SBA Communications Corp (SBAC) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA first quarter results conference. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to our host, VP of Capital Markets Pam Kline. Please go ahead.

Thank you for joining us this morning for SBA's first quarter 2005 earnings conference call. Here with me today are Jeff Stoops, our President and CEO; Kurt Bagwell, our COO; and Tony Macaione, our CFO.

Before we get started, I need to get the standard SEC disclosure out. Some of the information we will discuss on this call is forward-looking, including, but not limited to, any guidance for 2005 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, particularly those set forth in our Form 10-K for the fiscal year ended December 31st, 2004, which document is publicly available.

These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. We have no obligation to update any forward-looking statement we may make.

Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures and the other information required by Regulation G is included in our earnings press release, which has been posted on our website, www.sbasite.com.

As described in our SEC filings, all historical financial results presented herein for the 3 months ended March 31st, 2004, have been restated to reflect the company's change in its method of accounting for ground lease expense. The results of the company's western services segment, which was exited in 2004, are reflected as discontinued operations in accordance with generally accepted accounting principles for the 3 months ended March 31st, 2005, and 2004. Other than the net loss information, all other financial information that we will discuss is from the company's continuing operations.

Tony, would you please comment on the first quarter results?

Thanks, Pam. Good morning, everyone.

We had a solid first quarter with good year-over-year growth. It was also a relatively clean quarter with much lower impairment, restructuring and refinancing related charges than the year-earlier period.

In the quarter, both site leasing revenue and site development revenue were up significantly over the year-earlier period. Site leasing revenues for the first quarter were $38.3 million, up 13% over the first quarter of 2004. Site development or services revenues were $20 million, up 17.9% over the year-earlier period.

Site leasing gross profit was $26.3 million, up 18% over the year-earlier period. Services gross profit was $700,000 compared to $600,000 in the year-earlier period. Our leasing segment contributed 97.4% of our gross profit in the first quarter.

Total revenues were $58.3 million, up 14.6% over the year-earlier period. Net loss from continuing operations was $21.5 million and net loss was $21.7 million for the first quarter of 2005.

$1.7 million of the net loss was attributable to non-cash asset impairment charges and the write-off of deferred financing fees and net losses associated with the extinguishment of approximately $50 million of our 10.25% senior notes that we redeemed in the first quarter.

Net loss per share from continuing operations for the first quarter was $0.33. Excluding the $1.7 million of asset impairment and debt retirement related charges, net loss per share from continuing operations was $0.31.

Weighted average shares outstanding for the quarter was 65.3 million.

Under our definition of tower cash flow that excludes non-cash leasing revenue and ground lease expense, tower cash flow was $27.3 million, a 16.2% increase over the $23.5 million in the year-earlier period. The tower cash flow margin was 71.9% compared to 69.8% in the year-earlier period.

Adjusted EBITDA, which also excludes non-cash leasing revenue and ground lease expense, was $20.9 million in the first quarter, up 23.2% compared to $16.9 million in the year-earlier period. Adjusted EBITDA margin was 36.1%, up from 33.5% margin in the year-earlier period.

Year-over-year leasing revenue growth was strong at 13% and ahead of our expectations. This reflects the financial statement impact from the solid operational lease-up we experienced in the second half of last year, very little contribution from the 51 towers we acquired in the first quarter this year, and a benefit of approximately $200,000 of non-recurring revenue items in excess of what we recognized in the year-earlier period.

Leasing expenses came in as expected with cost of leasing revenue up 3.4% over the year-earlier period. Most of the increase is attributable to property tax accruals that we increased in the first quarter with little of the increases attributed to new assets, although new asset increases were partially offset by our ground lease purchases. We do not expect any further increase in the property tax accruals for the remainder of this year beyond first quarter levels.

Year-over-year we improved our tower cash flow margin by 210 basis points and we continue to believe the tower cash flow margin will continue to increase year-over-year in the range of 150 to 200 basis points, driven by revenue growth materially exceeding expense growth.

Services margins were 3.6% in the first quarter compared to 3.3% in the year-earlier period. Seasonally, the first quarter is generally the slowest of the year for our services business. Kurt will discuss the services business in more detail shortly.

