SBA Communications Corp (SBAC) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the SBA third-quarter results conference.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark DeRussy, Director of Finance. Please, go ahead.

Good morning, and thank you for joining us for SBA's third-quarter 2013 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer.

Some of the information we will discuss on this call is forward-looking, including, but not limited to, any guidance for 2013, 2014, and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here, today, is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, 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, November 5, 2013, 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. With that, I will turn it over to Brendan to comment on our third-quarter results.

Thank you, Mark. Good morning. As you saw from our press release last night, we had another great quarter on all fronts. We exceeded the high end of our guidance for leasing revenue, tower cash flow, adjusted EBITDA and AFFO. Total revenues were $332.1 million, up 39.2% over the year-earlier period.

Site leasing revenues, for the third quarter, were $287.5 million, or a 37.7% increase over the third quarter of 2012. Approximately $3 million of site-leasing revenue in the quarter was nonrecurring and was comprised of fees for temporary equipment placement. Our leasing revenue growth was driven by organic growth and portfolio growth, including the impact of the TowerCo acquisition, which closed during the fourth quarter of 2012, and our initial Brazil acquisition, which closed at the end of 2012. iDEN-related churn had a negative impact of $1.5 million.

The vast majority of our site leasing revenue continues to come from the US and its territories, with approximately 7% of total leasing revenue in the quarter coming from international operations. The impact of changes in Canadian and Brazilian exchange rates during the quarter, versus our guidance, was de minimus. Site leasing segment operating profit was $219.5 million, or an increase of 35.3% over the third quarter of 2012. Notwithstanding a record services quarter, site leasing still contributed substantially all, or 96%, of our total segment operating profit.

Tower cash flow for the third quarter of 2013 was $211.7 million, or a 35.8% increase over the year-earlier period. Tower cash flow margin was 78.2%, compared to 79.3% in the year-earlier period. Sequentially, and adjusted for nonrecurring revenue, tower cash flow margin increased 30 basis points from the second quarter of 2013.

We continue to experience strong leasing demand, both domestically and internationally. Amendment activity continues to be strong, and new lease activity continues to trend higher. New co-location leases contributed just over half of our new leasing revenue added this quarter, for the whole company, and just under 50% domestically. This is up from about 30% in the second quarter. The big four US carriers contributed approximately 80% of our consolidated incremental leasing activity in the quarter. We have a solid leasing backlog and expect a strong finish to 2013 and a strong start to 2014.

Our services revenues were $44.6 million, compared to $29.8 million in the year-earlier period, reflecting generally higher activity levels and work mandated to us by our Sprint Network Vision contract and T-Mobile 4G agreement. Services segment operating profit was a record $9.4 million in the third quarter, compared to $4.7 million in the third quarter of 2012. Services segment operating profit margin was 21%, compared to 15.8% in the year-earlier period.

SG&A expenses for the third quarter were $21.8 million, including non-cash compensation charges of $4.1 million. SG&A expenses were $17.6 million in the year-earlier period, including non-cash compensation charges of $3.6 million. Our overhead efficiency continues to improve as we grow. As a percentage of revenue, SG&A expenses were 6.6%, a decline of 80 basis points, compared to the third quarter of 2012.

Adjusted EBITDA was $203.7 million, or a 39% increase over the year-earlier period. Adjusted EBITDA margin was 64.6% in the third quarter of 2013, compared to 64.7% in the year-earlier period. Strong organic margin expansion from our leasing segment was slightly offset by the inclusion of the less mature TowerCo and Brazil towers and an increase in our lower-margin services revenue. Adjusted for nonrecurring revenue, adjusted EBITDA margin did increase 30 basis points sequentially from the second quarter of 2013. Approximately 96% of our total adjusted EBITDA is attributable to our tower leasing business. AFFO increased 44.2%, to $134.3 million, compared to $93.1 million in the third quarter of 2012. AFFO per share increased 36.8% to $1.04, compared to $0.76 in the third quarter of 2012.

