SBA Communications Corp (SBAC) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. We do appreciate your patience today while the conference assembled. Good morning. Welcome to SBA Communications announcing their third quarter results. At this point and during management's prepared remarks, we do have all of your phone lines muted or in a listen-only mode. (OPERATOR INSTRUCTIONS) As a reminder, today's call is being recorded. So with that being said, we'll get right to this third quarter agenda. Here with our opening remarks is Vice President of Capital Markets, Ms. Pam Kline. Please go ahead, ma'am.

Thank you for joining us this morning for SBA's third quarter 2007 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 2007, 2008, and beyond. These forward-looking statements may be effected by their 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, 2006, and our quarterly reports on Form 10-Q, which documents are publicly available. These factors and others have effected historical results, may effect 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 2, 2007, 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 measures 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 our third quarter results?

Thanks, Pam, and good morning, everyone. Before I review with you our third quarter results, I would like to highlight two one-time items that were noted in last evening's earnings press release. The first item is a one-time noncash charge to cost of site-leasing revenue in the third quarter 2007 in the amount of $2.5 million arising from the FAS 13 accounting treatment for deferred straight line rent escalation credits related to land acquired or leases extended to 99 years under the Company's ground lease purchase and extension program.

In previously reported periods, the Company had recorded the release of these deferred straight line rent escalation liabilities as a net reduction to cost of site leasing revenue in our site leasing segment. We are reclassifying this liability as a reduction to the value of the land acquired or amount prepaid to extend the lease. Also, since the $2.5 million charge is noncash, it has no effect on tower cash flow, adjusted EBITDA, equity free cash flow or equity free cash flow per share in either the current or previously reported periods.

The second item is a one-time nonrecurring site leasing revenue net benefit of $2.2 million recorded in the third quarter of 2006 and discussed a year ago that was the result of the release of certain revenue sharing obligations, for which we had accrued liabilities. I would also like to point out my following prepared remarks, that all references to percentage growth rates between the third quarter 2007 and 2006 exclude the effect of the $2.2 million one-time and nonrecurring site leasing revenue net benefit from the third quarter 2006. I will be referring to these growth rates as adjusted growth rates.

And now for our third quarter results. As you saw from our press release last night, our third quarter financial results were very solid and we met or exceeded the midpoint of our guidance on leasing revenue, tower cash flow, adjusted EBITDA, and equity free cash flow. Our total revenues were $103.2 million, up 5.1% over the year earlier period. Site leasing revenues for the third quarter were $81 million, or a 12% adjusted growth rate increase over the third quarter 2006. This leasing revenue growth was driven by both organic growth and acquisitions. Our site leasing segment operating profit was $56.6 million.

This morning I saw one analyst report that thought our recurring site leasing expenses were up sequentially $3 million over the second quarter. This is not the case. The $3 million was a one-time noncash charge related to the ground lease accounting. On an apples to apples basis, site leasing expenses were up only 3.9% over the year earlier period. Most of that increase was due to having more towers. Also, site leasing after the one-time charge contributed 95.1% of our total segment operating profit in the third quarter.

Tower Cash Flow for the third quarter was $59.2 million, or a 15% adjusted growth rate increase over the year earlier period. Our Tower Cash Flow margin was 75.1%, up from 74.2% in the year earlier period. Our services revenues were $22.2 million compared to $23.8 million in a year earlier period. Services revenues were up 7% from the second quarter. Profitability in this segment improved materially, as services segment operating profit was $2.9 million compared to $2.5 million in the year earlier period. Services segment operating profit margins were 13.1% in the third quarter, a strong improvement compared to the 10.5% in the year earlier period.

SG&A expenses for the third quarter were $11.3 million, including noncash compensation charges of $1.5 million. This compares to SG&A expenses of $11 million in the year earlier period, including noncash compensation charges of $1.6 million, and a one-time AAT integration cost of $0.5 million. Net loss was $17.5 million compared to a net loss of $24.3 million in the year earlier period. Net loss per share for the quarter was $0.17. Our weighted average shares outstanding for the quarter were 104.2 million.

