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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome to the SBA Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I'll now turn the meeting over our host, Vice President of Finance, Mark DeRussy. Please go ahead, sir.
Thank you, Laurie. Good evening, everyone and thank you for joining us for SBA’s third quarter 2018 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer.
Some of the information we’ll discuss on this call is forward-looking, including but not limited to, any guidance for 2018 and beyond. In today's press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today, November 5, and we have no obligation to update any forward-looking statements 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’ll turn the call over to Brendan.
Thank you, Mark. Good evening.
We had a great third quarter with very positive operating results in both our leasing and services businesses. Total GAAP site leasing revenues for the third quarter were $435.3 million and cash site leasing revenues were $430.2 million.
Foreign exchange rates were weaker than our estimates for the third quarter which we previously provided with our second quarter earnings release, negatively impacting leasing revenue by $1.7 million.
Same tower recurring cash leasing revenue growth for the third quarter which is calculated on a constant currency basis was 5.9% over the third quarter of 2017, including the impact of 1.8% of churn. On a gross basis, same tower growth was 7.7%.
Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was 7% on a gross basis and 5% on a net basis including 2% of churn. Approximately half of which was related to Metro, Leap and Clearwire terminations.
Domestic same tower recurring cash leasing revenue growth on a gross basis increased sequentially for the second quarter in a row, and we expect it to increase again next quarter based on a strong year-to-date operational, domestic leasing activity we have experienced. Internationally, on a constant currency basis, same tower cash leasing revenue growth was 10.4%, including 80 basis points of churn or 11.2% on a gross basis.
Gross organic growth in Brazil was 12.9% on a constant currency basis, a solid increase over the second quarter reflecting increased operational leasing activity in Brazil over the last 12 months. Domestic operational leasing activity representing new revenue signed up during the quarter was very strong in the third quarter up from second quarter levels and for the third quarter in a row, well above year-ago levels.
During the third quarter, we again had solid contributions from each of the big four carriers. Newly signed up domestic leasing revenue came above 60% from amendments and 40% from new leases. And the big four carriers represented 95% of total incremental domestic leasing revenue that was signed up during the quarter. WE have solid backlogs with each of our major U.S. customers and we expect them to remain active, investing in their networks, resulting in a continued healthy level of new lease and amendment signings in the fourth quarter.
Internationally, we had another strong leasing quarter with Brazil providing the biggest contribution. In Brazil, we had solid contributions from Claro, Vivo, and TIM. During the third quarter, 86.8% 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 11.6% of all cash site leasing revenues during the quarter and 8.3% of cash site leasing revenue excluding revenues from pass-through expenses.
With regard to third quarter churn, we continue to see churn from leases with Metro, Leap, and Clearwire consistent with our expectations. As of September 30, we have approximately $13 million of annual recurring run rate revenue from leases with Metro lease and Clearwire that we ultimately expect to churn off over the next two years.
Domestic churn in the third quarter from all other tenants on an annual same-tower basis was 1.1%. And of that, less than 30 basis points was related to the big four tenants. We anticipate slightly higher churn in the fourth quarter due to the non-renewal of certain legacy iDEN related leases, the impact of which has been and continues to be included in our full year 2018 outlook.
Tower cash flow for the third quarter was $344.8 million. Our industry-leading domestic tower cash flow margin increased to 82.8% in the quarter. International tower cash flow margin was a very strong 68.6% and 89.5% excluding the impact of pass through reimbursable expenses.
Adjusted EBITDA in the third quarter was $328.1 million. Our adjusted EBITDA results in the quarter were again driven by strong performances in both our leasing and services businesses. Services revenues in the third quarter were $32 million, up 25.8% over the third quarter of 2017 driving an increase of over 75% in services gross profit over the year ago period.
Cash SG&A for the quarter was in line with expectations and continues to remain very low as a percentage of total revenue. Our industry leading adjusted EBITDA margin was 71% in the quarter compared to 70.6% in the year earlier period.
Excluding the impact of revenues from pass through expenses, adjusted EBITDA margin was 75.6%. Approximately 98% of our total adjusted EBITDA it was attributable to our tower leasing business in the third quarter.
AFFO in the third quarter was $222.7 million. AFFO per share was a $1.92, an increase of 9.7% over the third quarter of 2017 or 13.1% on a constant currency basis. AFFO was negatively impacted by $1 million or $0.01 per share due to weaker foreign exchange rates in the quarter than we had forecasted for our prior outlook which was given July 30.