Net income to SBA Communications Corporation, during the third quarter, was $21.5 million, compared to a net loss of $52.4 million in the year-earlier period. Net income for the quarter was positively impacted by a $6.9 million gain on the mark-to-market of the Company's currency hedge, entered into in connection with the previously announced Oi acquisition, and a gain of approximately $27.3 million on the sale of a bankruptcy claim against Lehman Brothers related to a hedge terminated in 2008. Net income per share for the third quarter was $0.17, compared to a net loss of $0.44 per share in the year-earlier period. Quarter-end shares outstanding were 128.1 million.

In the third quarter, we acquired 279 tower sites and the rights to 4 additional communications sites for $91.1 million in cash. SBA also built 73 towers during the third quarter. We ended the quarter with 17,889 owned towers. 14,915 of these towers are in the US and its territories, and 2,974 are in international markets. Total cash capital expenditures for the third quarter of 2013 were $124.8 million, consisting of $4.7 million of non-discretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $120.1 million of discretionary cash CapEx.

Discretionary cash CapEx for the third quarter includes $91.1 million incurred in connection with tower acquisitions, excluding working capital adjustments and paid earn-outs. Discretionary cash CapEx also included $14.3 million in new tower construction, including construction in progress; $1.2 million related to the purchase of new offices; and $13 million for gross augmentations and tower upgrades. Of the $13 million augmentation figure, approximately $10.9 million, or 84%, was simultaneously reimbursed by our customers, resulting in net augmentation cash expenditures to us of $2.1 million.

With respect to the land underneath our towers, we spent an aggregate of $13.5 million to buy land and easements and to extend ground lease terms. Our investments in land are both strategically beneficial and almost always immediately creative. At the end of the quarter, we owned, or controlled for more than 20 years, the land underneath approximately 71% of all of our towers and 73% of our domestic towers. At the end of the quarter, the average remaining life under our ground leases, including renewal options under our control, is approximately 30 years. At this point, I will 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 $5.7 billion of total debt. We had cash, cash equivalents, short-term restricted cash, and short-term investments of $243.3 million. Our net debt to annualized adjusted EBITDA leverage ratio was 6.7 times. Our third-quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.2 times. During and subsequent to the third quarter, we paid $74.3 million in cash and issued approximately 393,000 shares of common stock to settle the warrants associated with our 1.875% convertible notes. We have no further obligation with regard to these notes and the related warrants.

As of the end of the third quarter, the weighted average coupon of our outstanding debt is 4.3% and our weighted average maturity is 5 years. We currently have no outstanding balance under our revolver, and the full $770 million in commitments is available to us. We did not repurchase any shares of our common stock during the quarter and currently have $150 million remaining under our existing $300 million authorization. I will now turn the call over to Jeff.

Thanks, Mark; and good morning, everyone. As you have heard, we did have a great quarter, exceeding the high end of our guidance across almost all key financial metrics. Once again, we led our industry in many important growth metrics. Our organic leasing activity has been particularly strong this year and the primary reason for our outperformance. We are experiencing strong demand across our entire portfolio, both domestic and international. We are seeing the benefits from that demand in both our leasing and services segments.

We expect to benefit from these elevated levels of activity for the next several years, as carriers build out their initial coverage footprints for 4G, to be followed by capacity spending as consumer adoption increases. Commentary from our customers has been very clear that network speed and quality is now, and will remain, a primary focus. The path to better network speed and quality is more infrastructure, and we are seeing the results in our executed new leasing business and backlogs. We are seeing increasing amounts of cell splitting in the US, and our new tenant backlog is at an all-time high.

Having said that, we have just experienced another wave of amendment applications, which has pushed our amendment backlog to a 2013 high. Internationally, we are seeing strong growth in new cell sites, with a lot of basic 3G coverage builds still ongoing in our markets. We look forward to the build-out of 4G in many of our international markets in the future. As a result of anticipated continued strong demand from our US and international customers, we are guiding to strong organic leasing growth, again, in 2014.

In the third quarter, we had a very busy quarter, with respect to new leasing business, and we signed up the highest number of new tenant leases in years. In addition to an increased volume of new leases, our customers are requesting larger equipment loads, which have a favorable impact on rate. AT&T and Verizon continue to be very busy and represented well over half of our new business in the quarter. Both customers were active with new leases and amendments. We saw another material contribution from Sprint, due to its Network Vision project, and T-Mobile remains active on its 4G upgrade. We have not yet seen any 2.5G business from Sprint, although we expect to see material activity in 2014.

