SBA COMMUNICATIONS CORPORATION The following discussion of our financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties, including, but not limited to, those described in Item 1A. Risk Factors. Our actual results may differ materially from those discussed below. See "Special Note Regarding Forward-Looking Statements" and Item 1A. Risk Factors. We are a leading independent owner and operator of wireless communications infrastructure, including tower structures, rooftops and other structures that support antennas used for wireless communications, which we collectively refer to as "towers" or "sites." Our principal operations are inthe United States and its territories. In addition, we own and operate towers inSouth America ,Central America ,Canada , andSouth Africa . Our primary business line is our site leasing business, which contributed 97.7% of our total segment operating profit for the year endedDecember 31, 2019 . In our site leasing business, we (1) lease antenna space to wireless service providers on towers that we own or operate and (2) manage rooftop and tower sites for property owners under various contractual arrangements. As ofDecember 31, 2019 , we owned 32,403 towers, a substantial portion of which have been built by us or built by other tower owners or operators who, like us, have built such towers to lease space to multiple wireless service providers. Our other business line is our site development business, through which we assist wireless service providers in developing and maintaining their own wireless service networks.
Our primary focus is the leasing of antenna space on our multi-tenant towers to a variety of wireless service providers under long-term lease contracts inthe United States ,South America ,Central America ,Canada , andSouth Africa . As ofDecember 31, 2019 , (1) noU.S. state or territory accounted for more than 10% of our total tower portfolio by tower count, and (2) noU.S. state or territory accounted for more than 10% of our total revenues for the year endedDecember 31, 2019 . In addition, as ofDecember 31, 2019 , approximately 30.5% of our total towers are located inBrazil and less than 3% of our total towers are located in any of our other international markets (each country is considered a market). We derive site leasing revenues primarily from wireless service provider 24
--------------------------------------------------------------------------------
Table of Contents
tenants, including AT&T, T-Mobile, Sprint,Verizon Wireless , Oi S.A., Telefonica, Claro, and TIM. Wireless service providers enter into tenant leases with us, each of which relates to the lease or use of space at an individual site. Inthe United States andCanada , our tenant leases are generally for an initial term of five years to 10 years with multiple five year renewal periods at the option of the tenant. These tenant leases typically contain specific rent escalators, which average 3-4% per year, including the renewal option periods. Tenant leases inSouth Africa and our Central and South American markets typically have an initial term of 10 years with multiple five year renewal periods. InCentral America , we have similar rent escalators to that of leases inthe United States andCanada while our leases inSouth America andSouth Africa escalate in accordance with a standard cost of living index. Site leases inSouth America typically provide for a fixed rental amount and a pass through charge for the underlying rent related to ground leases and other property interests.
Cost of site leasing revenue primarily consists of:
•Cash and non-cash rental expense on ground leases and other underlying property interests;
•Property taxes;
•Site maintenance and monitoring costs (exclusive of employee related costs);
•Utilities; •Property insurance; and
•Lease initial direct cost amortization.
Inthe United States and our international markets, ground leases and other property interests are generally for an initial term of five to ten years with multiple renewal periods, which are at our option. Ground leases and other property interests provide for rent escalators which typically average 2-3% annually, or in our South American markets andSouth Africa , adjust in accordance with a standard cost of living index. As ofDecember 31, 2019 , approximately 71% of our tower structures were located on parcels of land that we own, land subject to perpetual easements, or parcels of land in which we have a leasehold interest that extends beyond 20 years. For any given tower, costs are relatively fixed over a monthly or an annual time period. As such, operating costs for owned towers do not generally increase as a result of adding additional customers to the tower. The amount of property taxes varies from site to site depending on the taxing jurisdiction and the height and age of the tower. The ongoing maintenance requirements are typically minimal and include replacing lighting systems, painting a tower, or upgrading or repairing an access road or fencing. In our Central American markets andEcuador , significantly all of our revenue, expenses, and capital expenditures arising from our new build activities are denominated inU.S. dollars. Specifically, most of our ground leases and other property interests, tenant leases, and tower-related expenses are paid inU.S. dollars. In our Central American markets, our local currency obligations are principally limited to (1) permitting and other local fees, (2) utilities, and (3) taxes. InBrazil ,Canada ,Chile , andSouth Africa significantly all of our revenue, expenses, and capital expenditures, including tenant leases, ground leases and other property interests, and other tower-related expenses are denominated in local currency. InColombia ,Argentina , andPeru , our revenue, expenses, and capital expenditures, including tenant leases, ground leases and other property interests, and other tower-related expenses are denominated in a mix of local currency andU.S. dollars.
As indicated in the table below, our site leasing business generates substantially all of our total segment operating profit. For information regarding our operating segments, see Note 15 of our Consolidated Financial Statements included in this annual report.
For the year ended
December 31 ,
Segment operating profit as a percentage of total 2019 2018 2017
Domestic site leasing 80.7% 81.2%
81.8%
International site leasing 17.0% 16.8% 16.9%
Total site leasing 97.7% 98.0% 98.7%
We believe that the site leasing business continues to be attractive due to its
long-term contracts, built-in rent escalators, high operating margins, and low
customer churn (which refers to when a customer does not renew its lease or
cancels its lease prior to the end of its term) other than in connection with
customer consolidation or cessation of a particular technology. We believe that
over the long-term, site leasing revenues will continue to grow as wireless
service providers lease additional antenna space on our towers due to increasing
minutes of network use and data transfer, network expansion and network coverage
requirements. During 2020, we expect organic site leasing revenue in both our
domestic and international segments to increase over 2019 levels due in part to
wireless carriers deploying unused spectrum. We believe our site leasing
business is characterized by stable and long-term recurring revenues,
predictable operating costs and minimal non-discretionary capital expenditures.
Due to the relatively young age and mix of our tower portfolio, we expect future
expenditures required to maintain these towers to be minimal. Consequently, we
expect to grow our cash flows by (1) adding tenants to our towers at minimal
incremental costs by using existing tower capacity or requiring wireless service
providers to bear all or a portion of the cost of tower modifications and
(2) executing monetary amendments as wireless service
25--------------------------------------------------------------------------------
Table of Contents
providers add or upgrade their equipment. Furthermore, because our towers are strategically positioned, we have historically experienced low tenant lease terminations as a percentage of revenue other than in connection with customer consolidation or cessations of a specific technology (e.g.MetroPCS , Leap, Clearwire, and Sprint iDEN).
Our site development business, which is conducted inthe United States only, is complementary to our site leasing business and provides us the ability to keep in close contact with the wireless service providers who generate substantially all of our site leasing revenue and to capture ancillary revenues that are generated by our site leasing activities, such as antenna and equipment installation at our tower locations. Site development revenues are earned primarily from providing a full range of end to end services to wireless service providers or companies providing development or project management services to wireless service providers. Our services include: (1) network pre-design; (2) site audits; (3) identification of potential locations for towers and antennas on existing infrastructure; (4) support in leasing of the location; (5) assistance in obtaining zoning approvals and permits; (6) tower and related site construction; (7) antenna installation; and (8) radio equipment installation, commissioning, and maintenance. We provide site development services at our towers and at towers owned by others on a local basis, through regional, market, and project offices. The market offices are responsible for all site development operations.
For information regarding our operating segments, see Note 15 of our Consolidated Financial Statements included in this annual report.
Capital Allocation Strategy
Our capital allocation strategy is aimed at increasing shareholder value through investment in quality assets that meet our return criteria, stock repurchases when we believe our stock price is below its intrinsic value, and by returning cash generated by our operations in the form of cash dividends. While the addition of a cash dividend to our capital allocation strategy has provided us with a new tool to return value to our shareholders, we will also continue to make investments focused on increasing Adjusted Funds From Operations per share. To achieve this, we expect to continue to deploy capital to portfolio growth and stock repurchases, subject to compliance with REIT distribution requirements, available funds and market conditions, while maintaining our target leverage levels. Key elements of our capital allocation strategy include: Portfolio Growth. We intend to continue to grow our asset portfolio, domestically and internationally, primarily through tower acquisitions and the construction of new towers that meet our internal return on invested capital criteria. Stock Repurchase Program. We currently utilize stock repurchases as part of our capital allocation policy when we believe our share price is below its intrinsic value. We believe that share repurchases, when purchased at the right price, will facilitate our goal of increasing our Adjusted Funds From Operations per share. Dividend. In 2019, we added dividends as an additional component of our strategy of returning value to shareholders. We do not expect our dividend to require any changes in our leverage and, we believe, it will allow us to continue to focus on building and buying quality assets and opportunistically buying back our stock. While the timing and amount of future dividends will be subject to approval by our Board of Directors, we believe that our future cash flow generation will permit us to grow our cash dividend in the future.
