SBA Communications Corp (SBAC) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the SBA third quarter results conference 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'd now like to turn the conference over to your first speaker, Mr. Mark DeRussy, please go ahead.

Good morning. Thank you for joining us this morning for SBA's third quarter 2010 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'll discuss on this call is forward looking, including but not limited to any guidance for 2010, 2011, and beyond. These forward looking statements may be affected by the risks and uncertainties in or 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, 2009. 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 statements we may make. Our statements are as of today, October 29, 2010, and we have no obligation to update any forward-looking statements 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, would you please comment on our third quarter results.

Thanks, Mark, good morning. As you saw from our press release last night, our third quarter financial results were strong. We exceeded the mid point of our guidance for site leasing revenues, tower cash flow, adjusted EBITDA, and equity free cash flow. We were above the high end of our guidance for site development revenues. Total revenues were $158.6 million, up 13.9% over the year earlier period.

Site leasing revenues for the third quarter were $135.7 million or a 12.6% increase over the third quarter of 2009. This leasing revenue growth was driven by both organic growth and acquisitions. Site leasing segment operating profit was $105.4 million or an increase of 14.6% over the third quarter of 2009. Site leasing contributed 97.5% of our total segment operating profit in the third quarter.

Tower cash flow for the third quarter of 2010 was $106.5 million, or a 13.8% increase over the year earlier period. Tower cash flow margin was 79.4% compared to 78.6% in the year earlier period. Gains in margin were driven by revenue growth against little increase in expense due primarily to our ground lease purchase program. Which more than offset the impact of the less mature, lower margin towers we added in the first half of 2010.

Our services revenues were $23 million compared to $18.7 million in the year earlier period, or a 22.5% increase. Services segment operating profit was $2.7 million in the third quarter of 2010, compared to $2.1 million in the third quarter of 2009. Services segment operating profit margin was a healthy 11.7% compared to 11.2% in the year earlier period. Kurt will discuss services in more detail shortly.

SG&A expenses for the third quarter were $17.6 million, including non-cash compensation charges of $2.4 million and acquisition related expenses of $3.2 million. SG&A expenses were $14.1 million in the year earlier period, including non-cash compensation charges of $1.9 million and $900,000 of acquisition related expenses. Excluding the non-cash compensation and acquisition related expenses, the increase in SG&A from the year earlier period was approximately $700,000, and was primarily due to increased expenses associated with international expansion, as well as, increased healthcare related expenses.

Adjusted EBITDA was $97.7 million, or a 15.1% increase over the year earlier period. Adjusted EBITDA margin continued to grow, and was 62.2% in the third quarter of 2010, up from 61.6% in the year earlier period.

Equity free cash flow for the third quarter of 2010 was $56.8 million, compared to $45.9 million in the year earlier period, an increase of 24%. Equity free cash flow per share for the third quarter of 2010 was $0.49, compared to $0.39 in the year earlier period, an increase of 26%. Our strong growth in equity free cash flow per share is a result of solid adjusted EBITDA growth, combined with stable net interest expenses and other nondiscretionary expenditures, a trend which we expect will continue for the foreseeable future.

Net loss attributable to SBA Communications Corporation during the third quarter was $34.5 million, compared to a net loss of $50.1 million in the year earlier period. Net loss per share for the third quarter was $0.30 compared to a net loss per share of $0.43 in the year earlier period. Weighted average shares outstanding for the quarter were 114.7 million, down from 116.7 in the year earlier period, due to stock repurchases in the first half of this year. Quarter end shares outstanding were 114.9 million.

In the third quarter, we acquired 86 towers and built 38 towers, ending the quarter with 8,705 towers owned, and the rights to manage approximately 5,400 additional communication sites. Total cash capital expenditures for the third quarter of 2010 were $79.9 million, consisting of $2.7 million of nondiscretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $77.2 million of discretionary cash capital expenditures. This number is $28 million below the mid point of our guidance, and is due to timing of acquisitions closings. A number of acquisitions we thought would close in the third quarter were pushed in to the fourth quarter.

Discretionary cash CapEx for the third quarter includes $52.7 million incurred in connection with acquisitions, exclusive of any working capital adjustments. $14.9 million in new tower construction, including construction in progress and $2.9 million for augmentations and tower upgrades. Net of reimbursements we spent only $600,000 on discretionary tower augmentations, reflecting the high quality, high capacity nature of our towers.

