SBA Communications Corp (SBAC) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA second quarter results. conference. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Vice President, Investor Relations, Pam Kline. Please go ahead.

Thank you for joining us this morning for SBA's second quarter 2006 earnings conference call. Here with meed to are Jeff Stoops our President and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer and Tony Macaione our Chief Financial Officer.

Before we get started, I need to get the standard SEC discloser out. Some of the information we will discuss on this call is forward looking, including, but not limited to any guidance for 2006 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today to 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 31, 2005. And form 10-Q for the quarter ended March 31st, 2006, which documents are publically 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. Our statement are as of today, August 4th, and 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 measure to their most directly 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 at WWW.SBASITE.COM.

Tony, would you comment on the second quarter results please.

Thanks Pam. And good morning, everyone.

We had a very active quarter with the consummation of the AAT acquisition. With that acquisition we grew our company substantially. Total revenues were 87.4 million. Up 38.1% over the year-earlier period. Site lease and revenues for the second quarter were 62.3 million up 60.1% over the second quarter of 2005.

Excluding AAT site leasing are revenue of 16.2 million, Site Leasing revenues were up 18.4% over the year earlier period. Our site lease and segment operating profit was 45.1 million, up 65.7% over the year-earlier period. Excluding AAT's site lease segment operating profit of 11.5 million, our site lease segment operating profit was up 23.6% over the year-earlier period.

As you can see, leasing growth was strong without AAT, and obviously much stronger with it. Site lease contributing 95.7% of our total segment operating profit in the second quarter. Services revenues were 25.1 million, up 3.1% over the year-earlier period. Services segment operating profit was 2.1 million compared to 1.3 million in the year-earlier period. Services segment operating profit margins were 8.2% in the second quarter, compared to 5.5% in the year-earlier period. Kurt will cover services in more detail shortly.

Under our definition of Total Cash Flow which excludes non-cash leasing revenue and ground lease expense, Tower Cash Flow was 45.8 million, a 61.4% increase over the year-earlier period. Excluding AAT's Tower Cash Flow of 11.7 million, Tower Cash Flow was up 20.3% over the year-earlier period. Tower Cash Flow margin was 75.1%, compared to 73.3% in the year-earlier period. Year over year our cash flow margin increased by 180 basis points and margins were better than originally projected on Tower Cash Flow post AAT acquisition.

For the second quarter we had a one-time Tower Cash Flow benefit of approximately $900,000 from adjusting our property tax accrues. And in the prior year, second quarter, this benefit was approximately 400,000. We also expect Tower Cash Flow margin to continue to grow over time, and we remain confident that Tower Cash Flow margins will he eventually reach and possibly exceed 80%.

SG&A expenses for the second quarter were 11.5 million. Including 1.5 million of non-cash compensation expense and 1.3 million of one-time integration transition severance and bonus item related to AAT acquisition. Which compares to 7.1 million of SG&A in the year-earlier period.

The AAT integration process is going very smoothly. And we are substantially complete. We continue to expect to realize full synergies on the AAT transaction by year-end, at which time we expect quarterly SG&A expense as we enter 2007, to be approximately 8.5 million excluding non-cash compensation expense. Integration costs are coming in below expectation and we now expect to incur no more than 5 million of one-time integration and other related expenses from this acquisition in 2006. Down from our previous estimate of approximately $10 million.

Our net loss and continuing operations was 75.6 million, up from a loss of 26.4 million in the year earlier period. Due to one time charges and expenses associated with the AAT transaction, including a charge of 53.8 million for the write-off of deferred financing fees in extinguishing a debt. Our net loss per share from continuing operations for the second was $0.77. Weighed average share outstanding for the quarter were 98.1 million.

Adjusted EBITDA which excludes non-cash leasing revenue and ground less expense, non-cash compensation of one-time AAT related items, was 39.4 million in the second quarter. up 73.8% over the year-earlier period. Adjusted EBITDA margin was 45.8%. Up from the 36% margin in the year-earlier period.

In addition to the assets we acquired in the AAT transaction we built 13 towers in the quarter, acquired 22 towers and ended the quarter with 5,281 towers owned and the right to manage over 5,000 additional sites.

