CCI - Cell Towers Devastated? SBA Communications Dominates Again

2023-08-02 17:18:48 ET

Summary

• The market hates cell tower REITs. Despite the market rally, prices remain near 52-week lows.
• SBA delivered yet another outstanding quarter and signed a new master lease agreement to keep the strength rolling.
• The increased guidance is even better than it looks at first glance.

SBA Communications ( SBAC ) delivered a monster report. Knocked it completely out of the park. With the market betting against SBAC and shares running up against a 52-week low, they came through in the clutch again. This was already covered in a subscriber report on SBAC, but I wanted to share this piece on the public side.

Who Stole The Big Customer?

You’ve heard from Crown Castle International ( CCI ) and American Tower ( AMT ) as they cut guidance on services due to a more difficult environment. SBAC generates a material portion of its revenue from site development (a type of service), but SBAC didn’t cut guidance for site development revenues.

Instead, they reiterated that guidance while raising several other items.

How can they be confident? Well, they had an announcement to make:

We are also very pleased to announce our newly signed master lease agreement with AT&T. This agreement serves to expand upon our existing strong relationship with AT&T, providing for future leasing growth from AT&T at our tower sites and enhancing efficiencies in the day-to-day operations between our two companies. We are excited about this next phase in our relationship. Based on second quarter results, our current expectations for the remainder of 2023 and our new MLA with AT&T, we have adjusted our full year outlook in a number of areas, including increases to Site Leasing Revenue, Tower Cash Flow, Adjusted EBITDA, AFFO and AFFO per share.

For all that talk we've been hearing about how much carriers will cut their capital expenditures, SBAC landed more business with one of the biggest clients.

Updated Guidance

SBAC’s updated guidance is included below:

The only number going down is maintenance capex (non-discretionary cash capital expenditures). That’s great. They get a tiny boost from favorable movements in foreign exchange rates, but it’s pretty small. Most of this is just improved fundamentals.

Regarding AFFO, I prefer to use "AFFO attributable to SBA Communications." It's adjusted for some joint venture calculations.

That metric requires looking deeper into the press release:

While AFFO attributable to SBAC is a good metric, I still prefer to strip out stock-based compensation adjustments. I’ve done that in the table I prepare for evaluating the guidance:

The deeper we go, the better it gets. Stock-based compensation guidance went down. That could mean more of the expense gets paid in cash or it could be a reduction in expense. Either way, we can see that AFFO (excluding that adjustment) saw an even larger bump.

Conclusion

SBAC gave us exactly what we wanted. Guidance increased. The way we prefer to calculate AFFO, guidance was increased even further. They fueled that boost by signing a new master lease agreement with one of the big carriers. Outstanding quarter. SBAC is the first equity REIT to score a 10 out of 10 for Q2 2023 earnings announcements. My grading scale is generally pretty harsh, so we rarely see more than two equity REITs scoring a 10 in any given quarter.

It continues a solid run for SBAC. In Q1 2023, SBAC scored a 10 on their boost to AFFO guidance. This time they boosted guidance even further and added the new leasing announcement.

From May 1 through the end of July, I've purchased SBAC four times at prices ranging from $222.15 to $237.94. Before that, SBAC was one of our smaller positions. Now it's one of our larger positions.

Outlook: Strong Buy on SBAC

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