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. 24
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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 ,South Africa ,the Philippines and, effectiveJanuary 4, 2022 ,Tanzania . Our primary business line is our site leasing business, which contributed 97.4% of our total segment operating profit for the year endedDecember 31, 2021 . 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, 2021 , we owned 34,177 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. In addition, onJanuary 4, 2022 , we closed on 1,445 towers under our previously announced deal inTanzania . 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 ,South Africa ,the Philippines and, effectiveJanuary 4, 2022 ,Tanzania . As ofDecember 31, 2021 , noU.S. state or territory accounted for more than 10% of our total tower portfolio by tower count, and noU.S. state or territory accounted for more than 10% of our total revenues for the year endedDecember 31, 2021 . In addition, as ofDecember 31, 2021 , approximately 30% of our total towers are located inBrazil and no other international markets (each country is considered a market) represented more than 4% of our total towers. We derive site leasing revenues primarily from wireless service provider tenants, including T-Mobile, AT&T,Verizon Wireless , Oi S.A., Telefonica, Claro, Tigo, TIM, andDISH Wireless . 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 and our international markets, our tenant leases are generally for an initial term of five years to 15 years with multiple renewal periods at the option of the tenant. InCanada and in our Central American markets, tenant leases typically contain specific rent escalators, which average 3-4% per year, including the renewal option periods. In our South American markets,South Africa , andthe Philippines , tenant leases typically escalate annually in accordance with an inflationary index. InTanzania , tenant leases typically escalate using a combination of fixed and inflation adjusted escalators. Site leases in our South American markets typically provide for a fixed rental amount and a pass through charge for the underlying rent related to ground leases and other property interests. InSouth Africa , our site leases contain pass through charges related to utilities and, inTanzania , our site leases include components related to utilities and fuel. The utility and fuel portion of our Tanzanian site leases adjust periodically in accordance with changes in diesel fuel and electricity prices. In certain markets such asBrazil , tenant leases are typically governed by master lease agreements, which provide for the material terms and conditions that will govern the terms of the use of the site. 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; •Fuel (in those international markets that do not have an available electric grid at our tower sites); 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 years or more with multiple renewal periods, which are at our option. In our Central American markets,Canada , andthe Philippines , ground leases and other property interests provide for fixed rent escalators which typically average 2-3% annually, and in our South American markets andSouth Africa , ground leases adjust in accordance with an inflationary index. As ofDecember 31, 2021 , approximately 72% 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 ,South Africa , and the 25
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Philippines , 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 ,Peru , andTanzania , 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
Segment operating profit as a percentage of
total operating profit 2021 2020 2019 Domestic site leasing 80.7% 81.0% 80.7% International site leasing 16.7% 17.4% 17.0% Total site leasing 97.4% 98.4% 97.7% 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 2022, we expect organic site leasing revenue in both our domestic and international segments to increase over 2021 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 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. During 2020, the consolidation of T-Mobile and Sprint was completed, and we began to experience non-renewal of certain leases as a result of this merger. We currently expect that this churn will represent an aggregate of between$140.0 million and$190.0 million of cash site leasing revenue over the next six years. The aggregate churn estimate includes both overlapping and adjacent Sprint leases.
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 in 2019 has provided us with a new tool to return value to our shareholders, we will also continue to make investments focused on increasing Adjusted 26
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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. Cash dividends are 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 believe that, due to our low dividend payout ratio, we can 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. COVID-19 Update We have experienced minimal impact to our business or results of operations from the coronavirus (COVID-19) pandemic. The extent to which COVID-19 could adversely affect our future business operations will depend on future developments such as the duration of the outbreak, new information on the severity of COVID-19 or its variants, and methods taken to contain or treat the outbreak of COVID-19 including a vaccine distribution program. While the full impact of COVID-19 is not yet known, we will continue to monitor these developments and the potential effects on our business.
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, 2021 , 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.