With respect to the land underneath our towers, we spent an aggregate of $11.2 million to buy land and easements and to extend ground lease terms. Our investments in land are both strategically beneficial and immediately accretive to equity free cash flow per share. As of September 30, 2010, approximately 30% of our tower sites were located on land that we own or control for more than 50 years. And approximately 70% of our tower sites were located on land that we own or controlled for more than 20 years. At this point, I'll turn things over to Mark who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. SBA ended the third quarter with $3.1 billion of total debt. We had cash and cash equivalents, short term investments and short term restricted cash of $231 million, resulting in net debt of $2.8 billion. At September 30, 2010, our net debt to annualize adjusted EBITDA leverage ratio was 7.2 times, and our net secured debt to annualized adjusted EBITDA leverage ratio was 2.6 times. Our third quarter cash interest coverage ratio of adjusted EBITDA to net cash interest was a very strong 2.6 times.

We continue to believe our balance sheet is in excellent shape, as we have no material debt maturities prior to 2013 and we have ample liquidity. As of the end of the quarter 100% of our outstanding debt was fixed rate with a weighted average cash coupon of 4.85% per year, and a weighted average remaining maturity of more than five years. In addition to our cash, short term investments and short term restricted cash of $231 million, we have available to us $500 million under our revolver for total liquidity of $731 million as of the end of the third quarter.

We did not purchase any of our shares during the third quarter, and have approximately $151 million remaining under our stock repurchase authorization. As of September 30, 2010, we have cumulatively repurchased 2.9 million shares at an average price of $33.49 per share. I will now turn it over to Kurt to discuss some of our operational results.

Thanks, Mark, and good morning. During the third quarter, activity picked up on almost every front at SBA, as compared to the second quarter of 2010, we signed a higher amount of leasing revenue, built more towers, produced higher services revenues and increased our back logs. Our carrier customers continue to forge ahead with expanded, improved and generally deeper networks. The demand exhibited by the end users of wireless voice and data services continues to grow on all fronts. These demands place increased emphasis on network coverage, quality, and features, which in turn drives our core leasing business.

On the leasing side of the business, our incremental, organic leasing revenue added in absolute dollars during the quarter was the highest ever in Company history. New tenant adds increased significantly from the first half of the year, with 93% of this new revenue coming from broadband telephony carriers. Amendments to [existing] installations also jumped, yet again, to another record high. With pricing firm these things were volume driven as carriers increased network activity for improved coverage capacity, technology and performance. Our leasing backlog right now is good and expect that the fourth quarter will be another solid one in terms of customer activity and we expect strong levels of activity to continue throughout 2011.

As an adjunct to the technology and datacentric upgrades that carriers are implementing, we continue to see a steady rise in the number of our sites with fiber back haul, and this is expected to increase steadily for at least the next two years. Having fiber availability at our sites continues to make them more efficient and desirable for our clients. Operationally, our tower OpEx and CapEx remain in line with our budgets and estimates and we anticipate these costs will continue to be predictable and controllable.

On the portfolio front, during the quarter, we purchased 86 towers and completed the construction of 38 more. Of the 8,705 towers we owned at the end of the third quarter, 8,538 were in the US in its territories, and 167 were located in international markets. We have a robust back log of tower acquisitions, including an additional 290 towers in Panama.

In the US market, we built more towers during the third quarter than in any quarter over the past nine years, and the backlog here remains very strong. International new tower builds are moving into the construction stages, and our contracted backlogs in both Canada and Central America are strong. We are very excited about our future portfolio growth.

Lastly, our services division had a good quarter with gross profit up 28% year-over-year, and has had steady performance all year in a business that sometimes can have more peaks than valleys due to its nature. We continue to work for all the major carriers, and many of their program management firms and equipment manufacturers, performing our three core services of site development, construction, and technical services.

Our forecast for this business in the fourth quarter and for 2011 is more of the same. As we are confident in our ability to capture a sizable share of the robust carrier activity, we believe our increased backlog in this area is a strong indicator we will achieve our objectives. Overall, Q3 was a very good quarter for us, and we're optimistic about the future based on our capability, our backlogs, and the surrounding macro environment. At this point, I'm going to turn it over to Jeff.