Our cash capital expenditures apart from AAT in the second quarter were approximately 19.5 million. Of which we spent 400,000 on maintenance tower CapEx, 1.3 million for augmentations and rebuilds and 1.2 million on general corporate CapEx. We also spend 12.4 million on acquisitions, ground lease purchases and earn outs and 4.2 million on our new tower builds and new build work in process.

Kurt will update you on the new build program in a few minutes.

At this point I'll turn things over to Pam, whole provide you with an update on our capital structure and our liquidity position.

Thanks, Tony. SBA ended the second quarter with 405 million of commercial mortgage back pass-through certificates outstanding. 1.1 billion outstanding on our bridge facilities, 77.4 million of cash and restricted cash, leaving us with a net debt of 1.428 billion. The Company's net debt to annualize adjusted EBITDA leverage ratio was nine times at June 30, 2006. Below where we thought it would originally be post AAT due to our strong second quarter results. We now expect to return to our target leverage ratio range of 6 to 8 times by the end of this year. Again, much sooner than first anticipated.

The bridge facility currently bears interest at the Euro rate plus a margin of 200 basis points, which in March increases to 275 basis points on September 13th through its final maturity on January 27, 2007. Availability under the senior credit facility is suspended until the bridge facility has been paid in full.

In the interim we anticipate all liquidity needs will be met by our cash-on-hand and cash generated by operating activity. To refinance the bridge facility we are exploring all options available to us and we're working on another issuance in the SMBS market. Our goal is to have the bridge facility successfully refinanced in the fourth quarter. We currently have in place forward interest rate swap agreements with respect to 1 billion of the anticipated refinancing that expends beyond the maturity date of the bridge facility, so we feel well protected on interest rate risk in connection with refinancing.

We have included our third quarter and updated full-year 2006 outlooks in our press release. The updated pro forma outlook which we first issued on March 17th, assumes that the closing of AAT occurred in the full realization of all anticipated synergies occurred on January 1st, 2006. The updated full year and pro forma out looks reflect our better than expected second quarter results. When reviewing those figures, please keep in mind that our definitions of Tower Cash Flow and adjusted EBITDA in our outlook exclude non-cash revenue and ground lease expense.

Kurt, would you please provide an update on operations.

Thanks, Pam, and good morning.

Operationally Q2 was very solid for us at SBA. Revenue growth and margins were strong. Costs were in line or better than expectations. We continued to steadily grow our asset base and we finished the quarter with strong backlogs.

In addition, the AAT integration is basically complete from an operational perspective, and all of our teams are in high gear with those assets. On the tower leasing side of the basis, carrier activity continued to be strong for new leases and for new lease amendments. Once again we saw wide a variety of deployment activities by our customers, ranging from core market activity for performance and capacity cells, to coverage expansion and all different size markets and along key corridors. At the center of this activity we continue to sense the need of our clients; to increase their network depth and quality; to offer the most competitive set of voice, data and video products.

I recently read a statistic that wireless minutes of use have now surpassed wireline minutes of use for the first time. In the continued emphasis on cell density and network quality to support this usage is evident. In addition to voice, sales of laptop computers have also now passed sales of desktop computers, which we feel is great for our customers's business as the demand for ubiquitous mobile, high speed broadband connectivity continues to rise.

In the second quarter, new tenant on both the AAT portfolio and Legacy SBA portfolio exceeded our internal plan. For the combined companies 75% of new leasing business signed in Q2 was derived from new tenant agreements, while 25% came from amendments to existing leases. This spread has been roughly flat for the past several quarters now, with strong results in both categories.

Amendment activity was mostly due to carriers adding equipment to towers and for additional ground space, typically for generators needed for back-up power. Once, again, about 90% of new revenue came Telephany as we saw continued strong activity from the major carriers such a Cingular, Verizon, Sprint Nextel as well as from regional provide like Metro, PCS, Alltel and Cricket.

We enjoyed another strong average rent quarter for new tenants and we've already began see new improvement on rates for new leases on the former AAT sites compared to historical levels. At June 30th, on a combined basis across the entire owned tower portfolio, we had approximately 13,100 signed leases in an average cash rate of one $1,675 per month. Compared to pro forma average cash rates of 1,651 monthly cash rent in March 31, 2006 and 1, 629 at December 31, 2005. This puts us at 2.5 tenants per tower. That is the same pattern of increasing average monthly rents every quarter we enjoyed pre-AAT, and we expect those positive growth trends to continue going forward.

