SBA Communications Corp (SBAC) 2014 Q1 法說會逐字稿

Ladies and gentlemen, good morning, thank you for standing by, and welcome to the SBA first-quarter results conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Vice President of Finance, Mr. Mark DeRussy. Please go ahead.

Thank you, Tom. Good morning, everyone, and thank you for joining us for SBA's first-quarter 2014 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 2014 and beyond.

These forward-looking statements may be affected by the risk 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 statements we may make. Our statements are as of today May 2, 2014 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 other information required by Regulation G has been posted to our website, www.sbasite.com. With that, I'll turn the call over to Brendan.

Thank you, Mark, good morning. As you saw from our press release last night, we had another very strong quarter in all areas. We exceeded the high end of our guidance for leasing revenue, tower cash flow, adjusted EBITDA, and AFFO. GAAP site leasing revenues for the first quarter were $309.3 million, or a 13.1% increase over the first quarter of 2013.

Domestic cash site leasing revenue increased 12.8% to $268.7 million and international cash site leasing revenue increased 67.2% to $29.6 million. Our leasing revenue growth was driven by organic growth and portfolio growth, including our acquisition of 2,113 towers from Oi in Brazil, which closed in late November of 2013. iDEN-related churn during the quarter had a negative impact of $1.4 million. We continue to experience strong leasing demand both domestically and internationally. Amendment activity continues to be significant and contributed over 75% of incremental leasing revenue in the first quarter, reflecting a combination of coverage and capacity related 4G spending by are customers.

The big four US carriers contributed over 90% of our consolidated incremental leasing revenue in the quarter. We continue to maintain leasing backlogs at record levels. Tower cash flow for the first quarter 2014 was $237.5 million, or a 20.5% increase over the year earlier period. Tower cash flow margin was 79.6% compared to 77% in the year-earlier period. Approximately 90% of our tower cash flow was generated from our domestic sites. Our services revenues were $36.2 million compared to $39.6 million in the year-earlier period. Services segment operating profit was $8.8 million in the first quarter, compared to $7 million in the first quarter of 2013. Services segment operating profit margin was 24.3% compared to 17.6% in the year-earlier period.

SG&A expenses for the first quarter were $24.7 million, including non-cash compensation charges of $4.5 million. SG&A expenses were $20.4 million in the year-earlier period, including non-cash compensation charges of $3.8 million. Increases are primarily attributable to increases in employee-related costs and specifically to headcount increases in Brazil.

Adjusted EBITDA was $226.7 million, or an increase of 20.7% over the year-earlier period. Adjusted EBITDA margin was 67.8% in the first quarter of 2014 compared to 63.5% in the year-earlier period. Approximately 96% of our total adjusted EBITDA is attributable to our tower leasing business. AFFO increased 21.8% to $153.8 million, compared to $126.3 million in the first quarter of 2013. AFFO per share increased 20.4% to $1.18 compared to $0.98 in the first quarter 2013. Combined changes in the Brazilian and Canadian exchange rates during the first quarter versus our guidance positively impacted leasing revenue by a de minimis $224,000 and adjusted EBITDA and AFFO by $125,000 each.

Net income during the first quarter was $1.4 million compared to a net loss of $22.4 million in the year-earlier period. Net income per share for the first quarter was $0.01 compared to a net loss of $0.18 per share in the year-earlier period. Net income for the quarter was positively impacted by $17.9 million of gains on currency hedges related to the Oi acquisition of 2,007 sites, which closed March 31.

Quarter-end shares outstanding were 128.8 million. In the first quarter, we acquired 2,188 sites for $900.6 million in cash including acquisition of 2,007 sites from Oi. SBA also built 57 sites during the first quarter. We ended the quarter with 22,263 sites. 15,034 of these sites are in the US and its territories and 7,229 are in international markets.

Total cash capital expenditures for the first quarter of 2014 were $947.5 million, consisting of $4.7 million of non-discretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $942.8 million of discretionary cash capital expenditures. Discretionary cash CapEx for the first quarter includes $900.6 million incurred in connection with tower acquisitions, excluding working capital adjustments and paid earn-outs. Discretionary cash CapEx also included $16.3 million in new tower construction, including construction in progress, and $11.1 million gross augmentations in tower upgrades. The substantial majority of augmentation CapEx was reimbursed by our customers.

