With a portfolio of nearly 1,000 towers, SBA Communications Corp. is among the top five public tower companies in the United States, and yet it is a small player among giants.
In an industry where large transactions with thousands of towers changing hands have become the norm, SBA’s only carrier transaction to date was its $16.6 million acquisition last year of 56 towers from Horizon Telecom Inc.
The company bid on some of the large carrier tower portfolios that were up for sale, but it ultimately decided it would find better opportunities through straight build-to-suit contracts and selected smaller acquisitions, said Steven Bernstein, SBA*president and chief executive officer.
“We’ve chosen to say we don’t need to be the largest here,” said Bernstein. “We just want to pick the right sites and have good return on investment, and since we have 10 years of experience, a nationwide team and a lot of relationships, we feel we’re able to generate those opportunities without having to do a large-scale carrier deal.”
That’s not to say the company wouldn’t consider doing a carrier transaction in the future.
“If we felt comfortable with the numbers-if they met our internal rate of return targets-we would do carrier deals all day long,” he added.
About two-thirds of SBA’s 950 towers are newly built and the rest were acquired. Most of its acquisitions are mom-and-pop operations and average five sites per transaction. “We’re not swinging for the fences, so we don’t have pressure to put on tremendous amounts of numbers from a tower count perspective,” he said.
Bernstein founded SBA 10 years ago as a site acquisition, zoning and construction management firm, competencies the company feels are among its strengths today. Originally a fee-based business, SBA three years ago began transitioning to a tower-ownership model to generate recurring revenues.
The process, said Bernstein, was relatively simple because the company was dealing with the same clients, employees and competencies. The transition did, however, require the company to raise capital and change its financial model.
In its latest financing activity, SBA last week announced an additional $125 million in funding, which the company said will provide it with substantially all, if not all, the financing it needs to execute its 2000 business plan and additional tower goals.
While SBA still provides fee-based services, the company derives more than half of its current gross profits from tower cash flow. The company’s goals are to hit a five-times cash flow multiple on each of its towers and to substantially lease up its sites.
“Our strategy is we always want to build more sites than we buy, because we feel we can find good opportunities to build sites, and when you’re building your own sites, your costs are usually a lot less than if you’re acquiring a site,” said Bernstein. “If you can keep your tower costs low, then it doesn’t take as many tenants to get you to a good multiple, or if you put a lot of tenants on you can get to a better multiple.” He noted lease-up rates on its towers have been better than the company modeled.
Bernstein said he believes the success of the wireless industry in terms of subscriber numbers will continue to drive the tower business.
“That dynamic-the fact that carriers are growing and they have to add more antenna sites-is great for our business,” said Bernstein. “It means that everybody should enjoy good lease-up on their towers, and it also means that more towers are going to be needed as carriers split their cells and as they add additional sites.”