SG&A expenses for the first quarter were $7.2 million or $7.1 million excluding non-cash compensation items. This was the same as the fourth quarter and the year-earlier period. We feel confident about our ability to hold our SG&A expense in line and now believe that the quarterly number for the rest of 2005 will be in the $7.2 to $7.3 million, range, lower than the $7.4 to $7.5 million range we estimated at the beginning of this year.

We disposed of 1 tower in the first quarter from assets held for sale. We built 2 towers in the quarter, acquired 51 towers and ended the quarter with 3113 towers in the continuing operations and 5 towers held for sale.

Cash capital expenditures in the first quarter were approximately $13.3 million, of which we spent $700,000 on maintenance tower CapEx, $900,000 for augmentations and rebuilds, $400,000 on general corporate CapEx. We also spent $9.7 million on acquisitions-related fees, pro-rations and earn-outs, $500,000 on ground lease purchases and $1.1 million on new tower builds and new build work in process. We also issued 700,000 shares of common stock in the acquisition of the 51 towers.

Kurt will talk about the new build program in a few minutes.

Our cash flow from operating activities in the first quarter was $16 million, which was in the middle of our guidance and up substantially from the year-earlier period.

At this point, Pam is going to-- I'm sorry, at this point, I'm going to turn the call over to Pam, who is going to provide some information about our capital structure.

Thanks, Tony. Debt balances at March 31st, 2005, were $322.6 million under our $400 million senior credit facility, $309.8 million of 9.75% senior discount notes and $250 million of our 8.5% senior notes. We had net debt of $861.3 million after giving effect to $21 million of cash and restricted cash. We had an additional approximately $47.8 million available to us under the credit facility at March 31st for total liquidity of $68.8 million.

In the first quarter we redeemed the remaining $50 million of our 10.25% senior note. We paid cash of $55.1 million, including accrued interest. As a result of our refinancing and debt repurchase activities, we have reduced our weighted cost of debt from 10.5% in the middle of 2003 to 8.0% at March 31st, 2005. A main priority for us continues to be further reductions in our weighted average cost of debt.

Our net debt to annualized adjusted EBITDA leverage ratio was 10.3 times at March 31st, 2005. Pro forma for the first quarter tower and ground lease purchases-- tower acquisitions and ground lease purchases, the ratio was 10.1 times.

We continue to have as a primary goal to reduce leverage to be below 9.0 times by year end and this goal will be the primary determinant of our discretionary cash capital expenditure plan. We've included our second quarter and full-year 2005 outlook in our press release. Please keep in mind we are using our definitions of tower cash flow and adjusted EBITDA in our outlook, which excludes non-cash revenue and ground lease expense.

The practical impact of the new definitions was to reduce both tower cash flow and adjusted EBITDA set forth in our January guidance by approximately $1.8 million for the full year 2005, which is the amount of non-cash GAAP revenue we now expect to report for the full year.

You will note, however, that we have not changed the full-year 2005 outlook for our tower cash flow or adjusted EBITDA from earlier guidance as we continue to increase the mid-point of our site leasing revenue guidance to reflect our belief in a strong leasing environment and increased contribution from acquisitions. These expected increases in revenue and resulting increases in tower cash flow will largely offset the $1.8 million definitional loss from our guidance at the beginning of the year.

Kurt, will you please provide an update on operations?

Thanks, Pam. Good morning. From an operational perspective, the first quarter of 2005 was, once again, a solid growth quarter for our tower leasing business. Our year-over-year financial results and our quarterly leasing execution results continue to demonstrate the strength of our business model.

We enjoyed steady leasing growth on our towers with minimal churn. Our customers continue to deploy capital in their networks, both for new cell sites and enhanced installations at existing sites. The wireless carriers appear to have had a very good first quarter in terms of subscriber and minutes of use growth. Their continued growth and strengthening financial position should bode well for us now and in the future.

During Q1 same-tower revenue growth was 12% while same-tower cash flow growth was 18%. We continue to believe that 9% to 12% same-tower leasing growth and mid-to-high-teen, same-tower cash flow growth will continue throughout 2005.

92% of our new leasing business signed in the first quarter came from new installations, while 8% of our new leasing business came from amendment activity on existing installations.