During the third quarter, we continued to invest in expanding our tower portfolio, deploying incremental capital into both new tower builds and acquisitions. During the third quarter, we acquired 679 communications sites for $106.9 million with most of those sites located internationally. We also built 90 sites during the third quarter.
Subsequent to quarter-end, we have acquired 46 additional communication sites for $17.1 million. And as of today, we have 410 total additional sites under contract for acquisition and an aggregate price of $97.9 million.
We also continue to invest in the land under our sites which provides both strategic and financial benefits. During the quarter, we spent an aggregate of $14.6 million to buy land and easements 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 71% of our towers. And the average remaining life under our ground leases including renewal options under our control is approximately 35 years.
Our across the board strong third quarter results have allowed us to increase the midpoint of our full-year 2018 outlook in almost every category. We increased at the midpoints our full-year leasing revenue and tower cash flow outlook by $6 million, adjusted EBITDA by $11 million, AFFO by $9.5 million and AFFO per share by $0.115.
Consistent with our historical practice, our updated full-year 2018 outlook does not assume any further acquisitions beyond those closed or under contract today and it does not assume any additional debt financing or share repurchases beyond those completed prior to today.
We have however increased the midpoint of our full-year outlook for net cash interest expense by $3 million primarily to account for increased borrowings under our revolver which was used to fund share repurchases during the third and fourth quarters.
I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.
Thanks Brendan.
SBA ended the third quarter with $9.7 billion of net debt and our net debt to annualized adjusted EBITDA leverage ratio was 7.4 times within our targeted range of 7 to 7.5 times. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.5 times.
The weighted average coupon of our outstanding debt is 3.9% and the weighted average maturity is approximately 4.5 years. We continue to believe that we manage our balance sheet very effectively and we are pleased to see the recent upgrade of our corporate credit rating by S&P to BB.
During the third quarter, we borrowed under our $1.25 billion revolving credit facility in order to fund share repurchases. And as of today, we have $215 million outstanding under the revolver. During the third quarter, we spent $180 million under our $1 billion stock repurchase plan to repurchase 696,000 shares of our Class A common stock at an average price of $155.16.
Subsequent to September 30, we repurchased 937,000 shares for $142 million or $151.55 per share. All the shares repurchase were retired. As of today, we have $404.5 million of authorization remaining under the repurchase plan. The company shares outstanding at the end of September 30, 2018 a $114.2 million down from $118.4 million at September 30, 2017 which is a 3.5% reduction.
With that I'll turn the call over to Jeff.
Thanks, Mark and good evening everyone.
We had another very solid quarter with financial results that exceeded our expectations and showed continued strength in operational leasing activity. Our positive third quarter results and expectations of a strong fourth quarter have allowed us to increase our full year 2018 financial outlook in all of our key metrics.
In the U.S., new business signed up continued to be healthy, increasing from Q2 levels. This activity came primarily from the big four carriers, with all of them contributing to our results. Our leasing and services backlogs remain high, giving us comfort and a strong finish to the year.
Domestic wireless data consumption continues to climb, including heavy bandwidth usage applications like mobile video streaming. In order to meet the constantly growing needs of their networks, our customers continue to deploy more spectrum and advanced technologies at our sites.
In addition, contributions continue to come from the rollout of FirstNet and the early stage activities being done ahead of 5G, including the deployment of MIMO antennas in the 600 megahertz and 2.5 gigahertz spectrum bands.
We're working really hard for our customers in both leasing and services. Doing whatever it takes to get the job done on time and on budget. We're happy to do it to meet our customers’ needs as they're very busy, busier than they have been in years and we are here to meet those needs.
Internationally, we also had another very strong leasing quarter with Brazil once again leading the charge. In Brazil we had one of our biggest quarters in years in terms of new business signed up with solid contributions from all four major wireless carriers.
We also had another nice jump in organic same-tower revenue growth in Brazil on a constant currency basis, reflecting the positive leasing trends in that market over the last 12 months.
The contractual revenues signed up during this quarter in our international markets came about 53% from new leases and 47% from amendments, which is similar to the mix we would expect going forward. During the third quarter, we once again saw a sizable decline in the Brazilian real which negatively affected our reported results.