Revenue Recognition and Accounts Receivable
Site leasing revenues
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 91% of our total revenue for the year endedDecember 31, 2021 . Site development revenues 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 27
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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 9% of our total revenues for the year endedDecember 31, 2021 . We account for site development revenue in accordance with ASC 606, Revenue from Contracts with Customers. 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. Accounts receivable The accounts receivable balance for the years endedDecember 31, 2021 and 2020 was$102.0 million and$74.1 million , respectively, of which$24.6 and$14.3 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 ofJanuary 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 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.
Reference Rate Reform
ASU 2020-04 and ASU 2021-01, Reference Rate Reform, provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated afterDecember 31, 2022 , except for hedging relationships existing as ofDecember 31, 2022 , that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. An entity may elect to apply the amendments prospectively throughDecember 31, 2022 . TheICE Benchmark Administration Limited ("IBA") ceased the publication of USD LIBOR for the 1 week and 2 month tenors onDecember 31, 2021 and will cease all other tenors onJune 30, 2023 . OnJuly 7, 2021 , we amended our Credit Facility to provide mechanics relating to a transition away from LIBOR as a benchmark interest rate and the replacement of LIBOR by an alternative benchmark rate. Refer to "Debt Instruments and Debt Service Requirements" below for further discussion of the Credit Facility. As ofDecember 31, 2021 , we have not modified any other contracts as a result of reference rate reform and are evaluating the impact this standard may have on our consolidated financial statements. 28
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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 realized and unrealized gains and losses on our intercompany loans.
Year Ended 2021 Compared to Year Ended 2020
Revenues and Segment Operating Profit:
For the year ended Constant December 31, Foreign Constant Currency Currency Currency 2021 2020 Impact Change % Change Revenues (in thousands) Domestic site leasing$ 1,681,372 $ 1,558,311 $ -$ 123,061 7.9% International site leasing 422,715 396,161 (8,016) 34,570 8.7% Site development 204,747 128,666 - 76,081 59.1% Total$ 2,308,834 $ 2,083,138 $ (8,016) $ 233,712 11.2% Cost of Revenues Domestic site leasing$ 258,612 $ 256,673 $ -$ 1,939 0.8% International site leasing 127,779 117,105 (2,766) 13,440 11.5% Site development 159,093 102,750 - 56,343 54.8% Total$ 545,484 $ 476,528 $ (2,766) $ 71,722 15.1% Operating Profit Domestic site leasing$ 1,422,760 $ 1,301,638 $ -$ 121,122 9.3% International site leasing 294,936 279,056 (5,250) 21,130 7.6% Site development 45,654 25,916 - 19,738 76.2% Revenues Domestic site leasing revenues increased$123.1 million for the year endedDecember 31, 2021 , as compared to the prior year, primarily due to (1) revenues from 961 towers acquired (including wireless tenant licenses on 713 utility transmission structures from the PG&E transaction) and 21 towers built sinceJanuary 1, 2020 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. International site leasing revenues increased$26.6 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, international site leasing revenues increased$34.6 million . These changes were primarily due to (1) revenues from 263 towers acquired and 623 towers built sinceJanuary 1, 2020 and (2) organic site leasing growth from new leases, amendments, and contractual escalators, partially offset by lease non-renewals. Site leasing revenue inBrazil represented 11.1% of total site leasing revenue for the period. No other individual international market represented more than 4% of our total site leasing revenue. Site development revenues increased$76.1 million for the year endedDecember 31, 2021 , as compared to prior year, as a result of increased carrier activity driven primarily by T-Mobile andDISH Wireless .
Operating Profit
Domestic site leasing segment operating profit increased$121.1 million for the year endedDecember 31, 2021 , as compared to the prior year, primarily due to additional profit generated by (1) towers acquired and built sinceJanuary 1, 2020 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. 29
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International site leasing segment operating profit increased$15.9 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, international site leasing segment operating profit increased$21.1 million . These changes were primarily due to additional profit generated by (1) towers acquired and built sinceJanuary 1, 2020 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$19.7 million for the year endedDecember 31, 2021 , as compared to the prior year, as a result of increased carrier activity driven primarily by T-Mobile andDISH Wireless .