With respect to the land underneath our towers, we spent an aggregate of $9.3 million to buy lands and easements and to extend ground lease terms. Our investments in land are both strategically beneficial and almost always immediately accretive. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 72% of all of our towers and 74% 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 31 years. At this point, I'm going to turn things over to Mark who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. SBA ended the first quarter with $6.9 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $363.2 million. Our net debt-to-annualized adjusted EBITDA leverage ratio was 7.2 times. Pro forma, assuming a full quarter of operational results from the Oi acquisition, our leverage ratio was 6.9 times. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.4 times.

During the quarter, we obtained a new, seven-year delayed draw $1.5 billion Term Loan B. The note was issued at a 25 basis point discount to par. The first funding of $750 million occurred in early February and the remaining $750 million funded in late March. Interest will accrue at LIBOR plus 250 basis points, with a 75 basis point LIBOR floor. Net proceeds from this financing were used to repay in full the $290 million balance on our existing Term Loan B, to repay the $390 million outstanding balance on our revolver, to fund our 2,007 site acquisition from Oi, and for general corporate purposes.

Effective March 17, 2014, we have elected to settle the principal amount of any convergence of our 4% convertible notes, in cash, and to settle any premium with shares of common stock. Concurrent with any conversion, we will settle the call portion of the associated bond hedge, whereby we will receive an equal number of shares of those issued to the noteholders. As a result, outstanding share count will not be impacted by the conversion of these notes under the current settlement election.

We anticipate settling the remaining warrant portion of the associated hedge in cash, no later than the first quarter of 2015. Based on recent stock prices, our current cash obligation to settle these warrants is approximately $750 million. We received conversion notices totaling $259,000 of principal during the first quarter and $121.3 million thus far in the second quarter, all of which conversions will settle in the second quarter.

As of the end of the first quarter, the weighted average coupon of our outstanding debt is 4.1% and our weighted average maturity is just under five years. We currently have no outstanding balances under our $770 million revolver. Based on specified covenants, we have available to us today $675 million under the revolver. 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 had an excellent quarter, exceeding the high end of our guidance across almost all key financial metrics. Once again we led our industry in many important growth and margin metrics. Our organic leasing activity was particularly strong in the first quarter and a prime reason for our outperformance.

Based on our year-to-date activity and current backlogs, we are announcing sizable increases to our 2014 outlook, almost all of which are due to organic leasing and services activity. We expect to benefit from elevated levels of customer activity for the next several years as carriers build out their initial 4G coverage footprints 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 that is true in all of our markets.

In the first quarter, we experienced strong leasing demand across our entire portfolio, both domestic and international. Same-tower cash leasing revenue growth was 12% on a gross basis, and 10.4% on a net of churn basis, including iDEN-related churn. This is higher than the growth rate we assumed in our initial 2014 outlook and is the primary reason for our increase to the outlook. We have not assumed the higher first-quarter same-tower actual growth rate through the rest of the year for outlook purposes and if activity the rest of the year were to match year-to-date activity levels, we would expect actual leasing results to exceed the mid-points of our outlook. We attribute our leasing success to a combination of quality assets, strong execution, good contracts, and excellent demand from our customers. Strong execution was particularly evident, with tower cash flow margins up 260 basis points over the year-earlier period.

The first quarter in the US was another very busy quarter with respect to new leasing business, exceeding our very strong fourth quarter on the basis of gross incremental leasing revenue added net of escalation benefits. We once again executed high numbers of both new tenant leases and amendments. Amendment revenue made up the substantial majority of incremental leasing revenue in the US. Amendments are for both coverage and capacity, and many amendments represent the first or second equipment change or addition after the initial 4G deployment.

Our customers continue to request larger equipment loads for both leases and amendments, which has a favorable impact on rate. AT&T and Verizon continue to be very busy and represented well over one-half of our new business in the quarter. The Mobilitie and TowerCo assets we acquired in 2012 continue to outperform with respect to new leases as they were under-indexed to AT&T and Verizon. We saw another quarter of material contribution from Sprint due to its Network Vision project and T-Mobile remains active on its 4G upgrade. Our backlogs remained large and continue to replenish.