Our services segment produced another record level of activity for us in the third quarter, once again, with the primary contributors being the Sprint Network Vision and T-Mobile 4G projects. We expect continued strong services segment contribution for the remainder of 2013 and through 2014, although we expect, and our 2014 outlook reflects, our work on the Sprint Network Vision project tapering off, as the work we were contracted to perform nears completion. We expect Sprint to stay very busy with leasing activity.

We continue to see strong activity in our international markets. Leasing activity is mostly new leases, but there is a growing amount of amendment activity. We had a busy quarter end in Brazil. We closed on the acquisition of an independent tower company with a quality employee force and a sizable new build backlog. The transaction closed at the end of September, the integration is going well, and we now have about 30 experienced employees in Brazil ready to close and integrate our pending 2,113 tower Oi acquisition. We will continue to expand our Brazilian work force as we grow, but with much of our back office functions located in the US, we expect our Brazilian overhead to grow in the future at a fraction of the rate of growth we expect in Brazilian revenue.

With our leverage currently below our target range of 7 to 7.5 times net debt to annualized adjusted EBITDA, and at the low end of the target range pro forma for the Oi transaction, we are seeking additional portfolio growth. We will look both domestically and internationally and believe that we will continue to find attractive opportunities that will meet our investment requirements. We are reaffirming our goal of 5% to 10% portfolio growth in 2014, while maintaining our target leverage levels. Our initial 2014 guidance reflects a lower percentage of portfolio growth, reflecting only those acquisitions we have under contract today. And, if we are successful in consummating some additional acquisitions, I would expect our initial 2014 outlook to increase.

Our access to capital and balance sheet are both in great shape. Our undrawn $770 million revolver and anticipated AFFO generation are more than sufficient to fund pending investment activity. If we pursue additional investments, as is our goal, those would likely be funded with additional debt financing, which is currently readily available to us at attractive rates. With respect to our expected obligations related to our 4% convertible notes due October 2014, our outlook contemplates a $1.4 billion debt refinancing to fully cash settle the convert obligations and to call the remaining $244 million of our 8.25% senior notes. We anticipate seeking such refinancing in the secured and securitized markets and have assumed a 4% refinancing rate in our 2014 outlook.

As our initial 2014 guidance indicates, we expect the current strength in our business to continue into 2014. A primary driver of the substantial growth we expect to set forth in our initial 2014 outlook is strong, same-tower cash revenue growth, similar to 2013, which we expect to finish the year in the 9% to 10% range, before iDEN terminations. We see a tremendous amount of amendment activity, again, in 2014 and an increased number of new leases. We have included no material contribution, in 2014, from any customer that was not reasonably active in 2013, so that would exclude Dish and Public Safety. We are anticipating, in our services outlook, some Sprint 2.5G activity, although not in our leasing outlook.

Please keep in mind that our 2014 outlook reflects site leasing revenue on a GAAP basis, while our tower cash flow, adjusted EBITDA, and AFFO outlooks are all on a cash basis. Total non-cash leasing revenue in 2014 is estimated to be approximately $43 million, compared to $66 million in 2013, a $23 million difference. As is our custom, our outlook includes only those towers we own, intend to build, or have under agreement to acquire as of today, and we do not guide to any stock repurchases. As a result, we are, today, including in our initial 2014 guidance a level of discretionary capital investment well below 2013 levels and well below our guided AFFO.

As I mentioned earlier, it will be our goal to invest additional material amounts of capital in portfolio growth, or perhaps stock repurchases, or both. Assuming the one refinancing contemplated in our outlook, ahead of the maturity of our 2014 convertible notes, we will have significant liquidity that could be deployed for additional asset growth and/or stock repurchases. Based on our estimated 2014 year-end run rate adjusted EBITDA, we could invest approximately an additional $800 million into portfolio growth and still maintain our target net debt to annualized adjusted EBITDA leverage levels.

In the aggregate, we believe our initial 2014 outlook is strong, with potential opportunities for improvement throughout the year. Our focus next year is straightforward -- execute well against a favorable macro environment, add quality growth assets, and continue to take advantage of what is expected to be a favorable financing market. We expect to once again produce material growth across a number of key metrics, including growth in AFFO per share.

