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spk14: Ladies and gentlemen, thank you for standing by and welcome to the third quarter results for SBA. At this time, all lines are in a listen-only mode. Later, we will have a question and answer session. If you'd like to queue up for a question, you can press 1 then 0 at any time during today's call. If you need assistance during the call, please press star then 0. As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Vice President of Finance, Mark DeRussy, please go ahead.
spk17: Good evening, and thank you for joining us for SBA's third quarter 2021 earnings conference call. Here with me today are Jeff Stoops, our president and chief executive officer, and Brendan Cavanaugh, our chief financial officer. Some of the information we will discuss in this call is forward-looking, including but not limited to any guidance for 2021 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, November 1st, and we have no obligation to update any forward-looking statement we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our investor relations website. With that, I will now turn it over to Brendan to discuss our third quarter results.
spk09: Thank you, Mark. Good evening. SBA had another great quarter with financial and operating results ahead of our expectations and continued strong momentum into the end of the year. Total GAAP site leasing revenues for the third quarter were $535.5 million, and cash site leasing revenues were $525.1 million. Foreign exchange rates were generally in line with our previously forecasted FX rate estimates for the quarter. They were a tailwind, though, on comparisons to the third quarter of 2020, positively impacting revenues by $3.2 million on a year-over-year basis. Same-tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis, was 3.6 percent over the third quarter of 2020, including the impact of 2.5 percent of churn. On a gross basis, same-tower growth was 6.1 percent. Domestic same-tower recurring cash leasing revenue growth over the third quarter of last year was 5.7 percent on a gross basis and 3.3 percent on a net basis, including 2.4 percent of churn. Domestic operational leasing activity, or bookings, representing new revenue placed under contract during the third quarter, was at a similar level to the second quarter, which had represented the highest quarterly level since 2014. Even with this high level of execution, our domestic new lease and new amendment application backlog continued to grow during the quarter and finished the quarter higher and at a new multi-year high. These backlogs support our expectations for continued strong domestic operational leasing activity throughout the balance of this year and into 2022. During the third quarter, amendment activity represented 45 percent of our domestic bookings, with 55 percent coming from new leases. The big four carriers of AT&T, T-Mobile, Verizon, and DISH represented 96 percent of total incremental domestic leasing revenue signed up during the quarter. Internationally, on a constant currency basis, Same-tower cash leasing revenue growth was 5.2 percent net, including 2.7 percent of churn, or 7.9 percent on a gross basis. International leasing activity increased again quarter over quarter and was the highest in over a year. Churn grew some in the quarter as well and is anticipated to increase further as we experience the impacts of carrier consolidations and other network and contract modifications in Central America. In Brazil, our largest international market, we had another quarter of increased leasing activity. Gross same-tower organic growth in Brazil was 9.5 percent on a constant currency basis. During the third quarter, 84.5 percent of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenue was from Brazil, with Brazil representing 11.7 percent of consolidated cash site leasing revenues during the quarter and 8.4% of cash site leasing revenue, excluding revenues from pass-through expenses. Tower cash flow for the third quarter was $428.1 million. Our tower cash flow margins remain very strong, with a third quarter domestic tower cash flow margin of 84.6% and an international tower cash flow margin of 69.9% or 90.8 percent, excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the third quarter was $407 million. The adjusted EBITDA margin was 70.3 percent in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74.7 percent. Approximately 97 percent of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter. During the third quarter, our services business produced record results for the second quarter in a row, with $53.8 million in revenue and $12.5 million of segment operating profit. Activity levels remained very high in the quarter, and backlogs also continued to grow, finishing the quarter at another all-time high level in our company's history. Based on our strong third quarter and the growing backlog, we have increased our full year 2021 outlook for site development revenue for the third quarter in a row, now expecting $200 million of site development revenue at the midpoint of our outlook range. AFFO in the third quarter was $302.5 million. AFFO for share was $2.71, an increase of 13.9 percent over the third quarter of 2020. During the third quarter, we continued to expand our portfolio, acquiring 144 communication sites for total cash consideration of $57.1 million. We also built 87 new sites in the quarter. Subsequent to quarter end, we have purchased or are under agreement to purchase approximately 1,700 additional sites in our existing markets for an aggregate price of $231 million, including approximately 1,400 sites and approximately $175 million related to the previously announced deal to acquire towers from Airtel Tanzania. We anticipate closing on these sites under contract by the end of the second quarter of next year, and we anticipate the Airtel Tanzania transaction to close in stages starting in the fourth quarter of this year. Consistent with our prior outlook, our updated 2021 outlook assumes that the Airtel acquisition closes at the end of the year, And thus, we have included the entire purchase price in our outlook for discretionary capital expenditures. But we have included no revenue or tower cash flow associated with these assets. In addition to new tower assets, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $11.6 million to buy land and evens and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 72% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 37 years. In this afternoon's earnings press release, we included our updated outlook for full year 2021. Notwithstanding our assumption of weaker fourth quarter foreign exchange rates, our updated outlook includes increased expectations for site leasing revenue, site development revenue, tower cash flow, adjusted EBITDA, AFFO, and AFFO per share. These increases result from high services activity levels with our carrier customers, anticipated timing shifts and domestic consolidation churn, reduced cash interest expense as a result of recent refinancings, and the impact of recent share repurchases. We anticipate that our strong domestic leasing bookings during the second and third quarters will be supportive of improved incremental organic domestic leasing revenue in 2022, which we will share on our fourth quarter earnings call. With that, I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.