The quarterly increases are driven by strong initial rents from new tenants. Increased amendment activity in the contractual annual rent escalators. Approximately 93% of run rate revenue at quarter-end was derived from high credit quality Telephany tenants.

We are experiencing some terminations linked to Cingular AWS merger but on net basis Cingular still a positive contributor to our quarterly incremental leasing revenue growth and we believe we have fully and conservatively accounted for terminations in our full-year outlook. We do not expect any churn beyond the deminutus from the merger of Sprint and Nextel.

The operational costs of our tower portfolio remains very stable and predictable and Q2 was no exception. Maintenance CapEx for our towers for the quarter was approximately $800 per tower per year while net structural or augmentation CapEx was 1.3 million, most of which was related to one-time light monitoring system change-overs. We continue to fell very comfortable that we have one of highest quality and capacity portfolios of any major tower company. In the future maintenance and augmentation CapEx will remain low.

On the asset growth front. Our new tower development and M&A continue to stay activity. During the second quarter we built additional 13 sites and bought an additional 22 sites. We have built an additional three sites so far this quarter, and have purchased 128 more since June 30th. Our new tower built backlog has increased the number of sites moving through the leasing and zoning process has increased as well. Our metrics on these sites are good we expect our rate of completions to grow as we continue to fill the pipeline. We also expect to begin building new sites in the western areas of the U.S. in conjunction with our new footprint with the AAT transaction.

In the services segments of our business, Q2 came in with improved revenues and substantially higher growth margins from the year-ago period with a better than break-even margin from a net perspective. Revenues were 25.0 million, with gross operating profit of 2.05 million or 8.2%. We continue to perform work in more just our core and historical areas of expertise, site acquisition, construction and technical services. And continue to stay focussed on just the northeast and southeast regions with no plans to expand services into the west region of the U.S.

In summary, our operations at SBA are strong. And we're confident in our growth prospect with all forecast pointing toward a solid finish for 2006 and another strong year of capital spending by the carriers in 2007. In addition to potential new business from Auction 66 participants.

At this point I'll turn it over to Jeff.

Thanks, Kurt, and good morning, everyone.

The second quarter was very successful for SBA. We consummated the acquisition of AAT on April 27 and by June 30th we had substantially completed the integration. The process has gone very smoothly as ahead of schedule an below budget. We now expect to realize full synergies and have the business fully integrated by the end of 2006 at an all-in one-time cost of less than $5 million.

I want to thank the many SBA and AAT employees who worked so hard to make this happen. As a result, we are a stronger company in almost every way with materially increased geographic scope, leasing revenue and cash generating ability. So far we believe that the AAT acquisition has been a great success. We've seen a higher volume of leasing activity than we first expected, we have had some success in increasing incremental rents. We've had also some success in buying out ground leases underlying some of the AAT towers. So we are off to a good start with all of those things we said we hoped to accomplish and improve upon with the AAT assets.

We are below where we thought we would be at this time on our leverage ratio due to our strong second quarter results. We believe, and our guidance implies, that we will be once again within our target range of 6 to 8 times net debt to annualized adjusted EBITDA by year-end. Well, ahead of our expectation. When we first announced the transaction. Consistent with our prior history, we believe our continued deleveraging will lead to equity value creation.

Finally of the approximately 17 million shares we issued in the AAT transaction, we know at least 12 million of the shares have already been resold and distributed in an orderly fashion into the market. All in all, so far so good with AAT. We are very pleased. And we look forward to reporting our continued AAT progress as we move through the year.

We are on track to successfully refinance the bridge facility by year-end and we've added a lot of certainty to the cost of that refinancing with our $1 billion initial amount of interest rate swap agreements. As was the case with our first quarter, our results for the second quarter were ahead of our guidance and analyst consensus estimates and reflect the quality of our operations, our assets at a high level of activity from our customers. We continue to operate in a very favorable environment of wireless growth that directly translates into strong organic growth in our business, and we experience that across the combined portfolio.