Adjusted EBITDA, which excludes certain items such as noncash leasing revenue and ground lease expense and noncash compensation was $52.8 million in the third quarter, or a 17% adjusted growth rate increase over the year earlier period. Adjusted EBITDA margin was 52.3%, up from 49.4% margin in the year earlier period. Once again, our equity free cash flow increased materially in the quarter, reflecting strong adjusted EBITDA growth, reduced net cash interest expense, and stable nondiscretionary capital expenditures. Equity free cash flow for the period was $30.2 million, an 80% adjusted growth rate increase over the year earlier period. Equity free cash flow per share for the current period was $0.29, or an 81% adjusted growth rate increase over the year earlier period.

During the quarter, we acquired 227 towers, we built 17 towers and ended the quarter with 6026 towers, either owned outright or the rights to manage over 5600 additional or potential communication sites. Cash capital expenditures in the second quarter was $60.8 million, of which we spent $1.6 million on maintenance tower CapEx, $1.1 million on augmentations and rebuilds and $200,000 on general corporate CapEx. We also spent $54 million of cash on acquisitions, ground lease purchases and earnouts and $3.9 million on new tower builds and new build work in process. With respect to the land underneath our towers, we spent in total $6.3 million in cash to either buy land and easements or to extend ground lease terms. Our ground lease purchase program is going very well and we are significantly ahead of plan. At this point, I'm going to turn things over to Pam, who is going to provide an update on our capital structure.

Thanks, Tony. SBA ended the third quarter with 1.555 billion of commercial mortgage-backed pass-through certificates outstanding. 350 million of 0.375% convertible senior notes, $197.3 million of cash, restricted cash and short-term investments, and a net debt of $1.707 billion.

We issued 1.8 million shares of our stock in the third quarter primarily for acquisitions, and our share count at quarter end was 105.5 million. We did not repurchase any shares of our common stock in the third quarter. The Company's net debt to annualized adjusted EBITDA leverage ratio was 8.1 times at September 30, 2007. The same as where we ended the second quarter and a level at which we're very comfortable in the current environment. All of our debt is fixed rate, with a weighted average cash coupon of 4.9%. Our cash interest coverage ratio of adjusted EBITDA to net cash interest was a very strong 2.6 times, compared to 1.9 times in the current year, earlier period. Kurt, would you please give us an update on operations?

Thanks, Pam, and good morning. As you've heard, Q3 2007 was solid for us at SBA. Our tower leasing revenues and profits were very strong. Our services volume and profits continued to grow, And our tower asset growth continued to pick up speed, as both our M&A and new builds were at higher levels than the recent past. In addition, the number of leases we signed during the quarter was very strong and the associated revenues which will kick in shortly, should bode well for our future results, as they have in the past.

Our customer base continues to be active overall. And a bit more evenly spread than our recent quarters, with a couple of carriers picking back up with higher volumes of new site deployments and modifications. We expect this trend to continue through Q4 and into 2008, where we predict there to be very robust activity for most of our core customers for both new sites, overlays, and modifications. The carriers continue to show strong demand for both new subscribers amidst increased minutes of use from both the voice and data products. The continued adoption of wireless data and the increased number in functionality of the devices and services offered is truly amazing. We strongly believe that higher speed ubiquitous mobile data access is going to continue to drive strong growth for years to come.

At SBA alone, we have deployed over 3900 wireless units for both voice and data service for our employee business use and for almost all of the back haul needed for monitoring our lit tower sites. We believe that uses such as machine to machine connectivity will continue to grow and penetration rates in the United States will rival the highest in the world over time.

We have very high quality towers, which continues to be demonstrated on both the revenue and expense side of our leasing business. The operational lease-up in Q3 was our highest in over five years in terms of total tenants added and our highest on a revenue added per tower rate in over two years. In Q3, 84% of our new leasing business signed on our towers was derived from new tenant agreements, while 16% came from amendments to existing agreements. This mix continues to show -- continued new sell site deployment for capacity, fill-in, and geographic expansion, as we have seen in the recent past. 92% of the new revenues signed on our towers came from telephony and other major broadband carriers. Leasing activity on both our recent acquisitions and our new builds has also been excellent, which gives us confidence in our ability to continue to buy and build good multitenant sites.

