SBA Communications Corp (SBAC) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA first quarter earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions). As a reminder this conference is being recorded.

I would now like to the conference over to our host, Miss Pam Kline, Vice President of Capital Markets. Please go ahead.

Thank you for joining us this morning for SBA first quarter 2009 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer, and Brendan Cavanagh, 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 2009 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, in our SEC filings. Particularly those set forth in our Form 10-K for the fiscal year ended December 31st, 2008, which documents are publicly available.

These factors and others have affected historical results, may affect future results, and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, May 5th, 2009, 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 has been posted on our website www.sbasite.com.

Brendan, could you please comment on the first quarter?

Thanks, Pam. Good morning. As you saw from our press release last night, our first quarter financial results were excellent. We exceeded the midpoint of our guidance for site leasing revenues, site development revenues, tower cash flow, and equity-free cash flow. We were above the high end of our guidance for adjusted EBITDA.

Total revenues were $135.1 million, up 22.9% over the year-earlier period. Site leasing revenues for the first quarter were $115.5 million or a 29.2% increase over the first quarter of 2008. This site-leasing revenue growth was driven by both organic growth and acquisitions. Site-leasing segment operating profit was $87.9 million or an increase of 30.6% over the first quarter of 2008. Site leasing contributed 97.1% of our total segment operating profit in the first quarter.

Tower Cash Flow for the first quarter of 2009 was $89.3 million, or 31.9% increase over the year earlier period. Tower Cash Flow margin was 78.7% up 120 basis points over the year earlier period. Our services revenues were $19.6 million, compared to $20.5 million in the year-earlier period, or a 4.7% decrease. Services segment operating profit was $2.6 million in the first quarter of 2009, compared to $2.4 million -- $2.4 million in the first quarter of 2008. Services segment operating profit margins were 13.3% in the first quarter of 2009. Compared to 11.5% in the year-earlier period. Kurt will discuss services in more detail shortly.

SG&A expenses for the first quarter were $12.5 million, including non-cash compensation charges of $1.6 million and acquisition-related expenses of $.4 million. Acquisition-related expenses were capitalized in all periods prior to 2009. SG&A expense was $10.5 million in the year-earlier period, including non-cash compensation charges of $1.4 million and $0.9 million of one-time net benefits associated with the reduction of accruals that were originally recorded at estimated amounts. On a normalized bases, our cash SG&A expenses are only up approximately 5% over the year-earlier period, despite portfolio growth of over 26% in 2008.

Net loss during the first quarter was $17.9 million, compared to a net loss of $19.2 million in the year-earlier period. Net loss for the first quarter of 2009 included a $5.9 million gain on the early extinguishment of our debt. Net of the write-off of deferred financing fees. Net loss per share for the first quarter was $0.15, compared to a net loss per share of $0.18 in the year earlier period. Weighted average shares outstanding for the quarter were 118 million.

In our press release and in our 10-Q, which will be field soon, you will notice some restatements related to the accounting for our convertible note transactions. We were required to adopt APB 14-1 effective January 1st of this year. This accounting pronouncement requires that we bifurcate and record at fair value the debt and equity components of our convertible notes. This accounting results in us recording an initial discount to the principal balance of our convertible debt. Over the life of the instrument, the carrying value is accreted up to its full face value through a non-cash interest expense. APB14-1 required us to retroactively apply this new accounting and restate our prior period financial statements accordingly. Although the accounting rules have changed, and our reporting will be somewhat different, the economic nature of the transactions has not changed.

Adjusted EBITDA was $81.7 million in the first quarter of 2009, or a 32.9% increase over the year-earlier period. Adjusted EBITDA margin was 61.4%, up from 56.9% in the year earlier period. Once again, equity free cash flow increased materially in the quarter, reflecting strong adjusted EBITDA growth. Equity-free cash flow for the first quarter of 2009 was $52.8 million, a 37.9% increase over the year-earlier period. Equity-free cash flow per share for the first quarter of 2009 was $0.45, or a 28.6% increase over the year-earlier period.

In the first quarter, we acquired seven towers, and built 25 towers, ending the quarter with 7,884 towers owned and the rights to manage approximately 5,000 additional communication sites. Total cash capital expenditures for the first quarter of 2009 were $11.7 million, consisting of $1.6 million of non-discretionary cash capital expenditures such as Tower maintenance and general corporate CapEx. And $10.1 million of discretionary cash capital expenditures.

Discretionary cash CapEx includes $4.1 million incurred in connection with land acquisitions and acquisition earn-outs. $5.1 million in new Tower construction, and $0.9 million for augmentations and Tower upgrades. With respect to the land underneath our towers, we spent an aggregate of $4.9 million to buy lands and easements, and to extend ground lease terms. As of March 31st, 2009, we own or control for more than 50 years, the land underneath 26% of our towers.