Our customers, the wireless carriers, once again had a very strong quarter in terms of subscriber and minutes of use growth. More subscribers, minutes of use and new bandwidth consuming products produce network capacity issues for our customers, which necessitates continued carrier spending to alleviate that strain, which then translates into more business and leasing revenue for the tower industry.

We are a very good environment, and we're performing well in that environment. We expect the operating environment to remain favorable through the rest of this year and into 2007. Organic growth rates have been strong and I think they will stay strong, particularly in light of the upcoming advanced wireless services' auctions. Based on the list of approved bidders, we believe the outcome of the auction will be a positive for SBA and the rest was tower industry. Because of our optimism, we continue to buy and build quality towers that meet our investment criteria while deleveraging the company at the same time to our target range.

Kurt, described earlier our new build activities and you can see from the press release that we have, we also continue to be active acquiring tours. We expect to remain active acquires of smaller portfolios of towers as long as we continue to see, as we do now, very good accretive opportunities to expand our portfolio, meet our investment return requirements, and maintain or even increase our growth rates. We are buying what we believe are high quality towers with the multiple paid varying based or estimates of future growth and the impact of that growth on our investment return criteria.

We're very pleased with the operating results of the towers that we have acquired. And we expect portfolio additions will continue to be a source of material revenue and adjusted EBITDA growth for us.

With the AAT integration largely in successfully behind us we expect to continue to executive well,. Meet our customers needs and capture all the benefits of this very strong wireless growth environment that we're currently in. We are committed to our path of quality, high growth. We are very excited about the future and we look forward to reporting our progress.

I would like to address a current issue. Stock options. We have not received an inquire from the SEC or any other regulatory body regarding our stock option practices. We have done some review and based on that and the personal recollections of a number of us that have been here since SBA became a public company, we are confident there are no instances of the back-dating or other acts that were intentionally taken to improperly convey an immediate paper profit to and option recipient. Our practice is and has been to grant options at fair-market value on the date of grant. Except in a few past instances where options were granted at below fair-market value and non-cash compensation expense was recognized at the time.

We are not aware of any anything at this time that will cause us to believe that a comprehensive review of all of the Company's historical option grants should be done. And therefore we have not done so. We have audited financial statements that cover periods going back to before the time SBA was a public company, and we have no knowledge of any facts that would cause us to believe that those financial statements are not materially accurate. And obviously if anything were to change in that regard, we of course, would promptly inform the market.

And one final housekeeping note, we are very exciting to be putting together our first investor/analyst day. That event is going to take place on November 13th this year and will be held in New York City. More details will follow and we hope that you'll attend. And Operator, at this time we're ready for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from and excuse the--it's Lale Topcuoglu with Goldman Sachs. Please go ahead.

Morning guys. As soon as I heard the apologize I knew it was me. Just a very quick questions. In terms of new demand, for those of us who listen to the Sprint call the other date day there was talk of the board approving the 4G technology and there's been a lit bit of speculation in the market that actually Sprint has gone out with potentially clarifying their new build activity for 4G. That coupled with maybe what you're seeing out of the other carriers, can you give us a little bit clarity how the new build activity is holding up? Thanks.

Lale, you mean new build specifically or basically new tenant co-locations?

Co-locations?

Okay. Co-locations are solid. We continue to be in a good environment that probably has been good since going all the way back to 2004. While it's probably not appropriate for us to comment on Sprint 4G plans, we'll leave that to them. I mean, we will say it's to our belief it's real, it's planned, it's coming. We've had some discussions with them about the topic, and it's part of the overall environment that we think will continue to lead to a good finish to '06 and particularly into '07.

Thanks.

We'll now go to the line of Vance Edelson with Morgan Stanley. Please go ahead.

Thanks. Good quarter. You're having a lot of success finding towers to acquire and you seem to be having more success than some of the other tower companies out there maybe your a bit more aggressive in finding these, these new sites. Can you just remind us of your return requirements? And if you can, you know she had any light on how it is your finding towers to acquire when, when some other companies are not? And then a related question would be just on your need to build scale, which perhaps has something to do with it? You're a bit smaller than the other publically traded tower companies, and whether that could entail larger scale M&A at some point down the road? Thanks.

