SBA Communications Corp (SBAC) 2006 Q3 法說會逐字稿

Welcome to today's conference call, SBA Communications third quarter results.

[OPERATOR INSTRUCTIONS] Now, at this time I would like the turn the conference over to your host, Ms. Pam Kline, Vice President of Capital Markets. Please go ahead.

Thank you for joining us this morning for SBA's third quarter 2006 earnings conference call. Here with me today 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 disclosure 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 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 June 30, 2006, which documents are publicly available. These factors and others have affected historical results. They affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, November 7th, 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 profit financial measures to their most directly comparable GAAP financial measures and 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 third quarter results, please?

Thanks, Pam, and good morning, everyone.

Total revenues were $98.2 million, up 48.7% over the year earlier period reflecting the inclusion of our AAT acquisition. Site lease and revenues for the third quarter were $74.4 million, up 81% over the third quarter 2005. Included in site leasing revenue for the current period were certain one-time and nonrecurring items that provided a net benefit of $2.2 million. This benefit resulted primarily fa a release of certain of our revenue sharing obligations for which we had accrued liabilities recorded in exchange for our providing relief on certain non-monetary restrictions to a particular customer. These amounts do not result from lease terminations. Excluding that benefit, we still exceeded the high-end of our leasing revenue guidance. Excluding AAT's site lease and revenue of $23.3 million, site leasing revenues were up 24.3% over the year earlier period, and up 19% excluding the one-time items.

As you can see, leasing growth was strong without AAT and obviously much stronger with AAT. Our site leasing segment operating profit was $53.5 million, up 82% over the year earlier period. Site leasing contributed 95.6% of our total segment operating profit in the third quarter. Under our definition of Tower Cash Flow, which excludes non-cash leasing revenue and ground lease expense, Tower Cash Flow was $53.7 million, a 79.8% increase over the year earlier period. Excluding AAT's Tower Cash Flow of $15.3 million, Tower Cash Flow was up 28.4% over the year earlier period and up 21% excluding the one-time items I described above.

Tower Cash Flow margin was 74.2% compared to 73.5% in the year earlier period. Backing out the one-time revenue benefit of $2.2 million, Tower Cash Flow margin was 73.3%, which reflects a full quarter of the lower margin AAT towers and was as we expected. On an apples-to-apples pro forma basis, we expect Tower Cash Flow margin to resume its historical trend and grow at approximately 150 basis points per year. We continue to believe that Tower Cash Flow margins will eventually reach, and possibly exceed 80%.

Our services revenues were $23.8 million compared to $24.9 million in the year earlier period. Services segment operating profit was $2.5 million compared to $1.6 million in the year earlier period. Services segment operating profit margins were 10.5% in the third quarter compared to 6.4% in the year earlier period. Kurt will discuss services in a little more detail shortly.

SG&A expenses for the third quarter were $10.9 million including $1.5 million of non-cash compensation expense, and $549,000 of one-time integration, transition, severance and bonus-related items of the AAT acquisition. We also expect to record an additional $200,000 for year-to-date non-cash charges resulting from our stock options review, which is not included in the third quarter financial results that we'll be discussing today.

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 8.5 to $9 million excluding non-cash compensation charges. Integration costs are coming in below expectation, and we now expect to incur no more than $3 million of one-time integration and other related expenses from the acquisition in 2006, down from our previous estimate of approximately $5 million.

Our net loss from continuing operations for the quarter was $24.1 million, up from a loss of $14.4 million in the year earlier period. Net loss per share from continuing operations for the third quarter was $0.23, our weighted average shares outstanding for the quarter were 103.7 million. Adjusted EBITDA, which excludes non-cash leasing revenue and ground lease expense non-cash compensation and one-time AAT related items was $7.5 million in the third quarter, which was up 91.1% over the year earlier period. Excluding the one-time leasing revenue benefit, we still exceeded the high-end of our EBITDA guidance. Adjusted EBITDA margin was 49.4%, up from the 37.9% margin in the year-earlier period.