Selling, General, and Administrative Expenses:
For the year ended Constant December 31, Foreign Constant Currency 2021 2020 Currency Impact Currency Change % Change (in thousands) Domestic site leasing$ 115,458 $ 102,889 $ - $ 12,569 12.2% International site leasing 37,768 34,905 (271) 3,134 9.0% Total site leasing$ 153,226 $ 137,794 $ (271) $ 15,703 11.4% Site development 20,636 17,663 - 2,973 16.8% Other 46,167 38,810 - 7,357 19.0% Total$ 220,029 $ 194,267 $ (271) $ 26,033 13.4% Selling, general, and administrative expenses increased$25.8 million , on an actual and constant currency basis, for the year endedDecember 31, 2021 , as compared to the prior year. These changes were primarily as a result of increases in noncash compensation, personnel, and other support related costs.
Acquisition and New Business Initiatives Related Adjustments and Expenses:
For the year ended Constant December 31, Foreign Constant Currency 2021 2020 Currency Impact Currency Change % Change (in thousands) Domestic site leasing$ 14,452 $ 10,331 $ - $ 4,121 39.9% International site leasing 13,169 6,251 (161) 7,079 113.2% Total$ 27,621 $ 16,582 $ (161) $ 11,200 67.5% Acquisition and new business initiatives related adjustments and expenses increased$11.0 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, acquisition and new business initiatives related adjustments and expenses increased$11.2 million . These changes were primarily as a result of an increase in third party acquisition and integration costs as well as incremental costs incurred in support of new business initiatives as compared to the prior year.
Asset Impairment and Decommission Costs:
For the year ended Constant December 31, Foreign Constant Currency Currency 2021 2020 Currency Impact Change % Change (in thousands) Domestic site leasing$ 20,135 $ 28,887 $ -$ (8,752) (30.3%) International site leasing 12,763 11,210 (81) 1,634 14.6% Total site leasing$ 32,898 $ 40,097 $ (81)$ (7,118) (17.8%) Other 146 - - 146 -% Total$ 33,044 $ 40,097 $ (81)$ (6,972) (17.4%) Asset impairment and decommission costs decreased$7.1 million , on an actual and constant currency basis, for the year endedDecember 31, 2021 , as compared to the prior year. These changes were primarily as a result of a decrease in impairment charges resulting from our regular analysis of whether the future cash flows from certain towers are adequate to recover the carrying 30
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value of the investment in those towers, as well as a decrease in costs related
to sites decommissioned in the year ended
Depreciation, Accretion, and Amortization Expenses:
For the year ended Constant December 31, Foreign Constant Currency Currency Currency 2021 2020 Impact Change % Change (in thousands) Domestic site leasing$ 514,234 $ 539,399 $ -$ (25,165) (4.7%) International site leasing 177,059 174,073 (4,443) 7,429 4.3% Total site leasing$ 691,293 $ 713,472 $ (4,443) $ (17,736) (2.5%) Site development 2,295 2,356 - (61) (2.6%) Other 6,573 6,142 - 431 7.0% Total$ 700,161 $ 721,970 $ (4,443) $ (17,366) (2.4%) Depreciation, accretion, and amortization expense decreased$21.8 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, depreciation, accretion, and amortization expense decreased$17.4 million . These changes were primarily due to the impact of assets that became fully depreciated since the prior year period, partially offset by an increase in the number of towers we acquired and built sinceJanuary 1, 2020 . Operating Income (Expense): For the year ended Constant December 31, Foreign Constant Currency Currency 2021 2020 Currency Impact Change % Change (in thousands) Domestic site leasing$ 758,481 $ 620,132 $ -$ 138,349 22.3% International site leasing 54,177 52,617 (294) 1,854 3.5% Total site leasing$ 812,658 $ 672,749 $ (294)$ 140,203 20.8% Site development 22,723 5,897 - 16,826 285.3% Other (52,886) (44,952) - (7,934) 17.6% Total$ 782,495 $ 633,694 $ (294)$ 149,095 23.5% Domestic site leasing operating income increased$138.3 million for the year endedDecember 31, 2021 , as compared to the prior year, primarily due to higher segment operating profit, decreases in depreciation, accretion, and amortization expense and asset impairment and decommission costs, partially offset by increases in selling, general, and administrative expenses and acquisition and new business initiatives related adjustments and expenses. International site leasing operating income increased$1.6 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, international site leasing operating income increased$1.9 million . These changes were primarily due to higher segment operating profit, partially offset by increases in depreciation, accretion, and amortization expense, selling, general, and administrative expenses, asset impairment and decommission costs, and acquisition and new business initiatives related adjustments and expenses.