Yeah our returns advance continue to be, we look for a targeted 5-year IRR unlevered of at least 15% on M&A deals an we use very conservative ending Tower Cash Flow multiple to arrive at that, and obviously with our leverage, we're looking for all-in to produce greater returns than the 15%, and so far the stuff that we've done is ahead of plan. We feel very good about it. There's a fair amount of opportunities out there. You say we've had a lot of success, and we have, but we're not, we're not acquiring even 50%, it's probably well, below that of what's available out there. There's a number of deals that we do not pursue because of our investment criteria and the kinds of thing we're looking for.

We are focused on a more higher growth asset, more similar to a new build than a mature tower. If you look at some of the metrics that we have posted, you can see that the average for this year is around $320,000 per tower. That, of what we're buying, that comes with about 1.3 tenants on it on average, is what we've done. That's obviously well below the portfolio average and we think we'll continue to support and actually help grow our growth rates. And there's a fair amount out there. Over the period from 2002 to 2005, while the major public tower companies were more focused on improving their balance sheets, there was a wide, wide range of smaller entrepreneurs that were out there building tours and ultimately are looking to monetize those, and those are the folks that we're primarily dealing with.

In terms of getting bigger, what we found with the AAT transaction, is while it's not necessary for business success, it is a business that the overhead can be leveraged and we have the ability to take on a lot more assets increasing our overhead and the net result of that is that we believe we can increase our margins and ultimately our equity free cash flow per share. So as long as we can continue to do that, and, again, everything is about really the price for the assets that we pay and making sure our return on investment criteria is met, but having said all that, we continue to be very interested in growing the Company because we think ultimately that will be the best for our shareholders.

Okay that's great thanks a lot.

Our next question is from Clay Moran with the Stanford Group. Please go ahead.

Thank you. Good morning. Maybe following up on that same line of questioning on the tower buys, you bought or are buying 200 towers, that's not a trivial amount of towers for you, can you maybe give us a little bit more color on that. Maybe some of the geography involved, the remaining capacity on these towers, the growth prospect maybe even the average of multiple Tower Cash Flow? And then also getting to the question of you finding these deals. What's the competition for these towers? Who are you finding are the other bidders? Are you going up against American Tower and Crown Castle or is it private tower operators? Thanks.

It is more-- on our last question first, Clay, it's more the latter. More smaller players and a good handful of private-backed companies that are, that we're competing with for these assets. There's clearly is competition out there.

In terms of what we are doing in terms of pricing and return, I mean, we are averaging all-in, between 15 and 16 times Tower Cash Flow for a 1.3ish tenant per tower asset that has capacity for four or more. Typically broadband tenant-- and if you look at 320,000 per tower and you just roughly divide that by 16, so you're picking up an asset with $20,000 of cash flow on day one, just one additional tenant, which would still not even bring those towers up to our current average portfolio, would obviously be a huge return and drop those multiples in half. So we really like the lesser mature higher quality aspect of what we're picking up and we are focusing on towers that were built by others in that period of time, I referenced earlier the 2002 to 2004 period.

Okay any specific geographicies or is it nationwide.

It's nationwide. We're just now looking at deals in the AAT footprint because we didn't get ahead of ourselves with that pre-AAT. So most of what we've done and we have on the plate to is still eastern third of the U.S., but our appetite is, is for the entire United States, and we think there will be good opportunities and good prospect throughout the entire country.

Okay lastly, since you are buying a decent amount of towers outside the AAT deal, can you give us organic revenue growth number, say tower type of number for the quarter.

We can't really give it on a combined basis because AAT did not have the historical data that would allow us to do that. I will tell you on the SBA assets only it is double digit revenue growth and high teens Tower Cash Flow growth.

Okay, thank you. we'll now go to Ric Prentiss with Raymond James. Go ahead please.

Good morning guys.

Hey Rick.

Couple questions for you. Thanks for all the specificity on the M&A side because obviously you can lose a needle with our size of portfolios so it look like some good opportunities out there. I won't beat that horse anymore. All the questions were on that one. What I'd like to is do to probe a little further on Auction 66 then. I was glad to hear your comments on Sprint 4G, but what the satellite TV guys? Any initial-- any kind of requests from them or requests for search rings or just kind of, it's a big bid that they put in. How much activity have you had in talking with the satellite TV guys and a second question is, as leverage is getting back down to your target zone of 6 to 8 time quicker than you thought, what's you're thoughts as far as other cash returns to shareholders? When does a buy-back back something that's possible on the agenda?