However, with some of the uncertainties related to the recently completed Brazilian elections now behind us. We've seen the exchange rate subsequent to quarter-end improve and stabilize somewhat. President Bolsonaro is the first president elected in Brazil outside of the Workers Party during our period of investment and he ran on a platform of debt reduction and fiscal and economic reform. We are optimistic as to the future under his leadership.
Regardless of some of the noise created by the volatile movements in FX rates, we’re extremely pleased with the performance of our Brazilian operations. Not only have we seen continued strengthening in the organic growth trends. We've seen a clear acceptance and a sense of normalcy adopted around the basic operations of the tower industry by regulatory authorities, land owners and our customers in Brazil.
And as we mentioned in our second quarter earnings call, the underlying Brazilian economy seems to continue to be improving which is supportive of continued growth opportunities for both us and our customers.
During the third quarter, we also continued to add to our international portfolio acquiring 663 towers and several transactions including 463 towers in El Salvador as part of our acquisition of sites there from Millicom International and 179 towers acquired in Ecuador.
We also built 83 towers in our international markets during quarter. We expect to continue to add sites that are existing markets through disciplined builds and acquisitions. Our primary focus for portfolio expansion remains the Western Hemisphere but we also continue to be open to and regularly explore opportunities in other markets. Our tower additions year-to-date across our entire tower portfolio have ensured we will once again grow our portfolio by 5% to 10% in 2018.
Ahead of our dividend obligations which we currently estimate to start in 2021, we continue to target 7 to 7.5 times net debt leverage notwithstanding the recent increase in interest rate. Our bias has always been and remains today toward portfolio growth.
However, we are always willing to repurchase our stock when we believe it is undervalued particularly in times like now, where we are seeing such strong organic growth. Our balance sheet management and focus on quality portfolio growth and opportunistic share repurchases has been a key component of our value creation throughout our history.
In addition to tower portfolio growth, we are excited about our prospects and some of our recent success associated with investments we are making in other strategic real estate. These efforts are built around securing exclusive wireless rights to world-class venues.
Some of the solutions we are able to provide to these venues include rooftop and exterior wireless management, small cell solutions and in-building wireless networks including DAS WiFi and CBRS solutions. While we are in the early stages of some of these initiatives, we believe the quality of the real estate we are accumulating will drive extremely attractive returns on our investments.
In addition, we continue to work on initial prototype mobile edge computing locations built around our existing property locations. It’s still very early in the development of these solutions. But we believe we have a distinct advantage with the quality locations we are targeting and we are excited about the potential for this additional business line down the road.
Operationally, we continue to perform at a high-level of efficiency, managing our costs and growing our margins. In the third quarter, we once again produced industry-leading operating margins demonstrating the quality of our assets and effectiveness of operations.
Our tower cash flow margin was 80.2% and are our adjusted EBITDA margin was 71.0% both up from the third quarter of last year as well as sequentially over the second quarter of this year. This will continue to be an area of focus for us as it always has been.
We're in a great time in this industry. We've had a tremendous 2018 so far and we are optimistic about the end of the year and our prospects for 2019. We intend to use our strong cash flows and access to attractive financing to make disciplined yet opportunistic capital allocation decisions.
These investments along with the strength of our current customer demand and our operational excellence will allow us to drive growth and shareholder value through growth and AFFO per share. I'd like to thank our employees and our customers for their contributions to our success.
And Laurie, at this time, we are ready for questions.
[Operator Instructions] Our first question from Phil Cusick with JPMorgan. Please go ahead.
This is Richard for Phil. Just wanted to go into the organic growth rate increase on the domestic side from 6.4% to 7.0% despite churn kind of ticking up, can you give us a little bit more detail on what you're seeing there and how it should invoice?
It's not despite churn, it's before churn. But it's just more activity. I mean as we have been telegraphing all year, we expected to see a pickup in those rates and remember those are trailing 12 months rates. So it's also a function of the year-ago periods not being as strong. So the comparison to the year-ago periods are in fact helping this.
So, one way to look at it is we've had successive periods that were stronger than the year-ago period. Third quarter just completed much stronger than the year-ago period which dropped off stronger than the fourth quarter of last year.
So you've seen just successive increases in those periods of new revenue added. But don't confuse the churn as a, we exclude the churn from the gross numbers and you can see that in the supplemental materials.
I guess what I was trying to get to on is, are you seeing an increase in activity? Or is this more of…
By definition we have to be seeing more revenue added per tower for those growth rates to be increasing. So yes.
