Brendan Cavanagh: Yeah. It basically means your relevance in the market to your customers, which generally means the size and scale of your operations. So the percentage of the portfolio that you represent for the larger, most important customers in that market. When you are at a level that is frankly immaterial to their network needs, your ability to drive additional business and to negotiate terms on new opportunities is just not as great as when you’re a more meaningful partner. So that’s really what I mean when I talk about the size and scale. As it relates to new markets, that would be a consideration, obviously, before we go into the new market, what’s our position going to look like in that market. So it doesn’t mean that we would not go into a new market, but we would consider that factor as one of the factors when we’re thinking about it.
Nick Del Deo: Okay. And then regarding domestic leasing in ’24 in the US, your guidance of $42 million this year, and you just said it was going to be probably front-end loaded. I think you’ve previously spoken to sort of the low end of a range of leasing over time as being around $40 million. It seems like the run rate in the second half of the year, if $42 million is front-end loaded, it might annualize to a pace below $40 million. I guess do you see a plausible scenario where full year leasing could go below $40 million in light of current conditions?
Brendan Cavanagh: Well, yeah, it could. Obviously, we’re just above $40 million now for this year. So if we don’t see any pickup as we get to the second half of the year, I do expect that the run rate at the end of the year today, that’s implied in our guidance would be slightly below $40 million. So it’s possible. I think though some of this is lumpiness in the way that things come in under our AT&T MLA agreement. So the fact that it’s a little higher in the first part of the year and a little lower in the second half of the year could be something we see next year as well.
Nick Del Deo: Okay. Thanks for that, Brendan.
Brendan Cavanagh: Yeah.
Operator: And next, we’ll hear from David Barden with Bank of America. Please go ahead.
David Barden: Thanks so much for taking the questions. So I guess the first one, for the guidance, it was clear that you weren’t assuming any new portfolio acquisitions or buybacks, but could you be specific about what you are assuming in the guide for the use of cash? Is it putting it in the bank at a 5% interest rate? Or what should we kind of use as a baseline as a comparison to what’s going on? I guess a second question, if I could, is — Brendan, is there a fuse on any of these decisions about whether to pull the trigger on portfolio acquisition versus stock buybacks, given that your stock buybacks could be pretty powerful if they happen sooner rather than later? And I apologize, if I could just one last one for Mark D.
This $1 billion hedge on a forward basis that you’ve put in place, which replaces the existing hedge on the $2 billion term that comes due March ’25, I’m assuming that there’s an opportunity if you chose to do something additional to the $3.85 million that you’ve locked in, is there a timetable to make that decision? Thank you.
Mark DeRussy: There is the possibility to do that. We have done this in the past. This hedge only represents 50% of what our actual outstanding debt is. So there could be room to increase our or hedging along those lines as well. But with respect to any type of timetable, David, no, there is no timetable. We’re just going to keep an eye on the market and act appropriately if we decide that that’s the thing that we need to do.
Brendan Cavanagh: Yeah. On that item, David, I mean, really the thinking was that we sort of took half of it and created some level of certainty given that there’s some instability, obviously, in what interest rates will look like. And we’ve seen — we’ve all seen over the last few months, expectations of when interest rate cuts are going to happen, move around quite a bit. So for us, we basically ensure that a portion of that debt, we would have some stability and certainty on it. And it locks in basically at much lower rate than exists today. So if we let the other piece flow, I think we can have a good natural hedge in that case. On your other questions on the use of cash in our guidance, we do — because there will be cash that’s obviously accumulated, part of it first goes into paying down the revolver, of course, what’s left outstanding on that and it covers some of the discretionary spending that is implied in our guidance for deals that are under contract as well as new builds, the items that are basically covered in our discretionary CapEx guidance.
Anything excess is assumed to be invested at about a 4% or so interest rate. So that is implied in our net cash interest guidance, some interest income on that. And then I think your other question was the M&A versus buybacks and the timing. I mean, we — there’s a variety of things that we’re constantly looking at. And the timing of M&A transactions, you don’t have as much control over. Obviously, we have complete control over buybacks. And so — to some degree, we have to balance the capital that we have available and that we may or may not need. And so sometimes we can jump in earlier. If we have a clear vision as to what’s going to happen and other times, we have to hold back a little bit and see how things play out. So I hear what you’re saying, and we obviously believe our stock is a good buy at this level that we’ve got to balance that against all the different options in front of us.
David Barden: Got it, very helpful. Thank you guys.
Operator: And next, we’ll hear from Michael Rollins with Citi. Please go ahead.