Rental rates for new tenant leases remain solid as well, with average cash basis tenant ramps across the entire portfolio at $1783 per month, up from $1767 per month at the end of the second quarter. At the end of the quarter, we had 14,781 signed leases, representing an average of 2.5 tenants per tower. Our tower expenses continue to run at very low levels of both OpEx and CapEx. Q3 is typically the highest quarter for repairs and maintenance OpEx, due to the storm season, but Q3 this year was a banner quarter for us in that regard. We continue to be very active, buying the land and extending the leases under our towers as well. That helps with expenses and we now own or control for at least 50 years the land under 23% of our towers. For tower augmentation CapEx expense, the full quarter we only spent $979,000, most of which was reimbursed to us by new tenants leasing the space.

In the services segment of our business, Q3 revenue was at $22.1 million and segment operating profit was $2.9 million, or 13%. Q3 revenue was down 7% from the year-ago quarter, but operating profit was up 16%. We continue to be happy with the gains we have made in profitability in this segment of our business and happy to see the volumes increasing as well. We continue to have a diverse backlog in this business between many different customers and plan to continue to stay focused on the core services that we've always offered, set acquisition, construction, and technical services. Overall, we feel good about our operations at SBA and we're looking forward to a solid fourth quarter and a good 2008. At this point, I'll turn it over to Jeff.

Thanks, Kurt, and good morning, everyone. We had another very solid quarter at SBA, one that has us very excited about the future. To understand our excitement, I want to spend a few moments on some of the drivers behind our third quarter results so that you can better understand why we are projecting an acceleration in 2008 site leasing revenue, tower cash flow and adjusted EBITDA growth compared to our actual third quarter '07 over year earlier growth rates.

Our third quarter growth was solid, but we expect to do better for several reasons. First, the third quarter represented the fourth consecutive, but last, quarter of higher Cingular-specific AT&T merger decommissioning churn. This merger-specific churn cost us probably a couple hundred basis points of organic same-tower revenue growth the last couple quarters. Going forward, we know there will be increasingly less merger-related churn and as a result, less of an impact on our organic growth rates. That issue alone will have a positive impact on 2008 growth.

Second, our third quarter financial results fully reflect our operational lease-up in the fourth quarter of '06 and the first quarter of '07, and very little, if any, of our second and third quarter 2007 operational lease-up due to the traditional lag between signing leases and financial statement revenue recognition. On a gross revenue added per tower basis, the second and third quarters of 2007 combined were 20% higher than the prior two quarters combined, which increase really won't begin to show up in our financial results until the fourth quarter of '07 and then only some, and the first quarter of 2008 when we should begin to fully see the increase.

Third, our services business grew materially in the third quarter, up over 10% from our first half quarterly average, with further growth expected in the fourth quarter. This shows us our customers are busy and materially more active than in the first half of '07. Our carrier customers continued to stay active at these heightened levels and we expect that to continue through 2008.

Finally, while we were very busy acquiring towers in the third quarter, most of that activity took place at the end of the quarter and did not materially contribute to third quarter financial results. So we've come out of the third quarter feeling very good about the future. You can see our optimism in our fourth quarter outlook and particularly in our full year 2008 outlook.

Two points to keep in mind when considering our 2008 outlook. First, we assume the same gross amount of revenue added per tower in 2008 as we expect for the full year 2007. There could be some upside there, since the second half of '07 is running 20% higher than the first half of '07 and we believe the higher rate of lease-up will carry into and through 2008. If there are material 4G deployments, it could be even better.

Second, we do not include in the outlook any planned acquisitions that we have not signed, even though it is our goal to grow our portfolio another 5 to 10% or more in 2008 through buying and building towers. We believe that there will be, again, enough opportunities in the market in 2008 that will meet our investment criteria to achieve our portfolio growth goals. We intend to stay active growing our portfolio and we believe we are well positioned and have the resources to do so.