Thanks, Kurt, and good morning everyone. We did have another solid quarter and we are expecting a strong finish to the year. We continue to operate in a very favorable macro environment. We are in the middle of multi-year, multi-carrier effort to complete 3G technology upgrades and move to 4G. We see this in both the US market and in the international markets we are pursuing.

Smartphone adoption rates continue to rise, as do data minutes of use and the amount of revenue earned by our customers from data services. Tablets appear to be the next top device and will allow consumers to watch video wherever they are with the same quality as if they were sitting in their living room. All of this takes bandwidth, and in response our customers remain in a continuous state of network improvement and investment. AT&T and Verizon continue to be our most active customers, followed closely by Clearwire and T-Mobile. We are engaged in substantive discussions with LightSquared and have had some activity from a number of other customers including Sprint, Metro and Leaf.

Our international assets while still small in contribution are showing great demand and are leasing up ahead of expectations. As Kurt mentioned earlier, the third quarter was our best ever, in terms of aggregate incremental leasing and on a per-tower basis was our best since the fourth quarter of 2008. This great third quarter activity will begin to show on our financials in the first quarter of 2011 and provide some of the basis for our expected year-over-year growth in our 2011 guidance. We expect strong leasing activity to continue for the rest of 2010 and all through 2011.

Our acquisition backlog is strong. The pipeline is working its way through our process, and we expect these acquisitions will be material contributors to our 2011 growth. With respect to 2011, we're very excited about next year. Our guidance assumes that we add, in 2011, on our US towers, the same amount of incremental revenue per tower that we expect to add in calendar 2010, spread evenly throughout 2011. Our guidance assumes higher revenue added per tower for our international assets. Combined, we are projecting slightly higher added revenue per tower in 2011 than we expect for 2010, which has been a good year.

We're not going to break down our 2011 expectations by carrier, but you know from our 2010 reports that AT&T, Verizon, and Clearwire have produced most of our leasing activity this year. While the source of the revenue may or may not differ, next year from 2010, we are guiding at this time to the same approximate additional revenue per tower in the US for 2011, as we had in 2010, and slightly higher on a combined US and international basis.

We are once again targeting and confident in achieving 5% to 10% portfolio growth next year. With our announced backlog and expectation that a fair amount of the backlog will not close until 2011, we are off to a very good to start. We expect to grow the portfolio both in the US and internationally. A large variable in how much and when we grow internationally will be the timing of the final award of new spectrum licenses in Costa Rica, where we have hundreds of sites in various stages of development and ready for construction. Our guidance assumes 100 towers built in Costa Rica by year end, mostly in the second half of the year. We're hoping the actual number is much greater.

We continue to favor portfolio growth when we combine, build tower that meet our investment criteria, which consists primarily of achieving a certain rate of return over our weighted average cost of capital. We target a certain positive spread our over our EAC for US assets, and require greater spread for international assets. If an acquisition opportunity meets those return requirements, we then decide whether our shareholders would be better off with us pursuing the acquisition, or repurchasing our stock; with better off being determined by relative accretion to equity free cash flow per share over the next five years. Sometimes that analysis will favor the acquisitions, and sometimes it will favor the stock repurchase.

Currently, we see a number of additional acquisition opportunities in both the US and internationally that we believe will maximize the benefits to our shareholders, relative to other capital allocation options. And as a result, we feel very good about our chances of meeting our portfolio growth target next year.

Our appetite for additional capital deployment will again be largely dictated by our leverage targets, which are a function of our views around organic growth, cost of and access to capital, and refinancing risk. We refine our views on these items constantly. Currently our views on these topics are very favorable, and we are very comfortable at our current leverage levels. We have managing our balance sheet at these leverage levels for about a year now. Our cost of and access to additional capital has never been better.

Our guidance for 2011 implies that without additional investment, leverage will decline as we move through the year. If our current views on target leverage remain constant, we will have more appetite for investment in portfolio growth, stock repurchases, or both. With our projected equity free cash flow and fully available $500 million credit facility, we have more than enough liquidity to increase investment through the year to maintain our current leverage levels. With the low interest cost that would be associated with accessing such liquidity, we would expect any additional investment to be immediately accretive to equity free cash flow per share.