Critical Accounting Policies and Estimates
We have identified the policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted inthe United States , with no need for management's judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations is discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 of our Consolidated Financial Statements for the year endedDecember 31, 2019 , included herein. Our preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant. 26
--------------------------------------------------------------------------------
Table of Contents
Revenue Recognition and Accounts Receivable
Revenue from site leasing is recognized on a straight-line basis over the current term of the related lease agreements, which are generally five years to 10 years. Receivables recorded related to the straight-lining of site leases are reflected in other assets on the Consolidated Balance Sheets. Rental amounts received in advance are recorded as deferred revenue on the Consolidated Balance Sheets. Revenue from site leasing represents 92% of our total revenue. Site development projects in which we perform consulting services include contracts on a fixed price basis that are billed at contractual rates. Revenue is recognized over time based on milestones achieved, which are determined based on costs incurred. Amounts billed in advance (collected or uncollected) are recorded as deferred revenue on our Consolidated Balance Sheets. Revenue from construction projects is recognized over time, determined by the percentage of cost incurred to date compared to management's estimated total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contracts nears completion. Refer to Note 5 in our Consolidated Financial Statements included in this annual report for further detail of costs and estimated earnings in excess of billings on uncompleted contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable. The site development segment represents approximately 8% of our total revenues. We account for site development revenue in accordance with ASC 606, Revenue from Contracts with Customers, which was adopted onJanuary 1, 2018 by applying the modified retrospective transition method. Payment terms do not result in any significant financing arrangements. Furthermore, these contracts do not typically include variable consideration; therefore, the transaction price that is recognized over time is generally the amount of the total contract. The cumulative effect of initially applying the new revenue standard had no impact on our financial results. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard had no impact to net income on an ongoing basis. The accounts receivable balance for the years endedDecember 31, 2019 and 2018 was$132.1 million and$111.0 million , respectively, of which$40.7 and$27.1 million related to the site development segment, respectively. We perform periodic credit evaluations of our customers. In addition, we monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical experience, specific customer collection issues identified, and past due balances as determined based on contractual terms. Interest is charged on outstanding receivables from customers on a case by case basis in accordance with the terms of the respective contracts or agreements with those customers. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts in the period in which uncollectibility is determined to be probable. Refer to Note 15 in our Consolidated Financial Statements included in this annual report for further detail of the site development segment.
Lease Accounting
We adopted ASU No. 2016-02, Leases ("Topic 842") using the modified
retrospective adoption method with an effective date of January 1, 2019 . This
standard requires all lessees to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease payments. The
adoption of the new lease standard had a significant impact on our Consolidated
Balance Sheets but did not have a significant impact on our lease classification
or a material impact on our Consolidated Statements of Operations and liquidity.
Additionally, the adoption of Topic 842 did not have a material impact on our
debt covenant compliance under our current agreements. We have elected to not
separate nonlease components from the associated lease component for all
underlying classes of assets.
In order to calculate our lease liability, we make certain assumptions related
to lease term and discount rate. In making the determination of the period for
which we are reasonably certain to remain on the site, we will assume optional
renewals are reasonably certain of being exercised for the greater of: (1) a
period sufficient to cover all tenants under their current committed term where
we have provided rights to the tower not to exceed the contractual ground lease
terms including renewals and (2) a period sufficient to recover the investment
of significant leasehold improvements located on the site. For the discount
rate, we use the rate implicit in the lease when available to discount lease
payments to present value. However, our ground leases and other property
interests generally do not provide a readily determinable implicit rate.
Therefore, we estimate the incremental borrowing rate to discount lease payments
based on the lease term and lease currency. We use publicly available data for
instruments with similar characteristics when
27--------------------------------------------------------------------------------
Table of Contents
calculating our incremental borrowing rates. Refer to Note 2 in our Consolidated Financial Statements included in this annual report for further discussion on lease accounting. RESULTS OF OPERATIONS This report presents our financial results and other financial metrics after eliminating the impact of changes in foreign currency exchange rates. We believe that providing these financial results and metrics on a constant currency basis, which are non-GAAP measures, gives management and investors the ability to evaluate the performance of our business without the impact of foreign currency exchange rate fluctuations. We eliminate the impact of changes in foreign currency exchange rates by dividing the current period's financial results by the average monthly exchange rates of the prior year period, as well as by eliminating the impact of the remeasurement of our intercompany loans.
Year Ended 2019 Compared to Year Ended 2018
Revenues and Segment Operating Profit:
For the year ended Constant
December 31, Foreign Constant Currency
Currency Currency
2019 2018 Impact Change % Change
Revenues (in thousands)
Domestic site leasing $ 1,487,108 $ 1,400,095 $ - $ 87,013 6.2%
International site leasing 373,750 340,339 (20,584) 53,995 15.9%
Site development 153,787 125,261 - 28,526 22.8%
Total $ 2,014,645 $ 1,865,695 $ (20,584) $ 169,534 9.1%
Cost of Revenues
Domestic site leasing $ 258,413 $ 266,131 $ - $ (7,718) (2.9%)
International site leasing 115,538 106,165 (6,960) 16,333 15.4%
Site development 119,080 96,499 - 22,581 23.4%
Total $ 493,031 $ 468,795 $ (6,960) $ 31,196 6.7%
Operating Profit
Domestic site leasing $ 1,228,695 $ 1,133,964 $ - $ 94,731 8.4%
International site leasing 258,212 234,174 (13,624) 37,662 16.1%
Site development 34,707 28,762 - 5,945 20.7%
Revenues
Domestic site leasing revenues increased $87.0 million for the year ended
December 31, 2019 , as compared to the prior year, primarily due to (1) revenues
from 428 towers acquired and 55 towers built since January 1, 2018 and (2)
organic site leasing growth, primarily from monetary lease amendments for
additional equipment added to our towers as well as new leases and contractual
rent escalators, partially offset by lease non-renewals primarily by MetroPCS ,
Leap, Clearwire, and Sprint iDEN.
International site leasing revenues increased $33.4 million for the year ended
December 31, 2019 , as compared to the prior year. On a constant currency basis,
international site leasing revenues increased $54.0 million . These changes were
primarily due to (1) revenues from 3,327 towers acquired and 785 towers built
since January 1, 2018 and (2) organic site leasing growth from new leases,
amendments, and contractual escalators. Site leasing revenue in Brazil
represented 12.2% of total site leasing revenue for the period. No other
individual international market represented more than 3% of our total site
leasing revenue.
Site development revenues increased $28.5 million for the year ended December
31, 2019 , as compared to prior year, as a result of increased carrier activity
primarily driven by network related projects by Sprint and T-Mobile.
Operating Profit
Domestic site leasing segment operating profit increased$94.7 million for the year endedDecember 31, 2019 , as compared to the prior year, primarily due to additional profit generated by (1) towers acquired and built sinceJanuary 1, 2018 and organic site leasing growth as noted above, (2) continued control of our site leasing cost of revenue, and (3) the positive impact of our ground lease purchase program. 28
--------------------------------------------------------------------------------
Table of Contents
International site leasing segment operating profit increased$24.0 million for the year endedDecember 31, 2019 , as compared to the prior year. On a constant currency basis, international site leasing segment operating profit increased$37.7 million . These changes were primarily due to additional profit generated by (1) towers acquired and built sinceJanuary 1, 2018 and organic site leasing growth as noted above, (2) continued control of our site leasing cost of revenue, and (3) the positive impact of our ground lease purchase program. Site development segment operating profit increased$5.9 million for the year endedDecember 31, 2019 , as compared to the prior year, primarily due to an increase in revenue from increased carrier activity primarily driven by network related projects by Sprint and T-Mobile, partially offset by a change in the mix of work performed.