spk17: Thanks, Brendan. We ended the quarter with $11.9 billion of total debt and $11.7 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.2 times. Our third quarter, Net cash interest coverage ratio of adjusted EBITDA, the net cash interest expense, was 4.6 times, the highest in the company's history. On July 7th, the company amended its revolving credit facility. Among other things, the amendment increased the total commitment under the facility from $1.25 billion to $1.5 billion, extended the maturity date of the facility to July 7th, 2026, lower the applicable interest rate margins and commitment fees under the facility, and incorporated sustainability link targets into the facility, allowing for interest rate and commitment fee adjustments based on how we perform against those targets. As of today, we have no amounts outstanding under our revolver. On October 14th, the company repaid at par the entire aggregate principal amount of the 2013-2C tower securities, which had an anticipated repayment date of April 11th, 2023. On October 27th, the company through an existing trust issued 895 million of 1.84% secured tower revenue securities series 2021-2C, which have an anticipated repayment date of April 9th, 2027 and a final maturity date of October 10th, 2051. and $895 million of 2.593% secured tower revenue securities, Series 2021-3C, which have an anticipated repayment date of October 9, 2031, and a final maturity date of October 10, 2056. The aggregate $1.79 billion of these tower securities have a blended interest rate of 2.217% and a weighted average life through the anticipated repayment date of 7.8 years. Net proceeds from this offering were used to repay amounts outstanding under the revolving credit facility, and remaining proceeds will be used to redeem the entire aggregate $1.1 billion principal amount of the 2016 4.875% senior notes and to pay all premiums and costs associated with such redemptions. Pro forma for these financing activities, the weighted average interest rate of our outstanding debt drops to 2.6% with a weighted average maturity of approximately five years. And the interest rate on 97% of our outstanding debt is fixed. During the third quarter, we repurchased approximately 440,000 shares of our common stock for $150 million and an average price per share of $340.70. Subsequent to September 13th, we repurchased an additional 601,000 shares for $200 million at an average price per share of $332.72. Combined, the average purchase price for the $350 million of repurchases was $336.09 per share. All the shares repurchased were retired. After these repurchases, we had 125 million of repurchase authorization remaining under our subsequently replaced $1 billion stock repurchase plan. On October 28th, the company's board of directors authorized a new $1 billion stock repurchase plan replacing the prior plan. The new plan has no time deadline and will continue until otherwise modified or terminated by the company's board of directors at any time in its sole discretion. As of today, the company has the full $1 billion of authorization remaining under the new plan. The company shares outstanding at September 30th, 2021, for $109.5 million, compared to $111.4 million at September 30th, 2020, a reduction of 1.8 percent. In addition, during the quarter, we declared and paid a cash dividend of $63.6 million, or 58 cents per share. And today we announced that our Board of Directors declared a fourth quarter dividend of 58 cents per share, payable on December 16th, 2021, to shareholder the record as of the close of business on November 18th, 2021. Today's dividend announcement represents a payout ratio of 21% of third quarter AFFO per share, which leaves us ample room for material future dividend growth. With that, I'll now turn the call over to Jeff.