Speaking of resources, we ended the quarter in a strong cash position, not too different from where we ended the second quarter, notwithstanding a large amount of acquisitions. We accomplished that by maximizing our capital resources through use of a mix of cash and stock for acquisitions, and we're very pleased with the results. We maintained a strong cash position. We have stayed flexible for future opportunities. We've been able to time our next access to the debt markets. We stayed at our target leverage levels. We invested capital well ahead of plan, and where we did issue stock, we did so on a very accretive basis to equity free cash flow per share.

Year to date, we are buying good growth towers at a mid-17 times tower cash flow run rate. That's on a current basis, and a 15 times or less forward rate. That's very attractive quality growth, and we are convinced that using a mix of cash and stock to maximize that growth is the right way to go. We intend to do more of the same in 2008.

There are many other reasons for our optimism, and I'll touch on two. First is the positive impact of New Spectrum on our customers and their desire for additional infrastructure. We are just now starting to see the development of the AWS Spectrum auction last year. We believe it will take years, that's plural, to fully develop this spectrum. The excitement and interest around next year's 700 megahertz auction continues to grow. It will take well into 2010 and likely beyond to fully develop the infrastructure to fully service the 700 megahertz spectrum. As a result, we expect years of additional demand for tower space.

Second is the strength of our customers' business. AT&T, Verizon, Sprint, have all reported their third quarter results. Once again, for all companies, wireless was the growth engine. Within wireless, data was the highest growth segment and is now producing a material portion of the revenue per user. I believe these results present conclusive proof of the permanence of data as a wireless offering. It's here to stay. For the tower industry, we believe that will translate into a need for more antenna, as wireless data networks require greater numbers of antennas than voice-only networks.

We are excited about the future. Our customers are very busy and expected to stay busy. I think we're executing well on our three-part strategy of organic growth, portfolio growth, and capital structure management. We are achieving our goal of material growth in equity-free cash flow per share and as you can see from our 2008 outlook, we expect to achieve our goal again next year. And at this time, we're ready for questions.

Indeed. Well, thank you very much Mr. Stoops and our executive team for your time and that third quarter update. We do appreciate that. (OPERATOR INSTRUCTIONS) First in queue we go to the line of Jonathan Atkin with RBC Capital Markets.

Thank you. Your '08 outlook, I'm just kind of wondering, what sort of seasonality are you expecting in terms of site leasing activity?

I think it should be pretty stable, Jonathan. I mean as you know, you've been at this a while, you know that really to get a revenue dollar out of the lease, it has to be signed up one or maybe two quarters before, so we're already have some of our 2008 results signed up. Really we would have to sign leases up through probably no later than September of next year to have an impact on 2008 financial results. So the main part of what's left to impact '08 is the first half, and we think the first half of '08 will kind of be a continuation of where we are now. So don't really see much seasonality as it impacts the '08 numbers.

And then the AWS license fees, when are you expecting to see the lion's share of the new market launches? And the impact on your business?

Well, I mean I can't speak to the market launches, because that's a pretty well guarded secret by our customers, but I will tell you that we are working on markets today that I don't think have been publicly announced yet, because of the time it takes to get a market ready to launch from those AWS auction participants. I will say we are signing up leases today in AWS markets and we expect that to continue to grow as we end this year, move into the next.

And those are not amendments and overlay-related, but those are new market launch related ?

Those a new market launches.

Finally, maybe for Kurt, any views on WiMAX in terms of activity that you're seeing in the field?

They have had selective markets moving forward and we expect those to continue, especially the big two for launch, and we know of several others that are very active and we're working with them on, and we don't really have any other new news on that right now.

Thank you.

And thank you very much, sir. Representing the Stanford Group, we go to the line of Clay Moran. Please go ahead.

Good morning. You mentioned 12% adjusted leasing revenue growth. Is that a same-tower number?

No.

What's the same-tower revenue growth in the third quarter?

In the third quarter, it's going to be a little bit below 10%, Clay, because of the churn and the lease -- the lower impact of leasing. As we move forward, the '08 guidance assumes a low double-digit number for same-tower.