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 customers' network needs. Our customers are, and we think will remain, extremely busy improving and expanding their wireless networks. We look forward to continued success as we finish this year and move into 2014. Rochelle, at this time, we're ready for questions.

(Operator Instructions)

First question comes from the line of David Barden of Bank of America Merrill Lynch. Please, go ahead.

It is surprising how fast these prepared remarks go, and the business looks like it is on rails, so congratulations for the quarter. I had two questions if I could, Jeff or Brendan. First is on portfolio growth and the goals that you have for 5% to 10%. Obviously, we have been watching the valuations in the sector, for these types of larger deals at least, creep up. We saw 21 times for the GTP business, we saw 22 times for the AT&T tower business, in terms of EBITDA multiples on run rate performance. I was wondering if you kind of look at that as an obstacle to growing your business at an accretive rate? On the other hand, do you see that as an opportunity to comp yourself to those types of deals?

And then, the second question I had was just quick on some of the comments you made, Jeff, around Sprint. It just was a little fuzzy to me. It sounds like you're expecting there to be a tapering off of the Network Vision spending from Sprint in the 2014 guidance. You also expect there to be new spending on the 2.5-gig rollout, but you haven't included that in your forward-looking guidance? If you could just sew that one up for me, it would be great, thanks.

Let me take the last one first, Dave. Our Sprint Network Vision activity was the result of the kind of master negotiation that we did with Sprint a couple of years ago, and it involved, on all of our towers, taking out CDMA equipment, adding in a whole new array of CDMA equipment, so a lot of work. What the 2.5G work will -- it will be less than that on a per-job basis, because what we expect will happen will be, Sprint will add to its existing mounting heights, several antennas, which will be still a nice job for us, but it won't have the same magnitude that the CDMA rip and re-install project had.

The reason we haven't included any leasing from 2.5G in our 2014 outlook is, until Sprint actually decides what they're going to do, there will be some cases where we will get additional leasing revenue, where they no longer have any additional capacity under the agreement we signed. But, where they do have some capacity and they can fit that in, we may not see any additional leasing revenue on that particular site. So, we are going to wait until we get a little bit clearer picture of the leasing activity before we roll it into guidance. Does that make sense?

Yes, that is clear. Thanks.

Okay, good. On the pricing, first, I would certainly agree with your comment that the prices that have been paid recently, certainly, underscore the value that we're creating here at SBA. And, it just makes our underwriting and our working to find these opportunities that much more stringent. There are still plenty of opportunities out there, in both the US and the international markets, where we're very confident that we can pursue, hit our goals, and still return double-digit IRRs in the US and growing 300 to 500 basis points, from there, in the international markets. We have to work a little bit harder, but there is plenty of opportunities out there for us to accomplish those goals.

Great. Thanks, Jeff.

The next question comes from the line of Amir Rozwadowski of Barclays. Please, go ahead.

You folks had mentioned that looking at 2014, you are going to be opportunistic around some potential opportunities for adding additional towers. Clearly, we have seen some of the larger deals take place, recently, in the domestic market. I was wondering if you could give us little bit more color, in terms of what types of opportunities you're seeing in the international arena, in terms of bolstering your tower portfolio?

Well, we think there will be more larger transactions available in the international markets, where you will continue to see some carrier divestitures that, again, for the right opportunities and with the right returns, we would be interested in. We are continuing to focus our primary efforts in the Western Hemisphere, in the Americas. Having said that, Amir, if you look at what we have under contract today, and you back out the 2,113 Oi towers, the rest of our backlog is all in the United States. So, there remains a lot of 5, 10, 20, 50-tower opportunities, which of course, has always been our bread and butter, and an area that we remain very active in and expect to continue to do so.

And then, I guess building upon the prior question, are a lot more tower opportunities, perhaps even smaller ones coming to market, given some of the valuations we've seen from a deal perspective -- ie, are folks now intrigued about, perhaps, unloading their tower opportunities given where valuations are in the marketplace? And, do you see a disparity between international valuations of some of these assets versus the domestic valuations?