Selling, General, and Administrative Expenses:
For the year ended Constant
December 31, Foreign Constant Currency
Currency
2019 2018 Impact Currency Change % Change
(in thousands)
Domestic site leasing $ 99,707 $ 72,879 $ - $ 26,828 36.8%
International site leasing 32,411 27,082 (1,151) 6,480 23.9%
Total site leasing $ 132,118 $ 99,961 $ (1,151) $ 33,308 33.3%
Site development 21,525 16,215 - 5,310 32.7%
Other 39,074 26,350 - 12,724 48.3%
Total $ 192,717 $ 142,526 $ (1,151) $ 51,342 36.0%
Selling, general, and administrative expenses increased $50.2 million for the
year ended December 31, 2019 , as compared to the prior year. On a constant
currency basis, selling, general, and administrative expenses increased $51.3
million . These changes were primarily as a result of increases in non-cash
compensation, personnel costs, benefits, and other support-related costs.
Acquisition and New Business Initiatives Related Adjustments and Expenses:
For the year ended Constant
December 31, Foreign Constant Currency
2019 2018 Currency Impact Currency Change % Change
(in thousands)
Domestic site leasing $ 7,933 $ 5,268 $ - $ 2,665 50.6%
International site leasing 7,295 5,693 (339) 1,941 34.1%
Total $ 15,228 $ 10,961 $ (339) $ 4,606 42.0%
Acquisition and new business initiatives related adjustments and expenses
increased $4.3 million for the year ended December 31, 2019 , as compared to the
prior year. On a constant currency basis, acquisition and new business
initiatives related adjustments and expenses increased $4.6 million . These
changes were primarily as a result of incremental costs incurred in support of
new business initiatives.
Asset Impairment and Decommission Costs:
For the year ended Constant
December 31, Foreign Constant Currency
2019 2018 Currency Impact Currency Change % Change
(in thousands)
Domestic site leasing $ 24,202 $ 18,857 $ - $ 5,345 28.3%
International site leasing 8,899 7,932 (236) 1,203 15.2%
Total site leasing $ 33,101 $ 26,789 $ (236) $ 6,548 24.4%
Site Development 2 345 - (343) (99.4%) Total$ 33,103 $ 27,134 $ (236) $ 6,205 22.9% 29
--------------------------------------------------------------------------------
Table of Contents
Asset impairment and decommission costs increased$6.0 million for the year endedDecember 31, 2019 , as compared to the prior year. This change was primarily as a result of a$4.4 million increase in impairment charges resulting from our regular analysis of whether the future cash flows from certain towers are adequate to recover the carrying value of the investment in those towers and a$1.5 million increase in the impairment charge recorded on decommissioned towers.
Depreciation, Accretion, and Amortization Expense:
For the year ended Constant
December 31, Foreign Constant Currency
Currency
2019 2018 Impact Currency Change % Change
(in thousands)
Domestic site leasing $ 527,718 $ 511,823 $ - $ 15,895 3.1%
International site leasing 161,183 151,570 (8,890) 18,503 12.2%
Total site leasing $ 688,901 $ 663,393 $ (8,890) $ 34,398 5.2%
Site development 2,341 2,556 - (215) (8.4%)
Other 5,836 6,164 - (328) (5.3%)
Total $ 697,078 $ 672,113 $ (8,890) $ 33,855 5.0%
Depreciation, accretion, and amortization expense increased $25.0 million for
the year ended December 31, 2019 , as compared to the prior year. On a constant
currency basis, depreciation, accretion, and amortization expense increased
$33.9 million . These changes were primarily due to an increase in the number of
towers we acquired and built since January 1, 2018 , partially offset by the
impact of assets that became fully depreciated since the prior year period.
Operating Income (Expense):
For the year ended Constant
December 31, Foreign Constant Currency
Currency Currency
2019 2018 Impact Change % Change
(in thousands)
Domestic site leasing $ 569,135 $ 525,137 $ - $ 43,998 8.4%
International site leasing 48,424 41,897 (3,008) 9,535 22.8%
Total site leasing $ 617,559 $ 567,034 $ (3,008) $ 53,533 9.4%
Site development 10,839 9,646 - 1,193 12.4%
Other (44,910) (32,514) - (12,396) 38.1%
Total $ 583,488 $ 544,166 $ (3,008) $ 42,330 7.8%
Domestic site leasing operating income increased $44.0 million for the year
ended December 31, 2019 , as compared to the prior year, primarily due to higher
segment operating profit, partially offset by increases in selling, general, and
administrative expenses, depreciation, accretion, and amortization expense,
asset impairment and decommission costs, and acquisition and new business
initiatives related adjustments and expenses.
International site leasing operating income increased $6.5 million for the year
ended December 31, 2019 , as compared to the prior year. On a constant currency
basis, international site leasing operating income increased $9.5 million . These
changes were primarily due to higher segment operating profit, partially offset
by increases in depreciation, accretion, and amortization expense, selling,
general, and administrative expenses, acquisition and new business initiatives
related adjustments and expenses, and asset impairment and decommission costs.
Site development operating income increased
?
30
--------------------------------------------------------------------------------
Table of Contents
Other Income (Expense):
For the year ended Constant
December 31, Foreign Constant Currency
Currency
2019 2018 Currency Impact Change % Change
(in thousands)
Interest income $ 5,500 $ 6,731 $ (192) $ (1,039) (15.4%)
Interest expense (390,036) (376,217) (9) (13,810) 3.7%
Non-cash interest expense (3,193) (2,640) (566) 13 (0.5%)
Amortization of deferred
financing fees (22,466) (20,289) - (2,177) 10.7%
Loss from extinguishment of
debt, net (457) (14,443) - 13,986 (96.8%)
Other (expense) income, net 14,053 (85,624) 99,623 54 1.6% Total$ (396,599) $ (492,482) $ 98,856$ (2,973) 0.7% Interest expense increased$13.8 million , on an actual and constant currency basis, for the year endedDecember 31, 2019 , as compared to the prior year, due to a higher average principal amount of cash-interest bearing debt outstanding as compared to the prior year, partially offset by a lower weighted average interest rate as compared to the prior year. Loss from extinguishment of debt was$0.5 million for the year endedDecember 31, 2019 due to the write-off of the unamortized financing fees and accrued interest associated with the repayment of the 2014-1CTower Securities inSeptember 2019 . Loss from extinguishment of debt was$14.4 million for the year endedDecember 31, 2018 due to the write-off of the unamortized financing fees associated with the repayment of the 2013-1CTower Securities and 2013-1DTower Securities inMarch 2018 , as well as the write-off of the original issuance discount and unamortized financing fees associated with the repayment of the 2014 Term Loan and 2015 Term Loan inApril 2018 . Other (expense) income, net includes a$13.1 million gain on the remeasurement ofU.S. dollar denominated intercompany loans with foreign subsidiaries for the year endedDecember 31, 2019 , while the prior year period included a$89.1 million loss. Provision for Income Taxes: For the year ended Constant December 31, Foreign Constant Currency Currency Currency 2019 2018 Impact Change % Change (in thousands) Provision for income taxes$ (39,605) $ (4,233) $ (31,797) $ (3,575) 10.4% Provision for income taxes increased$35.4 million for the year endedDecember 31, 2019 , as compared to the prior year. On a constant currency basis, provision for income taxes increased$3.6 million . This change was primarily due to an increase in foreign income taxes partially offset by a decrease in foreign withholding taxes.
Net Income:
For the year ended Constant
December 31, Foreign Constant Currency
2019 2018 Currency Impact Currency Change % Change
(in thousands)
Net income $ 147,284 $ 47,451 $ 64,051 $ 35,782 7.4%
Net income increased $99.8 million for the year ended December 31, 2019 , as
compared to the prior year. This change was primarily due to fluctuations in
foreign currency exchange rates including changes recorded on the remeasurement
of the U.S. dollar denominated intercompany loans with foreign subsidiaries (net
of the tax impact), an increase in operating income, and a lower loss from
extinguishment of debt in the current year as compared to the prior year,
partially offset by an increase in interest expense and a provision for income
taxes.