spk07: Thanks, Mark, and good evening, everyone. We had another very good quarter in the third quarter, exceeding our own expectations. As you have heard, we continue to see very high levels of carrier activity in our U.S. business. Each of our major customers was busy in the quarter, Verizon beginning their C-band deployments, T-Mobile continuing their ubiquitous deployment of their 600 megahertz and 2.5 gigahertz spectrum, Dish continuing their torrid pace from the second quarter, signing up new agreements to facilitate the build-out of their brand-new nationwide 5G network and AT&T remaining steady. Notwithstanding the high levels of new leasing revenue that we signed up during the third quarter, we still finished the quarter at a new multi-year high backlog of pending leases and amendment applications. Based on this backlog and conversations with our customers, we expect to continue seeing elevated domestic leasing activities through the balance of this year and well into 2022. In addition to high domestic leasing activity levels, we produced record services revenue in the third quarter, surpassing our second quarter record. Our customers are all focused on building out their 5G networks, particularly targeting upgrades to their macro networks. Similar to our domestic leasing backlogs, our services backlogs continued to grow during the quarter and reached a new all-time high for the company at quarter end. The strong third quarter performance and growing backlogs have allowed us to increase our full-year outlook for all revenue-related line items. Internationally, we began to see our market starting to return to pre-pandemic levels of activity. We again produced quarter-over-quarter sequential increases in new lease and amendment executions and ended up with solid leasing results in the third quarter that were ahead of plan. During the quarter, we signed up 55% of new international revenue through new leases and 45% through amendments to existing leases. Our largest contributors to our leasing results came from Brazil and South Africa, our two largest international markets. As our international markets continue to recover from the pandemic and upcoming spectrum options across a number of our markets are planned, including Brazil, which will put more spectrum into the hands of our customers, we expect to continue to see growth in the level of network investment made by our carrier customers over the next several years. We executed very well for our customers in the quarter, and we are committed to continue to do so during these future expected periods of increased demand. In addition to our strong third quarter operating results, we continue to improve our positioning with regard to our balance sheet and returning capital to our shareholders. During the third quarter, we increased the size of our revolving credit facility, extended the term, and improved the pricing. Subsequent to quarter end, we completed a new $1.79 billion securitization financing, refinancing some existing securitization debt and using the remaining proceeds to shortly repay our $1.1 billion of four and seven eighths 2024 unsecured notes. The weighted average interest rate of these new securities is 2.2% and the weighted average term is 7.8 years. The net result of these financing activities will be annual cash interest savings of approximately $35 million. This financing was a particularly positive outcome for SBA as we also achieved the highest debt capacity in our long history of ABS financing. As Mark mentioned earlier, our pro forma weighted average interest rate across all of our debt dropped to 2.6%, our lowest ever. And we ended the quarter at 7.2 times net debt to annualized adjusted EBITDA, well in the middle of our target range of 7 to 7.5 terms. Our ability to continue to drive our liquidity position higher, lower our cost of debt, and extend out our maturity dates gives us great flexibility in operating the business and allocating capital into additional investments for the benefit of our shareholders. The combination of low-cost debt and our expectations around future AFFO per share growth should make stock repurchases at the levels we have been buying very accretive to future AFFO per share. During the quarter, we continue to add to our portfolio through both building and acquiring new sites. We also signed up agreements to purchase additional sites and anticipate closing on the majority of our Tanzania transaction by year-end. In addition to portfolio growth, we continue to opportunistically buy back stock, repurchasing over 1 million shares since our last earnings call, and our announced fourth quarter dividend represents an increase of 25% over the dividend paid in the fourth quarter of last year. We feel very good about our current capital structure and ability to allocate capital to generate incremental value for our shareholders. We're in a very good time for the industry and for SBA specifically. Our customers are very busy, our financial position is very strong, and the future continues to hold many opportunities for us. We're excited about pursuing those opportunities, and I want to thank our team members and our customers for their commitment and their contributions to our success. I look forward to sharing our year-end results with you next quarter. And with that, Ryan, we are now ready for questions.
spk14: Okay, ladies and gentlemen, if you do or would like to ask a question, press 1, then 0 at this time. Our first question will come from the line of Rick Prentice with Raymond James. Please go ahead. Your line is open.
spk13: Thanks. Good evening, everyone. Hey, Rick. Hey, a couple questions. Obviously, you guys are pretty excited with the backlog services business, leasing business. If I look specifically at the implied change to new lease and lending activity in the fourth quarter in the U.S., it looks like a pretty nice step up. How should we think about – I know you're not giving guidance yet, but how should we think about how that plays into 22 as far as does it build throughout 22 – Is it fairly level loaded? Now that we're sitting here in November, you probably have some pretty good visibility into what the pacing of 22 looks like, not the actual number.
spk07: Well, I mean, given the fact that we report those things on a trailing 12 basis and knowing what we had in the Q fourth quarter a year ago and first quarter this year, I think it's going to build, Rick, at least as we move into the middle of next year. And then we'll see what happens with lease up then because then we'll start to have some year-over-year comps that we're going to be working off some pretty good numbers for the back half of this year.
spk13: Okay. And then on the escalator side, is there anything that varies the escalators quarter to quarter that causes any swings with the way you guys have your contracts set up? We've seen some bouncing around some of the other tower guys in the U.S. specifically where you have more fixed.
spk07: Not in the U.S.,
spk13: It's fairly consistent, obviously, 3.3%, 3.2%, pretty consistent.
spk07: Yeah, again, in the U.S. I mean, you know, a lot of our international stuff is CPI-based.