Okay, and can you remind us what your target net debt to EBITDA range is? I think you're basically at the top end now, but using your 2008 guidance, you would be under the midpoint. Are you considering a stock buyback program if that's the case?

We will -- we're comfortable at our leverage levels and we will be considering additional leverage to either buy back stock or, as it is our preference and I think it will continue to be our preference, to keep growing the portfolio.

And that range is 6 to 8 times, right?

Yes.

Okay. Thanks, Jeff.

And thank you very much, sir. And next in queue, we go to the line of Ric Prentiss with Raymond James. Please agreed.

Good morning, guys.

Hey, Ric.

Following on that line, if you look at your '08 to '07 increase in EBITDA and you look at your target range on leverage of 6 to 8 times, there's added debt capacity there, with the added EBITDA from the growth of this great business. What do you look at as far as timing entering the market, looking at securitization style, it takes a little longer, looking at other type of debt? Is it kind of once a year bullet, or what should we think of as far as when you might reload on that forward-looking EBITDA?

Yes, on a, on a steady state kind of basis where we do a lot of smaller transactions, it's probably a once a year type of thing, although we've never had a history of only doing one a year. So, but that would probably be a reasonable assumption, if we look to do something bigger, like associated with a larger transaction, you could see more than once a year type of relevering. And we're pretty opportunistic. We look at all markets and we will access the right market at the right time.

Okay, and then on your '08 guidance, nice to hear the double-digit same-tower revenue growth has been baked into that, or low double-digit same tower revenue growth. You mentioned I think in your comments, Jeff, that if 4G is material, there could be upside. What have you baked in there kind of for 4G, Clearwire, and Sprint into your guidance you gave us?

Well, not much. I mean we don't really do a really granular bottoms-up approach. We take more of a what are we doing now and how do activity levels feel, and we really -- while we've gotten some from those guys in '07, we haven't gotten a tremendous amount. Clearwire, a little bit more earlier in the first half of the year. Sprint's been, I would say, not that active all year long. So to the extent we're carrying that over into next year, we're really not relying on much, if anything there, and that's why I say if there are material 4G deployments, it could be better.

Okay, and then on the AWS stuff, you mentioned that starting to see some pickup in activity. Is the equipment available to the operators to actually start strapping on the tower, not so much the handset side, but literally the base station and antennas to work at that frequency? Are the manufacturers starting to produce it so it will be ready to start strap-on and pay you guys rent?

Yes, Ric, this is Kurt. I haven't heard any issues with that at all, so I know we're moving markets ahead on our services business with them and that has not come up at all.

Aren't we doing some installs?

No.

We're doing the install work, so it must be there.

Some investors have been concerned that the equipment might not be there, even though the Spectrum gets cleared, so that's good news. Final question, as you look at the land program, what kind of multiples are you paying on the land side?

We're paying 11 to 12.

Great. Well, good luck, guys.

Thanks, Ric.

And thank you very much, Mr. Prentiss. Vance Edelson with Morgan Stanley has our next question. Please go ahead.

Okay. Thanks a lot. If we look at the adjusted EBITDA margin as reported, there's very strong improvement from last year, but it's actually almost entirely flat the past three quarters and I think the midpoints for fourth quarter guidance would have the margin actually declining. So how should we reconcile this with the obvious scalability of the tower business model, and what are your views on the long-term margin potential at the EBITDA level? Thanks.

Yes, to the extent EBITDA margin is flat or, as you suggest, Vance, might move backwards in Q4, it would be entirely due to growth in the services business and margin. I mean the true picture of the scalability and growth of the tower business, look at the tower cash flow margin, which constantly grows. The only variation in our EBITDA margin, to the extent it's not going up, is going to be because services actually perhaps outperform and contributed more in that particular quarter. But the tower side leasing business margins go up, up, up, and up.

Okay. Thanks for that and could you also comment on the amount that you're paying for the acquired tower? Seems like average prices have been ranging from, 400,000 to $700,000, maybe trending up a bit and your discretionary CapEx just hit a high. Is the average price paid likely to increase over time as it becomes more difficult to find available towers, and given your strict criteria for ensuring a deal is accretive, do you think that the number of towers purchased could slow at some point during '08?