We built 17 towers in the quarter, acquired 178 towers and ended the quarter with 5475 towers owned and the right to manage over 5,000 additional sites. Our cash capital expenditures in the third quarter were approximately $35.9 million, of which we spent 1.2 million on maintenance tower CapEx, $373,000 on augmentations and rebuilds, and $713,000 on general corporate CapEx. We also spent $29 million of cash on acquisitions, ground lease purchases and earnouts and $4.6 million on new tower builds and new tower work in process. Kurt will update you on the new build program in a few minutes.

At this time I would like to turn things over to Pam who will provide an update on our capital structure and our recent successful CMBS transaction.

Thanks, Tony. SBA ended the third quarter with $405 million of commercial mortgage backed pass through certificates outstanding. $1.1 billion outstanding on the bridge facility, $51.9 million of cash and restricted cash and net debt of $1.45 billion. The Company's net debt to annualized adjusted EBITDA leverage ratio was 7.7 times at September 30th, below where we thought it would originally be post AAT, due to our strong third quarter results even after excluding the one-time leasing revenue benefits. We are now back to our target leverage ratio range of six to eight times, much sooner than first anticipated.

Yesterday, November 6, we issued $1.15 billion of commercial mortgage pass-through certificates, series 2006-1 in a private transaction. The net proceeds received from the offering were used to repay the Company's $1.1 billion bridge financing facility in full, to fund reserves, to pay fees and expenses associated with the transaction, and for general corporate purposes. On a pro forma basis, the Company has total indebtedness outstanding of $1.555 billion consisting entirely of commercial mortgage pass-through certificates, bearing a contract weighted average monthly fixed interest rate of 5.9%. That makes modeling easy. As our cash interest expense is now fixed as it relates to the CMBS issuances at $91.6 million per year. On a net basis the expense will be less after expected interest earned on cash deposits.

With the repayment of our bridge facility, we once again have access to our $160 million credit facility. As of September 30, 2006, pro forma availability would have been approximately 10 to $15 million which we expect to grow over time particularly as we add towers to the Company. We are evaluating what if any additional capital markets activities we are interested in now that we've completed the CMBS transaction. We believe we have all the liquidity we need to execute our current plans for the rest of 2006 and 2007. Market conditions are currently very favorable, and we believe we could access additional liquidity at this should we have a need for it.

We've included our fourth quarter and updated full year 2006 outlooks in our press release. I have received a couple of calls specifically around our fourth quarter site leasing revenue outlook. We backed into our fourth quarter site leasing revenue guidance from our full year outlook, which we rounded down to the nearest million. We agree with the suggestions that the fourth quarter range in the press release is low compared with our expectations of actual leasing results. To be clear, we expect fourth quarter site leasing revenue to be greater than third quarter site leasing revenue excluding one-time items, and we are very comfortable that we will be at or above the high-end of our fourth quarter site leasing revenue and tower cash flow outlook as set forth in the press release.

We will be providing our 2007 outlook at our investor analyst day next Monday, November 13th. This event will take place at the Westin Hotel in Times Square, if you have not RSVPed yet and would like to come, please register by sending an e-mail with your contact information to registration@SBAsite.com. We look forward to seeing you there.

Kurt, would you please provide an update on operations?

Thanks, Pam, and good morning. Operationally, Q3 was another solid quarter for us at SBA. Revenue growth in margins were strong, costs were in line or better than expectations. We continued to steadily grow our asset base and finished the quarter with strong backlogs in all areas of our business.

The AAT integration is complete from an operational perspective, and all of our teams are in high gear with those assets and the results are very positive. On the tower leasing side of the business, carrier activity continued to be strong for new leases and for new lease amendments. Once again we saw a wide variety of deployment activity by our customers ranging from core market activity for performance and capacity sells to coverage expansion and all different sized 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. Data products continue to be introduced, refined and accepted at a greater rate than ever. We expect this continued shift in usage to further drive the need for enhanced network coverage capacity and quality.