At this point I'll turn things over to Pam, who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. SBA ended the first quarter with $2.5 billion of total debt. We had cash and cash equivalents, short-term investments, and short-term restricted cash of $126.5 million. Resulting in net debt of $2.4 billion.

Our ability to repurchase some of our debt at a discount continued in the first quarter. During the first quarter of 2009 we repurchased and privately negotiated in open market transactions, $52.3 million of our 0.375% convertible notes and 7.55 million of our CMBS notes for $42 million in cash and approximately 618,000 shares of our Class A common stock. During the quarter we issued approximately 274,000 shares in connection with acquisitions, and our share count at quarter end was approximately 118.7 million.

At March 31st, 2009, our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times. This represents a reduction in leverage of 1.5 turns in just two quarters and demonstrates just how rapidly we're able to reduce leverage. At March 31st, 2009, our net secured debt to annualized adjusted EBITDA leverage ratio was 5.3 times. As of quarter end, 85% of our debt was fixed rate and the weighted average cash coupon on all of our debt was 4.3% per year. Our first quarter cash interest coverage ratio of adjusted EBITDA to net cash interest was a a very strong 3.1 times.

Subsequent to March 31st, 2009, we have repurchased an additional $3.9 million of our 0.375% convertible senior notes and 9.8 million of our CMBS notes for $13.2 million in cash. In April, we issued $500 million of 4% convertible senior notes due in 2014. The notes were issued with an initial conversion price of $30.38. Gross proceeds were $488.1 million after deductible underwriting fees. We used $50 million of the proceeds to repurchase 2.016 million shares of our common stock.

As we have done in the past with our convertible issuances, we used $61.6 million of the net proceeds and the proceeds of a warrant we sold concurrently, to purchase a hedge which effectively increases the conversion price to $44.64, which was 180% of our stock price on the date of the transaction. The notes are due in October, 2014, and the net proceeds will be used to repurchase and/or retire debt and for general corporate purposes.

In addition to this transaction, we unwound the hedges and warrants associated with the 264.1 million of our 0.375% convertible senior notes due 2010 that we had previously repurchased. We elected to receive the value associated with the unwinding of these hedges and warrants, which was approximately $13.5 million in shares of our stock. As a result we have retired an additional 546,000 shares of our common stock. As of today, we have 81.9 million of 0.375% convertible senior notes outstanding. 1.5 billion of CMBS notes outstanding, and 116.4 million shares outstanding.

I'll now turn it over to Kurt to discussion the operational results.

Thanks, Pam. And good morning. Now that you have seen and heard the numbers, you know why we feel very good about our start in 2009. The wireless infrastructure market has been busy, our assets are right in the middle of the action and our employee teams perform very well. Our leasing results were good, our services division performed well, we built a lot good new towers and operationally provided a very high level of service to all of our customers. We have fully integrated the three big Tower portfolios we bought in the second half of last year, and they have been leasing up well right along with our legacy assets.

Specifically related to our first quarter results, our gross Tower leasing revenues signed in the quarter was good on both the cumulative and per-Tower basis. Activity was again highest from T-Mobile as AT&T, as they continued to expand their footprint and overlay their footprints with 3G technology. Other leasing activity was diversified amongst Verizon, Metro PCS, Leap, and other regional carriers, along with activity from private and governmental entities deploying specialized systems. Activity from Clearwire has been picking up as well.

Our leasing backlog has increased substantially since the beginning of the year, leading us to believe that operationally lease up will be greater in the second half of the year. 72% of our new revenues signed in the first quarter came from new tenant leases while 28% came from amendments to existing leases. Rental rates have stayed firm, and our average cash basis rents across our 19,447 tenants increased to $1913 per month. Brendan mentioned spending just $900,000 on Tower augmentations in the quarter. This is by far the lowest augmentation rate per tower in the industry. And furtherer demonstrates the quality of our portfolio and the capacity remaining on our assets despite already having 2.5 tenants per Tower on average. Our Tower Company employees continue to perform well, provide great customer service, and continue to keep our costs in check.

On the asset growth front we closed on fewer towers in the first quarter as we made our balance sheet a priority over portfolio growth. We bought seven towers during the quarter, but we are starting to ramp our acquisition activity back up, and we expect to close on more towers in the next two quarters. Our new tower build team completed 25 new towers, their best first quarter since we restarted the program four years ago.

Our backlog of new Tower builds is strong, and we expect to complete 80 to 100 new Towers in 2009. Zoning the new Tower remains as tough as ever, which makes these new towers a prize product once get through that process and place the asset into service. Our lease-up statistics on these Towers have been excellent to date.