All of what we have discussed here today builds to material future growth in equity free cash flow per share. It remains our primary focus for financial results. With no need for any refinancing until 2013, our interest expense is and is projected to stay relatively stable, with expected material growth and adjusted EBITDA that will translate into material growth and equity free cash flow per share. Evidence of that is shown by our third quarter actual results and our fourth quarter and full year 2011 guidance, which implies equity free cash flow growth of more than 20% year-over-year. And we hope to do even better, with increased investment, organic lease up higher than assumed in our guidance, or maybe both.

Before we open it up for questions, I want to recognize the contributions of our employees and customers to our success. Our employees work really hard to achieve the goals of our customers. Our employees do a great job, our customers recognize that, and as a result, we are a preferred provider for our customer's network needs. Those needs have been, and we expect will continue to be great, and we look forward to a very successful finish to 2010 and full year 2011. Stacy, at this time we are ready for questions.

Thank you, ladies and gentlemen.

(Operator Instructions) And our first question is from the line of Ric Prentiss with Raymond James. Please go ahead.

Thanks, good morning, guys. First question, yesterday Crown Castle had their call obviously and had a pretty significant change with the lease modification, accelerating revenues. And, could you share with us your thoughts? One, have you been approached by carriers, what do you think about those style transactions? And do you think there's any driving of revenues from the carriers to a larger company, if you sign one of those contracts?

We are very familiar with that. Historically, it gets -- our views on that are going to be SBA specific, and we have, historically, not been interested in those types of arrangements. Of course everything is facts and circumstances specific, because we have always viewed that as a trade off between price and volume. Our history has been, and our philosophy has always been, to price our tower space on a unit basis when you know exactly what the carrier is going to install at that particular point in time. And, frankly, that's been a philosophy and a path that has, I think, served us extremely well.

So that's kind of how we think about things like that, Ric. I mean you can never say never, and again, everything is obviously facts and circumstances specific, but it's not something that we have historically done, and we've been approached many times over many years for things like that.

I guess I understand. Everybody always looks at it, and if you've got good visibility on your leasing ability, your portfolio then maybe has a higher hit rate. But if someone else offers up a contract that might almost incent a carrier to start paying at, quote, "100% of the sites," do you think it shifts anything in the equation of how carriers deploy their capital and which towers they go on, from a timing standpoint?

No, because when you will launch a 3G or 4G technology on an amendment basis, you really are relying on your entire existing infrastructure to do that. What will drive that is not so much any type of deal, like you're talking about, but the carriers geographic launch desires and goals. Remember, this is a deployment. We're talking about 3G and 4G upgrades, which by their nature have to rely heavily on existing imbedded infrastructure, which we all have.

Okay. And the other question I've got for you is on M&A. You mention how you look comfortable on the 5% to 10% portfolio growth. Sounds like there's several portfolio books that keep floating in and out of the marketplace. Update us a little bit on pricing, what you're seeing out there as far as the multiples being paid?

Yes. I think multiples have stabilized a bit and continue to be off a turn or two from our summertime or early summer peaks. We're seeing high teens, multiples of tower cash flow in the US, for good growth assets, and we're seeing, low teens, or low double-digit multiples in our international markets for good growth assets. So, there's a bit of a difference between those markets in the US and it all comes back to the returns that we think we're going to make over a five year period of time as to where we go and which opportunity we hit on.

Great. Thanks, Jeff.

Yes.

Thank you. And we have a question from Jonathan Atkin with RBC Capital Markets. Please go ahead.

Yes, good morning. Was wondering with respect to the 2011 guidance, if you could give a little bit more color as to your expectations around start-up networks such as LightSquared and new geographic expansion, such as Clearwire? And then, secondly, with respect to your new tower build target for next year, which geographies would that primarily take place in?

Yes On the guidance, Jonathan, we don't really ever talk granularly about which carrier comprises what component of guidance. But I think it's useful for you to think of it in this context; most of what we are enjoying in 2010 is coming primarily from AT&T, Verizon, and Clearwire. So, next year we're indicating that we think the incremental revenue add per tower will be about the same. So, I am going to leave it to you to decide whether that's reasonable.