Our next question from the line of Ric Prentiss with Raymond James. Please go ahead.
A couple of questions. First we noted that there was a change in your 2019 straight line adjustment in the supplement - appreciate the supplement. You guys don't do a lot of analyze, but how should we think about that? Looks like maybe it was the delta was maybe $5 million to $6 million. Have you done an MLA and is that an indicator of some new business coming in 2019?
Well Ric we had done an agreement with Sprint last year which last year, incorporated the potential for term extensions as amendments were done plus the agreements that are signed as new leases have longer term. So when we give you those 2019 numbers, it's really just to give you a guide but it's at a moment in time and so a quarter ago and when we gave it to you, it's whatever's in the system at that time but as we sign up additional amendments that extend terms or leases with longer terms, it affects that.
So those numbers are going to move around a little bit. I'm sure they're going to be a little different again next quarter too. But that's one of the primary drivers.
Okay. I think I noticed that Sprint now are about 19.5% of your domestic revenue, what was the remaining life down on those leases and also maybe update what the T-Mobile average life is?
Well, specifically on the overlap sites, Sprint is about five years on average remaining and T-Mobile's about three years left which is not that different than the portfolio at large.
And then last question, Jeff, you talked a little bit about the stock buyback pacing. How should we think about as you guys look at the potential for M&A out there and versus obviously a volatile market? And when do you need to readout, I think your down, Mark was saying you were down to about $405 million left on the authorized program. So how should we think about the pacing of the buyback versus portfolio and also when you might re-up the program?
Well as has been always the case, we would like to spend all the money on high quality portfolio growth that meets our investment goals. If we can't do that, then we turn our attention towards staying fully invested through stock repurchases.
So it’s really hard to say some quarters will be more than others and we have the ability through a very decisive and promptly reactive board to kind of re-up that stock plan whenever we need to. So obviously we do it before we ran out, but I can't really tell you when that would be. And it's all going to be a function of the quality and the investment returns that we see on the portfolio side.
And we'll go next to Nick Del Deo with Moffett Nathanson. Please go ahead.
First on churn, quite churn in the U.S. excluding Metro, Leap or Clearwire stepped up a bit to 1.1% this quarter. And Brendan, in your prepared remarks you said that the 30 basis points of it came from the big four carriers. Can you talk about where the other 80 basis points came from and how persistent it will be? It seems like a fairly high number given only about 10% or so of your revenue comes from non-big four customers?
They certainly represent a disproportionate amount of the churn now. So it's really a wide ranging, it's a very long list of a lot of small numbers, Nick. So it includes companies that are even paging companies, other miscellaneous broad, narrowband providers that kind of stuff. It's a lot of cats and dogs.
Should we think of this as persisting for a few quarters until it kind of last itself?
Yes. I think it should from the standpoint that historically, our churn level excluding these consolidations that we've had, that boosted it up, has been in the 1% to 1.25% range. Over the last year or two, it's been a little bit lower than that. But, I don't think you should assume that it - that that is the new norm. It should be somewhere in that 1% to say 1.25% probably range in the future.
And then Jeff you spent a little more time than normal talking about some of your non-macro initiatives like indoor solutions. Recognizing that they're going off a pretty small base, what should we expect from those - from a growth perspective and should there be more than a few percentage points of total revenue?
I think it'll take a while. They're going to grow really fast. But it's going to be a while before they get to be 1% or 2% of revenue. We're excited about them because it's things that we're very happy with some of the early results in terms of the quality of the venues and what we think will be some very, very good results on a per project basis for us, Nick but still a long way away from being material. But these are the kind of things that you have to start at some point to get there and we're doing it.
What sort of venues are you finding on your sweet spot?
Hospitals, educational facilities, multi-family facilities, large retail organizations are the primary ones and then some extremely unique industrial properties would be ones that come to mind and these are all I'm being a little coy because we have some very big name brand things that we're not quite ready to talk about yet but we will hear it in the not too distant future.
And we’ll go to Michael Rollins with Citi. Your line is open.
Just a few if I could. First, can you give us a sense of what the escalators average are for the domestic and international segments on a cash basis when you look at the revenue bridge for the third quarter? And then second based on the backlog that you have in the pipeline, can you frame where that gross revenue gains in the domestic business can get to on whether it’s a 12 or 24-month perspective? Thanks.