Site development operating income increased
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Table of Contents Other Income (Expense): For the year ended Constant December 31, Foreign Constant Currency Currency Currency 2021 2020 Impact Change % Change (in thousands) Interest income$ 3,448 $ 2,981 $ (112) $ 579 19.4% Interest expense (352,919) (367,874) 27 14,928 (4.1%) Non-cash interest expense (47,085) (24,870) - (22,215) 89.3% Amortization of deferred financing fees (19,589) (20,058) - 469 (2.3%) Loss from extinguishment of debt, net (39,502) (19,463) - (20,039) 103.0% Other expense, net (74,284) (222,159) 153,172 (5,297) 293.8% Total$ (529,931) $ (651,443) $ 153,087 $ (31,575) 7.3% Interest expense decreased$15.0 million for the year endedDecember 31, 2021 , as compared to the prior year. This change was primarily due to a lower weighted average interest rate due in part to the interest rate swap entered into during third quarter of 2020, partially offset by a higher average principal amount of cash interest bearing debt outstanding. Non-cash interest expense increased$22.2 million for the year endedDecember 31, 2021 , as compared to the prior year primarily related to amortization of accumulated losses related to our interest rate swaps de-designated as cash flow hedges. Loss from extinguishment of debt was$39.5 million for the year endedDecember 31, 2021 representing the payment of a$13.4 million call premium and the write-off of$10.3 million of the unamortized financing fees related to the redemption of the 2016 Senior Notes inNovember 2021 , the payment of a$7.5 million call premium and the write-off of$4.2 million of the unamortized financing fees related to the redemption of the 2017 Senior Notes inFebruary 2021 , the write-off of$2.0 million of unamortized financing fees related to the repayment of the 2017-1CTower Securities inMay 2021 , and the write-off of$2.0 million of unamortized financing fees related to the repayment of the 2013-2CTower Securities inOctober 2021 . Loss from extinguishment of debt was$19.5 million for the year endedDecember 31, 2020 representing the payment of a$9.1 million call premium and the write-off of$7.7 million of the original issuance discount and unamortized financing fees related to the redemption of the 2014 Senior Notes inFebruary 2020 , as well as the write-off of$2.6 million of unamortized financing fees related to the repayment of the 2015-1CTower Securities and 2016-1CTower Securities inJuly 2020 . Other expense, net includes a$66.3 million loss on the remeasurement ofU.S. dollar denominated intercompany loans with foreign subsidiaries for the year endedDecember 31, 2021 , while the prior year period included a$220.4 million loss.
(Provision) Benefit for Income Taxes:
For the year ended Constant December 31, Foreign Constant Currency Currency Currency 2021 2020 Impact Change % Change (in thousands) (Provision) benefit for income taxes$ (14,940) $ 41,796 $ (51,624) $ (5,112) 15.5% Provision for income taxes increased$56.7 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, provision for income taxes increased$5.1 million . These changes were primarily due to increases in deferred foreign and state taxes.
Net Income:
For the year ended Constant December 31, Foreign Constant Currency 2021 2020 Currency Impact Currency Change % Change (in thousands)
Net income
68.0%
Net income was$237.6 million for the year endedDecember 31, 2021 , as compared to net income of$24.0 million in the prior year period. This change was primarily due to an increase in operating income, fluctuations in foreign currency exchange rates including changes recorded on the remeasurement of theU.S. dollar denominated intercompany loans with foreign subsidiaries, and a 32
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decrease in cash interest expense related to the interest rate swaps. This was partially offset by increases in non-cash interest expense, loss from the extinguishment of debt, and provision for income taxes.