spk13: Thanks, Dave. Last one for me, appreciate you taking the question. Can you update us on sprint churn? What kind of magnitude you're looking at? Have you gotten any indication yet? from T-Mobile, is it mostly going to just be the co-located sites? Is there the nearby sites? But just kind of maybe frame for us size and timing and kind of how you're having those discussions with T-Mobile and Sprint.
spk09: Yeah. Hey, Rick. It's Brendan. So first of all, you may have noticed in our bridge that we made an adjustment to actually reduce our domestic churn impact for 21. That's basically all due to Sprint. It's a timing issue, though. You know, it's taking them perhaps a little bit longer than we were anticipating because we're making some estimates, obviously, around that heading into it. That doesn't change our view on the total potential exposure for churn, but it shifts the timing back just slightly. So I would expect that to kind of move to next year. In terms of what we expect today, you know, we've given some ranges in the past, and I'll kind of reiterate that. They move a little bit, obviously, as we learn more about it. But this year in 21, we would expect the total impact to end up being somewhere around $7 million. Next year is a higher year for us based on the timing of when leases hit the end of their terms. We expect it to be probably at the higher end of our previously stated range of 30 to 35 million. I'd say it's closer to 35, mostly because of the shift in timing I just mentioned. And then in 2023 and 2024, we would estimate somewhere in the 10 to $20 million range for impact in each of those years. And our biggest years of exposure are 2025 and 26, where the range would be somewhere in that 45 million-ish range, 40 to 50 million, say, to put brackets around it for each of those years. And then some de minimis amounts after that. In terms of where it's coming from, You know, a lot of it is on overlap sites, but some of it is certainly on sites that are proximity sites. And then in some cases, you know, it's not always totally clear to us. I think they're still working through that. We don't have total, you know, vision on what they're doing with other neighboring sites. But I would say it's a mix of the two, but obviously the greatest focus as it relates to our portfolio would be the sites where they have direct overlap.
spk13: I hope you guys continue to stay well and your employees stay well. Thank you. Thanks, Rick.
spk14: Our next question will come from the line of Simon Flannery with Morgan Stanley. Please go ahead.
spk01: Thank you. Good afternoon. So you talked about the strong leasing and that DISH had this torrid pace. Can you help us understand how the bookings to billings will go? Are we seeing much of DISH in the fourth quarter guide or the revised full-year guide, or is that really going to flow through more in 2022? And then you talked about the benefits of recent spectrum auctions or ongoing spectrum auctions, I guess, in here and in Brazil and elsewhere, maybe on the 3.45 specifically in the U.S. Do you think that's going to create much incremental leasing, or do you think a lot of that can be encompassed by the carriers in their C-band deployments? And any sense of when you might start to see that 3.45 get deployed? Could it pull forward some of that second phase of C-band builds to put up this spectrum? Thanks.
spk07: Our understanding, Simon, on your last question is that the 3.45 will require new radios, so there will be some incremental activity there that the industry should benefit from. What was your first question this time? Yes, so I think we've explained this before, but you know we have a master deal with dish and there's commitments and a lot of a lot of benefits going back and forth between each parties. I mean one of the things Simon that was in there is dish has a. Payments schedule such that after signing they have until a date certain installation of their equipment on on that site uh before uh we begin to start collecting revenue so the vast vast vast notwithstanding the tremendous amount of lease ups that we've had the um vast majority of all that recognition doesn't start until 2022 so the answer as to is there much if anything of dish in the fourth quarter notwithstanding the activity the answer is no I think you had a third question. Did I miss?
spk01: Well, it was on the 3.45. In any sense on the timing of when you might start to see that deployment relative to the C-band?
spk07: Well, I mean, my understanding is decisions get made, final auction results are known, and decisions get made in the first quarter of next year. I do not believe there's the same clearing requirements that you have with the C-bands. So I don't see any reason why we wouldn't start to see some activity in the second half.
spk01: Thanks a lot. Thank you. Thank you.
spk14: Our next question will come from the line of John Atkin with RBC. Please go ahead.
spk16: Yeah, so I had a question about international exposure and basically EMEA and maybe tackle Europe and Africa separately. thoughts on how those regions might be appealing to you going forward. And then domestically, wanted to find out about the timing of revenue. You talked about DISH, but more generally, as you think about the availability of workforce and people to actually construct sites, what you're thinking with respect to any pressures that the industry might see uh, in 2022 that might affect, uh, leasing revenue recognition as opposed to, uh, just bookings. Thank you.