On the service side of our business, Q1 was very solid. Our backlog was more diverse in most of 2008 as we continue to perform our core services of the last 20 years, including site acquisition, construction and technical services. The teams split their time between new cell site development, augmentation of existing cell sites, and overlays to existing cell sites while posting good numbers for revenue and gross profit, in what is typically the seasonally weakest quarter of the year for the services segment.

Again, we feel good about our strong start to 2009, and look forward to the next three quarters as the wireless industry continues to progress rapidly. I'll now turn it over to Jeff.

Thanks, Kurt, and good morning, everyone. The first quarter was another strong quarter for us and a continuation of the solid results that we have been proud to produce for the last several years. We continue to perform well operationally. Our customers are busy investing in their networks and are expected to stay that way, and we believe our future continues to look very bright. I want to address three topics, and then we will open it up for questions.

The first topic is our balance sheet. Our recent $500 million convertible note issuance materially improves our debt and liquidity profile and puts us in excellent shape to resume material portfolio growth. With the proceeds of the issuance, we have all of the cash we need to pay off all of our hard maturities until 2013. Those are our remaining 0.375% convertible notes, our [Optisite] credit facility, and our SBA credit facility. Given the strength of our business, we were confident in our ability even in very tough markets to access the capital that was needed to eliminate any maturity risk, and we have now done so.

Next we will turn our attention to refinancing our 2005 CMBS. Even though that instrument does not mature, it does increase this interest rate and restrict certain cash flows if not refinanced by November 2010. Those are outcomes we intend to avoid, and we are confident in our ability to do so. To appreciate our positioning, I encourage you to look at the net secured debt to adjusted EBITDA leverage ratio disclosure in our press release and apply the proceeds of the convertible note issued to pay down secured debt. That would reduce the pro forma ratio to 4.2 times. This is a level well below three different secured financings that have been successfully completed in our industry since December, and we don't even need that much secured leverage to refinance the 2005 CMBS.

We are currently thinking about pursuing a secured financing in the fourth quarter of this year, or first quarter of 2010. We have the luxury of waiting until then and by waiting we believe the secured debt market will continue to improve for SBA. Our cash flows will continue to grow, and we can reduce or eliminate any prepayment penalty on the refinancing of the 2005 CMBS. If, for example, we choose to do a $600 million to $800 million transaction, which we believe would be achievable based on expected cash flows and 4.0 to 5.0 turns of secured leverage, we could entirely refinance the 2005 CMBS and provide a material amount of additional proceeds for growing the Company or partially refinancing the 2006 CMBS before November 2011.

We have a lot of confidence around this outcome, so much so that we are conformable in recommencing some acquisitions for cash this year. Because our industry in general and SBA in particular has demonstrated such good access to capital during very difficult capital markets, I fully anticipate that as we move in to 2010 we will once again be targeting 5% to 10% or more annual portfolio growth. Which leads me to the second topic I would like to discuss.

While we have spent much of our focus over the last eight months on balance sheet sheet positioning to address the dramatic changes in the capital markets, we believe there has been enough improvement in SBA and the capital markets that it is appropriate to begin to return our focus back to the three-part strategy that has served us so well over the years in building shareholder value. Appropriate balance sheet leverage, organic growth and operational execution, and material portfolio growth.

We remain committed to portfolio growth as a key component to increase equity free cash flow per share and shareholder wealth. You can see from the press release that we have taken some small steps in that direction, which we believe will turn into bigger steps as we move through the rest of 2009 and into 2010. We continue to see a very positive environment for future Tower Cash Flow growth. We also see a number of opportunities that give us confidence around our ability to grow the Company 5% or 10% or more per year through portfolio growth for a number of years.

Acquisition prices have declined in response to increased costs of capital, and we are believe we will continue to find opportunities where the price and future growth will provide returns well above our cost of capital. Those are the reasons we like portfolio growth so much as a tool to increase shareholder wealth is because of our efficiency of turning new asset cash flows into adjusted EBITDA and equity-free cash flow. We are very good at integrating new towers into our portfolio and then operating them efficiently.

You can see from our press release how much we have grown Tower Cash Flow and adjusted EBITDA margin in the last year. The Tower Cash Flow margin growth is particularly pleasing as each of our three large acquisitions last year came in with lower Tower Cash Flow margins than the portfolio average at the time. We run pretty leanly at SBA. As an exercise to see just how leanly we operate our core leasing business, I would encourage you to strip out the services segment revenue and costs from SBA and each of our peers, and then rerun adjusted EBITDA margins.