We certainly think it is, and given the variety of places that that could come from, whether or not those numbers are right there or low or high, or however you conclude. But if you kind of think about things in terms of who contributed what we have today, versus where the contributions could come from next year, that's why we're very comfortable with the guidance that we've put out.

And in terms of the new builds, they're going to be split roughly 50% US and 50% international. Anything else?

Yes. I was interested in international expansion, and whether there's any additional geographies that you might be considering at this point. And then on the M&A side, the portfolio growth, I'm assuming that contemplates independent tower companies? I just wanted to make sure our carrier portfolio is something you might think about. Traditionally you haven't, but just wanted to maybe hear your thoughts on that?

We definitely will always consider carrier portfolios. It's, again, purely a function of whether we think it's a good deal for our shareholders or not, financially. And again, we look at that over a five year period of time. So, we will continue to look at deals of all shapes and sizes. And in terms of additional geographies, we're focused very intently now on Canada and Central America. We continue to monitor other opportunities in the world, particularly other opportunities that may arise in the Western Hemisphere. But, right now, we think we've got a lot of -- a lot of hay to make in the markets that we're in.

Great. Thank you very much.

Thank you. And we'll go to James Ratcliffe with Barclays Capital. Please go ahead.

Good morning, guys. Thanks for taking the question. Wondering if you could give me some color around some of the implications of the guidance for 2011. Looks like mid-point to mid-point, you're about 12% leasing revenue growth. This guidance also says that's assuming essentially 9% same store organic growth, looking at 3% for footprint growth, but also it looks like those, again, those guidance assumptions would get you to about 9% tower count growth. So, is it that the new towers you're adding are much lower revenue lease day one, or is there something else going on there I'm not quite getting?

No, that's part of it, James. The other part of it is timing. More than half of our backlog, as Kurt mentioned, is in Panama. Those tower comes at lower cost and lower day one revenues. So it's -- you're absolutely right. It's a function of starting revenue per tower on what we're buying, and of course we're buying those towers for a lot less than towers that, historically we've bought in the United States.

Thanks. If you could give us an update on what you're seeing from particularly mom and pops on both the land owner side and on the tower side? Are you seeing a surge toward the end of the year because of tax concerns?

Somewhat, not as much as, perhaps, we would have thought three to six months ago. But there's still and of that out there, but not a crazy rush to hit the exits.

Great. Thank you.

Thank you. We'll go to Jason Armstrong with Goldman Sachs. Please go ahead.

Great. Thanks, good morning. Maybe a follow up on the lease modification question. Just, if other large tower companies are out there doing this, how do you get investors comfortable that this doesn't put sort of general deflationary pressure on what the 4G amendment cycle looks like? And then, maybe second question, just specifically on Sprint. A lot of people focusing in on an RFP around network modification plans. I'm wondering what your conversations with them would indicate as it relates to their tower activity around this plan? Thanks.

Yes. I think, to your first question, Jason, that there need not be any price deflation, and we certainly don't think in SBA's case there will be. Remember, this all centers around relying on existing infrastructure to come back on and add a few lines and antennas, or whatever the configuration turns out to be, but relying on existing tenancies on SBA towers. So, there's no reason for that to occur. So, in SBA's case, people should not fear that whatsoever, and that is exactly why we take the approach that I explained to Ric earlier.

In terms of the Sprint situation there's been a lot of commentary from Sprint on that. We are engaged in conversations with them. We expect to be doing a number of things with sprint to assist them in their CDMA upgrade projects over the next couple of years, but I think it's a -- somewhat of a long tenure. I think it's three to five years.

Got you. If and I could just -- one more on the leverage side? I mean, Jeff, you sound incredibly constructive now among incremental financing and comfort with the balance sheet. There's been, obviously, some speculation out there about larger deals potentially in the market on domestic assets. Can you just frame a range of how far you're comfortable pushing a leverage profile if the right large deal surfaces?

We would not go above a double digit net debt leverage. And if we even went into the, you know, 8s or 9s, we would have to see and feel an extremely constructive quick path to delevering. And to make that decision, we'd have to say, well, that's a better choice then, because if we did something like that, we would, by nature, need to give up some other opportunities to achieve the delevering goals that would come after a transaction like that. But, again, for the right deal and the right price, and if there's a screaming buy out there that I know from the knowledge of what our shareholders want, they'd be happy with, then we're going to be interested.