On the leasing side, we are starting to see 2.5G business from Sprint and have yet to see any 700 megahertz business from T-Mobile. We have included a small leasing benefit from Sprint 2.5G business in our 2014 outlook, but nothing yet from the T-Mobile 700 megahertz business. We have included no contribution in our 2014 outlook from any prospective customer that is not currently reasonably active so that would exclude Dish and public safety. 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 $56.7 million.

Our services segment produced strong results again for us in the first quarter, with all four major US carriers contributing. We executed extremely well with services margins as high as they have been in at least 10 years. Our services backlog remained high. We expect continued strong services segment contribution through 2014 and have raised the mid-point of our full-year services revenue outlook by $10 million to reflect those expectations.

We continue to see strong activity in our international markets in both organic leasing and portfolio growth. Internationally, we are seeing strong growth in new cell sites, with a lot basic 3G coverage builds still ongoing in our markets and an increasing amount of 4G coverage builds. International leasing activity is mostly new leases, but there is a growing amount of amendment activity. International cash leasing revenue and tower cash flow grew materially, [rarely] due to portfolio growth. International tower cash flow margins were [strong] and only slightly below or behind those in the US, reflecting strong execution.

While we experienced strong growth in all of our international markets, most of the aggregate international growth was in Brazil. We had another very active quarter in Brazil. We closed on our acquisition from Oi of 2,007 sites on March 31. We made good progress in Brazil on finalizing leasing agreement with the carriers, from which we expect an increase in our new leasing business in Brazil. We also received a large new tower build award, putting us well down the road toward our goal of being a major builder of towers in Brazil.

Higher expectations around our Brazil business, including a more favorable view on exchange rates is one of the drivers to our increased 2014 outlook. I'm very pleased with the progress we have made in Brazil year-to-date and look forward to continuing our positive momentum. We will continue to look for additional acquisition opportunities in Brazil, although now having gotten to scale, we believe our strategic needs have been satisfied.

Our operational performance across the entire Company was very strong in the first quarter. Strong tower cash flow and services margins drove our adjusted EBITDA margin to an industry-leading 67.8%, a record for SBA. We think to have produced that level of margin while growing materially internationally and increasing SG&A expense to manage that international growth is a real accomplishment. The strong adjusted EBITDA results we had in the first quarter drove our equally strong AFFO and AFFO per share results. With respect to portfolio growth, with the Oi acquisition of 2,007 sites, we have already satisfied our portfolio growth goal for all of 2014, with hundreds of additional new builds expected between now and year-end. We will continue to look for additional acquisition opportunities, certainly in our existing markets and potentially some new markets, although our preference currently is to stay in the Western Hemisphere.

Our pro-forma leverage post the Oi transaction is 6.9 times, below our target range of 7 times to 7.5 times net debt-to-annualized adjusted EBITDA. We have room under our leverage targets to pursue additional portfolio growth. Our 2014 guidance reflects only those acquisitions we have under contract today and if we are successful in consummating some additional acquisitions, our 2014 outlook could increase.

We have plenty of resources with which to pursue additional portfolio growth. Our access to capital and balance sheet are both in great shape. Our cash on hand, undrawn $770 million revolver, and anticipated AFFO generation gives us more than $1 billion from available capital. Should we seek additional financing for an acquisition, the capital markets are currently very accommodating. Our outlook assumes we use our cash on hand and contemplates a $1.3 billion debt refinancing to fully cash settle the remainder of our 4% convertible notes and the related warrants and call the remaining $244 million of our 8.25% senior notes. We anticipate seeking such refinancing in the third quarter and have assumed a 4% refinancing interest rate in our 2014 outlook.

As our guidance indicates, we expect the current strength in our Business to continue through 2014. Our focus remains the same: execute well against a favorable macro environment, add quality growth assets, and continue to take advantage of what is expected to remain a favorable financing market. With our annual portfolio growth goal already achieved, leverage within our target range, and tremendous liquidity, we look forward to continuing to realize strong revenue and tower cash flow growth on our high-quality assets. We believe we have SBA ideally positioned for future success. We expect to once again produced 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 operational results were very strong in the first quarter, the strongest in recent memory. Those results come from the efforts of many and I thank all of those who contributed to our first-quarter success. We look forward to reporting continued success as we move through 2014. And Tom, at this time, we're ready for questions.