Year Ended 2020 Compared to Year Ended 2019
For a discussion of our 2020 Results of Operations, including a discussion of our financial results for the fiscal year endedDecember 31, 2020 compared to the fiscal year endedDecember 31, 2019 , refer to Part I, Item 7 of our annual report on Form 10-K filed with theSEC onFebruary 25, 2021 .
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 income 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 2020 Senior Notes and 2021 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 2021 2020 Currency Impact Change % Change (in thousands) Net income$ 237,624 $ 24,047 $ 101,169$ 112,408 68.0% Non-cash straight-line leasing revenue (30,117) (3,475) (106) (26,536) 763.6% Non-cash straight-line ground lease expense 7,766 13,955 72 (6,261) (44.9%) Non-cash compensation 84,402 68,890 (33) 15,545 22.6% Loss from extinguishment of debt, net 39,502 19,463 - 20,039 103.0% Other expense, net 74,284 222,159 (153,172) 5,297 (293.8%) Acquisition and new business initiatives related adjustments and expenses 27,621 16,582 (161) 11,200 67.5% Asset impairment and decommission costs 33,044 40,097 (81) (6,972) (17.4%) Interest income (3,448) (2,981) 112 (579) 19.4% Interest expense (1) 419,593 412,802 (27) 6,818 1.7% Depreciation, accretion, and amortization 700,161 721,970 (4,443) (17,366) (2.4%) Provision (benefit) for income taxes (2) 15,847 (40,895) 51,624 5,118 15.1% Adjusted EBITDA$ 1,606,279 $ 1,492,614 $ (5,046)$ 118,711 8.0% 33
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(1)Total interest expense includes interest expense, non-cash interest expense, and amortization of deferred financing fees. (2)Provision (benefit) for taxes includes$907 and$901 of franchise taxes for the year ended 2021 and 2020, respectively, reflected in selling, general, and administrative expenses on the Consolidated Statement of Operations. Adjusted EBITDA increased$113.7 million for the year endedDecember 31, 2021 , as compared to the prior year. On a constant currency basis, Adjusted EBITDA increased$118.7 million . These changes were primarily due to an increase in segment operating profit, partially offset by an increase in cash 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, 2021 2020 (in thousands) Cash provided by operating activities $ 1,189,896$ 1,126,033 Cash used in investing activities (1,423,260) (446,366) Cash provided by (used in) financing activities 339,264 (469,017) Change in cash, cash equivalents, and restricted cash
105,900 210,650 Effect of exchange rate changes on cash, cash equiv., and restricted cash
(13,082) (8,962) Cash, cash equivalents, and restricted cash, beginning of year
342,808 141,120 Cash, cash equivalents, and restricted cash, end of year $ 435,626$ 342,808 Operating Activities Cash provided by operating activities was$1.2 billion for the year endedDecember 31, 2021 as compared to$1.1 billion for the year endedDecember 31, 2020 . The increase was primarily due to an increase in operating profit, partially offset by an increase in cash outflows associated with working capital changes. Investing Activities
A detail of our cash capital expenditures is as follows:
For the year endedDecember 31, 2021 2020 (in thousands)
Acquisitions of towers and related intangible assets
(950,536)
-
Land buyouts and other assets (2) (32,416)
(89,945)
Construction and related costs on new builds (61,202)
(54,736)
Augmentation and tower upgrades (33,103) (38,340) Tower maintenance (34,541) (29,395) General corporate (4,848) (6,095) Other investing activities (31,862) (46,382) Net cash used in investing activities$ (1,423,260) $
(446,366)
(1)During the year endedDecember 31, 2021 , we acquired the exclusive right to lease and operate 713 utility transmission structures, which included existing wireless tenant licenses from PG&E. The difference between the agreed upon purchase price of$972.0 million and the cash acquisition amount is due to working capital adjustments. 34