In the third quarter new tenant adds on both the AAT portfolio and legacy SBA portfolio exceeded our internal plan. 68% of new leasing business signed in Q3 was derived from new tenant agreements while 32% came from amendments to existing leases with strong overall results in both categories. Amendment activity was mostly due to carriers adding equipment to towers and for additional ground space for electronics and back up power generators.

Once again almost 90% of new revenue came from telephony as we saw straining strong activity from the major carriers such as Verizon, T-Mobile, Sprint Nextel, and Cingular. A number of other carriers including Clearwire, Alltel, U.S. Cellular, Metro, and Cricket also contributed in the quarter. We enjoyed another strong average rent quarter from new tenants and we continue to see improvement on the rates for new leases on the former AAT sites compared to historical levels. Same tower year-over-year revenue growth on the towers we owned for a full year or more at September 30th was 12%, and tower cash flow growth was 18% excluding the one-time items.

At September 30th on a combined basis across the entire owned tower portfolio we had 13,412 signed leases at an average cash rate of $1,705 per month compared to pro forma average cash rates of $1,675 monthly cash rent at June 30th and $1,651 at March 31, 2006. This puts us at 2.5 tenants per tower. This is the same pattern of increasing average monthly rents every quarter we enjoyed for quite some time, 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 and contractual rent escalators. The operational costs of our tower portfolio remains very stable and predictable and Q3 was no exception.

Maintenance CapEx for our towers for the quarter was very low at approximately $200 per tower per year while net structural or augmentation CapEx was less than $400,000. That is a remarkably low number in our industry, reflecting the high quality of our towers. We heard one of our peers say it costs them $12,000 to $24,000 of augmentation CapEx to add a tenant on average. For us that number is less than $3,000. We continue to strongly believe that we have one of the highest quality and capacity portfolios of any major tower company. In the future, maintenance and augmentation CapEx will remain very low.

On the asset growth front, our new tower build and M&A programs remained active. During the third quarter, we built 17 new tower and is bought an additional 178 towers. We continue to push hard in both areas of asset growth as we feel this is an excellent use of our discretionary capital. Our metrics on both our new tower builds and newly acquired M&A sites are very good, and we continue to feed the pipeline. In the services segment of our business, Q3 revenue was 5% below the year ago quarter, but gross operating profit was substantially higher at 55% above the year ago's quarter's gross profit.

We do not chase revenue on this side of our business as much as we chase profitability. We have worked hard to restore the profitability side of this business and getting back into double-digit profitability for the first time in over three years is a nice milestone for our team to have achieved. There is more carrier activity out there than at any time over the last several years, and that has allowed us to focus on more profitable work. We have set out a course for this part of our business to stay geographically and scope focused and had continue to zero in on profitability even if it means we forgo in top line revenue. We feel results for Q4 in 2007 will be similar in nature to that of Q3.

Overall, our operations at SBA are strong. We're confident in our growth prospects with all forecasts pointing to a solid finish for 2006 and another strong year in 2007. We're excited about continued acceptance rate for all services by wireless customers, and look forward to new and expanded network deployments emanating from the recent AWS auctions.

At this point I will turn it over to Jeff.

Thanks, Kurt, and good morning, everyone. As you heard from the team, we had another very solid quarter. We expect a strong finish to 2006, and we believe we are very well positioned for a strong 2007. I am going to address those points in more detail, but I first want to address the stock option review described in our press release.

When the SEC came out in late September to the public with expanded guidance on stock options accounting, we identified a particular issue raised by the SEC that we thought had applicability to SBA That was the timing of completion of lists of options grantees in relation to the grant date proved by the Board. It was our practice to generally have the Board approve a total number of options to be granted, a grant date, an exercise price based on the closing price of our stock, either as of the grant date or the night before the grant date, and then specific grants were determined by the Board for the top executives. The Board then delegated to the CEO the allocation of the remainder of the options to other employees using the same grant date and exercise price.

As a result of this practice, the final list of option recipients was often not finalized until after the grant date. When we accounted originally for the option grants, we used the grant date as the measurement date. The SEC guidance makes it clear that the correct measurement date should have been the date the option a location was finalized, and if the stock price went up between the original grant date and the correct measurement date, then additional non-cash compensation expense should be recognized. After considering this additional SEC guidance, we commenced the comprehensive review of our option grants going back as far as 1996.