Well, the price per tower has really -- it's almost directly oppositely correlated to the multiple. I mean we're buying towers of varying maturities. We'll pay a lower multiple for a higher priced tower and a lower dollar per tower for a higher multiple tower. So I wouldn't draw any conclusions from the price per tower without really understanding a relationship of price and multiple. I think you should look at the average price we've paid and you should think about that and you should think about the fact that we're paying around 17.5 times today's run rate, but with a forward expectation that that's 15 times or below, which we think is really good.

And we have greatly exceeded our expectations in the M&A area this year. What it has told us is there are still a lot of towers out there that perhaps we thought we knew, about but as it turned out, we didn't. It really shows that over the last several years, this entrepreneurial business has been grown by a lot of smaller players who are building towers and buying some towers and looking to pull a few together and then sell them to people like us. So I think we got another shot at doing really well in 2008.

Okay, great. And finally, you mentioned signing up leases today for the auction 66 spectrum. On the 700 megahertz, one of your peers mentioned they are already working with carriers on the planning process. Are you seeing the same type of early interest in the 700 megahertz band?

Very little, very little. Some, but very little. I mean it will go, it will go the same way it always does in our opinion. The auctions will come and they will come to SBA for their, for their leasing needs.

Yes, I would agree. Okay. Thanks.

And Dave Coleman with RBC Capital Markets has our next question. Please go ahead.

Thank you. Just on the site leasing margins, should we think about on a, I guess subsequent quarters margins down at the 70% range, or will they revert back up to 73%? And then second question, on Sprint's conference call yesterday, they talked about slowing the rollout of Pivot. I'm just curious whether there's been increased activity from the cable operators as far as putting the AWS Spectrum that they picked up last year to work? Thanks.

Yes, Dave on, your first question, make sure you factor in that one-time charge, which is the reason why margins are where they are. If you take that out, margins haven't gone down at all and they will continue to increase.

Should we -- I don't mean to cut you off, but should we assume that they get back to that 73% for fourth quarter and then in 2008 as well?

Yes, you should assume at least that.

Okay, thanks.

Yes, and on the, on the cable stuff, we don't really have any news there in terms of what those guys are thinking or doing.

Great, thank you.

And thank you very much, Mr. Coleman. We have Jason Armstrong with Goldman Sachs next in queue. Please go ahead, sir.

Good morning. This is Scott Malat sitting in for Jason. Just following up on the multiples on towers, it does seem like the prices are moderating after rising for a while. Can you just characterize the competition for c=sites out there? I know it's always competitive, but does the credit environment help out a bit?

It does a little bit, but there are still some well-funded competitors out there. We're trying to be very disciplined on our returns. We're doing, we're buying more than we thought, but we're, we're losing more than a few, too, in terms of price. I would say prices have stabilized. I don't think we've been able to push them down like we had hoped we might be able to with the credit issues that popped up in August and September and are working their way through. Probably put a stop to further price increases, but it really hasn't reversed itself, so we're somewhat at a plateau right now.

Okay, thanks. That's helpful. And then just following up on the land acquisitions, can you just remind us of the amount of land leases that you have coming up for final expiration over the next several years or even 10 years? Then recently when renewing the lease, what has the direction been? Is it getting more pricey? Can you provide any more parameters around renewal leases?

Well, that's a great question for us, because we are unbelievably well positioned on that front. I literally think the number of leases that come due in the next five years that we can't renew, you can count on one hand, maybe less. Our number of leases that are due in 10 years that we can't renew is 1%, so we have an unbelievably secure position in the industry when it comes to that issue, and we are continuing to work really hard on that, on that front. Prices have come up from where they were a year ago. I mentioned we're now paying 11 to , 12 times. That's been kind of that way for six months, and some of the economic issues that are effecting the country more broadly, we think have actually helped free up some opportunities for us here within these price ranges. So we, we think we'll do a good amount, again next year at similar

Thank you very much.