31
--------------------------------------------------------------------------------
Table of Contents
Year Ended 2018 Compared to Year Ended 2017
For a discussion of our 2018 Results of Operations, including a discussion of our financial results for the fiscal year endedDecember 31, 2018 compared to the fiscal year endedDecember 31, 2017 , refer to Part I, Item 7 of our annual report on Form 10-K filed with theSEC onFebruary 28, 2019 .
NON-GAAP FINANCIAL MEASURES
This report contains information regarding Adjusted EBITDA, a non-GAAP measure. We have provided below a description of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure and an explanation as to why management utilizes this measure. This report also presents our financial results and other financial metrics after eliminating the impact of changes in foreign currency exchange rates. We believe that providing these financial results and metrics on a constant currency basis, which are non-GAAP measures, gives management and investors the ability to evaluate the performance of our business without the impact of foreign currency exchange rate fluctuations. We eliminate the impact of changes in foreign currency exchange rates by dividing the current period's financial results by the average monthly exchange rates of the prior year period, as well as by eliminating the impact of the remeasurement of our intercompany loans.
Adjusted EBITDA
We define Adjusted EBITDA as net income excluding the impact of non-cash
straight-line leasing revenue, non-cash straight-line ground lease expense,
non-cash compensation, net loss from extinguishment of debt, other income and
expenses, acquisition and new business initiatives related adjustments and
expenses, asset impairment and decommission costs, interest income, interest
expenses, depreciation, accretion, and amortization, and provision for or
benefit from taxes.
We believe that Adjusted EBITDA is useful to investors or other interested
parties in evaluating our financial performance. Adjusted EBITDA is the primary
measure used by management (1) to evaluate the economic productivity of our
operations and (2) for purposes of making decisions about allocating resources
to, and assessing the performance of, our operations. Management believes that
Adjusted EBITDA helps investors or other interested parties to meaningfully
evaluate and compare the results of our operations (1) from period to period and
(2) to our competitors, by excluding the impact of our capital structure
(primarily interest charges from our outstanding debt) and asset base (primarily
depreciation, amortization and accretion) from our financial results. Management
also believes Adjusted EBITDA is frequently used by investors or other
interested parties in the evaluation of REITs. In addition, Adjusted EBITDA is
similar to the measure of current financial performance generally used by our
lenders to determine compliance with certain covenants under our Senior Credit
Agreement and the indentures relating to the 2016 Senior Notes, 2017 Senior
Notes, and 2020 Senior Notes. Adjusted EBITDA should be considered only as a
supplement to net income computed in accordance with GAAP as a measure of our
performance.
For the year ended Constant
December 31, Foreign Constant Currency
Currency Currency
2019 2018 Impact Change % Change
(in thousands)
Net income $ 147,284 $ 47,451 $ 64,051 $ 35,782 7.4%
Non-cash straight-line
leasing revenue (12,368) (18,643) 248 6,027 (32.3%)
Non-cash straight-line
ground lease expense 19,944 26,212 (7) (6,261) (23.9%)
Non-cash compensation 73,214 42,327 (281) 31,168 73.6%
Loss from extinguishment of
debt, net 457 14,443 - (13,986) (96.8%)
Other expense (income), net (14,053) 85,624 (99,623) (54) (1.6%)
Acquisition and new business
initiatives
related adjustments and
expenses 15,228 10,961 (339) 4,606 42.0%
Asset impairment and
decommission costs 33,103 27,134 (236) 6,205 22.9%
Interest income (5,500) (6,731) 192 1,039 (15.4%)
Interest expense (1) 415,695 399,146 575 15,974 4.0%
Depreciation, accretion, and
amortization 697,078 672,113 (8,890) 33,855 5.0%
Provision for income taxes
(2) 40,548 5,035 31,794 3,719 10.5%
Adjusted EBITDA $ 1,410,630 $ 1,305,072 $ (12,516) $ 118,074 9.0%
(1)Total interest expense includes interest expense, non-cash interest expense, and amortization of deferred financing fees.
(2)Provision for taxes includes
32--------------------------------------------------------------------------------
Table of Contents
Adjusted EBITDA increased$105.6 million for the year endedDecember 31, 2019 , as compared to the prior year. On a constant currency basis, adjusted EBITDA increased$118.1 million . These changes were primarily due to an increase in segment operating profit, partially offset by an increase in selling, general, and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
SBAC is a holding company with no business operations of its own. SBAC's only significant asset is 100% of the outstanding capital stock ofSBA Telecommunications, LLC ("Telecommunications"), which is also a holding company that owns equity interests in entities that directly or indirectly own all of our domestic and international towers and assets. We conduct all of our business operations through Telecommunications' subsidiaries. Accordingly, our only source of cash to pay our obligations, other than financings, is distributions with respect to our ownership interest in our subsidiaries from the net earnings and cash flow generated by these subsidiaries.
A summary of our cash flows is as follows:
For the year ended December 31,
2019 2018
(in thousands)
Cash provided by operating activities $ 970,045 $ 850,618
Cash used in investing activities (947,158) (618,347)
Cash used in financing activities (62,314) (148,537)
Change in cash, cash equivalents, and restricted cash (39,427) 83,734
Effect of exchange rate changes on cash, cash equiv., and restricted cash
2,247 (9,729) Cash, cash equivalents, and restricted cash, beginning of year
178,300 104,295
Cash, cash equivalents, and restricted cash, end of year $ 141,120
Operating Activities Cash provided by operating activities was$970.0 million for the year endedDecember 31, 2019 as compared to$850.6 million for the year endedDecember 31, 2018 . The increase was primarily due to an increase in segment operating profit and an increase in cash outflows associated with working capital changes, partially offset by an increase in cash interest payments, an increase in selling, general, and administrative expenses, and lower interest income earned on interest bearing deposits. Investing Activities
A detail of our cash capital expenditures is as follows:
For the year ended
December 31,
2019 2018
(in thousands)
Acquisitions of towers and related intangible assets
(72,486) (45,130)
Construction and related costs on new builds (56,979)
(65,553)
Augmentation and tower upgrades (62,785) (49,372) Tower maintenance (29,048) (29,640) General corporate (5,424) (5,247) Purchase of investments, net (13,156) (6,093) Other investing activities (5,809) (10,613) Net cash used in investing activities$ (947,158) $
(618,347)
(1)Excludes
Subsequent toDecember 31, 2019 , we acquired 65 towers and related assets for$76.3 million in cash. In addition, we have agreed to purchase and anticipate to close on 114 additional communication sites for an aggregate purchase price of$33.9 million . 33
--------------------------------------------------------------------------------
Table of Contents
For 2020, we expect to incur non-discretionary cash capital expenditures associated with tower maintenance and general corporate expenditures of$37.0 million to$47.0 million and discretionary cash capital expenditures, based on current or potential acquisition obligations, planned new tower construction, forecasted tower augmentations, and forecasted ground lease purchases, of$240.0 million to$260.0 million . We expect to fund these cash capital expenditures from cash on hand, cash flow from operations, and borrowings under the Revolving Credit Facility or new financings. The exact amount of our future cash capital expenditures will depend on a number of factors, including amounts necessary to support our tower portfolio, our new tower build and acquisition programs, and our ground lease purchase program.
Financing Activities
A detail of our financing activities is as follows:
For the year ended December 31,
2019 2018
(in thousands)
Net borrowings (repayments) under
Revolving Credit Facility (1) $ 165,000 $ 285,000
Repayment of Term Loans (24,000) (1,947,000)
Proceeds from issuance of Term Loans, net of fees -
2,377,218
Proceeds from issuance of Senior Notes, net of fees - - Proceeds from issuance of Tower Securities, net of fees 1,152,458
631,466
Repayment ofTower Securities (920,000)
(755,000)
Repurchase and retirement of common stock (2) (466,982)
(795,581)
Payment of dividends on common stock (83,387) - Proceeds from employee stock purchase/stock option plans 116,202 59,880 Other financing activities (1,605) (4,520) Net cash used in financing activities$ (62,314)
(1)For additional information regarding our debt offerings, refer to the Debt Instruments and Debt Service Requirements below.