spk07: Yeah. Um, in terms of the, the, the globe, Jonathan, I mean, we, we look all over and we look to find areas that, you know, fit our criteria. Um, and we found a lot of that, obviously in the Western hemisphere, some of that in, in Africa. And I believe we will continue to find those opportunities as we go forward on a country-by-country basis. Africa has a lot of growth, certainly has some risk, but if you get in at the right price and you operate well, as we believe we do, you will do well. Europe is a fine market. We just have not found opportunities that are at prices that we think makes sense for us given our other opportunities to deploy capital. But we keep looking. I mean, we look at everything. That's what people expect us to do. In terms of the labor market, we watch that carefully because obviously a lot of other industries are suffering right now. We are not. We have a large internal workforce of crews. We also use outsourced crews for some of the work And right now, it's all working out okay. There's a number of training resources and opportunities that we think will increase the available workforce over the next several years. So I think generally we feel okay, but that really is a quarter-by-quarter question that you ask. So the best I can tell you today is this quarter, next quarter, we feel okay.
spk14: Great. Thank you very much. Our next question comes from the line of Walter Pysak with LightShed. Please go ahead.
spk15: Hey, Jeff. Can you, to the extent you can, provide us a little bit more color about the sprint, like the churn delay, I guess? I mean, is there any indication that as it goes through the portfolio, they're recognizing that maybe they're not going to turn off as many sites as originally. I know you talked about the next two years and they were generally all in the same ballpark, but qualitatively, are they still, I think, targeting overall the same amount, maybe more, maybe less? Any thoughts on that?
spk09: Yeah. Hey, Walt, this is Brendan. Yeah, it seems like thus far from what we've seen in our communications with them that it's generally still targeting the same thing that we thought originally, more or less. You know, I think the shift here is really just the timing on moving off of some of the sites. You may have even seen they talked about some delay in shutting down the CDMA network. You know, I think that probably is a factor in it. So, I don't think that the overall focus is shifting at all, but the timing might be slightly different, that's all.
spk15: Okay. And then on the inorganic stuff, um, this year was a pretty big year, although it seems like with the guidance Q4s, you know, whatever, you know, you're still obviously up versus last year, but when you think about 22 in terms of, you know, new sites, MNA, that type of stuff, any sense in kind of what that market will look like for you?
spk07: I think it will continue to look, uh, challenging from a acquisition perspective, based really based on price wall. Prices continue to remain high, and in our opinion, without much differentiation for quality, which is where we end up being very selective and picking our spots carefully. I do think there's enough out there for us to certainly hit the low end of our historical targeted range of 5% portfolio growth. I imagine with Tanzania and some increased activity that we expected some of our existing markets that we will build more towers next year as well. So all in all, that will be the 5% to 10% portfolio growth will be the goal again next year.
spk14: Got it. Thank you. Our next question comes from the line of Levi with UBS. Please go ahead.
spk00: Great. Thank you. Just a couple follow-ups. First, on the international side, you mentioned that churn should remain elevated for some time. Can you provide more color on that? And on capital allocation priorities, can you help us think about maybe discretionary capex excluding M&A? Does that stay elevated as you ramp maybe augmentation capex to support higher growth. Yeah, that's it.
spk09: So on the international churn, you know, we've been, as you've probably seen, and we talked about it, I think, on previous calls, that we expected some elevated international churn this year. We haven't experienced most of that yet through the year, but in the fourth quarter, we expect to see that jump largely due, the primary reason is due to consolidation related churn, particularly with Claro and Telefonica combining in Guatemala. A lot of the impacts of that are starting to be felt here in the fourth quarter, which is what's going to drive, you know, the full year number that we provided. And obviously, with it being so late in the year, it has an impact on, you know, what we would expect to report, not just in the fourth quarter, but in the next, into next year. You know, we are dealing with a number of our customers in Central America. We have some that are working through network changes due to various issues that they face, and others where the terms of the agreements are starting to come to an end and we're working through what their future plans might look like. So, you know, we expect there might be some incremental churn associated with that, but we also would expect longer-term commitments and other business commitments as well as part of that. So it really was an indication mostly though about the consolidation churn that we're going to experience in Q4.
spk07: So, Bobby, on your other question about discretionary CapEx, the way you asked that question, you implied that our non-M&A discretionary CapEx was going up. I don't really think it is in terms of augmentations per tower. We don't really see anything material there, and keep in mind there's a historical practice which continues that our customers tend to pay most, if not all, of those augmentation dollars. Would there be something else besides the tower side, Brendan, in the discretionary capex?
spk09: There's been some capex spent on the data centers that we acquired. So that might be the incremental piece that we obviously hadn't had in the past.
spk07: Yeah, and that, just to be clear, that's in response to demand for increased megawattage and capacity at these data centers. So that is CapEx that we're extremely pleased to be able to invest.
spk00: Got it. Thank you.
spk14: Next, we'll go to the line of Nick DelDio, Moffitt, Nathanson. Please go ahead.