In general, we are able to find lower pricing on a multiple of tower cash flow in the international markets. I don't know that anyone is rushing to sell today, notwithstanding some of the valuations that have been posted, because while you may have that as one motivation, I think a lot of people share our views, our positive views, about the future, and the ability to put additional tenants and revenues on their towers. So, I think it is a balance.

And then, if I may, one last question. We had gotten, I believe, from you folks and other folks in the industry that there still seems to be some challenges when it comes to capacity, be it hiring enough folks to do some of the installs that we've seen taking place, given the amount of activity taking place in the domestic market. I was wondering if you could give us an update there? Are you seeing a little bit easing capacity, in terms of getting enough tower climbers and so forth, in order to meet the demand that you're seeing in the marketplace?

It is still tight, and we expect that will cause some of the work that our customers would have liked to have gotten done in 2014, to spill into -- or 2013, to spill into 2014. Even though we have had a record year, and expect to finish with a record year in services, we could have actually done better, if we had more people. I don't know how much more, but it would have been more. So, you do still have some of that dynamic in the marketplace.

Great. Thank you very much for the incremental color.

Next question from the line of Michael Rollins of Citi Investment Research. Please, go ahead.

From a high level, one of the questions that comes up a lot is, what is the best way for a tower portfolio to grow in terms of mix? Is it the urban-suburban exposure versus rural? Is it the exposure to certain tenants? Is it the number of tenants per tower? Jeff, what are you seeing today as the characteristics that you think put a tower portfolio in the best position to grow? Or, is there just an element of luck in this where you got those locations in that one year that your customers' want, you ended up doing better? If you can help us think about where you are on that, today, in terms of this philosophy for the portfolio? Thanks.

You have to have good locations, Mike, whether is urban, suburban, or rural. So, you might call that luck, we hope that it is experience and skill that has led us to those good sites. I think our portfolio is, perhaps, less urban than some others, and we have consciously -- that decision and that focus goes all the way back to the mid-90s, when we first got into this business, with the belief that the big four US customers would deploy and provide services on a nationwide basis. And, that has proven true, and that has really been, I think, a big source of our success.

In terms of tenant mixes, while there is a lot of other contributors out there -- smaller Internet providers, you have a fair amount of government providers. In both the US and the international markets, we make decisions based off where we think the primary wireless service providers in those markets will be. So, in the US, it is the big four; in Brazil, it is the big four; in Costa Rica, it is the big three. And, that is the basis upon which we want to build a portfolio.

Thanks very much.

Next question from the line of Colby Synesael of Cowen. Please, go ahead.

Great. Two questions if I may. There was recent comments from Verizon and Sprint that they're pretty content with their current tower portfolio, in terms of the amount of towers that they have, and obviously, there is still a lot of talk from the tower operators about cell splitting and the growth that you expect from that. I was wondering if you could just kind of tie those two together and explain how we can still see significant cell splitting based on the comments from Verizon and Sprint recently?

And then, the second question has to do with additional term beyond iDEN. I was wondering, do you think it is too early to start thinking about potential for 2G churn as we move into 2014 and 2015? And, is there a way to look at what is perhaps happened in the industry in the past to get a sense of when that might start to be a more meaningful impact? Thanks.

I'm not exactly sure of the Verizon comments. I know that they have made comments about not selling their towers. I don't know that they have -- I have not heard that they said that they're content with their number of cell sites --

At a recent sell-side event, they indicated that the 42,000 or 44,000 towers, I can't remember the number, that they are pretty content maintaining that number for the next [few] years.

Well, all I can tell you is what we're experiencing, which is very good demand for new cell sites from, particularly, the big -- from AT&T and Verizon in the US, and we think, in the future, also, T-Mobile and Sprint. Really, it really gets back to the fundamentals of the business, which is that, with limited spectrum and the increasing needs and demands of consumers and the desires to put forth more services and faster speeds, there is really no other way, other than through additional infrastructure, and that kind of basic connection has held true ever since we have been in the business. And, I'm sorry, your second question?

2G churn.

What has happened historically is as customers have migrated and basically reduced, or in fact turned off technologies, they keep that equipment space and use it for other equipment. So, we don't really anticipate that, as companies move through 2G, what they will do is they will redeploy equipment in those spaces that will be 4G or 4G-advanced focused.