(Operator Instructions)

Imari Love.

Great quarter. Thanks for taking the call, guys. Quick question, you said that the majority of the revenue of leasing activity is coming on the amendment side. Can you give any color as to what the trend is of the split? Amendments versus new installations and maybe what you see as the outlook for the balance of the year?

Yes. We -- starting last year, about middle of the year, we began to see a shift towards more new leases, more co-locations versus amendments, although even through, perhaps, the lowest contributed quarter from amendments, it was still around 50%. Then in the fourth quarter, we actually saw a very big jump again in the amount of amendment activity and that amendment activity has carried through the first quarter, is carried through our existing backlogs and I don't know exactly how much of the split's between new leases and amendments when 2014 is all said and done will be the case, but we do expect for the full year, to have a sizable contributions from amendments.

Okay, thanks.

Jonathan Chaplin.

Thanks a lot. At the beginning of the year, you were baking in about 9% to 10% organic site leasing growth in your guidance. You're obviously coming in well ahead of that -- you said it was 12% so far this year. What are you baking in for the full year now? And then what are -- is that a rate that we can expect you to be able to grow at for the next few years? Thanks.

Well, it's hard to answer the last part of your questions, but the levels of activity that have produced these growth rates today, we think should stay substantially the same for years to come. What we have in our current and updated outlook is a 10% net cash revenue growth is that correct, Brendan?

That's right.

So up from where we initially put forth guidance, but not quite as high as what we actually experienced in Q1.

And what would cause revenue growth, organic revenue growth, to slow down from Q1? It sounds like there's a lot more activity coming the back half of the year that isn't included in guidance. If anything, it seems like it should accelerate?

Yes. It's just a healthy dose of conservatism.

Got it. Thanks, guys.

Jonathan Atkin.

I wondered if you could give us a sense of what's happening at your sites in terms of the pace of physical decommissioning of iDEN gear? And then the same question as it relates to the taking down of CDMA by T-Mobile?

We're not seen much take down of CDMA by T-Mobile, Jon. On the iDEN sites, there are a number of towers, and we started this process a year ago, where we've evaluated what we think of the asset post-iDEN termination, and in some of those cases, we've decided to decommission those towers. We have some more of that yet to come this year, but as we move into 2015 and beyond, those decommissioning numbers should begin to slow.

You've made certain assumptions with regards to the financial impact, but I was curious whether the actual, physical deinstallation was keeping pace and that was behind the question. And if you could also maybe give us a sense of the M&A bought outside of the US, there may be further assets for sale for instance in Brazil, or nearby, or even further out markets, and just curious to get your sense as to your appetite for participating in that type of deal?

Just to be clear on your first question about the iDEN, you were talking about Sprint decomming their equipment, as opposed to us decomming towers? Is that right?

Correct.

We are seeing Sprint decomm equipment at sites. For the most part, they've shut down the network, It's really more a function of just getting to all the sites from a resource standpoint to actually remove equipment, but that doesn't necessarily sync up with the timing of the leases decomming or churning off, which will take place over a several year period, so I'd say we're only part way through the actual physical decommissionings.

On the M&A side, John, we continue to be interested. We've had a long history of creating shareholder value through successful portfolio growth. I do believe we have more of that in our future. It is safe to say that the opportunity set is probably greater outside the United States than it currently is in the United States, so we will continue to look around the globe as I mentioned in the comments. We are more interested in continued Western Hemisphere growth, but we do -- we are interested in the right portfolio growth where we're confident that it's going to lead to increased value.

Thank you.

Amir Rozwadowski.

Thank you very much and good morning, folks. Jeff, you've mentioned on a prior response to a prior question that there is a healthy dose of conservatism to your outlook? Might I be so bold to ask as to how much conservatism?

We didn't really quantify it. If you extrapolate the rate of the same-tower revenue or same-tower tax revenue growth in Q1 at 10.4% versus the 10% on a net basis that's implied in the outlook, you probably could come up with some numbers.