Yes Mike on the escalators domestically they're about 3.2% approximately annually on average. And internationally they fluctuate a little bit because the Brazil piece is such a big component of it and they are obviously CPI-based and the CPI has been moving around a little bit down there.
We do have some floors though on some of our leases in Brazil out of the Oi leaseback. So when you blend all that together along with other internationals, we’re close to 5% is about the average but that can move a little bit depending on how CPI moves.
Yes, and on the backlog question Mike, in all due respect we don't want to get too much into 2019 guidance but I will tell you the backlogs domestically right now are materially similar to where they were three months ago. So, very substantial and very supportive of additional, very strong bookings.
And then maybe on the other side of the equation on the churn side, is there some help that we should think about in terms of where that churn may get to, based on some of the processing that you've described for some of the past carrier consolidations that are taking place?
Yes, on the churn if you're talking specifically domestically, I assume you are. We've got some remaining Metro, Leap and Clearwire that will run off - we mentioned that number was about $13 million of annualized revenue that we expect we’ll lose over the next two years approximately.
We have a little bit of iDEN churn in the fourth quarter. And when you kind of move away from those that's where we think roughly about 1% to 1.75% range for all other stuff basically is where we'll be.
So for the time being the next so many years that's probably a reasonable level. Maybe a little bit lower in certain periods and slightly higher in others depending on timing of notices but otherwise that's where we think it'll fall out. And eventually it obviously comes down because the revenue base continues to grow. The amount of other types of leases that are turning off is naturally reducing so - but that's been our historical level and we expect it to be similar going forward.
And we have a question from Walter Piecyk with BTIG. Please go ahead.
So you maintain the guidance at $45 million for the amendments in carriers obviously you're going to see another nice sequential step up in the fourth quarter. I mean, simple math gets me in about $50 million or so for the quarter which is a 30% increase.
When I look at past years, fourth quarter new leasing activity the amendments and the carriers seems to kind of roll over into Q1 meaning that you do a certain number of - you do a similar level in Q1 as Q4. Is there any reason to think that it is different this year particularly back-end loaded that that would kind of drop down in Q1 or how should we think about that cadence?
I don't think we know anything today, Walter, that would say there should be an abrupt change particularly given the fact that a lot of this stuff is coming from projects that are multi-year in nature. And frankly, a lot of this nice buildup that we've seen through the year and the reason you are seeing this nice step up in the growth rate as we get to the exit of the year is again frankly because the end of 2017 was not that strong.
Right but even on an absolute basis if you can maintain those levels that's going to set it up for looks like a pretty continual acceleration in the organic growth rate for the company?
Well I mean the business - getting back to your first question, the work that’s coming in and that's filling the backlog today is coming from multi-year projects. No reason why there should be a calendar stop just because the calendar - just because it's December 31.
Our next question from Simon Flannery with Morgan Stanley. Please go ahead.
Jeff, could you just talk a little bit more about the service’s strength and how sustainable do you think that is, well what's driving it? And then on the pipeline, you talked a lot about the strong activity by the big four. Now what are you seeing in pipeline from potential new tenants or other nontraditional carriers? Thanks.
I will tell you that a lot of our services business is predominantly weighted towards T-Mobile and Sprint. You'll see that as we file the 10-Q and things. So, that should all continue to do very well. The only thing that of course could possibly change all that would be some changes that could fall out of the announced combination.
But short of that, both companies continue to work really hard and go down a path that shows no change at all based on the pending transaction. And, in terms of other folks, Simon, we are actually seeing a fair amount of activity from DISH. And that will probably be the most notable outside of the big four.
Activity in terms of the conversations or in terms of leasing?
All the way through to signed leases.
Our next question from the line of Spencer Kurn with New Street Research. Your line is open.
So as you look across the tower space in the U.S., AMT is growing, gross organic growth around 9% versus your 7% today. And it sounds like the 7% is going to climb higher in the fourth quarter. But my question is, is there anything structurally different between your two businesses, why they should be growing faster or as activity continues to build, is the level is 9% within reach over the coming years? Thanks.
I would say two things to that. I don't think the calculations are apples to apples, point one. And no, I don't think there's anything structurally different.
And just to follow up, it looks like the biggest increase to your guide came in the other category for revenue. I was just wondering if you could provide some color on what those actions were? Thanks.