Okay. Thank you.

Thank you. And we'll go to David Barden with Bank of America. Please go ahead.

Hello, guys, thanks. Just two, if I could. One, Jeff, maybe could you talk a little about, if at all, the mix between the macro sites and the DAS business that you've been getting more involved in driving the year-over-year growth and revenue per average -- incremental revenue per average tower? And then second, I apologize to hit this again, but the tower backlog of deals and how they're closing into next year, it's still eluding me a little bit.

I think I heard a hundred deals get closed by year end was the assumption, and that means 412 deals get closed next year, which is 5% of your portfolio growth, which means you're kind of already there on guidance for next year. And obviously that sounds like there could be a lot more deals going on. So could you just flesh that out for me a little bit? I'm still not clear. Thanks.

Yes, on that point, David, I'm not -- I don't think we said a hundred, and then -- we don't really know, to be honest with you. We're working all of these things forward, and we don't close deals until on an asset-by-asset basis, they're ready for our system, and that's kind of what happened in the third quarter. Things got pushed into the 4th as we were doing what we do to get deals ready to close and bring into the SBA way.

You know, my best guess today is less than half of the backlog closes by the end of the year, that's a guess. Which leaves, obviously, more than half for next year. So, yes, we do have a good start. We -- I said that in my comments to next year. So, I think, once again, people should feel pretty good that we'll hit our 5% to 10% portfolio growth targets for next year. You know, keep in mind, and I know the way you model things out, you assume a certain level of investment for us beyond what we guide to, because of course we only guide to what we have under contract.

Keep in mind that while the numbers of towers are big, as we buy things in -- particularly in Central America where they come on at much less prices per tower and much less revenue per tower, you want to be thinking about that, as you think about the future. Now, the growth rate's are going to be great on those assets, we believe, but they don't come on with the same one -- same day one revenue. Is that helpful?

Yes. No, that does help, thanks.

And on the DAS side, remember, we are now only participating in DAS through our minority investment in ExteNet. Now, we're close to those guys and know what's going on, but we don't really have any DAS kind of contribution in our numbers directly anymore, because our participation now is purely as an investor in ExteNet.

Perfect. Okay, thanks for clarifying.

And we'll go to the line of Simon Flannery with Morgan Stanley. Please go ahead.

Thanks very much. Good morning. If we could stay on international. I think you talked -- referenced the spectrum auction and process in Costa Rica. Perhaps you could just give us a little more background on where that stands and what are the parameters around moving that forward and getting that spectrum into use next year?

And then on some of the acquisitions. Could you just touch on the margin structure on some of these portfolios, particularly, international portfolios? Are they radically different from your current margins? And, on the ground leases, what are we seeing in terms of pricing and returns there in the market today? Thanks.

In terms of the Costa Rica auctions, we are anxiously awaiting developments there. They continue to move forward towards a previously scheduled November 5 date. There have been a couple of procedures and requests in Costa Rica to clarify the rules. We think that's likely to postpone the actual auctions for a couple of weeks. We expect them to occur by the end of this year, and we expect licenses to be in hand by the middle of next year. That's, of course, our best expectation and belief at this point. That schedule has slipped, though, since we started this project two and a half years ago.

We actually expected things to be further along with spectrum in hand by the end of this year. So, from the -- really from the time we started to where we think we are now, it's about a six-month slip. What we believe happens down there, what has been the goal of happening down there, is three new market entrants will be awarded licenses, which will then develop networks and offer service in conjunction with the existing state-owned provider. Which is the only provider in Costa Rica today, a company by the name of ICE. So, you will have a for tenant market down there post licenses.

In terms of the international margin -- the margins aren't very different, Simon. What is different is the revenue per tower at day one, and then the cash flow per tower, but the margins aren't dramatically different on day one from what we're seeing in the United States. And then you had a third --

Ground lease?

Ground lease, I'm sorry. Yes, we're still in the 12 times, 13 times-ish, maybe a few 14 times day-one multiples of annual lease revenue, in terms of our -- where we're buying things. And that really hasn't changed much in the last six months to a year.

Are you seeing any increase in people who are willing to sort of talk, given tax law changes and so forth?