(2)During the year endedDecember 31, 2019 , we repurchased 2.0 million shares of our Class A common stock for$470.3 million , at an average price per share of$231.87 . During the year endedDecember 31, 2018 , we repurchased 5.0 million shares of our Class A common stock for$795.5 million at an average price per share of$159.87 . As of the date of this filing, we had$624.3 million of authorization remaining under the current stock repurchase plan. For additional information, refer to Item 5. Issuer Purchases ofEquity Securities . For a discussion of our Liquidity and Capital Resources for the fiscal year endedDecember 31, 2018 compared to the fiscal year endedDecember 31, 2017 , refer to Part I, Item 7 of our annual report on Form 10-K filed with theSEC onFebruary 28, 2019 . Dividend
For the year ended
Payable to Shareholders
of Record At the Close Cash Paid Aggregate Amount
Date Declared of Business on Per Share Paid Date Paid
July 29, 2019 August 28, 2019 $0.37 $41.9 million September 25, 2019
October 25, 2019 November 21, 2019 $0.37 $41.5 million December 19, 2019
Subsequent to
Payable to Shareholders Cash to
of Record At the Close be Paid
Date Declared of Business on Per Share Date to be Paid
February 20, 2020 March 10, 2020 $0.465 March 26, 2020
The amount of future distributions will be determined, from time to time, by our
Board of Directors to balance our goal of increasing long-term shareholder value
and retaining sufficient cash to implement our current capital allocation
policy, which
34--------------------------------------------------------------------------------
Table of Contents
prioritizes investment in quality assets that meet our return criteria, and then stock repurchases when we believe our stock price is below its intrinsic value. The actual amount, timing and frequency of future dividends, will be at the sole discretion of our Board of Directors and will be declared based upon various factors, many of which are beyond our control.
Registration Statements
We have on file with the Commission a shelf registration statement on Form S-4 registering shares of Class A common stock that we may issue in connection with the acquisition of wireless communication towers or antenna sites and related assets or companies who own wireless communication towers, antenna sites, or related assets. During the year endedDecember 31, 2019 , we issued 10,000 shares of Class A common stock under this registration statement. As ofDecember 31, 2019 , we had approximately 1.2 million shares of Class A common stock remaining under this shelf registration statement. OnMarch 5, 2018 , we filed with the Commission an automatic shelf registration statement for well-known seasoned issuers on Form S-3ASR. This registration statement enables us to issue shares of our Class A common stock, preferred stock or debt securities either separately or represented by warrants, or depositary shares as well as units that include any of these securities. Under the rules governing automatic shelf registration statements, we will file a prospectus supplement and advise the Commission of the amount and type of securities each time we issue securities under this registration statement. No securities were issued under this registration statement through the date of this filing.
Debt Instruments and Debt Service Requirements
Senior Credit Agreement
OnApril 11, 2018 , we amended and restated our Senior Credit Agreement to (1) issue a new$2.4 billion Term Loan, (2) increase the total commitments under the Revolving Credit Facility from$1.0 billion to$1.25 billion , (3) extend the maturity date of the Revolving Credit Facility toApril 11, 2023 , (4) lower the applicable interest rate margins and commitment fees under the Revolving Credit Facility, and (5) amend certain other terms and conditions under the Senior Credit Agreement. The proceeds from the new Term Loan were used to repay the outstanding balances on the 2014 Term Loan, 2015 Term Loan, and Revolving Credit Facility and for general corporate purposes. This transaction was accounted for as an extinguishment of the 2014 Term Loan and 2015 Term Loan.
Terms of the Senior Credit Agreement
The Senior Credit Agreement, as amended, requiresSBA Senior Finance II to maintain specific financial ratios, including (1) a ratio of Consolidated Net Debt to Annualized Borrower EBITDA not to exceed 6.5 times for any fiscal quarter, (2) a ratio of Consolidated Net Debt (calculated in accordance with the Senior Credit Agreement) to Annualized Borrower EBITDA for the most recently ended fiscal quarter not to exceed 6.5 times for 30 consecutive days and (3) a ratio of Annualized Borrower EBITDA to Annualized Cash Interest Expense (calculated in accordance with the Senior Credit Agreement) of not less than 2.0 times for any fiscal quarter. The Senior Credit Agreement contains customary affirmative and negative covenants that, among other things, limit the ability ofSBA Senior Finance II and its subsidiaries to incur indebtedness, grant certain liens, make certain investments, enter into sale leaseback transactions, merge or consolidate, make certain restricted payments, enter into transactions with affiliates, and engage in certain asset dispositions, including a sale of all or substantially all of their property. The Senior Credit Agreement is also subject to customary events of default. Pursuant to the Second Amended and Restated Guarantee and Collateral Agreement, amounts borrowed under the Revolving Credit Facility, the Term Loans and certain hedging transactions that may be entered into bySBA Senior Finance II or the Subsidiary Guarantors (as defined in the Senior Credit Agreement) with lenders or their affiliates are secured by a first lien on the membership interests ofSBA Telecommunications, LLC ,SBA Senior Finance, LLC andSBA Senior Finance II and on substantially all of the assets (other than leasehold, easement and fee interests in real property) ofSBA Senior Finance II and the Subsidiary Guarantors. The Senior Credit Agreement, as amended, permitsSBA Senior Finance II , without the consent of the other lenders, to request that one or more lenders provideSBA Senior Finance II with increases in the Revolving Credit Facility or additional term loans provided that after giving effect to the proposed increase in Revolving Credit Facility commitments or incremental term loans the ratio of Consolidated Net Debt to Annualized Borrower EBITDA would not exceed 6.5 times.SBA Senior Finance II's ability to request such increases in the Revolving Credit Facility or additional term loans is subject to its compliance with customary conditions set forth in the Senior Credit Agreement including compliance, on a pro forma basis, with the financial covenants and ratios set forth therein and, with respect to any additional term loan, an increase in the margin on existing term loans to the extent required by the terms of the Senior Credit Agreement. UponSBA Senior Finance II's request, each lender may decide, in its sole discretion, whether 35
--------------------------------------------------------------------------------
Table of Contents
to increase all or a portion of its Revolving Credit Facility commitment or
whether to provide
Revolving Credit Facility under the Senior Credit Agreement
As amended, the Revolving Credit Facility consists of a revolving loan under which up to$1.25 billion aggregate principal amount may be borrowed, repaid and redrawn, based upon specific financial ratios and subject to the satisfaction of other customary conditions to borrowing. Amounts borrowed under the Revolving Credit Facility accrue interest, atSBA Senior Finance II's election, at either (1) the Eurodollar Rate plus a margin that ranges from 112.5 basis points to 175.0 basis points or (2) the Base Rate plus a margin that ranges from 12.5 basis points to 75.0 basis points, in each case based on the ratio of Consolidated Net Debt to Annualized Borrower EBITDA, calculated in accordance with the Senior Credit Agreement. In addition,SBA Senior Finance II is required to pay a commitment fee of between 0.20% and 0.25% per annum on the amount of unused commitment. If not earlier terminated bySBA Senior Finance II , the Revolving Credit Facility will terminate on, andSBA Senior Finance II will repay all amounts outstanding on or before,April 11, 2023 . The proceeds available under the Revolving Credit Facility may be used for general corporate purposes.SBA Senior Finance II may, from time to time, borrow from and repay the Revolving Credit Facility. Consequently, the amount outstanding under the Revolving Credit Facility at the end of the period may not be reflective of the total amounts outstanding during such period. During the year endedDecember 31, 2019 , we borrowed$755.0 million and repaid$590.0 million of the outstanding balance under the Revolving Credit Facility. As ofDecember 31, 2019 , the balance outstanding under the Revolving Credit Facility was$490.0 million accruing interest at 3.13% per annum. In addition,SBA Senior Finance II was required to pay a commitment fee of 0.20% per annum on the amount of the unused commitment. As ofDecember 31, 2019 ,SBA Senior Finance II was in compliance with the financial covenants contained in the Senior Credit Agreement. Subsequent toDecember 31, 2019 , we borrowed$250.0 million and repaid$505.0 million of the outstanding balance under the Revolving Credit Facility. As of the date of this filing,$235.0 million was outstanding under the Revolving Credit Facility.