On the satellite guys, we have had some very preliminaries conversations, Rick, hasn't gotten to the specific levels of engineering search rings. I believe, they believe that should they end up with a nationwide footprint, that their needs will be primarily met by co-location, which I'm sure will be the case if that comes to pass. As it should be. So we're going to-- as the rest of our brethren will be, we'll be anxiously and hopefully awaiting that, that they do end up with that and we do have a brand new market entrant or emerge, I think that would be obviously great for us and the rest of the industry.

In terms of our Repatriation of capital to shareholders next year, if you kind of pencil out where the trends are going and you factor in the benefit of our expected refinancing, I think everyone sees that the cash flow generating ability of the Company is, is materially greater than what we are at today, and building beyond that. We're not going to sit on cash and we're not going to really be interested in operating the business below our target leverage range.

Our first use of that capital, Rick, if we continue to be in the environment we're in where we see strong double digit organic revenue growth and high teens organic Tower Cash Flow growth when we continue to expand the for the portfolio, because I think that will produce the highest returns for our shareholders. If in fact, that dynamic changes, we would be in a position and we don't spend that money on a growing portfolio, you can start to really look for and ask the question of when would he begin a re-purchase or dividend program. And that current growth environment and organic growth environment, I believe that will continue to rank second to growing the portfolio.

I agree with you there. Because obviously you've got a good ability to grow at a good price.

Yep.

Another follow-up. I think Tony you mentioned some one-timers, I just want to make sure I have the right number. Was the total one-time in the quarter just that 900,000 benefit on property taxes.

Yes.

Compared to -- .

Yes Rick it was 900,000 of property accrual adjustment similar to a one-timer we had last year in the second quarter of about 400,000.

Great. Thanks a lot guys. Good luck. Sounds like an exciting rest of this year and next year.

Thanks.

We'll next go to Jonathan Atkin with RBC Capital Markets. Please.

Good morning. Wondering if you can expand on the bridge financing time frame and what type of interest rate you anticipate, should we be thinking about 5.6%, that you saw on one of the CNBS tranches or higher because of overall increased in rates that we've seen. If you can just remind us where you stand in term of percentage of ground leases owned and what kind of opportunities exist and at what pace to kind of expand upon that.

Okay. I mean, we're targeting a fourth quarterly refinancing, Jonathan, because the nature of the financing in the securitized market is the rating agency's take basically a snapshot run-rate of your most current monthly leasing revenue and sense ours is growing pretty good every month, we want to make sure we get the full benefit of that, because these are large undertakings and we want to maximize the opportunity. So we, are intentionally waiting until the fourth quarter, because that, we believe, will produce the best and most efficient transaction for us ahead of when the bridge financing is due on January 27th. In terms of rate, we have locked in through the lowered interest rate swaps a blended rate of what, Tony?

5.35%.

5.35%. So that will be the base, Jonathan, off of which the spread will be calculated to produce an effective interest rate to us. If we ended up with the same spread that we did last time, which was 66 basis points that puts you right around 6% as an effective rate.

Now if rates go up a whole lot between now and then, we would have a cash rate higher than that, but we would receive a big payment to settlement those interest rates swap agreements, which gives you the effect the rate around the 6 still. If rates drop a lot. We'll end up with a cash interest rate below that, but then have to pay some money out onto settle those swaps, which, again, puts you back at the 6% effective rate.

So all in all, we're kind of looking around a similar deal like we did last time in terms of spread and we're feeling awful good about where it's all going to come out and particularly good that we've really locked in the effective interest rates on this through the hedging that we've done. And we're working on it daily and making good progress toward getting something done by the end of the fourth quarter.

And then on ground leases?

Oh, I am sorry. I think we're at what 14%, Tony.

14% on a combined basis.

That includes purchases as well as extending the existing leases outs to 99 years. And we believe that, we're actually ramping up that in dollar amounts because now we have the AAT assets to pursue, and we feel pretty good about being able to invest north of $5 million per year in that program as we move forward. And that is something that we really institutionalized here, Jonathan, it's part of our business like leasing towers and building towers and buying towers. It's buying in the land and that's something that I would imagine we'll do for the rest of or days.