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(2)Excludes$16.3 million and$12.3 million spent to extend ground lease terms for the years endedDecember 31, 2021 and 2020, respectively. In addition, the year endedDecember 31, 2020 includes amounts paid related to the acquisition of data centers. OnJanuary 4, 2022 , we closed on 1,445 sites under the previously announced deal withAirtel Tanzania for$176.1 million . Legal title was fully transferred at closing for 963 of the towers. The remaining 482 towers are pending post-closing site level documentation and due diligence and will be initially accounted for as acquired right-of-use assets until the full transfer of title for these towers is completed, which we anticipate to be in tranches through the end of the second quarter of 2023. During this period of time, we have all the economic rights and obligations related to these towers. Additionally, subsequent to the fourth quarter of 2021, we purchased or are under contract to purchase 371 communication sites for an aggregate amount of$137.1 million . We anticipate that these acquisitions will be consummated by the end of the third quarter of 2022. For 2022, we expect to incur non-discretionary cash capital expenditures associated with tower maintenance and general corporate expenditures of$45.0 million to$55.0 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$525.0 million to$545.0 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 endedDecember 31, 2021 2020 (in thousands)
Net repayments under Revolving Credit Facility (1) $ (30,000)
1,485,373 1,479,484 Repayment of Senior Notes (1)
(1,870,909) (759,143)
Proceeds from issuance of
2,924,005 1,335,895 Repayment of Tower Securities (1) (1,335,000) (1,200,000) Termination of interest rate swap - (176,200) Repurchase and retirement of common stock (2) (582,578) (859,335) Payment of dividends on common stock
(253,580) (207,689) Proceeds from employee stock purchase/stock option plans
86,688 99,129 Payments related to taxes on net settlement of stock options and restricted stock units
(71,904) (45,080) Other financing activities
(12,831) (26,078)
Net cash provided by (used in) financing activities $ 339,264
(1)For additional information regarding our debt instruments and financings,
refer to "Debt Instruments and Debt Service Requirements" below.
(2)For additional information, refer to Item 5. Issuer Purchases of
For a discussion of our Liquidity and Capital Resources for the fiscal year endedDecember 31, 2020 compared to the fiscal year endedDecember 31, 2019 , refer to Part I, Item 7 of our annual report on Form 10-K filed with theSEC onFebruary 25, 2021 . ? 35
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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 February 19, 2021 March 10, 2021$0.58 $63.4 million March 26, 2021 April 26, 2021 May 20, 2021$0.58 $63.4 million June 15, 2021 August 1, 2021 August 26, 2021$0.58 $63.6 million September 23, 2021 November 1, 2021 November 18, 2021$0.58 $63.1 million December 16, 2021
Dividends paid in 2021 and 2020 were ordinary taxable dividends.
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 27, 2022 March 10, 2022$0.71 March 25, 2022 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 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, 2021 , we did not issue any shares of Class A common stock under this registration statement. As ofDecember 31, 2021 , we had approximately 1.2 million shares of Class A common stock remaining under this registration statement. We have on file with the Commission an automatic shelf registration statement for well-known seasoned issuers on Form S-3ASR which enables us to issue shares of our Class A common stock, preferred stock, debt securities, warrants, or depositary shares as well as units that include any of these securities. We will file a prospectus supplement containing the amount and type of securities each time we issue securities under our automatic shelf registration statement on Form S-3ASR. No securities were issued under this registration statement through the date of this filing.
Debt Instruments and Debt Service Requirements
Terms of the Senior Credit Agreement
OnJuly 7, 2021 , we, through our wholly owned subsidiary,SBA Senior Finance II LLC , amended our Revolving Credit Facility to (1) increase the total commitments under the Facility from$1.25 billion to$1.5 billion , (2) extend the maturity date of the Facility toJuly 7, 2026 , (3) lower the applicable interest rate margins and commitment fees under the Facility, (4) provide mechanics relating to a transition away from LIBOR as a benchmark interest rate and the replacement of LIBOR by an alternative benchmark rate, (5) incorporate sustainability-linked targets which will adjust the Facility's applicable interest and commitment fee rates upward or downward based on how we perform against those targets, and (6) amend certain other terms and conditions under 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 36
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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 to increase all or a portion of its Revolving Credit Facility commitment or whether to provideSBA Senior Finance II with additional term loans and, if so, upon what terms.