Term Loans under the Senior Credit Agreement
Repricing Amendment to the Senior Credit Agreement
OnNovember 19, 2019 , we amended our Senior Credit Agreement, primarily to reduce the stated rate of interest applicable to our senior secured term loan. As amended, the senior secured term loan accrues interest, atSBA Senior Finance II's election, at either the Base Rate plus 75 basis points (with a zero Base Rate floor) or the Eurodollar Rate plus 175 basis points (with a zero Eurodollar Rate floor). 2018 Term Loan OnApril 11, 2018 , we, through our wholly owned subsidiary,SBA Senior Finance II LLC , obtained a new term loan (the "2018 Term Loan") under the amended and restated Senior Credit Agreement. The 2018 Term Loan consists of a senior secured term loan with an initial aggregate principal amount of$2.4 billion that matures onApril 11, 2025 . Prior toNovember 19, 2019 , the 2018 Term Loan accrued interest, atSBA Senior Finance II's election at either the Base Rate plus 100 basis points (with a zero Base Rate floor) or the Eurodollar Rate plus 200 basis points (with a zero Eurodollar Rate floor). The 2018 Term Loan was issued at 99.75% of par value. As ofDecember 31, 2019 , the 2018 Term Loan was accruing interest at 3.55% per annum. Principal payments on the 2018 Term Loan commenced onSeptember 30, 2018 and are being made in quarterly installments on the last day of each March, June, September, and December in an amount equal to$6.0 million . We incurred financing fees of approximately$16.8 million in relation to this transaction, which are being amortized through the maturity date. The proceeds from the 2018 Term Loan were used (1) to retire the outstanding$1.93 billion in aggregate principal amount of the 2014 Term Loan and 2015 Term Loan, (2) to pay down the existing outstanding balance under the Revolving Credit Facility, and (3) for general corporate purposes. During the year endedDecember 31, 2019 , we repaid an aggregate of$24.0 million of principal on the 2018 Term Loan. As ofDecember 31, 2019 , the 2018 Term Loan had a principal balance of$2.4 billion . OnFebruary 1, 2019 , we, through our wholly owned subsidiary,SBA Senior Finance II, LLC , entered into a four year interest rate swap on a portion of our 2018 Term Loan in order to reduce our exposure to fluctuations in interest rates. The interest rate swap has a$1.2 billion notional value receiving interest at one month LIBOR plus 200 basis points and paying a fixed rate of 4.495% per annum settled monthly. 36
--------------------------------------------------------------------------------
Table of Contents
OnMay 23, 2019 , we, through our wholly owned subsidiary,SBA Senior Finance II, LLC , entered into a four year interest rate swap on a portion of our 2018 Term Loan in order to further reduce our exposure to fluctuations in interest rates. The interest rate swap has a$750.0 million notional value receiving interest at one month LIBOR plus 200 basis points and paying a fixed rate of 4.08% per annum settled monthly. OnDecember 3, 2019 , we, through our wholly owned subsidiary,SBA Senior Finance II LLC , entered into a series of interest rate swaps on a portion of our 2018 Term Loan, effectively replacing both existing interest rate swaps. As a result, we swapped$1.95 billion of notional value receiving interest at one month LIBOR plus 175 basis points for a fixed rate of 3.78% per annum settled monthly through the maturity date of the 2018 Term Loan.
Tower Revenue Securities Terms
The mortgage loan underlying the 2013-2CTower Securities , 2014-2CTower Securities , 2015-1CTower Securities , 2016-1CTower Securities , 2017-1CTower Securities , 2018-1CTower Securities , and 2019-1CTower Securities (together the "Tower Securities ") will be paid from the operating cash flows from the aggregate 10,043 tower sites owned by the Borrowers. The sole asset of the Trust consists of a non-recourse mortgage loan made in favor of those entities that are borrowers on the mortgage loan (the "Borrowers"). The mortgage loan is secured by (1) mortgages, deeds of trust, and deeds to secure debt on a substantial portion of the tower sites, (2) a security interest in the tower sites and substantially all of the Borrowers' personal property and fixtures, (3) the Borrowers' rights under certain tenant leases, and (4) all of the proceeds of the foregoing. For each calendar month,SBA Network Management, Inc. , an indirect subsidiary ("Network Management"), is entitled to receive a management fee equal to 4.5% of the Borrowers' operating revenues for the immediately preceding calendar month. The Borrowers may prepay any of the mortgage loan components, in whole or in part, with no prepayment consideration, (1) within twelve months (in the case of the component corresponding to the Secured Tower Revenue Securities Series 2015-1C, Secured Tower Revenue Securities Series 2016-1C, Secured Tower Revenue Securities Series 2017-1C, Secured Tower Revenue Securities Series 2018-1C, and Secured Tower Revenue Securities Series 2019-1C) or eighteen months (in the case of the components corresponding to the Secured Tower Revenue Securities Series 2013-2C and Secured Tower Revenue Securities Series 2014-2C) of the anticipated repayment date of such mortgage loan component, (2) with proceeds received as a result of any condemnation or casualty of any tower owned by the Borrowers or (3) during an amortization period. In all other circumstances, the Borrowers may prepay the mortgage loan, in whole or in part, upon payment of the applicable prepayment consideration. The prepayment consideration is determined based on the class of theTower Securities to which the prepaid mortgage loan component corresponds and consists of an amount equal to the excess, if any, of (1) the present value associated with the portion of the principal balance being prepaid, calculated in accordance with the formula set forth in the mortgage loan agreement, on the date of prepayment of all future installments of principal and interest required to be paid from the date of prepayment to and including the first due date within twelve months (in the case of the component corresponding to the Secured Tower Revenue Securities Series 2015-1C, Secured Tower Revenue Securities Series 2016-1C, Secured Tower Revenue Securities Series 2017-1C, Secured Tower Revenue Securities Series 2018-1C, and Secured Tower Revenue Securities Series 2019-1C) or eighteen months (in the case of the components corresponding to the Secured Tower Revenue Securities Series 2013-2C and Secured Tower Revenue Securities Series 2014-2C) of the anticipated repayment date of such mortgage loan component over (2) that portion of the principal balance of such class prepaid on the date of such prepayment. To the extent that the mortgage loan components corresponding to theTower Securities are not fully repaid by their respective anticipated repayment dates, the interest rate of each such component will increase by the greater of (1) 5% and (2) the amount, if any, by which the sum of (x) the 10 yearU.S. treasury rate plus (y) the credit-based spread for such component (as set forth in the mortgage loan agreement) plus (z) 5%, exceeds the original interest rate for such component. Pursuant to the terms of theTower Securities , all rents and other sums due on any of the towers owned by the Borrowers are directly deposited by the lessees into a controlled deposit account and are held by the indenture trustee. The monies held by the indenture trustee after the release date are classified as short-term restricted cash on the Consolidated Balance Sheets (see Note 4). However, if the Debt Service Coverage Ratio, defined as the net cash flow (as defined in the mortgage loan agreement) divided by the amount of interest on the mortgage loan, servicing fees and trustee fees that the Borrowers are required to pay over the succeeding twelve months, as of the end of any calendar quarter, falls to 1.30x or lower, then all cash flow in excess of amounts required to make debt service payments, to fund required reserves, to pay management fees and budgeted operating expenses and to make other payments required under the loan documents, referred to as "excess cash flow," will be deposited into a reserve account instead of being released to the Borrowers. The funds in the reserve account will not be released to the Borrowers unless the Debt Service Coverage Ratio exceeds 1.30x for two consecutive calendar quarters. If the Debt Service Coverage Ratio falls below 1.15x as of the 37
--------------------------------------------------------------------------------
Table of Contents
end of any calendar quarter, then an "amortization period" will commence and all funds on deposit in the reserve account will be applied to prepay the mortgage loan until such time that the Debt Service Coverage Ratio exceeds 1.15x for a calendar quarter. In addition, if any of theTower Securities are not fully repaid by their respective anticipated repayment dates, the cash flow from the towers owned by the Borrowers will be trapped by the trustee for theTower Securities and applied first to repay the interest, at the original interest rates, on the mortgage loan components underlying theTower Securities , second to fund all reserve accounts and operating expenses associated with those towers, third to pay the management fees due to Network Management, fourth to repay principal of theTower Securities and fifth to repay the additional interest discussed above. Furthermore, the advance rents reserve requirement states that the Borrowers are required to maintain an advance rents reserve at any time the monthly tenant Debt Service Coverage Ratio is equal to or less than 2:1 and for two calendar months after such coverage ratio again exceeds 2:1. The mortgage loan agreement, as amended, also includes covenants customary for mortgage loans subject to rated securitizations. Among other things, the Borrowers are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets.