spk19: Hey, thanks for taking my questions. First, if my math is right, it looks like your implied site leasing revenue and tower cash flow guidance for Q4 are about equal to what you generated in Q3, at least at the midpoints. But was there anything that helped Q3 results that won't carry through into Q4, like backfillings or anything similar?
spk05: Well, FX.
spk19: Okay. All right. Simple enough. And then I guess in terms of U.S. activity, Are you seeing the incumbents deploy their mid-band spectrum and DISH with its de novo build kind of engaging with you relatively evenly across your portfolio? Or is there a noticeable skew towards more urban or the denser suburban markets that you serve?
spk07: I don't think it's noticeably skewed. I think we're seeing activity pretty much everywhere.
spk19: Okay, that's good to hear. If I can squeeze in one last one. If I look at other revenue for international, that was up by about $6 million versus your prior guidance. Is that mostly fuel, pass-through fuel, or is something else going on there?
spk09: No, it is mostly pass-through expenses. It's actually, a lot of it is actually related to ground leases, in particular in Brazil, where we pass those through to the carriers. And part of that is CPI that we didn't, while we projected CPI increases across our tenant leases, we didn't necessarily include that on the ground leases because it's a pass-through. But as that's starting to come along with the increased inflation down there, it's pushing ground rents higher, which obviously pushes the pass-through rents higher as well. Plus there is some power costs, as you mentioned, as well. That's the main driver.
spk19: Okay. Okay. Got it. Thank you, guys.
spk14: Next, we're going to the line of Phil Cusick with JP Morgan. Please go ahead.
spk06: Hi, thanks, guys. I wanted to follow up. You said, I think, in the prepared remarks that you assume that AT&T is steady from here. Do you think AT&T is at a full run rate, or are you just assuming they haven't ramped up by the fourth quarter guidance period?
spk07: No, I think, to be clear, Phil, we said that they were steady relative to kind of last quarter. I believe that they will ramp up in the times to come.
spk06: Okay. And the conversation is building toward that already?
spk07: I'll just leave it the way I said it. I believe that their activity levels will ramp as we move into next year.
spk06: That's more than I expected. Thanks, Jeff.
spk14: Next, we'll go to the line of David Barden with Bank of America. Please go ahead. I don't know.
spk08: I can follow up on that belly laugh, Jeff. So I guess I had two questions. One was in the prepared remarks, Brandon, you called out the big four, which we haven't heard in a while. And it made me wonder if if the magnitude to which dish is spending is, is, is roughly on par with, with what the, the actual big three are spending in terms of your business. And then the second question I had was you also referenced, you know, some spectrum auctions that are happening in the coming months in, in not just domestically, but international markets specifically, I'm interested in South Africa. That's been a problem market from a spectrum perspective.
spk07: um you know a little messy over the last a little while i was wondering if you could kind of give us some pictures to what you thought the outlook would be um for for south africa spectrum auctions in 2022 thanks yeah and i mean when you really parse down our comments david and you look at the domestic split between leasing and amendments and you think about historically how Networks get upgraded mostly through amendments. So where are all those new leases coming from? Well, they're mostly coming from DISH. So yeah, for this quarter and last quarter, they're right up there in terms of quarterly contributions with the other big three. So that's why we said what we said. In terms of South Africa, those spectrum auctions have been pushed back a little bit. There's a lot of interplay between the wireless carriers and the government. The best that we can tell is that the auctions will be not this year, but in 2022. Right now they're scheduled for the first half, but they will be the full suite of 5G spectrum. I think it's 600 or 700 rather. 2.5 and 3.5. So you're going to have all the tools necessary for the carriers in that country to pick up what they need to move into 5G. So obviously we're excited about that. It will mean similar to what it means in the U.S. when customers move from 4G to 5G.
spk17: Perfect.
spk07: That was exactly what I thought you would say, Jeff.
spk08: So just for reference. Thank you.
spk14: Our next question will come from the line of Michael Rollins with Citi. Please go ahead.
spk04: Since you seem to be in such a generous mood to share some new information, I'll take a crack at this. So you mentioned multi-year ties for services and leasing backlog. And I was thinking back to your 10Ks where in 19 you had a leasing backlog of of about 22 million. In 2018, you had about 16 million. And on the services side, it was about, over those two years, 55 and 76 million. Can you share some context on how the current backlog compares to these couple of years? And then just secondly, curious if you could delve further into what you're learning from your data centers and how you're thinking about the edge and the role SBA is going to play in that in the future.