Our end-of-quarter tenant count was 7445, equated to 2.4 tenants per tower on our portfolio of 3113 towers in continuing operations. Cash basis average rent on the entire base increased again to $1711 per month, our highest ever, driven by firm new tenant pricing and good amendment activity. We expect continued increases in both numbers quarterly throughout 2005.

94% of our new business signed in the quarter came from telephony, increasing our average across the entire tenant base to over 93% from telephony. We added more revenue per tower on an operational basis in the first quarter than the fourth quarter and believe that the second quarter, on an operational basis, will be even better than the first quarter of this year.

The most active new tenants for us in Q1 were Cingular, Verizon and Nextel, while we also saw increasing activity from Sprint.

Pricing remains firm and up from year-earlier levels. Our leasing backlog today is at a high level, surpassing our end of the year backlog and approximately the same as our high point in the first half of 2004.

Recent carrier results confirm our earlier beliefs that carrier spending will be heavier in the second half of 2005 and we believe that our good first quarter leasing results should get even better as the year progresses.

We have not experienced any materially adverse effects from carrier consolidation so far. No leases from the consolidating carriers have been terminated on our towers or proposed to be terminated.

On the tower operations side of our business, we continue to hold the line on operational and capital expenses. Whether it is utilities, repairs and maintenance or any other operational item, we have programs in place to manage every line item every month and we have been able to hold those expense items flat, year-over-year.

We continue to deploy a new wireless system for monitoring our tower lights, a method which has proven to be both reliable and very cost efficient and allows us to offer business, in return, to our main customers.

Our net augmentation or structural CapEx also continues to be managed very closely, running again at less than $1 million per quarter. Maintenance CapEx also remains at low levels, continuing to run at lower than $900 per tower per year.

In the services segment of our business, Q1 came in with revenues as expected but margins below target. Total revenue was $20 million, squarely within our expectations. Gross margins were 3.6%, below the 5% to 6% we predicted and slightly higher than the year-ago period.

The Q1 margin was the result of a number of factors, including price competition, weather, customer delays and less-than-perfect execution on our part. The first quarter is traditionally the toughest of the year for the services business as carriers use the quarter to finalize full-year budgets.

We are disappointed with the current margins and we're working hard to improve services margins through the rest of the year. Our backlog is strong and we think we'll have an increased volume of work, which should improve margins. We need, however, to also improve other aspects of the overall services margin picture.

Our new tower build program continues to gain strength. In Q4 2004 we added 10 new towers to our portfolio. In Q1 2005 we added 2 new towers and in Q2 2005 we plan to add between 8 and 11 new towers. Indications of additional tenant demand for these new builds are encouraging. Our backlog in this area continues to grow and the number of sites leased and submitted into zoning continues to grow, supporting the future.

We have also recently expanded the resources allotted to this team and continue to refine the production model. We are confident of reaching our goal of 50 to 75 new tower builds for the year and confident that we will be able to achieve average CapEx on these new builds of $200,000 or less.

With that, I'll now turn the call over to Jeff.

Thanks, Kurt, and good morning, everyone. We had a very solid and consistent first quarter. The quarter was steady all around, steady leasing revenue growth, tower cash flow growth, tower cash flow margin growth and steady levels of SG&A expenses -- all on a year-over-year basis.

The combination of all these items produced steady growth in adjusted EBITDA. Because of all of our refinancing success over the last 18 months, the combination of strong adjusted EBITDA and lower quarterly interest payments allowed us to produce high levels of cash flow from operating activities and the highest level of positive quarterly equity free cash flow in our history as tower owners.

Liquidity remains steady, as well. Notwithstanding $50 million of cash debt repayment and $12 million of discretionary cash capital expenditures during the quarter, we ended March with almost $70 million of liquidity, including increased availability under our senior credit facility.

We were able to use some of our liquidity to grow our tower base with what we believe are high quality assets, which should translate into more tower cash flow, adjusted EBITDA and equity free cash flow growth in the future.

Our accomplishments in the first quarter are good indicators of what I believe we will accomplish over the remainder of the year -- solid organic leasing revenue and tower cash flow growth, a moderate level of new assets added to the portfolio, comfortable and conservative liquidity levels and stable overhead expenses. We believe this path will allow us to continue to post attractive growth rates, increasing equity free cash flow and attain target leverage levels by year end.