We do. And it's an interesting market. You know, most of these owners are not professional financial types, and they -- their motivations are affected by a wide variety of things. You know, families move, kids go to college, businesses get sold. Those are more -- it's more of an individual change that drives what might have been a prior unwillingness to a new-found willingness than any particular macroeconomic trend.

Great. That's helpful. Thanks.

And we'll go to line now Michael Bowen with Guggenheim. Please go ahead.

Thank you for taking the question. With regard to closing some of the tower acquisitions by the end of the year, can you just talk us through what typically are the challenges that-- I don't want to characterize it as a negative, but, what are some of the issues that cause some of the delays in closing those?

And then second question, as it relates to 4G, I understand your commentary about, for instance, the type of transaction that Crown Castle did. But with regard to 4G, how -- could you put a percentage on your augmentations that you are seeing, with the amendments of how much you would say is coming from 4G builds? 3G to 4G in the amendments that you're seeing on a tower-by-tower basis? Thanks.

In terms of -- well, let me take the last one first. That question can't be precisely answered. I mean, we know, in the case of what activity we're seeing from Verizon, it's all 4G. So, everything that they're doing now, that is in the form of an amendment where they're coming on our towers, where they're already tenants, we know is geared towards 4G. Clearwire, of course, all of what they're doing, whether it be brand new leases, or piggybacking on some Sprint, Nextel infrastructure, is 4G.

You know, AT&T is just getting started on their 4G work. There's a lot of 3G amendments that AT&T is still doing and will continue to do as they move through next year and perhaps the year beyond. So, I'm not quite sure how better to answer that question, Michael.

Yes, but that's helpful, thanks.

In terms of the closings, there's a whole host of things that have to be right before we close a deal. And we've been doing this with this group longer than anybody, and we're pretty darn good at it. And our philosophy is when the we sign a deal up, we're in it to close it, even if it means we have to do a bunch of work that perhaps this seller might have or should have otherwise done. That's just the way we approach it.

So, I'll give you a bunch of examples. Title issues, got to go get those cleaned up. We do titles on everything we do. SNDAs with lenders, where there happen to be mortgages on the property. Access road issues. Structural exams. Ground owner consents. Maybe we don't like some terms in the existing ground lease. We've got to go get those changed. There's a lot to do. Everything is a little -- on a tower-by-tower basis, a complex real estate deal, and those things take time, sometimes.

And then lastly, if I could, you mentioned the possibility of increasing your net debt to EBITDA turns if the right deal came along. Can you just clarify for us all how that would relate to any covenants that are out there, and how those play into it?

Yes, we have two primary covenants that would affect that. We have a 7 times debt to EBITDA test at the SBA telecommunications level and below. So, that would include the high yield debt and any secured debt. And then in our credit facility, we have an 8.9 times total net debt coverage ratio.

Thank you very much.

You're welcome.

And we'll go to the line of Brett Feldman with Deutsche Bank. Please go ahead.

Yes. Thanks for taking the question. You know gave a lot of good color before about how you analyze potential transactions, and there's discussion about, maybe, large portfolios becoming available again, which presumably you would look at. It doesn't seem that you would have a strategic reason to outbid somebody, and I don't think that any of the large towers operators really have strategic reasons for outbidding anyone in these types of auctions. So, what I'm trying to figure out is, why else might you see more value in a large portfolio than someone else? Do you think that there's anything with regards to your source and cost of funding, your alternatives, or anything you believe makes you sort of an advantageously positioned bidder in an auction, if we see one?

For a real big deal?

Yes.

Not sure that there is any particular advantage that we would have, other than the seller's comfort with our ability to close deals and operate assets after the fact. But at the end of the day, Brett, it's going to be a deal that our shareholders are going to say, yes, that was a good deal, or we won't do it. I mean, it's -- your perspective on financial versus strategic is entirely correct.

So, it's purely a financial decision. If you run it through your modal and it just works out that you're willing to pay a price that exceeds everyone else's because it's accretive to you at that price and you do it? There's no other strategic reason you would be in there?

I -- We could certainly come up with a few, if the facts and circumstances were such, but generally no. We're going to approach these as financial transactions.

Thank you for taking the question.

And we'll go to the line of Gray Powell with Wells Fargo securities. Please go ahead.

Good morning, guys, thanks for taking the question. Just had a couple of quick ones. So, I was glad to see the 9% organic revenue growth imbedded in the 2011 guidance. If something big, like LightSquared, were to actually come through, what kind of impact do you think that would have on organic growth?