We have identified a number of measurement dates and other accounting errors related to our option grants, resulting in the anticipated cumulative charges we set forth in the press release. While the charges are not material to our historical financial statements, either cumulatively or as to any particular year, we will be recording an adjustment to our shareholders equity and asset accounts when we file our 10-Q for the third quarter. We will be taking steps to further improve our practices and procedures in this area. I am pleased to report, however, that this very comprehensive review identified no evidence of fraud, falsification of records, concealment of actions or documentation or intentional deviation from Generally Accepted Accounting Principles. No evidence has emerged that would indicate any person took any act to improperly benefit from choosing an option date either by looking backwards in time to a lower price or by receiving options ahead of anticipated favorable news.

Turning back to our performance and prospects, we are extremely pleased with our third quarter results and what we believe lies ahead for SBA. Our future truly is bright. We continue to operate in a very favorable macro wireless environment. Consumers continue to push minutes of use higher whether through wireline to wireless migration, new data products or simply talking more than they used to. Consumers want quality wireless networks. Our customers, the wireless carriers, continue to stay active investing and expanding and improving their networks.

Since our last call, many positive developments have occurred. Sprint has announced plans to deploy a new 4 G network expected to require a large number of additional cell sites and has announced plans for additional investment in its existing CBMA and IDEN networks. The advanced wireless services auction has been concluded with T-Mobile securing enough new spectrum to allow it to move forward with large network expansion, improvement and next generation activities. Leap and Metro acquired spectrum in new coverage areas that will require brand new networks. Clear wire received $1 billion of investments for purposes of building out a nationwide network. Cingular, Verizon, and the others continue to be active in continued investment in their networks.

The net impact of all these data points around customer activity is that we see a multi-year horizon of strong additional cell site demand from our customers that will translate, we believe into strong leasing revenue growth for SBA. As a company, we're particularly well positioned to capture this activity and turn it into material growth and equity free cash flow.

We continue to execute well operationally. Once again we posted double-digit same tower revenue growth and high teens Tower Cash Flow growth. Services margins are up materially, and we're now positioned once again to resume strong and consistent growth in Tower Cash Flow margin post AAT. We have done what we believe is a very good job integrating the AAT acquisition. We are ahead of schedule, ahead of budget and substantially complete with the process. We continue to be interested in expanding our tower portfolio through the right opportunities.

We have enjoyed a great deal of success buying and building towers and purchasing ground leases, and that success has encouraged us to stay active. We are confident that we will be able to do so as we have institutionalized these activities to a degree that we can and do reasonably expect portfolio growth every quarter in a manner and on terms we believe will be very beneficial to our shareholders both short and long-term. Operationally, everything is working very well for us, and we expect that performance to continue.

In addition to the very favorable demand trends for additional cell sites and the strong performance of our employees, a primary reason for our success is the quality of our towers. Whether it be same-tower revenue growth, tower cash flow growth, tower cash flow margin or the low amount of maintenance or augmentation CapEx needed to support our portfolio, we generally lead or are near the top of our industry. Over the years, we have taken the position that asset quality matters and have made decisions accordingly. We believe we made and continue to make the right decisions and are very happy with our portfolio of towers.

Our portfolio received a pretty good endorsement recently in the CMBS transaction we just completed. Those types of transactions are structured around the assets specifically and are underwritten on the strength and quality of the assets. Investor demand for our certificates was phenomenal, and I'm told we achieved the highest level over subscription ever in our industry in a securitization transaction.

Speaking of the CMBS transaction, that is a transformational event for us. Our debt structure is now entirely long-term, fixed rate with minimal covenants bearing a weighted cash coupon of 5.9%. Our adjusted EBITDA to net cash interest coverage ratio was now a comfortable 2:1 and is expected to increase as we increase tower cash flow and adjusted EBITDA. Going forward, we will save almost $20 million per year on the interest expense we were paying on the bridge facility. As a result, and as you will hear more about at our investor analyst day, we're expecting tremendous growth in equity free cash flow next year.