And then finally Kurt mentioned services margins, what kind of drove that this quarter, anything different than what we've seen in the past?

Jonathan, you know it's pricing is has gotten better for us. The markets stabilize a little more since volume has been more consistent at a higher level for the past two years we've been able to, to have low pricing power and I think we've been performing well in addition to that, we're not trying to grow our revenue base tremendously in that area. We're at a level where, we've got some efficiencies with our overhead we're really just trying to attack better margin business and not just try to grow that for the sake of having a bigger top line. I think the combination of all that is adding up in our favor and our folks are doing a good job of just capturing some better business.

Thank you.

We will next go to Jim Ballan with Bear, Stearns, go ahead, please.

Great, thanks a lot. I want to follow up on a couple questions that have been asked. One is with regard to the, to the potential bidders in the AWS options, have you talked, have you had any conversations with any, with any of those potential bidders regarding the timing of when they would get started assuming that they, that they do, that they do get Spectrum in the auction. And the other thing I want to talk about is, you talked about the possibility at some point of starting to buy-back stock or paying a dividend, maybe you could talk for a moment about your thought about which one, which one do you think about doing? Obviously you've seen stock buy-backs from a couple of your counterparts. What's your thought on a dividend versus a buy-back?

Candidly Jim, I'm not sure of the answer to that. We're, we're still weighing the pros and cons of which is the right pattern for SBA. I think I'll have the luxury of seeing how it works for a couple of my peers as we continue to focus on deploying capital to grow the Company. And by the time we are ready to do that, I think we'll know much better about what really generates the, what's proven to have generated the most shareholder value, so we're still thinking about all that. In terms of the auctions, we've had some very general conversations, I think if Metro and [audio skip] win some new markets I think you'll see some action fairly quickly. Maybe still prompt, but not quite as quick, if T-Mobile gets the spectrum necessary to go out and do their 3G, but that's fine, that's a long multi-year endeavor, similar to when we've experiencing with Cingular. And I really don't know. If a brand new market entrant emerges on either the cable or the satellite side, have not had specific discussions with them as to, should that happen, when all that starts.

When you say relatively quickly, if it's one of regional guys, do you think that could be, that could be have an impact on this year?

No, because even if, maybe a little bit on the services side, but even if you signed up leases in the, remember our lease pattern is operationally sign a lease it doesn't really begin to hit the financial statements until one and likely two quarters later so I think we're all looking at this AWS stuff really in the out years, and certainly he none of the AWS any benefit whatsoever was factored no our 2006 outlook.

Okay. Great. Thank you.

We will next go to Michael Rollins with Citigroup. Go ahead please.

Hi, good morning. Just a couple quick questions. First, as you look at other growth opportunities, either through your portfolio or extending, how do you think about the positioning going forward of rooftop and alternative structure an trying to get into the management of that part of business? And secondly, if you just look at the revenue guidance it looks like you trimmed the high end a little bit. I was curious if there was any specific cause for that in terms of visibility, or anything that's really changed in your outlook for the business? Thanks.

Yeah I'll address the last one first Mike. When we focus on guidance, we focus on the midpoint. And when you look at it, you see that we've increased the midpoint and when we think about what we've done, we talk about increasing our outlook. I mean, the fact that we've trimmed the high end of revenue was nothing more than we've got one more quarter under our belt and know with more certainly exactly where those numbers are going to come in, but clearly we have viewed this as a company as increasing guidance. And that's all that the trimming of the high end is, it's just one more quarter of certainty that allows us to be more specific about the range.

In terms of the where else to look. We're actually in the managed business and we got into more so with AAT. It's a harder business, executionally to do, because you're working with multiple parties and your working with the folks who ultimately own the real estate. But it can be a very good business particularly from a return on capital perspective.

We're kind of excited about where we think that business can go. We've got a very good team who specializes in the rooftop and manage business that came over from the AAT transaction and we've actually further supported those folks and I think given them some very good support and comfort on a go forward basis that we are very much interested in growing that business particularly because of the return on capital possibilities there. It doesn't take a lot of capital to grow that business. It take a lot of hard work. And we will continue to look for additional growth opportunities, I mean, right now, we really don't have to look beyond adding tower assets because we are seeing good pricing and good opportunities to do that. But at the end of the day, is my job.