Michael Rollins: Thanks. Good afternoon. Two questions, if I could. First, as you look at the business going forward, can you give us an update as to what are your North Star metrics that are guiding the decision-making and your measurement of performance? Is it organic leasing, EBITDA, AFFO per share or other metrics that are important to you and the Board? And can you give us some direction of how you see that growth in those metrics, let’s say, over the next three years? And then just separately, just more of an operational question on the tower portfolio. Can you give us an update as to what percent of the sites have been upgraded and touched to bring them to 5G mid-band capabilities? And over what period do you think you get to 100%? Thanks.
Brendan Cavanagh: Yeah. So, Mike, the numbers that we typically report on, we report on because we think they’re the most important. I think the number one metric in our view here and with our Board and frankly, with many of our investors is AFFO per share because it represents that amount of actual free cash flow that is available to be returned to shareholders in some form or fashion, whether that be reinvested into the business, or be paid out as a dividend or be used for stock buybacks, whatever the usage is, it’s effectively what’s available at the end of the day after everything has been paid for. And so that’s the metric that we focus on most of all. Having said that, obviously, the next few years, there are some challenges to our AFFO per share metric, largely because of two things that are not new.
Interest rates, we’ve done an excellent job over the last many years locking in very low-cost debt, but the market is what it is. And at some point, you have to refinance at least some of that debt. And so you’re going to see higher interest costs that weighs on that a little bit. And of course, the Sprint churn, in particular, that is kind of out there that we know we have ahead of us, and we’ve scoped for you as to what that looks like. But outside of that, the real goal, frankly, is to see that number go up over an extended period of time. This is a business that is a very long-term business at its core. We have very long-term contracts. Our relationships are long term. The assets are long term. And so we look at how we’re going to maximize that number over an extended period of time.
As a public company, it can be challenging because you’re reporting every single quarter, and so it gets scrutinized every quarter, but the nature of the business is long term. So we try to take that long-term view on how we’re going to grow that number out over a period of five to 10 years. And I think we’ll be well positioned to do that. The other metrics though are very important as well. Obviously, growing site leasing revenue, growing adjusted EBITDA shows that we’re able to find continued returns on our operations, but really AFFO per share is where I focus most of my energy. And then I guess your second question was about the upgrade percentage for 5G. We’re a little bit over halfway in terms of upgrades to our sites for 5G, but that is different among the different carriers.
Some are much further along and others are below that number. So we still have a pretty good runway. I think we’re looking at the next two to three years to get to where they’ve upgraded all the sites they need to.
Michael Rollins: Thanks. That’s very helpful.
Brendan Cavanagh: Sure.
Operator: And next, we will hear from Simon Flannery with Morgan Stanley. Please go ahead.
Simon Flannery: Right. Thank you very much and congrats on your new role, Brendan and Mark, great to reconnect and good luck in your new role. Two, if I could. First, on the M&A. I think in the past, you’ve noted that the M&A multiples haven’t necessarily come in to reflect the new interest rate environment. It would be great to just get some perspective of — if you see a better risk-reward balance there for the growth and the multiples that you’re paying. Obviously, you’ve done some transactions versus buying back your own stock? And secondly, anything you could share with us on DISH and how you think about DISH within your leasing assumptions, especially given they have some specific FCC and DOJ targets to hit in mid-’25? Thank you.
Brendan Cavanagh: Yeah, the M&A market is still quite competitive. In the US, in particular, because there’s such a limited number of assets available, they’re very competitively bid. So we continue to see price points that are very high. Internationally, that is also true, although I would say we’ve seen a little more moderation with the increasing cost of capital in terms of international price points. But the interesting thing about that is what it’s resulted in is not necessarily deals being done at lower prices in many cases, but frankly, deals not getting done at all where there’s sort of a disconnect between where seller expectations are and where buyers are willing to pay. I think you’ll start to see some of that shift over the course of the coming year, particularly if the interest rate environment remains elevated.
In the case of DISH, yeah, they are certainly a component of our assumptions for our leasing growth for this year. They have — they do have the deadlines that you mentioned, and we’ve had ongoing conversations with them, and we believe that they will be attacking those obligations aggressively. So we do have some amount of growth in our model associated with DISH. But I would say it’s a relatively small percentage of the total.
Simon Flannery: Thank you. Appreciate it.
Operator: And next, we will hear from Matt Niknam with Deutsche Bank. Please go ahead.