Our new capital structure is as efficient as any in the industry, and provides us with a great platform for additional company growth. We believe we are in a very strong position for additional growth and value creation for our shareholders. I am going to cut short my comments about our future prospects and intentions at this time because I want to save a more detailed discussion of our 2007 plans for our investor analyst day. I hope you can join us there or if not, at least listen in. Pat, at this time we're ready for questions.

[OPERATOR INSTRUCTIONS]. We have our first question from the line of Jonathan Atkin of RBC Capital Markets. Please go ahead.

Yes, good morning. My question relates to 2007. I know you're going to give guidance later on, but just from a qualitative standpoint, do you anticipate leaseup rates are going to be higher, lower or roughly comparable to 2006 after normalizing for the AAT purchase, and then a question perhaps for Kurt related to the spectrum auctions, are you seeing impacts yet in our site development business related to foot print expansion from some of those licenses and when do you think that might translate into revenues for the core site rental business?

Jonathan, on your first topic, we believe the 2007 outlook for new leasing revenues will be at least as good as what we saw in 2006. We think the mix will change somewhat, which we'll talk about in more detail when we get together next week, but we feel very good about 2007 in terms of the overall amount of activity that we expect.

Jonathan, on the Spectrum auctions, we are seeing some preliminary activity, a lot of planning going on, a lot of lining up of resources, scoping and pricing out the projects, and I think it is pretty consistent with what we've said before, which we think major activity will really hit the ground after the first of the year, and I think we'll see some revenue start later in 2007 from the first of those leases.

And this maybe an update on how you view some of the non-core businesses that you picked up in the AAT acquisition, the managed site and is so forth?

We think the managed site business can be pretty attractive, and the obvious attraction there is the return on invested capital aspect of it because there really is not a lot of capital to invest in that business, and as we move into 4G, and Leap and Metro build out some areas where we know we have some managed site inventory, we're actually feeling pretty excited about where 2007 and 2008 will lead that business. I mean, at this point we're happy with the business and looking to continue to expand and improve it.

Thanks very much.

We have our next question from the line of Clay Moran of the Stanford Group. Please go ahead, sir.

Thank you. I have two questions. Can you just tell us the same tower revenue and cash flow growth for the quarter, and the second question is on M&A. You continue to find success in acquisitions. Can you share with us the range of multiples currently being paid? Has there been any change over the past six months, and are you still able to find higher growth, higher available capacity towers out there, and do you have any appetite for a larger acquisition now that the AAT deal is closed and largely integrated?

On the same tower revenue and cash flow growth, Clay, it is 12 and 18, and that's just on the sites that we owned for a full year going back to September 30 of '05, so it wouldn't include any of the AAT assets. The M&A opportunities continue to be pretty much as they have been for the last year or so. We see a number of opportunities. We continue to focus on the less mature younger sites that we think will have higher growth prospects going forward.

Multiples are in the 15, 16, to as much as 17 at times tower cash flow for those transactions that we tend to specialize in which is the smaller 5, 10, tower deals. There is still a bunch of those out there. We'll continue to look, and our position on acquisitions of any size, large or small, is that if it makes financial sense for our shareholders, we will be interested in looking at opportunities, but for us, the focus remains primarily, if not entirely, financial and with the focus on accretion to equity free cash flow per share.

Okay. Thanks, Jeff.

Our next question comes from the line of [Anthony Korman] of Deutsche Bank. Please go ahead, sir.

A couple of questions and maybe a little bit of a follow-up to the last question. I guess there has been a significant land grab of tower assets going back to the American Tower Spectra Site deal. I am wondering what your view is on how this changes the overall landscape as the national tower portfolios consolidate into fewer and fewer hands, what the potential implications are for pricing on portfolios in markets particularly as we lead into I guess both the incremental demand from Auction 58 and then maybe at some point in '07 or '08 the incremental demand that would come from Auction 66?