spk07: Yeah, the 10K disclosures, Mike, it's apples and oranges to what we were talking about in our earnings script and the press release. That disclosure is signed leases that have not yet commenced revenue. And when we talk about backlog, it's applications. So those two things really are not correlating. But I'll give you a little more color on the backlogs. It's not multi-year high for services. It's all-time high, ever. For leasing, it is a multi-year high, going back probably to the heady 4G days. But it's good, and it took a big jump up in the quarter, notwithstanding a very high degree of signings. So that's why we say what we said and why we feel good about next year. What was your second question?
spk04: What you're learning from the data centers and the edge.
spk07: What we're learning is that it's generally a good business, data centers in general, not that anybody needs me to tell them that, but one that we Like, and we see synergies with the micro-edge facilities where we have now, we've got four or five of these things more being built. And in many cases, the sale was made because we were able to provide data center space in addition to the micro-edge space. So there's a big demand for redundancy, for disaster recovery, for backup. So the hub-and-spoke model that we talked about earlier as to where we think this makes the most sense from our perspective is playing out, albeit a little bit slowly because I'm not sure the edge has really quite moved yet to the tower site, but it is headed in that direction.
spk04: And so where do you think this goes over time?
spk03: Are towers partners to data centers? Are towers owners of a lot more data centers?
spk04: where does this evolve into?
spk07: It could evolve in either of those directions, but it does evolve into a more converged universe. And I think ultimately the degree of that convergence, Mike, will be how much computing power is truly needed right at the cell site. And I don't think we know yet.
spk14: Thanks. Our next question will come from the line of Brett Feldman with Goldman Sachs. Please go ahead.
spk02: Thanks. I guess I'll ask a follow-up on that one. I mean, we know your historical views on investing in fiber in the U.S., but if you were to start to see real synergy between the connectivity between your data center assets and the edge facilities you can offer at sites, would you maybe reconsider deploying the fiber between those locations and Um, and then, uh, just the second question, uh, I would imagine the big uptick in the backlog is from what we're going to start calling the big four again, but I'm curious whether you're seeing anything in there from non-traditional tenants, maybe enterprises looking to deploy CBRS, um, based system using infrastructure. And if it's not in the backlog, is there anything going off from a conversation standpoint to suggest that could be percolating? Thank you.
spk07: On your first question, it could make sense where we control both ends of the destination to have fiber running between that we actually own. We do think over time, Brett, that a full suite of product offerings and solutions to the customer will be good. I mean, it's hard to sell someone, it's not as easy, rather, to sell someone micro-edge space when at the same time you say, well, you've got to go find your own fiber. So, you know, we'll see, and, you know, never say never. But I don't think the way fiber has been traditionally, you know, bought, developed, and deployed, that's a business I don't know that we would enter. It's going to be more when it joins two ends of things that we control.
spk09: Yeah, and then in terms of the nontraditional tenants in the backlog, there are some, certainly, Brett, but as a percentage of the total backlog, it's pretty small. You know, partially because the big carriers are so active right now that we have huge backlogs with them, and so it's pretty immaterial in terms of its overall impact.
spk07: Yeah, but there's some in there. I mean, the lion's share is clearly from the big four.
spk05: Thank you.
spk14: Our next question comes from the line of Colby Cineso with Cowan. Please go ahead. Your line is open.
spk18: Great. Thank you. One quick follow-up and then another one. As it relates to the international churn you've highlighted, you expect it to be elevated in the fourth quarter. Is that just a one-quarter thing, or would you anticipate churn being elevated in 2022 versus what we'll ultimately seen in 2021. And then secondly, in the press release, you guys mentioned, I think this was quoted to Jeff, we expect elevated domestic leasing activities to continue through 2022 and perhaps beyond. I was wondering if you could just expand on that. And is that really just tied to some of the comments you've already made as it relates to DISH or is it really more than that? And maybe even how does AT&T in particular factor into that? Thank you. Yeah.
spk09: TAB, Mark McIntyre, On the chart on the international turn side, I do expect it to be elevated, not only in the fourth quarter, but into next year, in part because. TAB, Mark McIntyre, The fourth quarter, you know, especially we report our same tower turn numbers it's obviously on a trailing 12 months basis so. What happens in Q4 will be carried with us throughout the balance of the year. So next year will certainly be higher in terms of its full year impact than this year because of the concentration late in the year.
spk07: Yeah, and on the length of the activity, Colby, comments really reflect just the historical norms of the life cycle of a G upgrade going from one G to the next. I mean, when you think about where Verizon is and where AT&T is on C-band, the 3.45 stuff that's not even out yet and where DISH is, I mean, it's pretty easy to see that activity is going to move into 2023.
spk18: Do you think then that we could actually be in a situation where we just continue to see that acceleration? I mean, I think one of the big debates that investors are having now is do we start to flatline in 22 or is there an opportunity for another step up?