And thank you, Mr. Armstrong. We have David Janazzo with Merrill Lynch next in queue. Please go ahead, sir.

Good morning. Jeff, another one on the M&A. So you mentioned in your release well positioned to grow the portfolio by 5%, 10% or more. What would the factors be that would drive it towards the 5%, or possibly the 10%, or even more?

Well, it's going to purely be seller, seller timing. There's enough towers out there for us to buy. It's all a question of is it -- are the decisions being made for the sellers to sell at that time time. I believe given our cost of capital that we will always be able to be successful within our return requirements. I guess that's another risk, if prices go too high and we don't, we don't hit our returns, we won't be buying. But I'm not sure why other people's returns should be that low, that they would get funding to do all that. And that really hasn't happened over history. Certainly we do lose some deals based on price, but in general, we manage to see our way clear to get our fair share of prices to towers that we like.

So it's really -- I mean the absolute number of towers out there is way more than enough to satisfy the high end of our range. It's really just, it's kind of -- you can lead a horse to water, metaphor, but can't make him drink. Is the seller ready to go, or not? That's really kind of what drives the opportunity base in this business, so that's going to dictate -- that would answer both ends of your question. What will cause it to be at five or what will cause it to be at more than ten?

Thank you.

I think we have plenty of capital and access to capital. That's not going to be an issue. The cost of capital today would absolutely support continuation of our M&A strategy at the prices we're paying, so I don't see that as an issue. It's really all seller willingness.

Got it, thanks.

And thank you very much, sir. Representing Lehman Brothers, a question from Brett Feldman. Please go ahead.

Yes, thanks for taking the question. I was hoping I could ask you two questions. One on the cost side and one on the strategic side. So on the cost side, if we think about the next couple of quarters, you've been buying a lot of land. How is that going to be reflected in your tower operating costs, your cash tower operating costs? If I were to look at it a per tower level, and a per month basis, are we getting to the point where you've purchased enough land that you may actually see that number decline, or is it just going to be enough to offset the natural inflation-related costs you would see on that side of the business?

Well, I think certainly the latter, and hopefully we can do enough to get to the former. But right now, you -- the safer bet would be it would offset some of the other inflationary elements, which aren't great. I mean the other costs besides ground rents are site maintenance and we're doing really well there. We actually came in under budget pretty much all this year on that front and property taxes, which are growing, but kind of at an inflationary rate, so we're hoping to offset those, Brett, through the ground lease purchase program. And if we can do really well, we can actually take the absolute cost per tower down.

For a tower where you're currently leasing the land, what percentage of your costs at that site are associated with that lease?

70% of the cost base.

70%, okay. Then just on the G&A side, is there any reason why your recurring quarterly G&A level would begin to change from where it is right now, particularly into '08?

Not other than an inflationary-type change, absent some AAT-type deal. But beyond that, no.

All right. That's a perfect segue into my next question, which is that you've obviously been able to do a lot of one-off transactions with your existing capital structure and liquidity. What's your appetite right now for doing another sort of transformational deal, something that would add potentially thousands of towers to your portfolio? And then assuming you're interested in it, does that mean you believe you could finance it both through equity and in the debt markets, particularly the asset-backed markets?

Well, we would not do anything to be, quote, transformational. We would do something, just like we did AAT, because we thought it made great financial sense for our shareholders. So if something fits that bill, we're interested. The subset of that, though, is can it be financed in a way that still makes it a financially great deal for our shareholders. So you have to kind of work all those elements together, Brett, to come up with the decision to move forward on something or not, and if it kind of hits our accretion to equity free cash flow per share goals, including the post, the post transaction costs, the financing, we're interested. If not, we pass and keep doing what we're doing.

But we're not -- we don't have to be bigger just to get bigger. We would be looking to get bigger because if by doing so we're going to be pretty sure it's going to be accretive to equity-free cash flow per share. There's financing available. Markets are open. They are a little more discombobulated than they were a year ago, but they are still there. Towers continue to be extremely well perceived in the capital markets, so it's not so much an access issue as it is a cost issue which would get factored into the decision as to whether something's accretive or not.