Thank you that's very helpful. And then, you'd mentioned you're still seeing a healthy amount of amendment activity in the marketplace. If we're thinking about the opportunity set for new tower leases, there has been a lot of questions around the amount of investment that would be required for densification purposes. I would love to hear any insight you have as to when you expect to see that level of investment tick up in earnest and how we should think about the opportunity set there, relative to the amendment activity? Thank you.

It's interesting because what we're seeing now, in large part, on the amendments is densification. As I mentioned, a lot of these amendments are going on sites where there already has been initial 4G rollout, so we're literally seen another amendment on top of that and in some cases a second amendment, all after the initial 4G deployment has been rolled out so we view that as densification as well. But all the factors that are at play -- increasing wireless demand, data, you're going to end up with shrinking cell densities and that bodes very, very well for not only increased amendments, but also increased new cell co-locations.

Thank you very much.

David Barden.

Hey guys, good morning, great results. Two questions if I could. Jeff, just with respect to your comments about the loading of the towers increasing, could you elaborate a little bit? Is that really about an increased deployment of remote radio head ends or is there some other structural change in the network architecture you're seeing that's going to be incrementally additive to growth?

And then the second question is, there is constant chatter about the T-Mobile/Sprint merger. One of the theories is that Sprint might be slowing down its network build in order to preserve some of the upside opportunities that might exist down the road by building one combined network rather than two separate networks. Are you seeing anything in your pipeline of business with Sprint that would suggest that they're somehow hedging or slow rolling the build to maybe accomplish some of those goals? If you could just shed some color on that, that would be great? Thanks.

It is possible, Dave, because what we've seen out of Sprint is a lot of activity, but it's all about the initial Network Vision project, so going beyond the Network Vision project, other than this 2.5G business, which is just really getting started, I don't know that we've seen, certainly, the levels of activity from Sprint that we've seen from, say, a AT&T or a Verizon. So you may be right there. Sprint has been very busy, but it's still pretty much all centered around the initial Network Vision project.

And on the loads, most of the action is now going on or is comprised of the remote radio heads and it's really just the volume of equipment. We're seeing many, many installations now where there's north of 20 lines and 20 antennas.

Awesome. All right, thank you very much.

Jonathan Schildkraut.

Great, thanks for taking my questions. Two, if I may. First, just going to the release last night, I noticed there was a big jump in the straight-line assumption for the year. Obviously, you had some really good leasing, but I was wondering if there was a little bit more behind that?

And then second, I was wondering if there was any color in terms of what you're seeing on the tower, the two-transmitter, two-radio design that most of the carriers went out with initially. Everybody's been talking about an upgrade here to 4T4R, and I was wondering, in terms of your towers, where you thought that was? Thanks.

Just, Jon, first on the straight line. Basically all of that increase is associated with Brazil and specifically the two Oi transactions that we did just over the last two quarters. The leaseback from Oi includes a minimum escalator, although, all of the lease escalations down there are tied to the Brazilian CPI index.

There is a minimum that's built into the leaseback from Oi in both of those deals, which creates a very large straight-line component that, quite honestly, wasn't contemplated in the initial guidance numbers that we gave out. We only included the cash piece, as there was still a lot of information to process around calculating that straight line and so we started to recognize it in the first quarter and have included the increase in our guidance associated with that.

On the equipment, Jonathan, we're not seeing a lot yet of the new architecture. Most of what we're experiencing now is the historic radios on the ground and then radios on the tower business and that's -- we think there's a lot of that business left to go before we get into the next generation of architecture.

Thanks for taking the questions.

Phil Cusick.

Hi this is Richard for Phil. Just wanted to ask a follow-up on the equipment. You're saying that there is first and second amendments on the initial deployment. Can you give us a sense on how far along that process that we're in? Is it 10%, 20%, or few first few [innings], or has this been going on for a while? And with that, in the outlook, are we still looking at it 75%/25% amendment co-location mix for the year or do we expect ago to more of a 50%/50% by some point later this year?

It will be somewhere between 75% and 50% as we move through the whole year. And I'm sorry, Richard, your first question again?

In terms of hitting those -- can you give us a sense of how many initial 4G deployments have been hit the first or second time and where do you think that might go?