Maybe I can make one comment on that, just to clarify how our agreements are structured. As the carriers have migrated to the 3G and 4G technologies, they have amended existing contracts that we had that were originally in place for their 2G installation. And, they don't have the ability to simply pull out their 2G equipment and reduce their rent, based on the way our contracts are structured, so we have one agreement that covers their entire rights and it is not set up with piecemeal pricing.

I would just close by saying that the increased loads, Colby, that we're seeing on these new leases would indicate that is not really going to be a concern.

Great. Thank you.

Next question from the line of Brett Feldman of Deutsche Bank. Please, go ahead.

I am going to ask for a little more clarity around the Sprint stuff, as well, just to make sure we're being clear here. It does sound like, from Sprint, that they have this 55,000 cell site portfolio, which seems to be comprised of 38,000 sites that represent the core of Network Vision and, call it, 17,000 that they essentially acquired from Clearwire. And, it also seems that most, if not all, of those sites are likely going to see a Tri-band installation over the next [two] years.

When you were previously discussing your Sprint agreement and you gave some clarity around the extent to which it will or will not see increased leasing on the additional loading, was that just for the 38,000 sites? I'm just wondering how the Clearwire sites factor into the agreement you have with Sprint, and your opportunity to gain amendment revenues as they put Tri-band gear on those towers?

It applies to all of it, Brett. And, let me be real clear, every touch of our towers that Sprint will do, whether it is M&A from a traditional Sprint site or a Clearwire site, we will have the opportunity to do the services work for that 2.5G installation. So, that is every single one.

And, what about amendment revenues? Because, it sounds like the original --

Let me get to that. The amendment revenue will be dictated by whether Sprint has any remaining capacity under the deal that we cut two years ago, master deal that dealt with all kinds of things, including the iDEN terminations. So, to the extent they have additional space that they can fit their 2.5G antennas in there, we will get the services work, but we won't get the leasing work. Now, on the legacy Clearwire sites, that should result in some additional leasing revenue for us in almost every case. But, we don't want to roll that in until we actually see it.

That's fine. I just wanted to understand the difference in Clearwire and Sprint. And just one last question, you issued some shares this quarter to satisfy the warrants. You still have some authorization under the buyback. Are you thinking about taking those shares back out of the market?

We are going to see how we do on portfolio growth. We're very committed, in light of the environment and our organic growth in the debt markets, to maintain target leverage at 7 to 7.5 turns. We would like to fill that up through portfolio growth. But, to the extent we conclude that we can't find the right opportunities there, we would certainly expect to turn our attention back to stock repurchases.

Thanks for taking the questions.

Next question from the line of Jonathan Schildkraut of Evercore. Please, go ahead.

A few if I may. First, you guys were kind enough to break out what the iDEN churn was in the quarter. And, I was just wondering how the piecing of iDEN churn, so far, has matched up to your original forecast? I know that for both this year and next year, you have taken the most conservative approach, in terms of order of magnitude and timing of iDEN churn.

Secondly, it appears, just based on commentary, from a new cell site perspective, that SBAC may be a little bit later, in terms of the conversion to new cell sites from amendments. Historically, we've thought about SBAC as receiving some of the benefits of network upgrades a little bit later. I just wanted to get your perspective on whether this also implies that maybe the high-growth portion of your curve will extend a little bit further than some of your peers?

And then, finally, Jeff, you broke out some of the cash numbers, non-cash numbers rather, around leasing. And it looks like, on a cash basis, you are expecting leasing to grow at about 12%, site leasing, next year, and your initial guide for AFFO growth is maybe 13%, 14%. I was just wondering how we might think about the conversion of site leasing growth into AFFO growth? Thanks.

Brendan, do you want to do the iDEN question?

Yes, sure. Jonathan, with regard to what has happened for this year, we went into the year with an expectation of about $6 million of negative impact to our revenue numbers from iDEN churn. That was a worst case scenario. It is going to end up approximately $4.5 million for the year, based on the actual notifications we got. That is simply because Sprint did not terminate the highest dollar leases first, although they did maximize their rights in terms of number of leases.