We're going to have apple cash flows that grow every single year. The tower business model has proven to be a tremendous cash generating machine, and my job is to continue to deploy that capital in ways that are most beneficial for the shareholders, and I take a lot of comfort really in the ultimate path because if we can't deploy capital and produce additional assets that will drive shareholder value, then we'll be looking at a speedier program of stock re-purchases or dividends. One of those three things will all be going on at SBA.

Thank you.

For next we have Bret Feldman with Lehman Brothers. Please go ahead.

Hey guys thanks for taking the question. I was hoping I could get a little more color on the nature of the leasing activity that you're seeing and specifically I'm wondering what percentage roughly of the new leases that you're seeing are associated with new market launches, what percentage, if you can estimate it, is associated with data particularly data only cell sites, and then broadly speaking, when you look at the demand in the industry, what percentage of new leases do you think actually require new tower build and how has that been trending say versus two years ago and your expectations over the next few years?

Yeah I think, Bret on the last question, about 10 to 15% of all new co-location require new builds. So there will continue to be a 2 to 3000 tower new build annual output in the U.S. foreseeable future. And that's a market that we are targeting for some continued growth opportunities.

In terms of the data only co-locations, I mean, that's, I'm not sure how meaningful that is, because we can't begin to break out whether Verizon or Cingular did something just for data. But a data only provider such a Clearwire, there's certainly more active and we have leased up more with them this quarter than we would have in the year-ago period, but that amount of activity still being dwarfed by the basic Telephany big four and then when you add in [inaudible] the Metros and the Alltels. I don't know. Kurt, do you have a feel for the question on brand new markets versus just increasing capacity?

It's not a huge-- the new market piece of a leasing business is not gigantic by any means. The [inaudible] are nice but it's, the business is still dominated by the big four and the other existing players adding onto their networks for capacity and their expansion. And back to the data question, most of what we see, or the way we realize the data applications they're putting out there is real through the amendments, you're not going to see many data-only new cell sites built outside of the Clearwire's who are in the data business, although existing carriers, I don't expect to see them build sites for data only. I expect them to continue to build sites that produce voice and data, and possibly some video, but most of the data only applications we're seeing is amendments as they do those through overlays and upgrades to their current technology.

When they do that, I think you said you were not sure if you can always tell why they're doing the amendments. The reason I ask the question is this rule of thumb we're going to get to the point where you're going to have to see the two to three times the number of cell sites in the U.S. in order to support true ubiquitous broadband data and what I am trying to get a sense here is if you have early visibility into the actual realization of that because all of the a Verizon or Sprint shows up they need to put a whole bunch of new cell sites in that clearly supported data equipment in. Is that something you can tell or you not know what they're really doing?

I think they're going to continue to increase cell density. I don't think it's going to be an overnight thing where they wake up and just go plow through a market. They're doing it every day. And again they're deploying sites that multi-task that do data and voice because they need to-- they need the increase cell density to penetrate structures better and vehicles better and create better drop and block call performance. And get more data out there. So you know we can tell-- on a certain new cell site, we don't know if they're putting it out there, if they're putting it between three other cell we don't know if that's specifically designed for capacity, or performance reasons or just better in building penetration. But we can tell, if we know Cingular is launching UMTS in a certain market they're going through and doing tons of amendment on sites and adding a certain amount of lines in the antennas, we know what that is for. We know that is for their UMTS overlay. So we do have visibility to it, but on the single cell site basis, it typically provides relief for them on all fronts.

Okay. Thank you.

Keep in mind that carriers are financially responsible folks and don't spend anymore money than they have to and it's just like voice, they only deployed the amount of voice sites that they needed to launch coverage and begin to sell their product and then ten years later there's X times that as the consumer acceptance has progressed and the minutes of use has grown. And data will be the same way. I mean, they're doing when they need to do today and just that to test and offer the product and make sure there's good consumer acceptance, and then as it grows, just as it did with voice, they will have to continue to expand the network.

Great thank you.

And I'll now turn it back to the management team for any closing remarks.

Well, we have enjoyed spending the time with you this morning. And we look forward to reporting our third quarter results and we would ask that you all hold the date of November 13th for our first analyst/investor day in New York. Thanks Operator

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