flow we distribute to the investors is something that we think will be pretty normalized.

And so again, dialing back to the beginning year and how we viewed the business is starting at $2.00, if it grows to 15 or 20% a year, you're going to end up with a run rate the end of the year that comes to pass at 230 or 240. That's ultimately the number that we're most focused on. The idiosyncrasies of the given contract, we don't release the terms of our contracts obviously, nor do we intend to. But we're going to try to make it as transparent as possible to give to you some help that you don't these bumps in every quarter that then skew the results to you and don't give an accurate picture to company. That's obviously not our intention.

You mentioned that you do see the lease-up trends continuing at kind of a similar clip for the foreseeable future. And even though we don't know the details, you do know with certainty what these one time events are. Is it possible that you would provide guidance similar to what some of the other tower operators provide in terms of the major operating metrics?

We won't provide guidance. That's a policy that I don't intend to change I do want to make it as transparent as possible with respect to what has actually transpired in the quarter to give you an accurate picture with which to base your opinions on. But no, I don't anticipate, other than telling what our aspirations are for the business in terms of the growth, we don't anticipate providing specific guidance in the company now or anytime soon.

Okay. And then operationally, you mentioned 81% were big four plus regional telephony, and then you gave the Fiber Tower in Clearwire percentages. Is that mix likely to change much as we move into the second half of the year?

John, this is Brett Buggeln. We've seen pretty much those roughly equivalent percentages now for the last two quarters, including Q1. So obviously some of the vagaries in the marketing in terms of adjustments up and down, here and there, we expect that mix to continue the way it has been over the last two quarters.

And then finally, the spectrum auctions you alluded to some against among non- traditional carriers that might help lease-up in the coming years. Any kind of more detailed thoughts on what that might be?

I'd just be speculating. We've had conversations with a variety of folks who have told us that they intend to look hard at participating. I think that it's a pretty broadly held view that there could be participation well beyond the bonds of just the telephony folks. Who will actually register? I think the registration is due here very shortly. And the auction hopefully will come to pass next month and then well wait and see.

From our perspective there's nothing but good things that could come out of this. There probably are better things. If you've a substantial of new entrants that really then needed to build out lots of incremental cell sites and perhaps even national networks that would be a very measurable positive for us. But we think really any activity that comes out this thing is net/net applause.

Agreed. Thanks very much.

Your next question comes from [inaudible], Morgan Stanley.

Wes, with it being increasingly difficult to find attractively valued towers to acquire but with scales still being an important attribute, can you comment on the prospects for being involved in larger scale consolidation, either acquiring or merging with another publicly traded tower company in a stock deal, for example?

In a word, no. I can't really comment about it. We evaluate constantly not only individual tower activity but looking at more broad kind of corporate aspects of life. But we are not currently engaged in any kind of broad base M&A discussions and I don't have any specific thoughts about that.

Our company, fortunately, has gotten to a very significant size by buying assets one by one, and of course the large Sprint transaction kind of was the finally chapter in that. So we are pretty much neck and neck with Crown Castle in terms of size and obviously we're both a bit behind America Tower. But on a standalone basis, these are very substantial enterprises with 11,000 towers and lots of different assets around the country.

We feel like we've got a terrific amount of scale as it is. So I don't want to do something which is of course not a smart and accretive transition. That's why I walked through the math on the one portfolio that we saw recently, because I don't want to deploy capital. I want the company to deploy capital at a 3 or 4% kind of leveraged yield, because I just don't think that is a great way to build shareholder value. That's my opinion. I must trying to knock anybody else who may have other thoughts about that. But we want to do things that we think incrementally add value to the company, to the shareholders, and we're very focused on that and trying to be disciplined about it.

Okay, that's fair. Any thoughts on international expansion? I think you've got some towers North of the border. Are there any opportunities to grow the portfolio, maybe are assets prices still attractive elsewhere more so than in the U.S.?

We do own some towers up in Canada, and I think we would certainly look at towers anywhere in the world where we thought that they were attractive. I think one of the real challenges is that once you introduce currency exposure into the portfolio as a REIT, that's a relatively difficult thing to hedge. I don't actually in the case of American Tower or Crown when they've had international acquisitions, if they have in fact hedged the currency on that.

My view generally is that people should invest in these companies for the growth attributes of the asset, not as a matter of currency speculation. So we are pretty reluctant I think to invest in currencies where we don't think we cam hedge them very, very efficiently. And so that makes less likely to into emerging market, for example, for that very reason. But yes, we would certainly look at more towers in Canada or in other parts of the world where currency was something which we thought we could manage.

Okay great. Thanks a lot.

At this time there are not further questions. Are there any closing remarks?

Well, thank you all for joining us today, and we look forward to talking to you next quarter. Thanks, everyone.

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