2013-2C
OnApril 18, 2013 , we, through the Trust, issued$575.0 million of Secured Tower Revenue Securities Series 2013-2C, which have an anticipated repayment date ofApril 11, 2023 and a final maturity date ofApril 9, 2048 (the "2013-2CTower Securities "). The fixed interest rate of the 2013-2CTower Securities is 3.722% per annum, payable monthly. We incurred financing fees of$11.0 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2013-2CTower Securities .
2014
OnOctober 15, 2014 , we, through the Trust, issued$920.0 million of 2.898% Secured Tower Revenue Securities Series 2014-1C, which had an anticipated repayment date ofOctober 8, 2019 and a final maturity date ofOctober 11, 2044 (the "2014-1CTower Securities ") and$620.0 million of 3.869% Secured Tower Revenue Securities Series 2014-2C, which had an anticipated repayment date ofOctober 8, 2024 and a final maturity date ofOctober 8, 2049 (the "2014-2CTower Securities ") (collectively the "2014Tower Securities "). We incurred financing fees of$22.5 million in relation to this transaction, which were being amortized through the anticipated repayment date of each of the 2014Tower Securities . OnSeptember 13, 2019 , we repaid the entire aggregate principal amount of the 2014-1CTower Securities in connection with the issuance of the 2019-1CTower Securities (as defined below). Additionally, we expensed$0.4 million of deferred financing fees and accrued interest related to the redemption of the 2014-1CTower Securities , which are reflected in loss from extinguishment of debt on the Consolidated Statement of Operations.
2015-1C
OnOctober 14, 2015 , we, through the Trust, issued$500.0 million of Secured Tower Revenue Securities Series 2015-1C, which have an anticipated repayment date ofOctober 8, 2020 and a final maturity date ofOctober 10, 2045 (the "2015-1CTower Securities "). The fixed interest rate of the 2015-1CTower Securities is 3.156% per annum, payable monthly. We incurred financing fees of$11.2 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2015-1CTower Securities .
2016-1C
OnJuly 7, 2016 , we, through the Trust, issued$700.0 million of Secured Tower Revenue Securities Series 2016-1C, which have an anticipated repayment date ofJuly 9, 2021 and a final maturity date ofJuly 10, 2046 (the "2016-1CTower Securities "). The fixed interest rate of the 2016-1CTower Securities is 2.877% per annum, payable monthly. We incurred financing fees of$9.5 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2016-1CTower Securities .
2017-1C
OnApril 17, 2017 , we, through the Trust, issued$760.0 million of Secured Tower Revenue Securities Series 2017-1C, which have an anticipated repayment date ofApril 11, 2022 and a final maturity date ofApril 9, 2047 (the "2017-1CTower Securities "). The fixed interest rate on the 2017-1CTower Securities is 3.168% per annum, payable monthly. We incurred financing fees of$10.2 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2017-1CTower Securities . 38
--------------------------------------------------------------------------------
Table of Contents
In addition, to satisfy certain risk retention requirements of Regulation RR promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),SBA Guarantor, LLC , a wholly owned subsidiary, purchased$40.0 million of Secured Tower Revenue Securities Series 2017-1R issued by the Trust, which have an anticipated repayment date ofApril 11, 2022 and a final maturity date ofApril 9, 2047 (the "2017-1RTower Securities "). The fixed interest rate on the 2017-1RTower Securities is 4.459% per annum, payable monthly. Principal and interest payments made on the 2017-1RTower Securities eliminate in consolidation.
2018-1C
OnMarch 9, 2018 , we, through the Trust, issued$640.0 million of Secured Tower Revenue Securities Series 2018-1C, which have an anticipated repayment date ofMarch 9, 2023 and a final maturity date ofMarch 9, 2048 (the "2018-1CTower Securities "). The fixed interest rate on the 2018-1CTower Securities is 3.448% per annum, payable monthly. We incurred financing fees of$8.6 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2018-1CTower Securities . In addition, to satisfy certain risk retention requirements of Regulation RR promulgated under the Exchange Act,SBA Guarantor, LLC , a wholly owned subsidiary, purchased$33.7 million of Secured Tower Revenue Securities Series 2018-1R issued by the Trust. These securities have an anticipated repayment date ofMarch 9, 2023 and a final maturity date ofMarch 9, 2048 (the "2018-1RTower Securities "). The fixed interest rate on the 2018-1RTower Securities is 4.949% per annum, payable monthly. Principal and interest payments made on the 2018-1RTower Securities eliminate in consolidation.
2019-1C
OnSeptember 13, 2019 , we, through the Trust, issued$1.165 billion of Secured Tower Revenue Securities Series 2019-1C, which have an anticipated repayment date ofJanuary 12, 2025 and a final maturity date ofJanuary 12, 2050 (the "2019-1CTower Securities "). The fixed interest rate on the 2019-1CTower Securities is 2.836% per annum, payable monthly. Net proceeds from this offering were used to repay the entire aggregate principal amount of the 2014-1CTower Securities ($920.0 million ), as well as accrued and unpaid interest, amounts outstanding on the Revolving Credit Facility, and any remaining amount was used for general corporate purposes. We incurred financing fees of$12.5 million in relation to this transaction, which are being amortized through the anticipated repayment date of the 2019-1CTower Securities . In addition, to satisfy certain risk retention requirements of Regulation RR promulgated under the Exchange Act,SBA Guarantor, LLC , a wholly owned subsidiary, purchased$61.4 million of Secured Tower Revenue Securities Series 2019-1R issued by the Trust. These securities have an anticipated repayment date ofJanuary 12, 2025 and a final maturity date ofJanuary 12, 2050 (the "2019-1RTower Securities "). The fixed interest rate on the 2019-1RTower Securities is 4.213% per annum, payable monthly. Principal and interest payments made on the 2019-1RTower Securities eliminate in consolidation. In connection with the issuance of the 2019-1CTower Securities ,SBA Properties, LLC ,SBA Sites, LLC ,SBA Structures, LLC ,SBA Infrastructure, LLC ,SBA Monarch Towers III, LLC , SBA 2012TC Assets PR, LLC , SBA 2012TC Assets, LLC ,SBA Towers IV, LLC ,SBA Monarch Towers I, LLC ,SBA Towers USVI, Inc. ,SBA Towers VII, LLC ,SBA GC Towers, LLC ,SBA Towers V, LLC , andSBA Towers VI, LLC (collectively, the "Borrowers"), each an indirect subsidiary of SBAC, and Midland Loan Services, a division ofPNC Bank, National Association , as servicer, on behalf of the Trustee entered into the Second Loan and Security Agreement Supplement and Amendment pursuant to which, among other things, (1) the outstanding principal amount of the mortgage loan was increased by$1.2 billion (but increased by a net of$306.4 million after giving effect to prepayment of the loan components relating to the 2014-1CTower Securities ) and (2) the Borrowers became jointly and severally liable for the aggregate$5.0 billion borrowed under the mortgage loan corresponding to the 2013-2CTower Securities , 2014-2CTower Securities , 2015-1CTower Securities , 2016-1CTower Securities , 2017-1CTower Securities , 2018-1CTower Securities , and the newly issued 2019-1CTower Securities . The new loan, after eliminating the risk retention securities, accrues interest at the same rate as the 2019-1CTower Securities and is subject to all other material terms of the existing mortgage loan, including collateral and interest rate after the anticipated repayment date.
Debt Covenants
As of
39--------------------------------------------------------------------------------
Table of Contents Senior Notes 2014 Senior Notes OnJuly 1, 2014 , we issued$750.0 million of unsecured senior notes dueJuly 15, 2022 (the "2014 Senior Notes"). The 2014 Senior Notes accrued interest at a rate of 4.875% per annum and were issued at 99.178% of par value. Interest on the 2014 Senior Notes was due semi-annually onJanuary 15 andJuly 15 of each year. We incurred financing fees of$11.6 million in relation to this transaction which are being amortized through the maturity date. OnFebruary 20, 2020 , we redeemed the entire$750.0 million balance on the 2014 Senior Notes with proceeds from the 2020 Senior Notes (defined below). In addition, we paid a$9.1 million call premium and expensed$7.7 million for the write-off of the original issue discount and financing fees related to the redemption of the 2014 Senior Notes which are reflected in loss from extinguishment of debt on the Consolidated Statement of Operations.