About $1.6 million of our cash SG&A each quarter relates to our services segment, which after subtracting that, and the services revenue and associated gross profit, implies a 71% adjusted EBITDA margin on our core leasing business. I believe that would be either equal to or higher than any other EBITDA margin in our industry on the core leasing business even though our peers are several times our size. I want to note that we are committed to our services segment, and this was only an exercise. But one that I hope demonstrates just how efficient we are in our core leasing business and how we can create additional value through portfolio growth.

The third topic I want to touch on is the very favorable macro environment hat we continue to find ourselves in at SBA, not withstanding the difficult general economy around us. Within the telecom universe wireless continues to grow in contribution and importance. For diversified companies like AT&T and Verizon, wireless is the most important segment and is expected to become more so over time. Customer demand for SBA continues to be strong and reflects, we believe, the current and expected growth in wireless data.

A lot of really smart people are betting that real money will be made in wireless data. And that the consumer will pay increasing amounts of money for an increasingly satisfying wireless data product and experience. Results so far support that relief. And data ARPU is increasing rapidly and Apple's results for sales of iPhones and applications have lead to huge investments from others seeking to replicate those results such as Microsoft, Google, and Intel. 4G technology, which will provide greatly increased data speeds is actively being pursued by multiple providers.

Total wireless minutes of use continue to grow at a rapid rate with data minutes growing much faster than voice minutes. To handle increasing data minutes of use at ever faster speeds, networks which handle both voice and data traffic need continuous expansion and improvement even if growth in subscribers slows and voice minutes decline. As long as our customers find the wireless data business profitable and demand continues to grow, SBA should benefit.

Wireless is a finite resource, the quality of which is impacted by a number of factors, the biggest of which are demand, spectrum, and network. As demand grows quality will suffer unless more spectrum is utilized or the network is improved. Where spectrum is limited, network expansion is typically the only solution. Proof of this may be seen over the last 20 years in the form of increasing antenna densities which has directly lead to steady growth in revenue and cash flow per Tower.

While quarterly results will always very somewhat, particularly on carrier-by carrier business, over the long term, the basic themes I have outlined remain and I believe will continue to remain intact and remarkable steady. Those themes are the reasons we remain so optimistic about our future, why we continue to invest in our business, and why we are confident in our ability to create additional wealth for our shareholders.

Before we open it up for questions, I do want to mention one very special item. Is our 10th year as a public Company, and our 20th year in operation. To celebrate, we will be ringing the opening bell at NASDAQ on June 16th, which is ten years to the day, we went public. Through it all, the ups and the downs, I want to say on behalf of myself and our management team that we have thoroughly enjoyed every moment and the relationships we have developed over the years with out investors, customers, and employees. I consider the SBA story a great success, and one that we are very proud of. I want to thank all of you for your part that you have played in our success.

And Lola with that, at this time, we're ready for questions.

Okay. (Operator instructions). And first we will go to the line of Dave Coleman with RBC Capital Markets. Please go ahead.

Thank you. Were there any one time nonrecurring revenues or -- during the quarter? And if so, how much were they? And then Kurt could you repeat the number of signed leases at the end of the quarter? And then, Jeff, you mentioned possibly doing a secured debt deal second half of this year. Can you talk about what rate you would anticipate getting on that -- on a debt deal the size you mentioned? Thanks.

Dave, this is Brendan, there were no nonrecurring or one-time type items in our revenue number for this quarter.

And Dave on the tenant count, it was 19,447.

On the financing days, one of the reasons we do want to wait until the fourth quarter is we see rates continuing to decline as they have since the beginning of the year. I would hold out a couple of -- well, actually one example in particular. Crown recently did a secured debt deal, which I think the effective yield came out at 8.25%, and that was just a couple of weeks ago, and is now trading at around 7.5%. So we think the markets will continue to improve. We think our Company in particular will continue to look good and perform well.

And also the -- the -- the bank loan market is starting to reopen which actually has been shut now for six months or so, but prior to Labor Day, was a very good and one of the main sources of secured financing for our industry. So all of that stuff is coming together well. And at this point, I believe we would do something below 8%, and we're going to actually work towards improving what we could do today in terms of rate, and we think we will do that later on this year.

All right. Just going back to the number of signed leases. It looks like it increased by just over 100 versus year end 2008, which is, I think the lowest number of signed leases in any given quarter. Is that just seasonality? Or was there -- work slower during the first quarter than anticipated?

No, it actually has to do with just cleaning up our system and some churn from some small tenants. But it really -- the top line -- the gross ads were in line with what we have done over the last couple of years. It was really removal of some tenants that resulted in the lower net increase.

Great. Thanks a lot.

Thank you, and next we will go to Mike McCormack with JPMorgan. Please go ahead.

Great. Thanks guys. Couple of things, just maybe your thought with what Sprint did yesterday with the boost on limited subscribers? Is there an opportunity, do you think, maybe somewhat near term to have Sprint re-up spending on the [IDA] network, and is that an opportunity for you guys? And secondly a follow-up, Brendan on the last question on the CMBS refi. Any sense on what preference the form would take to get that done?