Well that's a great but difficult question to answer because it's really all going to be driven by the local site traffic patterns, how much data is being promulgated over that particular site. But if our history has any future applicability, maybe one-half of the sites over time are going to see second, third amendments after the basic 4G deployments.

Great and one final one, in terms of the network services margin, can we see this level above 20% versus the historical high teens going forward?

We're going to have strong margins. I don't know if we're going to have north of 20% margins every quarter throughout the year, but I do think we're in an environment here where over the course of the year, we're going to have probably the strongest margins that we've had.

Okay, thank you.

Simon Flannery.

Thanks very much. Good morning. There's been a lot of talk in the earnings season about the rapid growth in data and people deploying small cells and the increasing use of Wi-Fi. Can you update us on ExteNet and your position towards small cells and how you think macro cells versus small cells versus Wi-Fi will play out over time? Thanks.

Well, we continue to enjoy our relationship with ExteNet. They're busier today than they were several years ago. We think that's going to continue to grow and we think small cells are definitely going to have a place in network architecture, but clearly from our results, they're not cutting into the macro business, and we really see continued, strong growth in both the small cells and the macro sides of the network architecture.

Is there any sense of you becoming -- getting a bigger ownership in ExteNet or are you comfortable with where things are today?

We will see. We will see. We do not have the right to control that issue, but we have a great relationship with ExteNet and should the opportunity arise, we certainly would take a look.

Great, thanks.

Ric Prentiss.

Thanks, good morning, guys. Obviously very strong organic growth, also appreciate the domestic versus international break-outs. As you think about that 10.4% net of churn 1Q experience, how would you think that looks international/domestic, as you look at your 2014 guidance? I would assume iDEN churn also needs to come up through the year since it was pretty low in 1Q?

Yes it will come up a little bit, and to be honest with you, our domestic same-tower growth rates were slightly higher than our international because we're still progressing and making -- trying to get up to hitting on all eight cylinders in our Brazilian market. We had -- the only towers in Brazil that were included in those calculations were the 800 towers that Vivo towers that we acquired at the end of 2012 and we're seeing all kinds of great prospects and momentum with getting these leasing agreements in place to get that up, but candidly, the domestic same-tower growth rate was slightly higher than the international.

Okay. And then you mentioned a large build order in Brazil, but you didn't change I don't think you're build guidance. Has that been something you've been working on for a while and what kind of magnitude are we looking at?

We just got it. That may prove to give us cause to increase that over the year. It's about a 500 tower new build awards that we got.

And obviously, some of it will probably slip into 2015, given the time?

Oh, yes. Absolutely.

And then the final question is, thinking through the M&A outside the US question, how do you manage the visibility of a great business with the volatility of some of the FX things we've seen? Do you feel you're getting large enough in Brazil? I'm just trying to think of how you manage the risk, if you will, of a diversified portfolio?

Brazil is a great market. It's got a tremendous future for new network investment, but it does have the FX issues. Over time, over a 10-, 20-year history, the FX of the reais versus the US dollar has moved in a fairly predictable pattern, but that is definitely something that would mitigate our desire to get even larger. I can't give you a mathematical answer, Ric, as to how much of our overall exposure that we would be willing to subject to FX risk, but there are definitely limits there that will factor into how big we will ultimately get in any non-US market.

And obviously doing builds also get you a lower-cost of asset [down there] too?

Yes. The reason we're down there is really for the new build business because there is so much to be done down there. We acquired some scale and some operating competency, but we're just now on the cusp of doing what we really want to be doing down there which is a lot of new builds.

I've heard Brendan say in the past, two-thirds of the pops, but one-third of the towers in Brazil -- is that still the thinking?

Yes. Their average cell site services 4,000 people versus 1,000 in the US.

Great, thanks, guys.

Yes.

Michael Bowen.

Okay, good morning. Thanks, guys. Can you talk a little bit about organic growth going forward? Because we keep on getting a lot of questions with regard to how good can it get and really what inning are we in? And then second question, with regard to core growth rates, you guys have talked about 9% to 10% pre-iDEN churn -- can you help split that out domestic versus international? Thanks.