2016 Senior Notes
OnAugust 15, 2016 , we issued$1.1 billion of unsecured senior notes dueSeptember 1, 2024 (the "2016 Senior Notes"). The 2016 Senior Notes accrue interest at a rate of 4.875% per annum and were issued at 99.178% of par value. Interest on the 2016 Senior Notes is due semi-annually onMarch 1 andSeptember 1 of each year, beginning onMarch 1, 2017 . We incurred financing fees of$12.8 million in relation to this transaction, which are being amortized through the maturity date. The 2016 Senior Notes are subject to redemption in whole or in part at the redemption prices set forth in the indenture agreement plus accrued and unpaid interest. We may redeem the 2016 Senior Notes during the twelve-month period beginning on the following dates at the following redemption prices:September 1, 2019 at 103.656%,September 1, 2020 at 102.438%,September 1, 2021 at 101.219%, orSeptember 1, 2022 until maturity at 100.000%, of the principal amount of the 2016 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest.
2017 Senior Notes
OnOctober 13, 2017 , we issued$750.0 million of unsecured senior notes dueOctober 1, 2022 (the "2017 Senior Notes"). The 2017 Senior Notes accrue interest at a rate of 4.0% per annum. Interest on the 2017 Senior Notes is due semi-annually onApril 1 andOctober 1 of each year, beginning onApril 1, 2018 . We incurred financing fees of$8.9 million in relation to this transaction, which are being amortized through the maturity date. The 2017 Senior Notes are subject to redemption in whole or in part at the redemption prices set forth in the indenture agreement plus accrued and unpaid interest. Prior toOctober 1, 2020 , we may, at our option, redeem up to 35% of the aggregate principal amount of the 2017 Senior Notes originally issued at a redemption price of 104.000% of the principal amount of the 2017 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest with the net proceeds of certain equity offerings. We may redeem the 2017 Senior Notes during the twelve-month period beginning on the following dates at the following redemption prices:October 1, 2019 at 102.000%,October 1, 2020 at 101.000%, orOctober 1, 2021 until maturity at 100.000%, of the principal amount of the 2017 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest.
2020 Senior Notes
OnFebruary 4, 2020 , we issued$1.0 billion of unsecured senior notes dueFebruary 15, 2027 (the "2020 Senior Notes"). The 2020 Senior Notes accrue interest at a rate of 3.875% per annum. Interest on the 2020 Senior Notes is due semi-annually onFebruary 15 andAugust 15 of each year, beginning onAugust 15, 2020 . We incurred financing fees of$11.4 million to date in relation to this transaction, which are being amortized through the maturity date. Net proceeds from this offering were used to redeem all of the outstanding principal amount of the 2014 Senior Notes and repay a portion of the amount outstanding under the Revolving Credit Facility. The 2020 Senior Notes are subject to redemption in whole or in part on or afterFebruary 15, 2023 at the redemption prices set forth in the indenture agreement plus accrued and unpaid interest. Prior toFebruary 15, 2023 , we may, at our option, redeem up to 35% of the aggregate principal amount of the 2020 Senior Notes originally issued at a redemption price of 103.875% of the principal amount of the 2020 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest with the net proceeds of certain equity offerings. We may redeem the 2020 Senior Notes during the twelve-month period beginning on the following dates at the following redemption prices:February 15, 2023 at 101.938%,February 15, 2024 at 100.969%, orFebruary 15, 2025 until maturity 40
--------------------------------------------------------------------------------
Table of Contents
at 100.000%, of the principal amount of the 2020 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest.
Indentures Governing Senior Notes
The Indentures governing the Senior Notes contain customary covenants, subject to a number of exceptions and qualifications, including restrictions on the ability of SBAC and Telecommunications to (1) incur additional indebtedness unless the Consolidated Indebtedness to Annualized Consolidated Adjusted EBITDA Ratio (as defined in the Indenture), pro forma for the additional indebtedness does not exceed, with respect to any fiscal quarter, 9.5x for SBAC, (2) merge, consolidate or sell assets, (3) make restricted payments, including dividends or other distributions, (4) enter into transactions with affiliates, and (5) enter into sale and leaseback transactions and restrictions on the ability of the Restricted Subsidiaries of SBAC (as defined in the Indentures) to incur liens securing indebtedness. Debt Service As ofDecember 31, 2019 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations for the next twelve months will be sufficient to service our outstanding debt during the next twelve months. The following table illustrates our estimate of our debt service requirement over the twelve months endedDecember 31, 2020 based on the amounts outstanding as ofDecember 31, 2019 and the interest rates accruing on those amounts on such date (in thousands): 2014 Senior Notes (1)$ 36,563 2016 Senior Notes 53,625 2017 Senior Notes 30,000 2013-2CTower Securities 21,585 2014-2CTower Securities 24,185 2015-1CTower Securities (2) 512,529 2016-1CTower Securities 20,361 2017-1CTower Securities 24,318 2018-1CTower Securities 22,270 2019-1CTower Securities 33,409 Revolving Credit Facility (1) 16,855 2018 Term Loan (3) 112,436
Total debt service for the next 12 months (1)
(1)Total debt service excludes interest payments on the$1.0 billion 2020 Senior Notes issuedFebruary 4, 2020 , proceeds from which were used to redeem all of the outstanding principal amount of the 2014 Senior Notes ($750.0 million ) and to repay the amounts outstanding under the Revolving Credit Facility. (2)The anticipated repayment date and the final maturity date for the 2015-1CTower Securities isOctober 8, 2020 andOctober 10, 2045 , respectively. Interest expense included above is through the anticipated repayment date. (3)Total debt service on the 2018 Term Loan includes the impact of interest rate swaps entered into in 2019 which swapped$1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 3.78% per annum through the maturity date of the 2018 Term Loan.
Inflation
The impact of inflation on our operations has not been significant to date. However, we cannot assure you that a high rate of inflation in the future will not adversely affect our operating results particularly in light of the fact that our site leasing revenues are governed by long-term contracts with pre-determined pricing that we will not be able to increase in response to increases in inflation other than our contracts inSouth America andSouth Africa which have inflationary index based rental escalators. ? 41
--------------------------------------------------------------------------------
Table of Contents
Commitments and Contractual Obligations
The following table summarizes our scheduled contractual commitments as ofDecember 31, 2019 : 2020 2021 2022 2023 2024 Thereafter Total (in thousands) Principal payments of debt (1)$ 524,000 $ 724,000 $ 2,284,000 $ 1,729,000 $ 1,744,000 $ 3,409,000 $ 10,414,000 Interest payments (2) 384,136 361,873 311,349 311,683 102,934 133,997 1,605,972 Operating leases 254,660 256,197 257,201 257,277 255,925 2,992,385 4,273,645 Capital leases 1,374 1,201 985 545 11 - 4,116 Employment agreements 2,755 1,805 - - - - 4,560 Total contractual obligations$ 1,166,925 $ 1,345,076 $ 2,853,535 $
2,298,505
(1)Principal payments of debt represented by the
(2) Represents interest payments based on the 2013-2CTower Securities interest rate of 3.722%, the 2014-2CTower Securities interest rate of 3.869%, the 2015-1CTower Securities interest rate of 3.156%, the 2016-1CTower Securities interest rate of 2.877%, the 2017-1CTower Securities interest rate of 3.168%, the 2018-1CTower Securities interest rate of 3.448%, the 2019-1CTower Securities interest rate of 2.836%, the 2018 Term Loan at an average interest rate of 3.74% (which includes the impact of interest rate swaps) as ofDecember 31, 2019 , the Revolving Credit Facility at an average interest rate of 3.13% as ofDecember 31, 2019 , the 2014 Senior Notes interest rate of 4.875%, the 2016 Senior Notes interest rate of 4.875%, and the 2017 Senior Notes interest rate of 4.000%.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements.
© Edgar Online, source