You think it's necessary that there be an accommodating sort of securitization market behind a deal, or do you think you could tap into other types of debt markets to finance transactions as well?

Yes, I think you could, you could go to the bank market for what you might otherwise have previously done in the CMBS market and then you just have to look at the costs and see if it makes sense.

Okay, well, great. Thank you for taking the question.

Yes.

Two participants left in line in the queue. Next we go to the line of Gray Powell with Wachovia, please go ahead.

Thanks a lot, guys. I just had a few quick questions. If I do some simple math on your sites rental revenue guidance, it looks like your 2008 guidance implies an incremental $44 million in leasing revenue versus $41 million in 2007. So given that the full 5 to 10% growth in your tower portfolio is not completely factored into revenue guidance, I would think that you guys would assume leasing demand to be higher in 2008 than it is in 2007. Is the difference there mainly just a lack of Cingular decommissioning in 2008?

Yes, that's a big component of it, Greg. I think that whole decommissioning thing probably leased in the third and the second quarter cost us close to couple hundred basis points of net growth. So -- and that will be gone as we move forward. So that is a driver. And the rest of it must be -- that really has to be it because we're not modeling any more revenue added per tower than we are expecting this year. And then the only other factor would be the timing of acquisition closings.

Okay, and then typically as we move from Q4 into Q1 of a new year, we generally see a seasonal slowdown in demand for the carriers, but it seems like it will be different this time around, and with the additional activity from AT&T and T-Mobile and the other AWS winners, do you think that's going to be the same case next year?

Yes, it should, because the AWS winners are on market launches and they can't stop on January 1, for like a rebudget, a recheck. They are in the middle of a project. When you're in the middle of a project, it crosses calendar years without missing a beat, and I would feel the same way about the T-Mobile 3G overlay. I mean they are ramping that up and they know they need to get it done and they are not going to stop on January 1, to see where they are. It's a project. But then the rest of the carriers, I think, will do what they typically do and we feel pretty good that we'll move into the first quarter of next year at a fairly steady state.

Okay, and then just last question, more of a housekeeping item, is it safe to assume that the acquisition revenue contribution for Q3 is in that same 2 million to $3 million range that's been the last couple of quarters?

In Q3?

Yes, Q3 of this year.

I don't think it's that high.

Oh, it's less than 2 million?

Yes, I think, I think most of what we did was pretty well at the end of the quarter.

I was talking about like all the acquisitions from the last 12 months. In terms of breaking out the internal revenue growth rates.

How about you call us back on that and we'll try and do a little work on that.

Okay. Thanks.

And thank you, Mr. Powell. We have William Petkun with GE Asset Management. Please go ahead.

Yes, hi, Jeff. I just had a question about, you mentioned a number of the carriers, but there was no reference to Leap or Metro and I was wondering about if you could comment on any activity you've seen with them. They are obviously looking to roll out in a number of markets in the first half of next year and given you typically have that kind of visibility, 90 to 120 days out, if you could comment on that activity.

Yes, Bill, without naming them, when we were talking about the winners of the AWS Spectrum, that's kind of who we are talking about. We are seeing activity. It's good, and we expect it to continue.

Okay, great. That's perfect. Thanks.

Thank you very much. With that, Mr. Stoops, there are no further questions. I'll turn the call back to you for any closing remarks.

Great. Well, I appreciate everyone joining us today, and we look forward to sharing our progress with you next time. Thank you.

And ladies and gentlemen, Mr. Stoops is making today's call available for digitized replay for two full weeks starting at 5:00 p.m. Eastern daylight time November the 2nd, all the way through 11:59 p.m. Eastern standard time November the 16th. To access AT&T's executive replay service, please dial 800-475-6701. At the voice prompt, enter today's conference ID, 889467. Internationally, please dial 320-365-3844, again, with the conference ID 889467. That does conclude our results for this third quarter. Thank you very much for your participation, as well as for using AT&T's executive teleconference service. You may now disconnect. And enjoy your weekend.