Spencer, it's a handful of a variety of different things. We had some additional revenues that came with what we call cash basis basically have tenants that we don't book revenue on accrual basis based on a category that we put them in, that’s a little bit higher in terms of collections.
We had some - a little bit of collections that were higher than what we had included in our projections from out of period billings. We had some termination fees, we had some hold over fees for customers that had canceled leases long ago but hadn't removed their equipment on time.
So it's just a wide variety of stuff. But usually it's just to give you kind of perspective on it, when we project that out and we give you the bridge, we kind of use historical norms but we also are a little bit cautious because that stock is a little bit uncertain. So sometimes we have a tendency to see a little bit more than what we project out of a little bit of caution there.
And we'll go next to David Barden with Bank of America. Please go ahead.
It's Josh on for Dave. Thanks for taking the questions. On Brazil, I know it's quick but is there any tangible change to the market since the election and have you had any conversations with the carriers down there that might give you – make you feel better or worse kind of going forward?
Hard to say that we've seen a tangible change there. It looks like they may be lifting the spectrum cap which could be very good for the market in terms of activity down there. We'll see the – the other thing that may happen was not going to happen certainly before the election would be the addressing of the concessions down there.
That would be to happen along with the spectrum cap lifting before the any kind of large M&A or kind of structural changes can occur in that market. We believe Bolsonaro was in favor of both. So, we'll see. But the spectrum cap was positive. All that was kind of wrapped up in our comments as to why we are optimistic now that he has been elected.
And did you have any conversations with the carriers. Not naming them individually leading into the election about what they may or may not do depending on who was ultimately elected?
Not that we can comment on.
And our next question from the line of Amir Rozwadowski with Barclays. Your line is open.
A couple questions if I may. In thinking about sort of the growth trajectory of the business, your exit run rate for 2018 seems to be fairly healthy and recognizing that we don't really want to get into 2019 too much here.
Are there any potential limitations that are out there right now that could cap some of the growth? I don't know if it's more tower climbers or just the ability to move at the pace that the carriers would like to move that. Is there anything along those lines that you're seeing either through yourselves or through the industry at the moment that could put an upper limit in terms of the potential for growth?
Besides just the basic raw demand. No, I don't think it's going to be anything other than just the amount of orders that ultimately come in the door.
And then thinking about sort of the sustainability of the investment environment at this point, I think that there's still been some debate in terms of how some of the new spectrum that could come to market would be optimized or deployed in either via small cells or macro site investment. And yeah, I’m thinking about ranges like 3.7, 3.5, 3.7, to 4.1. How do you think about sort of the opportunity set from a macro perspective for those types of spectrum bands?
Well based on - I think there's still a lot of work and thought to be put into it, but I think the C-Band would be mostly have the greater macro opportunities. The CBRS will be more of a in-building perhaps WiFi substitute which is actually good because it may break through a lot of in-building resistance with owners where economics previously didn't make sense.
Small cells, probably is going to benefit from both, but that's not an area that we have certainly the greatest expertise in. But as to the macro sites, probably more of the C-Band than the CBRS. But all-in-all very good for the ecosystems.
The more things you have out there and the greater the money and the folks who are participating. Particularly if we can get some other players involved. Maybe some of the non-traditional, the Googles, the Amazons and these are folks who are keenly interested in the CBRS ecosystem. I think it can only be good for infrastructure as a whole.
We'll go next to Jonathan Atkin with RBC Capital Markets. Please go ahead.
A couple of questions. You mentioned rooftops in the script alongside all the other things that you’re talking about and I thought that was sort of a low margin business compared to indoor DAS and venues and so forth. So just wondering what you see in rooftops that might have changed over the years?
And then secondly, I was interested in the you talked about strength across the big four in the U.S. and have you noticed any sequential changes in a negative direction in terms of leasing volumes from any single of the big four or is it that universally flat to positive in terms of leasing volumes sequentially from the big four? Thanks.
I'll cover the last one first. I mean, it's - we were speaking more as a whole I mean not – there's not total equality in terms of the strength amongst the big four, Jonathan and I'd prefer not to get into who's red hot and who's not. I think you can derive all that from your own readings of their CapEx report.
But in terms of rooftops, you're absolutely right. But the beauty of rooftops is you can generally secure them with relationships that require little to no CapEx. But as you know return on invested capital is something we're very much focused on and you can do pretty well there with the right asset.