We believe the market conditions and our operational positioning are favorable and conducive to continued growth. Carrier activity is good now and expected to increase as 2005 progresses. Our backlogs, our field observations and public comments from our customers support those expectations. As a result, we expect our organic leasing revenue and tower cash flow growth to stay solid into 2006.

Increased activity from our carrier customers on the services side should also help our services margins, given a certain amount of fixed costs associated with that business segment. We would expect higher margins from increased services revenues, even if the pricing environment remains in its currently highly competitive state, as we expect it to.

We expect continued stability in our SG&A and leasing expenses, subject to slight second and third quarter seasonal increases in tower maintenance. Our expense base is very predictable. With customer activity expected to stay strong and likely increase throughout the year, we feel good about our ability to produce strong adjusted EBITDA growth and don't see anything today that could materially derail us from that path.

We continue to believe we have the best tower assets in the industry, based on both our reported results and our observations of other portfolios and the results reported by our peers. We believe our towers will continue to perform at or near the top of the industry in terms of same-tower revenue growth, tower cash flow growth and tower cash flow margin.

We believe that because our towers are relatively young we will continue to have low maintenance CapEx requirements and a relatively low monthly operating expense structure. We are very confident of our future tower performance relative to our peers.

Beyond our adjusted EBITDA growth prospects, we also feel very good about and have a clear plan with respect to interest expense and capital expenditures. Over the long term, we intend to work to materially reduce our interest expense, much like we have over the last 2 years. 64% of our current debt is fixed rate and the remaining 36%, our bank facility, is almost all locked into a six-month LIBOR tranche expiring in September.

Our primary focus this year is to refinance our credit facility into more favorable terms. We are currently exploring a number of markets in which to execute the refinancing, including the securitization market. We are very excited about our prospects in that market and believe that we cannot only refinance our bank facility in that market at attractive fixed rates but establish a structure and process by which, over time, will allow us to refinance our 9.75% notes and our 8.5% notes in the securitization market and achieve interest rates lower than those available in the corporate market, assuming the same leverage levels.

For the rest of this year, our focus will be on the first step, refinancing the bank facility, and our goal is to have something done in the best market we can access by year end. We also have the option of taking excess liquidity and repurchasing our high-yield debt in the open market, but it is unlikely that we will do much if any of that if the yields remain at current levels and we continue to find attractive new asset opportunities. In the current environment, we believe selective new asset additions are preferable to open market high-yield debt repurchases.

In terms of new asset opportunities, there are currently many opportunities in the market. The challenge is to find quality and value as asset prices have been bidden up materially in the last year. Because we are only interested in an amount of acquisitions that is consistent with our goal of reducing leverage, we have been very selective.

We do like very much the towers we have acquired and have agreed to acquire and believe that they have very good growth prospects and represent good values at the prices paid. We have found our success for the most part in non-auction-type situations where our reputation for efficient processing of acquisitions helps carry the day.

We intend to stay disciplined in our pricing and, given our year-end leverage goals, I believe that it is likely that we stay at our current pace of $5 to $20 million of acquisition investment per quarter. We believe this pace will allow us to materially improve our growth rates and still achieve our year end leverage targets using a mix of cash and stock as acquisition consideration.

Kurt discussed our new builds earlier. We're very excited about what we are doing with new builds. We continue to believe investment in new builds will produce the best return on investment for our shareholders. We intend to gradually increase our quarterly outputs as the year progresses and plan to be at a rate of approximately 25 new builds per quarter as we move into 2006.

While pursuing these investment opportunities, we expect and intend to maintain liquidity levels similar to where we are today and achieve our reduced year-end leverage goals. With respect to non-discretionary capital expenditures, these have become very steady and predictable and we expect them to stay that way. We expect to continue to incur these types of expenditures in the range of $1 to $1.5 million per quarter for the rest of the year.

We feel very good about our prospects for the remainder of 2005. Customer activity is strong and trends appear favorable. As we have discussed, I believe this year we will produce steady growth in our organic leasing business, improved services contribution, stable overhead expense, some moderate new asset growth and a refinancing of our credit facility.