Revolving Credit Facility under the Senior Credit Agreement
The Revolving Credit Facility consists of a revolving loan under which up to$1.5 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 150.0 basis points or (2) the Base Rate plus a margin that ranges from 12.5 basis points to 50.0 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 0.15% and 0.25% per annum on the amount of unused commitment. Borrowings 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, 2021 , we borrowed$1.9 billion and repaid$2.0 billion of the outstanding balance under the Revolving Credit Facility. As ofDecember 31, 2021 , the balance outstanding under the Revolving Credit Facility was$350.0 million accruing interest at 1.516% per annum. In addition,SBA Senior Finance II was required to pay a commitment fee of 0.15% per annum on the amount of the unused commitment. As ofDecember 31, 2021 ,SBA Senior Finance II was in compliance with the financial covenants contained in the Senior Credit Agreement. Subsequent toDecember 31, 2021 , we borrowed an additional$210.0 million under the Revolving Credit Facility, and as of the date of this filing,$560.0 million was outstanding.
Term Loan under the Senior Credit Agreement
2018 Term Loan
OnApril 11, 2018 , we, through our wholly owned subsidiary,SBA Senior Finance II LLC , obtained a 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 . The 2018 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). The 2018 Term Loan was issued at 99.75% of par value. As ofDecember 31, 2021 , the 2018 Term Loan was accruing interest at 1.860% per annum. Principal payments on the 2018 Term Loan are 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. 37
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During the year endedDecember 31, 2021 , we repaid an aggregate of$24.0 million of principal on the 2018 Term Loan. As ofDecember 31, 2021 , the 2018 Term Loan had a principal balance of$2.3 billion . OnAugust 4, 2020 , we, through our wholly owned subsidiary,SBA Senior Finance II , entered into an interest rate swap for$1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% per annum through the maturity date of the 2018 Term Loan.
Tower Revenue Securities Terms
As ofDecember 31, 2021 , we, through the Trust, had issued and outstanding an aggregate of$6.7 billion ofSecured Tower Revenue Securities ("Tower Securities "). The sole asset of the Trust consists of a non-recourse mortgage loan made in favor of certain of our subsidiaries that are borrowers on the mortgage loan (the "Borrowers") under which there is a loan tranche for each Tower Security outstanding with the same interest rate and maturity date as the corresponding Tower Security. The mortgage loan will be paid from the operating cash flows from the aggregate 9,902 tower sites owned by the Borrowers as ofDecember 31, 2021 . 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 table below sets forth the material terms of our outstanding
Anticipated Final Amount Repayment Maturity Security Issue Date Outstanding Interest Rate Date Date 2014-2C Tower Securities Oct. 15, 2014$620.0 3.869%
million 2024 2049 2018-1C Tower Securities Mar. 9, 2018$640.0 3.448%
million 2023 2048 2019-1C Tower Securities Sep. 13, 2019$1.165 2.836%
billion 2025 2050 2020-1C Tower Securities Jul. 14, 2020$750.0 1.884%
million 2026 2050 2020-2C Tower Securities Jul. 14, 2020$600.0 2.328%
million 2028 2052 2021-1C Tower Securities May 14, 2021$1.165 1.631%
billion 2026 2051 2021-2C Tower Securities Oct. 27, 2021$895.0 1.840%
million 2027 2051 2021-3C Tower Securities Oct. 27, 2021$895.0 2.593% Oct. 9, Oct. 10, million 2031 2056 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 2018-1CTower Securities , 2019-1CTower Securities , 2020-1CTower Securities , 2021-1CTower Securities , and 2021-2CTower Securities ) or eighteen months (in the case of the components corresponding to the 2014-2CTower Securities , 2020-2CTower Securities , and 2021-3CTower Securities ) 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 net present value associated with the portion of the principal balance being prepaid and calculated in accordance with the formula set forth in the mortgage loan agreement. 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 38
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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 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.