The boost results were good. We have actually seen some money being spent -- a little bit -- I don't want to overstate this because it's not big numbers, but we have seen some spending by Sprint Nextel on the IDA network. And Mike, clearly if the network continues to do well, and the demand continues to increase, we think that that will lead to additional -- will need to lead to additional spending. I think Sprint is doing what they need to do in terms of managing their finances, and they are pushing off CapEx for as long as they feel possible. But we do know, given our 20 years in the business that at some point if demand continues to increase, there will need to be some additional network investment.

And in terms of your question about the -- the form of the financing -- I mean, we want to do a secured financing, and there are typically three markets that historically have been available for that. One is the high-yield secure market, which is the one that one of our peers just accessed. The other is the bank institutional loan market, which has traditionally been one that our industry has been very active in, and the third is the CMBS market. We don't hold out a lot of hope that the CMBS market will be the one we choose, but we do have the architecture in place. And if it does recover and it makes sense to do so, we would be quick and ready to go there. So other than being focused on a secured financing, we're going to continue to monitor and probably decide closer to the end, exactly which of those markets we will tap.

Great, thanks, guys.

Thank you. And next we will go to the line of Ric Prentiss with Raymond James. Please go ahead.

Good morning, guys.

Hi, Ric.

I think I am one of the ones that has been here all ten years, I think. So, nice to reflect back on those cycles. Three questions for you maybe in reverse order of what your three points were. First, Jeff, can you talk to us a little bit about what you feel the organic growth rate is in this industry, not just this year, but as you look out kind of medium term? What do you think Tower revenue, Tower Cash Flow EBITDA, even going in to equity free cash flow, what do you think this industry can sustain given what you are seeing in the macro environment?

Yes, I think 9% to 10% top line. I think 12% to 14% Tower Cash Flow line, and high teens on the EBITDA line. And I'm a little hesitant, Ric, with the equity think free cash flow, because obviously the biggest driver there once you leave EBITDA is interest expense. But it's moving in a direction where it should be north of -- north of 20% growth. The interest rate is moving positively so that we do feel confident that over time it settles in north of 20 as long as the things we just talked about above that revenue, Tower Cash Flow, and EBITDA come in where we think.

And do you think there's any systemic difference or portfolio difference that would cause your numbers to be higher, or lower than your public peers?

Well, I do think the -- the difference in our portfolio helps us quite a bit there. Having built the majority of our towers, or bought from people like us, who built the towers for this industry, I think we have some inherent operating expense benefits and multi-tenant kind of capacity benefits that should really help sustain those numbers. I think it has been apparent over the years. I think it's really apparent on the point that Kurt and Brendan made earlier about the low augmentation CapEx per Tower. We just -- as we have always said and one of the things that has been consistent about SBA over the ten -year history of being in tower ownership, is we are very careful about the quality of our portfolio, and we like what we have a lot and we think it has served us well. And will continue to do so.

And second point on the portfolio growth can you update us a little bit about what you are seeing in the multiples as far as on Tower Cash Flow? And then also as you look at using stock versus cash, how you kind of do that math?

Yes, the -- the -- what we're seeing on an apples-to-apples basis, compared to a year ago is probably two to three turns lower in terms of cost. The -- the batch of towers that we bought this year, I think it was nine or -- what was it nine? Ten?

So far ten.

They were slightly more mature towers, they were around three tenants per Tower. And we bought those for about 10.5 times. The batch that we have under contract is less mature actually then our existing portfolio. It's about 1.5 tenants per tower and we are looking at about a 1.5. times tower cash flow multiple on that. And both of those, Ric, if you dial it back a year ago, those multiples are probably two to three turns below where similar at assets would have been.

And in terms of the use of -- I mean, we, we take opportunities to bring stock back in, which is what we did in the convert. We actually, really managed to -- a balance of equity and debt capitalization so we'll use some stock and -- and we'll turn, also right around and use some cash. But in general while we're above seven turns of leverage I think you can assume that we will continue to use some stock if presented with good acquisition opportunities that will meet our long-term return on investment criteria.

Okay. And the final question is on the balance sheet then. As you look at using the proceeds from the recent convert to, I think your phase was a substantial repayment or repurchase of some of the debt, how should we think about that; are there any prepayment penalties? How do you think about leaving cash on the balance sheet versus paying it off? And on the CMBSs that come up, what are the prepayment penalties windows there is it six months in advance that you don't have any prepayment penalties?