For next year, the impact, as we mentioned, is $17.2 million on a full-year 2014 guidance. And that is, again, assuming the worst case, in terms of the timing and number of leases and dollar amounts, or rent rates, of those leases. If it turns out to be closer to the average, it would be approximately $1 million, or so, less than that $17 million.

On the timing issue, Jonathan, we feel very good about continued years of activity. If you look at where our portfolio is today, we are probably, with the big four, just over 50% amended for 4G. With the recent flurry of activity we had, just in the last month or so, on amendment backlog, that really gives us the expectation that number is going to continue to move substantially higher over the years. So, the positioning that we have and the behavior and the rollout characteristics of our customers, certainly, gives us good confidence that we still have a fair amount of runway left for the full initial 4G amendment cycle, and then, of course, you have capacity after that.

And then, finally, on the AFFO, I think the leasing revenue -- remember when you do that, you have to take into account the iDEN terminations and all that to get a true growth-rate perspective. I think you will see that drop down almost entirely to the AFFO line. But, what is also impacting the AFFO line, next year, is our contemplated $1.4 billion refinancing, and there is going to be some additional interest that goes along with that.

That makes a lot of sense. I know that everybody's MLAs with Sprint differ. I'm just wondering if there were any penalty clauses, with your MLA with Sprint, if they don't proceed according to the initial plan? Thanks.

There are requirements on both sides that would have some consequences if they're not met. I don't know that -- I don't know if you're asking about a drop-dead date. There is that situation where, whether they install their Network Vision upgrade or not, by a certain date, they are required to start paying the rental increase. I'm not sure if that is what you're referring to, Jonathan?

No, that is. Thank you for taking my questions.

Next question from the line of Simon Flannery of Morgan Stanley. Please, go ahead.

I think you referenced TowerCo earlier in the comments, I wonder if you could just review some of the recent acquisitions, and how they're trending versus your expectations? And then, we did see Crown elect early REIT conversion. Have you had any more thoughts about maybe following them? Thanks.

Yes, we are very happy with our Mobility and TowerCo acquisition, Simon, particularly in light of some of the more recent transactions that really demonstrate the value in our sector. So, we think we've created tremendous value there. And, they both happen to be trending ahead of plan, and I am most thankful to say -- and you might recall that our theory behind those transactions was that they were underrepresented with AT&T and Verizon and would be strong candidates for cell splitting and capacity infill. Those towers are, on a kind of a per-tower basis, leading our pack in that regard. So, we're extremely pleased with the way all of that was going.

On the REIT front, I think there are a number of good reasons to convert to a REIT, and at some point in time, we will clearly -- we will definitely be a REIT. That is our intention. I personally think that to maximize our life as a REIT, we need to be paying a healthy dividend. And, while we're currently compounding our AFFO per share the way that we are, we think it makes more sense to reinvest the proceeds, and we think that currently is the better way to create shareholder value. While I think we will get there eventually, I'm not sure that a REIT election, or announcement similar to what our peer did, is imminent from us.

The next question is from the line of Jonathan Chaplain of New Street Research. Please, go ahead.

Thanks for taking the question. This is Spencer Kurn in for Jonathan. I think we just talked about cash, that leasing revenue growth, looking in the 16% range for 2014. Can you just clarify what your expectations are for organic growth?

We think it is going to be similar to the 9% to 10%, before iDEN terminations, that we're experiencing, or expect to experience, here in 2013.

Got it. Thanks. And, just to touch on the Sprint topic a little bit more, you have forecasted iDEN churn and no [2.5] deployments. Can you touch on what you are expecting for the rest of the Sprint portfolio in terms of growth? Have you forecast any incremental site builds for their core sites?

Very little. We do have some Sprint growth in our numbers, which emanates from the deal that we cut two years ago, where they are still deploying Network Vision equipment and we get certain benefits and revenue recognition from that. And as Brendan mentioned earlier, I believe by the end of 2014, we will start to accrue all of the benefits from that transaction. So yes, we do have some of that in our guidance. What I think is more interesting is we have seen a number of instances where Sprint has deployed new cell sites and also deployed equipment outside their allotted bucket in their agreements, and that has resulted in additional revenue opportunities for us, and we think that will continue into 2014.