We believe these elements, in turn, will drive expected success on the 3 primary goals we set at the beginning of the year, which remain our primary goals -- increasing adjusted EBITDA through tower cash flow growth, reducing leverage and increasing equity free cash flow per share. We look forward to continuing to report our progress.

And, Gwen (ph), at this time we are ready for some questions.

Thank you. [OPERATOR INSTRUCTIONS] Jonathan Atkin, RBC Capital Markets.

Thank you. A couple of questions. First, in terms of refinancing the bank facility, what are the main factors that determine the timing of when you can complete a transaction, a securitization transaction -- you indicated year-end? And what are some of the gating factors there?

And then on the operating side, perhaps for Kurt, I think in the past you've talked about site leasing backlog and how is that trending versus prior periods?

And then finally, I think you discussed kind of who the major carriers are that are contributing to lease-up. What are you seeing in terms of public sector demand for site leases and also any color on what the regional carriers collectively are doing compared to this time last year?

On the securitization question, Jonathan, we've studied enough of what has been done in the sector and what is proposed to be done to strongly believe that we have very excellent asset quality that will be well received there. The real issues are more legal and structural. How many of the assets will need to have mortgages to accomplish the structure and the rating that we want? How many title policies will need to be updated? How many environmental reports will need to be updated? It becomes a very real-estate-based, asset-by-asset type of exercise.

We've done a lot of that over the years because we do have mortgages on our assets today for the most part in connection with our secured credit facility. So none of this stuff is new or novel to us, it's just a question of figuring out exactly what will be required by the rating agencies to achieve the rating-- the best rating that we can get and then making it happen.

Jonathan, on the backlog trends, as we said we're basically flat with our year-over-year levels, but they were very high at this point last year. We're actually up versus the end of the year and we see no reason why they're not going to stay steady at this high rate throughout the year, basically. We feel very good that it's-- it'll continue to replace itself at this higher rate.

From the public sector, we see leases here and there. I'd say it's probably rising a little bit over time. There's some state-level systems going in and some kind of what I call public/private systems that are continuing to grow that service the public sector. So it's not a dominating part of our business, but it's a good piece of the business and I would-- I would say it's rising slowly.

As for the regional carriers, Metro has been very active lately with us. Alltel has been good and several of the affiliates are also really getting back into gear, so that's-- that's been a nice part of the business and it's good to see all them be pretty active.

Thanks. And then just a quick followup in the services business. What's the customer mix between now and year end in terms of the carriers or other customers that you might have in that segment?

Well, it's 80% to 90% big five.

Yes, it's very high with the big five.

Any further breakdown among the major carriers?

Well, Cingular has historically been our largest customer in the services segment, when you combine it with AT&T, and we would expect that to continue to be the case, outside of the Sprint Keebler Project. Actually, where will that shake out, Kurt? They're probably going to be about neck and neck, right, for the year?

Yes. Probably very similar. Sprint, Cingular and then we still do a good bit with Nextel, as well, and then it starts spreading out a little more.

The Cingular work is more spread out, Jonathan. The Sprint work is concentrated in the Northeast with the Keebler Project.

Ric Prentiss, Raymond James.

A couple questions for you. Amendments -- it sounded like, was it 8% of the new revenues in the quarter were amendments? And how does that compare to previous quarters? It seems a little bit lighter and do you expect amendments to be picking up throughout the year as well?

Question is on the pricing in the acquisition arena. You've said it's been pretty competitive and getting more competitive over the last year. Can you give us a kind of indication of where pricing is headed, either on a price per tower cash flow or on a yield basis?

And then the third question would be, in the refinancing, looking at the asset-backed securitization model, going after your credit facility would seem like kind of in the 4 times or less range. Other people have been going after more 5 or 6 times. Is that really tied up with your total leverage right now, it needs to come down before you can refinance some of the other stuff? Or just kind of what's the rationale for just going after the credit facility?

Go ahead, Kurt, you take the first one.

I'll take amendments, Ric. It is down a little bit. We ran pretty consistently for the past 6 or 7 quarters anywhere from 12%-13%-14% amendments. This quarter was down a little bit, but I kind of like it, in some degree, because that means we're getting a lot of full new leases on our sites and that means our sites were located in good places that carriers need and, obviously, the rate for a new lease is higher than an amendment, so we like that.