Last question first. It's nine months for us. On the 2005 CMBS, we are free to prepay without penalty starting in February of 2010. In terms of leaving cash on the balance sheet, it's not interest efficient to do that. We are going to see how we do. I would say over the next quarter or so in terms of our ability and success in repurchasing our debt in the market. If we don't have much success there, we will probably take a big chunk of our cash and use it to pay down the SBA credit facility. The reason we would choose that one is it is redrawable over time if we need it for portfolio growth, and we would typically just use that to manage interest rate.

We don't need to be sitting on $500 million of cash, certainly given the low cash needs that the business generates on -- on a day-to-day basis. But we are hoping to replicate some of our prior successes with buying debt at a discount, although it is obviously not going to be the discounts we generated back in the October, November time frame.

Sure. Thanks. Good luck guys.

Thanks.

Thank you, and next we will go to the line of Brett Feldman with Barclays Capital. Please go ahead.

Thanks for taking the question. There have been some recent media reports that one of your large customers is considering outsourcing the management of their network. And I think that has opened up some questions about what that exactly means for vendors such as tower operators. I know you don't know exactly what an agreement could look like, but I'm just curious, would it be possible under an outsourcing deal for that vendor to assume control over the leases, and potentially go back and renegotiate them since one of their mandates would be to safe money?

This is Kurt. We have all been seeing that story and hearing about it. And I think it's really -- from my understanding of it, it's just really a classic outsourcing program as a way to kind of cut costs. And then possibly if that vendor can grab another carrier there's some true efficiencies in deploying those resources So we don't worry about it at all from the Tower side. Our leases are on exclusive real estate that can't be replicated. And when -- if that carrier is in a better financial position to deploy more capital to match their network needs, this middleman vendor will just be in charge of getting that deployed. So we don't really see that as a big issue for us at all.

Yes, we haven't obviously been in the middle, but I believe it is really about people more than anything else. I don't think an outsourcing deal changes the fundamental, RF characteristics of whether Sprint will need more or less sites. Nor I do think that should they move to outsourcing that it will change the party with whom we contract with for tower space I think it will continue to Sprint. So we really don't see it as affecting our business certainly in an adverse way. And we would hope if there if there is some true savings there, it would find its way back into network expansion.

What about on think site-services side? I mean Sprint has historically been a pretty big customer of yours, if they were working with an outsourcing vendor could that potentially change the amount of demand you would see?

Not on the tower leasing side. I mean that demand is driven by what they need to with their network, no matter who it comes through. On our services business we work directly for the carrier today, we also work directly for a lot of these middlemen and program management firms. So, obviously it might be different who we're contracted with, but we work for a lot of different folks today.

Yes, I mean Ericsson doesn't performance services. They manage it. So what they will do is they will then set up a system -- they will be a program manager, and they will continue to hire firms like ours, we suspect at much the same way that we've done business with a Bechtel for example, and doing a bunch of work for AT&T, General Dynamics. They will fill that kind of role, Brett as opposed to being the guys who actually do the work, which is what we do.

Great. Thank you for taking the question.

Thank you. And next we will go to the line of Simon Flannery with Morgan Stanley. Please go ahead.

Thank you very much. Good morning. You touched briefly on 4G with some comments on Clearwire. Perhaps you could be a little bit more -- provide a little bit more color about what you are expecting in the balance sheet of the year from both Clearwire and potentially Verizon on the LTE side? And your comments were, I think you said lease up in the second half could be greater, perhaps then you had expected before. Perhaps if you could just comment a little bit on what you have seen so far this year, and how that's translating into your confidence in the second half? Thanks.

Simon on Clearwire, and Verizon, I don't want to get into too many specific details obviously. They have both been pretty public with where they are taking their WIMAX and LTE programs and we are seeing what they are saying they are doing. Clearwire has been deploying their older technology for years, and they are revamping some of those markets now. And continuing on with what the Sprint Zone people started in the other markets. So that's very real a moving forward.

And Verizon, as they have stated, they have started in several collect markets. And the ways these overlays work is, they go out and whether it is 4G or 3g or any other overlay it is really -- they go out and do site assessments and file assessments and come back and develop a specific game plan for each site that's custom. And then they go out and start creating the lease-amendment work to happen, to modify their lease, to handle their installation, and create a set of site drawings to match the installation up to that lease.

So -- otherwise on leasing in general, this year often we have a, a more seasonal first quarter, which is a little lighter. And -- but as we said the backlogs are already up quickly, and just to everyone we are talking to, there's a lot going on. The economy piece, I think they view that as -- they have got a lot of network stuff to do. They have got capacity issues, they have got performance issues they are seeing. We are seeing still just a lot of basic expansion into outer areas. So it's -- we have been fortunate that they continue to plow ahead, so it's been good, and we expect it to be a little stronger in the second half.