Well, you'd have to start with a baseline to answer that question, Gray, as to -- did they replace somebody else? Are they additive? You know, I think I'd just like to say if they come in with a big full year plan, I think it's going to be positive for us in the sector.

Okay.

Your question can't be answered without assuming who's in there to start with, and I really don't want to get into that.

Okay. Fair enough. And then just switching topics, you've given some good color on just the international side. Can you talk about the average economics, just typical rents, tenants per tower, and the growth associated with the deals that you have closed in Q3 and expect to close early next year?

Yes, the tenancies are about 1.25 tenants per tower. Rents are slightly -- tenant rents are slightly below US equivalents. Expenses are less than US equivalents by a much greater percentage. So, basically we can make our returns in the markets and with these particular opportunities we're looking at, on a less terminal tenants per tower than we would necessarily need in the United States. Which is why we like them, and why we think we're going to do very well in these markets.

Okay. Great. Thank you very much.

(Operator Instructions)

And we'll go to with Ilya Grozovsky with Morgan Joseph. Please go ahead.

Thanks, guys. This is Jim Moore for Ilya. Just wondering if you can talk a bit about your site developments and the revenues there and why you think it stabilized this year versus the past where it's been a little more lumpy, like you said? And do you think it should remain stable going forward in 2011?

Yes, Jim, this is Kurt. With that business, a lot of our work is through third party work that we bid and win. We've had a strategy over the years of -- we have multiple local offices from all up and down the Eastern Seaboard and center part of the country. And we do a little bit of work for a lot of different customers. And that business, having a diverse backlog of customers, is really the key to keeping it steady.

We have some bigger projects in certain places, but what we really like is some work from everybody, because there's always some guys doing a ton of work in this market, and then it slows down next year, but this other carrier is doing a lot of work. So, I think maintaining relationships and backlogs with everyone, instead of just having single big projects, is really the biggest driver, and once you get in that position with those relationships, you can maintain it, and that's why we feel pretty good about our ability to continue to have it be steady next year. I think if anything, we can see some lumpiness on the upside, if we have some bigger projects layered in on top of that.

Okay. Thanks very much.

Thank you. We'll go to the line of Ric Prentiss with Raymond James. Please go ahead.

Hello, guys. I wanted to ask a couple of quick follow ups. Jeff, you've given a lot of color on LATAM. Can you talk a little bit about the cost of build down there as well? How many tenants, towers are you trying to structure, given that you might need less tenants per tower terminal?

Yes, we won't build without a tenant, just like is our philosophy and our modus operandi in the US, but the cost in Central America roughly-- to build, Ric, are about half what we spend in the US.

That obviously help the returns, as well.

Yes.

And then in the guidance, maybe an update, also, on what's your assumption on escalators? Are they still fixed in nature? And what are your thoughts on what we're going to see as far as churn in the industry and for yourselves?

Escalators, I don't see any changes in the escalators for us. And in terms-- so, they're mostly fixed going forward, at an average of 3.5%. And then, in terms of-- churn? Yes? Churn should be okay. We're consistent with prior -- I mean every year there's a little bit of something that contributes to that year's churn. I mean, right now, we're working off a little bit of the Verizon, Alltel. Last year it was some of the AT&T acquisitions of Centennial and Dobson. So, there's always a little something out there, but it always stays around 1%, 1.5% of revenue.

Great. And then just a follow up from the Tower Show. I applaud the guy for asking a question I haven't thought of in 10 years of following this industry, but-- Did you look up that, (inaudible) question the guy had at the Tower Show? As far as, what if there is cyber terrorism, or what if there is some --?

I'm embarrassed to say I have not, but it's on my list.

Okay, I thought, wow that's the first time I've heard a new one in literally, probably 10 years. So, thanks, guys.

Thank you.

(Operator Instructions)

And at this time there are no questions in queue.

Great. Thank you, Stacy. And thank you listeners for participating. We look forward to our next call.

Thank you, ladies and gentlemen, this conference will be available for replay after 1 PM today running through November 12 at midnight. You may access the AT&T replay system at any time by dialing 1-800-475-6701 and when prompted enter the access code of 173613.

That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.