Got it. I think that going -- for the first half of this year, we were talking about organic growth in sort of the 8.5% range. And now, it seems like you're talking about organic growth in the 9% to 10% range. What has been the major driver of that? Has it been this equipment deployment that is outside of the scope of the original MLAs? Or, has it had been something else?

Yes, I think it is a wide range of things. The customers are just very busy, and I believe they will continue to stay busy. A lot of the commentary from our customers, this quarter, was around investment in the network and the desire and the need to continue to invest in the network. And, it is really from a whole variety of things that has caused this performance on the organic side. I wouldn't single out any one thing.

Got it. Thanks, guys.

The next question is from the line of Michael Bowen of Pacific Crest. Please, go ahead.

First question I have is on the iDEN negative impact of $17.2 million. Jeff or Brendan, how should we think about that in the first quarter of 2014? Is that going to be a step function up? Because, I think you said this quarter is $1.5 million, or is it going to be more of a gradual increase to get to that $17.2 million?

And then, second question, Sprint also made some commentary outside of their 2.5-gig coverage. They said they are going to move to 250 million of POP coverage for LTE, even excluding the 2.5. So, is that included in your 2014 guidance? Thanks.

Michael, on the Sprint question, it is essentially a step function. And basically, what it amounts to is, the highest potential loss in Q1, which would be a little over $2 million in the first quarter, of quarterly revenue. And then, you would have that loss, obviously, for the entire year, so that component of it would be $8 million of the $17 million. And then, the next quarter, you would have a loss and so on. So, the $17 million is basically the accumulation of the total revenue to be recognized, or to not be recognized, I should say, during 2014 associated with losing those leases.

On the specific inclusion of additional Sprint POP coverage, Michael, no, that really didn't go into our 2014 outlook.

Okay. Thank you.

(Operator Instructions)

You have a question from the line of Rick Prentiss of Raymond James. Please, go ahead.

A couple of questions for you guys. First, Jeff, you mentioned that the Sprint Spark, or the 2.5 gigahertz, you'd put it in when there was better clarity. Given Sprint just announced it last week, but wants to have 100 million POPs covered by the end of 2014, is this something you think we see within 3 months, 6 months, as far as you getting clarity? Just trying to gauge how soon they've got to kind of get to you guys?

I think, Rick, given the timing of when we would talk about fourth quarter, because it is a little bit later than the typically one-, two-, three-quarter calls, we probably should have some more color next time we talk.

That makes sense. We have also been picking up a lot of buzz in the industry, including a related company to Sprint, about third-party gear again, back to the old kind of LightSquared concept. It seems to be picking up a lot of buzz, again, that when we asked the Sprint-related company, they said that's one of the prime reasons they had done Vision was to be prepared for third-party hosting. Can you update us a little bit about what that means for you guys? What if Sprint were to host third parties? What if they were to put some frequencies that they don't own into their equipment? How does that kind of play out?

We did go down that track pretty far with LightSquared. We had previously negotiated an arrangement, where Sprint would have had that right, and we would have got additional revenue for that. And, it was equipment specific. We had a detailed spec that we negotiated from. So, the basic concept and theory is in place. And we're -- I think we would be open and ready if that opportunity comes again. It would clearly result in additional revenue to us because -- on the basis that Sprint would not own that spectrum.

Right, makes sense. And then on your backlog, I think I heard you say that there is about 200 or so towers in the first quarter 2014, M&A backlog, and those were US --?

Yes.

Can you talk a little bit what you're buying there? It looked a little expensive on a price-per-tower basis, maybe.

These are some real quality towers that average probably 2.5 tenants, or more, a tower. So, these are a little more on the pricier side because their cash flows are much greater.

Makes sense. And then, on the organic growth that you have been talking to, is there a differentiation between the US cash organic growth rate and the international organic growth rate?

It is a little bit less -- less than 100 basis points off of our range in the US, and probably 200, 300, maybe 400 basis points more internationally. The 9% to 10% was a blend.

Right, so the US would be more like 8% to 9%, or 9%-ish, and the international would be above that?

Yes.

Great. Thanks, guys.

There are no further questions in queue. Back to you, gentlemen.

Great. Thanks, Rochelle. Thank you, all, for joining us, today, with our third-quarter results, and we look forward to our year-end call in February. Thank you.

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