Pricing on tower portfolios, Anthony.

Yep.

You know, I think it is pretty safe to say that prices have ticked up this year, and it requires to stay active in that area and stay true to our meaning our focus of financially smart deals that are accretive to equity free cash flow per share. You just have to find the right opportunities and stay disciplined, and I do believe that those opportunities will continue, but, to the extent it was ever secret, the secret is out. Tower assets are valuable and are only continue to go grow in value as carriers get more active and as you see technologies that are going to buy the laws of physics require greater cell densities.

I guess maybe onto that, is the consolidation of tower assets allowing you to increase rents at a greater rate than you think you would have been able to experience than a smaller portfolio? In other words, are you able to apply your economies of scale onto these 2, 3, 5 and 10 tower portfolios that those ownering would not have been able to achieve?

We have had a fair degree of success in normalizing rates to what we have done at SBA. That's not really a scale issue, Anthony. That's because we focus on quality towers that command those types -- that type of pricing, and you can do that with 10,000 towers. You can do it with 5,000 towers or one tower in the middle of Long island. The scale issue really hasn't mattered as much as it is really the same old story.

If you have good towers in good areas that are protected by zoning in the spots where carriers want to be, you have pricing on your side. Now, we do kind of integrate everything into our way of viewing the world there which is what we did with AAT, and we've been able to raise the average new tenant rent on the AAT towers up almost to what we do on the legacy, and that's quite a jump from where they were, so that's exactly what we had hoped we could accomplish, and that is working, but that again is not really because we have 5500 towers. It is just because we have good towers in spots where carriers want to be.

The scale really helps us on the cost side of the business. That's where it is really important.

Okay. Second question is on the leverage target, and I guess maybe it is time to rethink the leverage target since you're already at it, and the acquisition and the refinancing is really just closed so my question is in terms of maximizing equity free cash flow per share, if you were to keep the same pace of acquisitions that you've been doing for the past couple of quarters again excluding an AAT like transaction, it would seem you're probably not even going to exhaust the 20 million in incremental free cash flow that you're going to save with just the refinancing, and so I guess I am wondering if you might start looking at repurchasing shares as a way of also magnifying equity free cash flow per share?

You can rest assured we will be thinking about those things, and that is a topic that we intend to spend a little bit more time on next Monday.

Okay. Final question is is the period that we're coming into now where a lot of new spectrum has changed hands from the government into independent operators, is this -- will there be a distinguishable change in the backlog in the services business and some of the more construction oriented businesses? Will this new spectrum -- will any of the new spectrum, particularly in situations where companies like Cricket and Metro are using the Spectrum for actually coverage and not capacity and new technology, will there be a new round of tower construction that we might be able to anticipate going forward?

I think, Anthony, there will be definitely more new tower construction going forward. I think new towers as a percent of new sales sites won't change dramatically as there is capacity out there on existing towers as well. Probably new towers in the 10 to 15% range of new cells, but definitely just a lot of activity going up with these guys.

And I want for folks to be careful because we are making a conscious and deliberate decision to focus on more profitable work rather than volume of work on the services side, and the fact that there is so much work out there, and we expect that to continue is allowing us to do that, but I would caution folks against estimating that we're going to really increase dramatically the top end of our services revenues even though the environment is such that we could do that..

Thank you.

We have our next question from the line of Mark DeRussy of Raymond James.

Thank you. Question for Kurt. You mentioned Jeff's mantra of asset quality, how your augmentation or lease-up CapEx is typically lower, and I was wondering if you could kind of talk about what types of things you actually have to do to a tower in that sort of $3,000 range?

Well, again, Mark, that's an average.

Okay.

Projects can range from -- there could be a $3,000 augmentation project, but I would tell you the average one is probably 10 to $30,000. Sometimes the carrier will contribute in total, sometimes in part. Sometimes we work it into the rate, and I would say the average is probably 10 to $30,000. You're looking at adding structural members on lattice cell towers, talking about new guide wires, replacing guide wires on guide towers. You're talking about base plates on mono poles or other stiffening mechanisms you can use. The average is probably 10 to 30 when we do do one.