I do expect it, though, to pick back up later this year as the UMTS deployment kicks in harder and there's more EVDO and the like. So it's a little lower this quarter but nothing concerning at all.

Yes, I mean, because of the trends that we've seen over the last several years, we will take-- to the extent we have a choice, we'll take the new installations any day of the week with the knowledge that amendments will come over time.

Ric, what was your second question, before securitization?

The pricing in the M&A environment as you're looking at buying towers. You mentioned how pricing has--

Yes, it's-- without getting into naming names, I think everyone's seen some of the news out there recently. A lot of money has come into the sector. We have seen deals, frankly, for quality that's not nearly of the quality that we think we're getting, go for 15 times tower cash flow, based on some size.

The stuff that we have bought, both consummated and agreed to buy, is in the 12 to 13 times tower cash flow range. For great growth assets we might pay a little more than that, but given our volume targets, we're being very selective. But we are seeing prices paid out there for pools of assets that we haven't seen since '99-2000 type time periods.

In terms of the securitization, the-- our path is a little complex and it is a function of how much senior or securitized debt is allowed by our high-yield instruments. I agree with you that we could-- the securitization market will support leverage levels much beyond the 4 times bank facility that we have today, but for us to access that, we would have to take out or change the covenants in our 9.75% debt, which currently limit us to 4 times senior or securitized debt. And then the covenant in the 8.5% notes is 5.5 times.

So our plan is to put a structure in place and actually, given the leverage at the bank level, we would hope to achieve a very highly rated, well-received deal in the securitized market if, in fact, that's the way we go and then, over time, grow that, do a subsequent deal that would take out the 9.75% notes and open up the 5.5 times test and then, ultimately, take out the 8.5% notes and we would have no limit on the-- at least no covenant limits and our limits would be governed by the dictates of the securitization market.

We're not really interested in doing that all at once because the NPVs to take out the bonds today don't make sense, but over time, that analysis will change and what's most important for us today is to get the-- get the mousetrap in place and then work it over time.

I would assume any claw-backs would also be kind of contingent on where the equity price is flowing around?

Absolutely.

Anthony Klarman, Deutsche Banc.

Thank you. A few questions. First, I think Pam talked about a leverage hurdle for year end of around 9 times, but that was kind of contingent upon-- well, discretionary CapEx was kind of contingent upon how close you got to that level and I notice the discretionary CapEx guidance range has edged up and I'm just wondering if that-- if we can kind of infer that you're confident that you might actually be hitting that target well in advance of year end and, therefore, you might have a little bit of a higher or wider range on discretionary CapEx?

And then, on the equity front, you've been using a lot of equity to-- or at least a healthy amount of equity to help buy towers and I guess I'm just wondering what-- how you weighed the use of equity to do some of these smaller acquisitions against doing a larger equity transaction, either more rapidly de-lever the balance sheet or give the company a lot more cash to help complete, perhaps, some larger acquisitions?

And then I have a followup.

I think the leverage target is below 9 times by year end. And we will pull many levers to get to that point. We'll adjust stock and cash mix of acquisitions, we'll do more of one or less of the other, assuming market conditions are available. So we will really begin to fine tune that in the third and the fourth quarters, Anthony, and by pulling the different levers, we're confident that we will hit our year-end leverage goals.

In terms of using equity, we think it's important to grow the business. We think equity is-- that's what equity is for. We're not pleased with our stock price today. We don't think a large equity deal at today's prices makes a lot of sense for our shareholders, long term, but we do think that small, moderate amounts of equity, which get digested into the market pretty easily, for growth reasons make sense for us today.

And just a followup on the prior question regarding your recap initiatives, I would imagine part of the rationale behind that is if you're able to decrease your cost of funds it should, theoretically allow you to be more competitive on the acquisition front. Is that kind of one of the motivations for doing something like a securitization where you might be able to secure a much lower LIBOR spread-based cost of borrowing and then the ability to re-lever that borrowing as you grow the additional tower cash flow?

Yes. I mean, for us in this business, whether we were not growing or growing, you should use debt in this business and you should access it at the lowest rates that you can and find the right balance of leverage versus rate. And we're pretty convinced, at this point, based on the work that we've done that that mix is most attractive in the securitization market. So we do think it'll make us more-- give us more flexibility to grow the business and it'll give us more firepower to return money to our shareholders if that's what ultimately we decide to do.