Yes. The domestic gross number was [12.2%] and the international number was slightly less than that. Those are the gross numbers. And in terms of how far it goes, again that's a question, the answer to which will be definitely and driven by how far wireless data goes. The other things that will drive it will be some additional spectrum options which are on the horizon. The 600 megahertz, we think will have a very large impact in terms of additional core organic growth in the US, the 700 megahertz in Brazil we think the same. So the combination of wireless data growth and new spectrum, we think, gives us a pretty long runway here.

Thanks for that. And lastly in Brazil, there are some pretty sizable portfolios down that are still potentially up for sale. How should we think about it or how are you guys thinking about timing, price, and how long these processes typically take, so we can potentially start at least thinking about layering this into a long-term model?

We have an interest in some of those assets for the right price. Going back to the comment I made to Ric that we do think that there is a limit on how much we would want to grow in Brazil, we don't think we are at that limit yet, so there are some assets out there that, for the right price, we would have an interest in.

And thanks. One last quick one. With your guidance, can we also assume that you're still not including the additional 50 million pop coverage from Sprint and the 100 million with 2.5 at Sprint?

Yes on the leasing side. A little bit in the services. There's a little bit of that in the services outlook, but not on the leasing side.

Great. Thanks, guys.

Yes.

Colby Synesael.

Great. Two questions. First off on international and the escalators, can you remind us what percentage of your escalators are fixed outside the US versus tied to CPI? And then, what your assumptions are in your guidance for those that are tied to CPI? And then my other question, just real quickly, just wanted reaffirm your thoughts on REIT in terms of timing?

On escalators, Colby, all of our escalators internationally are fixed with the exception of Brazil, where all of the escalators in Brazil are tied to CPI. The one exception to that, as I mentioned earlier in discussing the straight-line component, is that the Oi deals that we did, both of them, have a leaseback from Oi on those sites, so that's over 4,000 leases. Those do have a minimum escalator, so they are tied the CPI, but at no less than a minimum, which is 6.5%. So all of our Central America leases have fixed escalators that mirror generally what we see here in the US in the 3% to 4% range.

On the REIT status, as we've said many times, we do see a REIT election in our future. It's probably, as every month goes by, it's getting closer. I don't know that it will be something that we do this year. We're watching a lot of the goings-on around proposed tax law changes in that area and that is something that may cause us to accelerate things.

We are not at a point yet, and we will not be this year, where we would have positive earnings [from] profits for purposes of making a purging distribution, which we think is an important timing event as to when we might otherwise elect [status]. In general, without giving you an [exact] date, I would say we've probably stepped up our work on the area of ultimately electing REIT status.

Yes, but previously you had said maybe 2020 or even beyond and it sounds like that's potentially changing now?

Yes, I think it will be before that.

Okay. Great, thank you.

Mike McCormack.

Hey, guys, thanks. Jeff, maybe just a quick comment on this Sprint build. You said it's obviously fairly small right now, but just wondering if you're seeing that -- is it widespread and small or is it very concentrated? And then secondly, Wi-Fi, the small cell opportunity, a lot of cable companies out there at talking about trying to do a build. Do you view that as a threat or a potential opportunity, if we were to see Wi-Fi deployed on more of a macro basis?

The Sprint is wide. There's a lot of geographic areas where that is, so it's not narrow, although, as I mentioned, the volume is not quite there yet. We think that's yet come. And on the cable -- the Wi-Fi method of delivering signal is really still more of a mixed location type technology. So we really don't see it as a threat to macro sites. All of these cable companies that are talking about this, at least the ones that I've seen, have talked about roaming deals with one of the cellular providers. And you really have to have macro sites to provide the mobility aspect of wireless service. So much as we don't believe that small cells will impact the macro sites, we feel the same about Wi-Fi.

Jeff, do think though, that as cable companies become more ubiquitous in trying to offer some sort of -- whether it's a retention strategy or a wireless strategy and right now they're doing these friend networks in each individual home, but maybe an opportunity at some point down the road for you guys to have that deployed in a more widespread basis?

Certainly there will be a lot of money spent in that area. I'm not exactly sure that the economics will prove as interesting to us as our core tower business.

Great, thanks.

Gentlemen, there are no further questions queuing up at this time.

Great. Well, I appreciate everybody joining us today on the call and we look forward to a second-quarter earnings call. Thank you.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.