spk07: I mean, at some point it has to it has to flatline. I don't know. I don't know specifically how to answer that question for next year until we see more about the 3.45 auction and understand some more of the timing. But I think you know, flatline or not. I understand the importance of that from an investor perspective. But, I mean, we see years of elevated activity.
spk14: Great. Thank you. Our next question will come from the line of Eric Luchow with Wells Fargo. Please go ahead.
spk05: Great. Thanks for taking the question. I'm just curious on Brazil, if you could maybe provide us some color. You mentioned that same tower growth stepped up there in the quarter, and there's a a spectrum option coming up later this week. Do you think that could drive another wave of amendment activity across the Brazilian market?
spk07: Yeah, I clearly do, because the spectrum that they're being, you know, that's being put forth is what's really necessary for the carriers to offer a 5G solution, which they have not yet really embarked on. So much like what's going on here in the U.S. when that spectrum is auctioned and put into use, you're going to have similar activity levels. In terms of the, do you want to speak, Brendan, to the increase? Lisa?
spk09: Yeah, I mean, so the growth rate stepped up. It's really a combination of two things. One is the escalators are higher because of the CPI-based increases, and as inflation has increased in Brazil, that's caused our escalators to be increasing. And then we have In addition, seeing increased actual leasing activity over the last two quarters where it's sequentially increased over what it had been at the beginning of the year. I think really as we come out of some of the more serious COVID-related periods in Brazil, we're starting to see the carriers moving back more towards traditional spending levels. And so that's encouraging as well.
spk05: Great. Thanks. So just one follow-up for me. You mentioned building more towers next year. Just Could you remind us which markets you're seeing build-to-suit opportunities in and perhaps what you're kind of underwriting today for return or yield requirements for building new sites in terms of an NOI or development yield?
spk07: We will build sites next year in every market in which we are currently active. And in most of those markets, more sites than we built today. And we're looking at generally... 10%-ish tower cash flow yield on day one.
spk05: Got it. So that includes the U.S., where new builds have been fairly slow the last few years? Yes. It does. Okay.
spk14: Thank you. Our next question will come from the line of David Guarino with Green Street. Please go ahead.
spk10: Thanks. I was wondering if you could provide any updates on OI. And specifically, I was wondering if you have any updates on the land underlying the, I think it was around 2,000 sites in Brazil that are up for renewal in 25. I feel like there's a lot of moving pieces. So just trying to understand if there's any risk of lost revenues from those sites.
spk09: Yeah, there's not. You're talking about the concession sites, I think, from the acquisition that we did. Yeah, no, there's really not. And we expect that we'll... those will actually be continued on. And actually, those those leases extend out, I believe, longer than that with us as a commitment from Hawaii that goes out beyond those two thirds to 2035, I believe. Yeah, right.
spk07: Yeah. That transaction is supposed now the latest thinking is that that doesn't get consummated until sometime next year. And then with, you know, the network rationalization aspects that come out of that, not starting until sometime in 2023.
spk10: Okay. Maybe switching gears then, going back to an earlier question about you guys talking about DISH as part of the big four carriers, does that mean that you're going to update your customer concentration table to reflect DISH once the revenue starts commencing on the tower sites?
spk09: Sure. Yeah, of course. Yeah, I mean, once they reach a level, I mean, we're giving the concentrations above 10% of revenue. Obviously, they'd have to achieve that. Their contributions to leasing activity are significant and on par with the other carriers now, but obviously, the total sum of revenue, considering they're starting at zero, is at a much lower percentage. So, we ultimately will do that if they achieve that level of contribution.
spk10: Great. Thanks for taking the question.
spk14: And our final question in queue at this time comes from the line of Brandon Nistel with KeyBank Capital Markets. Please go ahead.
spk12: Great. Two questions. One, could you comment just on leasing PG&E assets? Any additional comments you could provide there? I don't think anybody asked. And then on the balance sheet, I think you guys called out blended interest costs of 2.25% or so, and then some incremental run rate savings. Could you... What else is to be done there going forward? Do you guys see interest expense coming down things?
spk07: PG&E is ahead of plan, benefiting from all of the U.S. activity from all the contributors that we earlier discussed in general. So we're extremely pleased with that.
spk09: On the balance sheet, just to correct what you said, the average interest rate is now, on a pro forma basis, 2.6 percent. There are potentially some other possibilities. We obviously have maturity dates that come up over the next several years. Really, we'll have to see where interest rates are as we hit those dates. There's probably some opportunity to refinance and have some additional improvement, but I think we've done the vast majority of that now with the last deal that we just completed this past month.
spk12: Great. Thank you.
spk07: Brian, is that it, or is there another question?
spk14: We have no further questions in queue.
spk07: Great. Well, thank you, everyone, for joining us this evening, and we look forward to reporting our fourth quarter sometime in February. Have a great day.
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