And that gets to my final question, which is what is your restricted payments capacity in your tightest indenture at this point? In the event that you were able to complete a securitization, how much capacity would you have to buy back stock in the open market?

We-- our-- the test-- the incurrence test that governs restricted payments under the 9.75% is 8.5 times leverage and that drops to 7.75 times leverage in the 8.5% notes and, obviously, if they're gone, there are no restrictions.

Alex Rygiel, FBR.

Thank you. Could you real quickly just touch upon the towers that you've agreed to purchase and what's different about them than maybe some towers that you would have purchased in the past? It would appear to me as if those are more mature towers that may not necessarily have growth characteristics that you've looked at in the past, but yet clearly could be coming through with a lot more cash flow. So could you address that?

You're right on, Alex. The towers that we're buying are averaging about 2.4 tenants per tower, about exactly where our towers are today, although at higher tower cash flows and margins. They're-- there's one deal in there in that mix that is really what we consider crown-jewel-type assets. They're in a mid-Atlantic, heavily suburban metro area and the rents and the prospects of those towers are just fabulous, which is why-- they are a little bit more mature, but we think we'll have the same, if not better, growth rates than the portfolio that we have today.

The stuff that we bought in the first quarter averaged closer to 1.7, 1.8 tenants per tower. It came in at lower revenue per tower, lower cash flow per tower. And actually, we're paying a little bit less on the tower cash flow multiple for the more mature stuff than the growth stuff, which is what you'd expect.

And is this a strategy that you're considering to pursue, going forward, to complement your new build towers with acquisitions of more mature sites?

Well, we're really looking for good growth sites that will hit our minimum 15% IRR 5-year targets. And whether it's-- if they're going to be more mature, we're going to believe that they have special attributes that will allow them to have above-average growth.

But we think that acquisitions are going to provide good returns to our shareholders and we think that new builds are going to provide great returns to our shareholders. So we really-- I mean, one is a complement to the other. If we had more new builds to invest in today, we would probably divert all of our excess liquidity in that area, but operationally it takes time to do good new builds. We don't have that same ability today. What you might see, though, is that the mix between acquisitions and new builds shifts more to new builds as the program ramps.

Nice to see that you're back on track to be able to accelerate your new build program, because your history has definitely highlighted that you can generate superior same-store, same-tower growth rates.

Yes. We're excited.

David Sharret, Lehman Brothers.

Just following up on your refi opportunities in terms of the securitization market, on the 9.75% when you were looking at whether that is breakeven or not, were you including the option of the equity claw in terms of today and, I guess, when do you think that that would be breakeven from an NPV perspective?

Well, it all depends on how much we're talking about, what the rates are in our alternate source and our alternate market. But as you well know, our bonds have traded up tremendously, such that the premiums to call those or tender for those ahead of the call, it's a big number. And I just-- I just don't think that makes sense for our shareholders to do that today, even though, obviously, on a today basis we would decrease our cash interest expense. It's just not an NPV positive trade and we'll have to just watch all that and see when it becomes a logical trade from an NPV perspective.

I'm a little hesitant to give you exact dates, although you can rest assured we've got a bunch of our dates in our mind based on various assumptions.

I would think so.

But it's not today.

Understood. And maybe just one thing, just to follow up, if you'd compare the-- you've talked about the return potentials in new builds and some of the acquisitions you've done, if you have sort of quantified a range of IRRs you see on new builds versus some of the recent M&A opportunities you've had over the last couple of months?

Yes, I think we're still very comfortable with our stated goals of 20% or better IRRs on the new build program compared to 15% or better on the acquisition program.

And within all the-- I guess a more heated M&A environment, money coming into the sector, you're still achieving in that 15% range?

Yes, we think so. I mean, it's-- time will tell, but we're-- we are benefited by being selective because we are limiting our volumes to hit our year-end leverage goals and we're managing to find deals that we can feel good about all that in light of all the different things we're balancing there.

And so far, so good. But clearly in the last year the market has picked up materially in terms of prices paid.

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Thank you, Gwen (ph), and thank you all for listening today and we look forward to reporting next quarter's results.

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