I had to drop off earlier. I apologize if this was addressed. Can you walk us through the adjustment in the third quarter on the revenue side to help us kind of get a more apples-to-apples comparison to the fourth quarter?

Well, it was $2.2 million of revenue that came from reversing an accrued liability that we were carrying on some historical revenue sharing obligations that we worked out a deal where we're released from those now, so we get the accrual, plus we get freed up from that going forward, and in exchange for that we gave the carrier some non-monetary relief on some lease provisions.

Thanks a lot.

We have our next question from the line of Vance Edelson from Morgan Stanley. Please go ahead.

A follow up M&A question. Can you give us more on the competitive dynamics of the smaller acquisitions you're pursuing? Are you seeing publicly traded tower companies participate? Is that the competition or is it more private money, and would you say that you're winning more often than you're losing in terms of having the high bid? Thanks.

I would say it is less on the public side. I expect that to continue at least through the closing of Crown's acquisition of Global Signal. There are, however, plenty of private folks out there who are either in existence or are attracting new capital to enter into the business, and, Vance, we probably win a third to 40% of the time, and the remaining times we take a pass, and we take a pass because we don't view the relationship of price to growth as being where we want it to be.

Okay. That makes sense, and also could you give us an update on your experiences building towers? Are you building when you have an anchor tenant to partner with, and you mentioned the importance of having zoning protection for your existing towers. What is it like getting zoning approval now, which you're apparently having good success with? Thanks.

We are, and we're not. Zoning is extremely difficult, and we would have liked to have built more towers this year, and that is a constant focus, to try and increase those numbers, but the stuff that we're building is really good.

We're getting really, really good lease-upright out of the blocks on these towers, and it is because we are building them in good spots with good zoning protection, but it is tough operationally to build towers and stick with our overall requirement that we have at least one anchored tenant on day one, and the reason for that is there are not a lot of large scale build to suit deals being offered up out there as there were back in the 99 to 2001 periods of time, so everything we're doing now is really one, two, three towers at a time instead of 50, 100 towers at a time as it was back then. It is good business, and we like it.

Okay. Sounds good. Thanks for the detail.

Our next question comes from the line of Jim Ballan of Bear Stearns. Please go ahead.

Thanks a lot. A little follow up on the M&A side. Acquiring 178 towers in the quarter is an awful lot if you're doing it 5 to 10 at a time. Were there some larger transactions in there and do you think you will be able to keep up a pace of I guess you said 40 towers over the next couple quarters. Is it possible we could see that pace pick up again in the course of '07? The other question I had was, are you still seems like you're still using stock to some degree in the acquisition of towers and as your leverage level has gotten back down into the range, what are your thoughts of using stock for M&A going forward and has your view changed there?

I think we did, Jim, an 80-tower deal in that 178, and that everything else was smaller. We do think there will be the opportunity to increase the 40 that we currently have when we pegged our reporting. It just happened to be at a low spot in our pipeline. We are working on other things, and we continue to stick with the goal that I talked about over the last year or so of increasing our portfolio size by 5 to 10% a year.

I am sorry, one thing on that, are the towers that you're buying, are these small bits of Carriers towers? Are they small tower companies that are just sort of building a handful of towers at a time and then flipping them? What's the source here?

It is mostly the latter. There is a couple of smaller tower or carrier pulls out there that we look at. I don't think any of that 178 came from carriers, did it, guys?

I don't think so.

I don't believe so. There are some of those opportunities still out there. It is primarily the owner/developers, and on the stock side, we use our stock first of all it is very accretive to equity free cash flow per share to buy the towers at the prices we are buying them at, but the primary reason was to manage our liquidity and our leverage, so your in summation that there should be less stock overtime as we are not quite comfortable yet, but inside our leverage range, that -- I agree with that.

Okay. Great. Thanks, Jeff.

We have our next question from the line of Michael Rollins of Citigroup. Please go ahead.