Matt Niknam: Hey guys, thanks so much for taking the question. Just a two-parter. First, on the strategic review, Brendan, is this at all a pullback from I guess, more emerging markets and a pivot of the portfolio towards more developed markets? Is there anything of that sort underpinning the review? And then maybe on a related note, any additional color you could provide on the 281 sites that were acquired subsequent to 4Q just in terms of region or any other color you can share? Thank you.
Brendan Cavanagh: Sure. I’ll take the second one first. The 281 aren’t necessarily all closed at this point. They’re either — I think a few are closed, but most are just under contract at this point. And about 10% of those are in the US. The remaining 90% are located throughout our existing markets in half a dozen different countries that we’re already in. In the case of the way we’re thinking about the strategic review, it’s really — it’s not necessarily emerging markets versus developed although that can be a factor. It’s a focus on how we maximize our position in those markets. So we have positions in emerging markets that are very strong because of the strength of our role and our existing relationships with the strongest carriers in those markets.
And so if we can enhance that in places where we don’t have it, then I think we would be comfortable with the markets regardless of whether they were necessarily developed or emerging markets. However, I think developed markets do offer some aspects of quality that we would find attractive if we can find the right opportunities, things like strong tower siding, regulatory regimes, certainly strength of the wireless carriers in the market and a relative balance to their market share, stability of the currency, stability of the tax regime, things like that would be things that we would find valuable. Because at the end of the day, sort of the value proposition of a tower company when most people look at it is this expectation that you have a long-term, very stable cash flow stream that is going to grow both steadily over time.
And sometimes if you’re in places that don’t have some of those attributes I just mentioned, you can introduce a certain amount of volatility that we would be looking to obviously try to move out of the mix and focus more on that kind of stable growing cash flow stream. So I think we’re open to shift in the type of market, but I think the markets that we’re in have opportunities to improve our positioning and that’s what we’re looking at.
Matt Niknam: Is there a time frame attached to the strategic review?
Brendan Cavanagh: It’s something that I would expect us to be working on throughout this year, but there are also factors that are outside of our control, things that we would like to do. That may take some time to figure out whether the opportunity is actually exist. So I think it will be an ongoing effort. But the real point — and this isn’t some wholesale change just to kind of reiterate that. It’s not like we were doing something totally one way before, we completely shifted. This is more of a refinement of the approach that SBA has historically taken. We’ve always — I think you know us to have always focused on quality, financial returns. All those things are still the same. What this really is, is kind of digging in a little bit deeper on some of our current holdings and looking at where we’re underperforming, what are the root causes of that and what can we do to address that?
And if we can’t — if we don’t feel we can address it, then we would look at it like Argentina and say, “Hey, this we don’t think we necessarily can fix so we’ll adjust”. So again, it’s really just a refinement of what has been our long-standing policy.
Matt Niknam: Excellent. Thank you.
Operator: And next, we’ll hear from Richard Choe with JPMorgan. Please go ahead.
Richard Choe: Hi, I just wanted to ask about the pacing of the services revenue through the year. And then another question on — in terms of new activity. How much of it is coming from colocation versus amendments? And do you expect any significant change through the year?
Brendan Cavanagh: Yeah. The services revenue, we actually, in our outlook, expect it to slightly increase, but to be relatively balanced throughout the year. On the colos versus amendments, if you’re — I don’t know if you’re asking about the actuals of the fourth quarter, where it was more — we’ve seen more of a shift towards new leases, but I would expect as we get into this year, you’ll see amendment activity again be the lion’s share of what we do.
Richard Choe: Got it. And a final one is in terms of Argentina, can you quantify what the impact would have been to revenue and EBITDA had you kept it?
Brendan Cavanagh: Yeah. It was — it represented about $1 million of EBITDA and a little over $2 million, about $2.3 million of revenue on an annual basis.
Operator: And next, we’ll hear from Michael Elias with TD Cowen.
Michael Elias: Great. Thanks for taking the questions. First time caller, long time listener here. My first question for you is, you mentioned earlier in the prepared remarks about the stability of results. I’m curious if on the US side that we should take that to mean you’re more open to doing what’s holistic MLAs with the carriers that you have with AT&T. That’s my first question. And then the second question is when you talked about the use of cash, you were essentially mentioning that you assume the remainder is reinvested at around 4%. So when I take a look at the AFFO yield of your stock, it’s implying over 6%. You talked about earlier how you may hold back if you see some opportunities. I guess what I’m getting at here is, are you holding back on the buyback under the expectation that you’re going to go forward and do more M&A? Just trying to get some more color in terms of what you’re thinking on the buybacks versus the M&A. Thank you.