Yes, I would add on the Clearwire point, Simon, that they have been very active, but so far at least from our observation, they are staying within the ten markets that they have publicly talked about. And on the lease-up side, keep in mind that operationally we talk about leases signed up, and then there's a typically a one to two quarter lag from when it hits or before it hits the financial statements. So I think the increase in activity, not only that we're -- that we expect to see in the second half over first half, and first half has been fine. It has actually been what we budgeted and expected -- or first quarter rather -- that -- you'll not only see that manifest itself by the end of the year, particularly in the fourth quarter financials, but as we move move in 2010 as well.

Thank you.

Thank you. And next we'll go to the line of Jason Armstrong with Goldman Sachs. Please go ahead.

Okay, thanks. Couple questions, maybe back to sort of the range of opportunities here now that there is a little bit more comfort around the balance sheet to think about strategic activity. As you look at the range of opportunities out there, whether it's small Tower acquisitions, maybe getting back to eventually mid-sized Tower acquisitions, land purchases, et cetera. As we think about the correction here, is this whole market kind of correcting together or are there parts that are really lagging, would provide you with sort of an opportunity to arbitrage the timing of the recovery? And then maybe just a quick question on revisiting the leasing activity into the second half. Obviously the comments sound positive. You look at any run rate site leasing revenue where you are right now, just annualize that, that sort of implies what you are sort of projecting as the low end of guidance. So I am just wondering why leave that type of low end out there, why not move that up at this point, given what you are seeing? Thanks.

Well, we did move it up a little, and we don't like to get too far ahead of our skis. But, I think math is good. And people could take comfort from the last ten years of history that site leasing revenue doesn't go backwards sequentially. So people should feel good about our ability to hit our leasing revenue guidance. In terms of the opportunity base, Jason, the -- it -- I don't know that towers versus new builds, acquisitions versus new builds will -- whether there will be an arbitrage opportunity within any of the different things that we do. Maybe the one exception there might be land purchases where given the very singular nature of the people we're dealing with, and the less financially substantial, some of those sellers would be, that might lag a little bit and provide us some additional opportunity there.

But just exactly -- I mean the the -- the -- the market around towers is pretty sophisticated, and there's some very, I think astute folks who see that operationally, the growth in the Tower Cash Flow side has remained steady, so really, they are just changing the bids and the asks, based on changes in interest rate. Which as those continue to -- I mean it has very rational how the market has behaved over the last year, as interest rate have spiked up, and access to capital has gotten more difficult prices have dropped, not withstanding the operational side of growth is the same. And, as the -- as the credit markets improve that will firm the bid up, I believe, on -- on towers.

So I don't know that there will be as much of an arbitrage. I mean our strategy has always been take what we believe is a -- a lower cost of capital that we have compared to our -- some of the folks we compete with. Take our ability to, really, efficiently integrate those towers, and squeeze the most out of them that we can, once we own them. And use the combination of those two to grow the portfolio in a way that's very accretive to shareholder wealth.

Okay. Great. Thanks.

Next we'll go to the line of Chris Larsen with Piper Jaffray. Please go ahead. Your line is open.

Yes. Hi, sorry about that. Just wanted to circle back to the 4G comments that you made earlier. And really, there's -- get a sense for what type of lease-ups you'll see, whether it's going to be a traditional augmentation like we saw on a 3G conversion or whether it is something more to it? Both on a Verizon, AT&T basis, and also on the Clearwire are we seeing a lot more new sites versus using existing sites? And then you mentioned you have a number of acquisitions -- or at least one acquisition lined up. If you can talk about the interest in using stock versus cash flow for acquisitions?

Chris, I guess I'll start with WiMAX and Clearwire, they will be working with some of the existing Sprint Nextel locations and amending those. We also believe they will be taking some new locations on our sites even if Sprint Nextel are on those, just because of the the current loading or the structural capability of the sites. I mean if you have flag poles out there or things like that, there are certain physical limits. So there will be a mix on that, plus they will be taking we believe a lot of new sites, without Sprint Nextel on it, just because of the RF plans and the frequencies they are going to be utilizing. So that will be a mixed bag.

On the LTE side, I guess you could equate that similar to 3G in terms of of frequency and size of amendments. It obviously depends on their existing load on the structure today and how much reserve space they signed up for years ago,when they signed up for that lease. In certain markets and certain sites, they reserved more sites for the future than in others. So it's really a site-by-site equation, and, but overall I think you are equate an LTE overlay similar to an UMTS 3G overlay.