Hi. Wondering if you could talk a little bit more about how you would expect just the pace of decommissioning to work with some of the mergers and how you expect to see that come through your numbers. And secondly, just a quick housekeeping issue. I think you mentioned that on the revenue site leasing guidance that you expected it to be at the high-end or above the high-end of the range.

I was just curious if you can provide more color on just how you're thinking about what the right normalized run rate off of the third quarter is? Is it as simple as taking the reported number minus the 2.2 million you cited in the release? Were there other puts and takes to consider in the fourth quarter number.

I don't think, Michael, it is any more complex than that. It is really if you back out the 2.2 million we're at whatever that number is, and that's really the run rate going forward, and we look to build on that and we do expect the fourth quarter number to be higher than the third quarter number ex the one-time items. I don't think there is anything else too scientific about that. I am sorry, your first question was?

Just on the decommissioning, just wondering about the pace of how you expect that to come through your numbers? Do you think that there is just a couple quarters where there is a flush from the carriers in terms of some of the decommissioning they may have done on their own but haven't decided what to do with the leases yet or do you think that's something that just takes a long time to work through the P&L?

First of all, there is only one of the two major transactions that to our knowledge is resulting in any material decommissionings, and material is probably the wrong word, any decommissionings, and that's the Cingular one. We've seen nothing at SBA on Sprint Nextel and actually don't think we will be seeing anything from that given their even more recent desire to maintain the IDEN site and improve it.

The way Cingular is handling their termination is they're sending notices of non-renewal. sincerely they're sending notices of non-renewal. The renewal dates actually started in '06, and extend for us all the way through 2012. What you'll see is you'll see guidance, and you'll see actual results that already have the period's expectations in there. You won't -- the way this is happening is there is really not going to be any lumpiness or surprise. I would tell you we've already experienced some in '06 at 12% same-tower revenue growth was probably 13ish or maybe even a little bit more if we had experienced any of that, and it is in our numbers for Q4.

It will be in our numbers for 2007, and the way I think about it is that whatever our same-tower revenue growth would have been, it probably would have been a point or so higher if those decommissionings had not occurred, but it is all in terms of a net and an absolute number, it is all getting washed away in the large amounts of other activity that are occurring even from Cingular itself, certainly let alone from the other carriers, so it is -- it won't be lumpy. It won't be a one-time event that you can flush through, but it's just part of life's gives and takes as we move forward in this industry, but on a net basis, we expect very strong growth.

Thank you.

Yes, our next question comes from the line of Brett Feldman with Lehman Brothers. Please go ahead.

Thanks for taking the question. This is a little bit of an off beat question, but the SEC recently hosted a meeting to discuss the impact of towers on migratory birds and I am not asking about your towers on migrating birds but are you finding that the tower industry is moving further up the regulatory radar and are you getting more of these types of inquiries, and are there any regulatory issues particularly important to you, issues that s if they don't go your way could potentially results in higher costs associated with building towers, maintaining towers or maybe even barriers to buying new towers.

The agency, Brett, was the FAA, and the study on the impact of migratory birds has been around for quite some time, and it is an environmentally driven trade group that has brought all that. Don't think it is really headed in a direction because the results have been -- the scientific results have been inconclusive that towers really do anything good or bad to migratory birds, but your broader question is a good one, and we really don't see anything from a Federal level that gives us great concern. There are certain reporting requirements that have improved or increased over the last couple years, but they haven't been too dramatic of an impact on anybody. Federally I really don't see it.

The biggest regulatory issue is not so much regulatory as it is government is the continued push and pull we have with the various local and state municipalities on keeping property taxes low. I think we do a good job there and will continue to do a good job there. The municipalities look for revenue there and we look to minimize our expense, but from an industry changing perspective, I don't really see any real regulatory threat out there.

Great. Thank you.

At this time we have no additional questions in our queue.

I would like to say we appreciate everybody for listening in. We certainly hope you can make or at least listen into our Investor Analyst Day a week from yesterday, Monday, because we're going to talk a lot about our 2007 plans and hopefully you can join us. Thanks, everybody.

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