In addition, to satisfy certain risk retention requirements of Regulation RR promulgated under the Exchange Act,SBA Guarantor, LLC , a wholly owned subsidiary, purchased (1)$33.7 million ofSecured Tower Revenue Securities Series 2018-1R (the "2018-1RTower Securities ") issued by the Trust with a fixed interest rate of 4.949% per annum, payable monthly, and with the same anticipated repayment date and final maturity date as the 2018-1CTower Securities , (2)$61.4 million of Secured Tower Revenue Securities Series 2019-1R (the "2019-1RTower Securities ") issued by the Trust with a fixed interest rate of 4.213% per annum, payable monthly, and with the same anticipated repayment date and final maturity date as the 2019-1CTower Securities , (3)$71.1 million of Secured Tower Revenue Securities Series 2020-2R (the "2020-2RTower Securities ") issued by the Trust with a fixed interest rate of 4.336% per annum, payable monthly, and with the same anticipated repayment date and final maturity date as the 2020-2CTower Securities , (4)$61.4 million of Secured Tower Revenue Securities Series 2021-1R (the "2021-1RTower Securities ") issued by the Trust with a fixed interest rate of 3.625% per annum, payable monthly, and with the same anticipated repayment date and final maturity date as the 2021-1CTower Securities , and (5)$94.3 million of Secured Tower Revenue Securities Series 2021-3R (the "2021-3RTower Securities ") issued by the Trust with a fixed interest rate of 4.090% per annum, payable monthly, and with the same anticipated repayment date and final maturity date as the 2021-3CTower Securities . Principal and interest payments made on the 2018-1RTower Securities , 2019-1RTower Securities , 2020-2RTower Securities , 2021-1RTower Securities , and 2021-3RTower Securities eliminate in consolidation.
Debt Covenants
As of
Senior Notes
The table below sets forth the material terms of our outstanding senior notes as ofDecember 31, 2021 : Interest Optional Amount Rate Interest Due Redemption
Senior Notes Issue Date Outstanding Coupon Maturity Date
Dates Date 2020 Senior Notes Feb. 4, 2020$1.5 3.875% Feb. 15, 2027
billion Aug. 15 2023 2021 Senior Notes Jan. 29, 2021$1.5 3.125% Feb. 1, 2029 Feb. 1 & Feb. 1, billion Aug. 1 2024 Each of our senior notes is subject to redemption, at our option, in whole or in part on or after the date set forth above. During the subsequent three twelve-month periods, the senior notes are redeemable, at our option, at reducing redemption prices based on the applicable interest rate coupon (as set forth in the indenture) plus accrued and unpaid interest. Subsequent to such date, the senior notes become redeemable until maturity at 100% of the principal plus accrued and unpaid interest. In addition, prior toFebruary 15, 2023 (in the case of the 2020 Senior Notes) andFebruary 1, 2024 (in the case of the 2021 Senior Notes), we may, at our option, use the net proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the notes originally issued at a redemption price of 103.875% (in the case of the 2020 Senior Notes) and 103.125% (in the case of the 2021 Senior Notes) plus accrued and unpaid interest. 39
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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, 2021 , 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 next twelve months endedDecember 31, 2022 based on the amounts outstanding as ofDecember 31, 2021 and the interest rates accruing on those amounts on such date (in thousands): Revolving Credit Facility$ 7,031 2018 Term Loan (1) 67,349 2014-2C Tower Securities 24,185 2018-1C Tower Securities 22,270 2019-1C Tower Securities 33,409 2020-1C Tower Securities 14,368 2020-2C Tower Securities 14,159 2021-1C Tower Securities 19,371 2021-2C Tower Securities 16,752 2021-3C Tower Securities 23,491 2020 Senior Notes 58,125 2021 Senior Notes 46,875
Total debt service for the next 12 months
(1)Total debt service on the 2018 Term Loan includes the impact of the interest rate swap entered into onAugust 4, 2020 which swapped$1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% 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 ,South Africa ,the Philippines , andTanzania which have inflationary index based rent escalators. ? 40
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