Yes, I would add, I think we as an try, we need to be careful, and I would encourage the analyst community to be careful with the terminology. I think we're going to run in to potential confusion when we talk about new leases versus amendments with Clearwire and Verizon. I mean traditionally an amendment has been driven by legal issues, as to whether -- what is being added falls within side the existing terms and maturities of an existing lease. Most of what we signed up with Clearwire has not been an amendment, it has been a brand-new stand alone lease. Not quite sure how that will play out yet with Verizon, whether they want to bring that LTE within side some of the existing parameters of leases, their CDMA leases, or whether they want it to stand totally on its own in terms of maturity dates and renewals and escalators. So we'll need to all work together to be careful to make sure we're talking apples-to-apples there

In terms of the acquisitions, it's not -- it's not one acquisition -- 42 Towers is probably five or six different little deals. And as we mentioned earlier, we'll still use some stock while we're levered north of seven times, but we'll also now probably use some more cash. And really, the only thing that has changed with our new financing and the statements that we're making today is prior to our financing we really were not looking to use much if any cash at all in growing the portfolio through Tower acquisitions. And now that has changed, and we're willing to use some cash now that we feel better about the balance sheet and our liquidity position.

Thank you. That's helpful.

Thank you. And next we will go to the line of [Gary Powell] with Wachovia. Please go ahead.

Good morning, everyone. Thanks for taking the questions. Just have a few. So you guys mentioned going back to the target of growing the portfolio by about 5% to 10% in 2010, and using cash to do that. How should we -- just how should we think about your target leverage going forward? And then what mix of Tower construction versus acquisition would be involved in that 5% to 10% growth rate?

Ye, I think as we sit today, Gary and this has been an evolving answer to that question, and it will evolve again as we see how the capital markets develop, but I would say today that I think six to seven turns of total leverage is appropriate. Provided that a couple of those turns can continue to be accessed in the unsecured market, with five or less turns in the secured market. So that's kind of what we think today. That was a very different answer that you got in October, and it may be different -- we may give you a different answer six months from now. I'm sorry, your other point?

Just, how should I think about the mix of construction versus acquisitions in terms of your overall Tower portfolio growth?

Well, the biggest variable as been and will continue to be acquisitions. Our -- our new builds have been not really constrained by capital, but more by operational issues, and we're going to do more this year. I don't know if we'll do much more than 100. Our goal is 80 to 100. You might get a little bit more out of that in years to come. But probably not materially more. So the big variable for us in terms of portfolio growth will continue to be acquisitions.

Okay. And then just sticking on the acquisition side, would you consider looking outside the US for opportunities?

Yes, we will. Overtime, as -- as we kind of the about our next ten years, I think we have to be open-minded. It is a business plan that we think can be taken internationally. Obviously, we want to replicate to the greatest extent possible the conditions and drivers that exist here in the United States. We think there will be some opportunities, some places to do that, so we are -- we are open.

Okay. And then just last question, looking in to the remainder of the year and going in to 2010, just what do you see as the biggest driver of leasing demand? And do you see any carrier initiative or anything that could sort of be a swing factor in either direction?

Actually I don't think you'll see material changes going forward. I think that what the -- at this point in the year, what the carriers have said publicly about what they want to accomplish the rest of the year will -- will remain in place, I think without material change. I think we're going to have another very good year for lease up, and this year will be a little more back end loaded.

Okay. Thank you very much.

Thank you. And next we will go to the line of Jonathan Schildkraut with Jefferies.

Thanks. Actually my questions have been asked and answered.

Thank you. And we have one more question, David Barden from Banc of America. Please go ahead.

Thanks, guys for taking the question. Just two to wrap it up, I guess, one with respect to the kind of pending Verizon Alltel merger divestitures, is this a -- are you seeing carriers who are kind of coming in and looking to map out potential integration or growth opportunities here? Is -- bottom line is this something that could this be incremental to the growth portfolio when these deals are expected to close, probably around the end of the year? And then last, Pam, could you just -- I know there is some math that involves fees and other things with respect to the net proceeds from the convert, what was the specific dollar value of the hedge that you acquired for the purposes of calculating effective interest rate? Thanks.

On the -- on the Alltel Verizon thing, David. I mean it defends on who ends up with what markets, but if it's anybody other than AT&T and even if it is AT&T, it -- in whose ever hands those assets end up I think there is some work that needs to be done with respect to bringing 3G service and ultimately 4G service to those assets. A subset of that answer is if they end up in new hands as some of the rumors would imply, that -- that would obviously take away any type of decommissioning risk. So that would be our preferred outcome, provided it goes to a good healthy new player. Pam?

Dave, to answer your question, it was $61.6 million. But if you amortized -- we look at that and amortize that over the life of the instrument, the 5.5 years. When we compute an effective interest rate.

Perfect. All right. Guys, thanks. Congrats.

Thank you, and there are no more questions. Please continue.

Great. Well, we want to thank everyone for joining us today. We're off to a good start for the year, and we look forward to our next quarter's earnings call.

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.