Are you planning to leverage rates that you've had for the better part of the last 10 years or are there new assets coming into the portfolio where you would deploy these?
Both.
And then lastly, I was interested in just inorganic portfolio growth opportunities in the U.S. and do you see the pace changing notably from what we've seen the last couple quarters?
I don't see the pace changing. I think the quality assets in the U.S. will continue to be elusive.
And our next question from the line of Colby Synesael with Cowen & Company. Please go ahead.
Two questions if I may. In your press release you noted that you executed a new domestic leasing that was at the highest levels since 2014. And I'm just curious if you adjust for the law large numbers on a percentage basis, would you anticipate based on the leasing that you saw in the third quarter than we can get to a point where you would see the same level of absolute growth that we saw in 2014 somewhere over the next few quarters? And then secondly…
Absolute growth on a percentile basis?
No, absolute. So, not on a percentile basis. So, I appreciate that you can’t get to the same percentage rates because of the law of large numbers…
If I go to revenue per tower basis as you mean?
Like in terms of growth, yes.
Always added for tower.
Probably not Colby. I mean it depends on what period you're talking about. I mean when we said we’re - that was the highest pickup since 2014 that is on a dollars added per site basis. So from that perspective it is what you're saying, it is more dollars signed up on a per tower basis than it has been at any time in the last year.
But not as high as our peak metrics in 2014 on that on that particular metric.
So there's still a notable gap between what was done in the third quarter and 2014, even though the next comparable high watermark would be 2014?
Correct.
And then, the second question, in your script, you mentioned, [MAT] as MIMO, you mentioned you're seeing activity in the 600 and the 2.5. I am just curious, are those the only two bands that you're currently seeing demand for MAT and MIMO?
Call us back tomorrow because I'm not sure I can give you a perfect answer on that. I want to make sure that I don't misspeak. Those are certainly the two predominant ones.
Our next question from Matthew Niknam with Deutsche Bank. Please go ahead.
Just two on rates and debt. Can you talk about the impact of rising rates on forward AFFO per share growth given I think a little over 20% of your debt is floating rate? And then just leverage-wise with rates rising, does that change at all how you're thinking about capital allocation and optimal leverage you'd like to operate the business at given that you've been a little bit closer to the higher end of that 7% to 7.5% range of late? Thanks.
Well, I mean, it you can - that's a great question for all of you modelers because you can take our floating rate debt which is very clearly laid out and you can apply the forward curve because it's a LIBOR based instrument that's very clearly laid out. And you can make your own assumptions as to what our interest expense will be going forward. And that's the great question right? And you can actually figure it out to the penny, Matt. So you can answer that question.
So what was your second question?
Just about how you're thinking about leverage with rates rising. I know you guys have been fairly comfortable where you are but with the 7% to 7.5% you've been operating at about 7.5%. Is there any change to the way you're thinking about optimal leverage in the current environment?
Probably not because of rate but as we get - we're a quarter away from the calendar turn to 2019. That brings us within two years of a dividend. So as we've talked about before we're going to want to – as we enter into that period have probably a 6% handle on our net debt leverage. So we are thinking about it more today than we were a year ago and how we're going to segue into that time period but it's more because of the dividend than it is because of interest rate.
[Operator Instructions] We'll go to Brandon Nispel with KeyBanc Capital. Please go ahead.
Two for Jeff. Number one, Jeff are you seeing any changes in the prices that sellers of portfolios are expecting to get an interest rate rise? Number two, are you having any conversations with any of your customers in the U.S. on LTE spectrum band re-farming for 5G or have you primarily seen amendments at this point from 2G and 3G to LTE?
I don't think anybody is re-farming any 4G because the - there's really no 5G devices or even true equipment out there yet. And my understanding is the 4G is going to sit with the 5G for quite some time so none of that yet.
And our sellers are expecting changes. Sellers never expect changes but do they actually get them? I think all that is starting to work through. And it just takes time but interest rates clearly are something that we certainly take into consideration when we bid for assets. And I think other serious and disciplined buyers do as well. So it will have an impact, should have an impact, will have an impact.
Our next question from the line of Robert Gutman with Guggenheim Securities. Please go ahead.
With escalating activity through the year coming from the areas that you mentioned FirstNet 602.5, where would you say we are these days right about now in terms of how far those initiatives have worked through your entire footprint percentage wise or in some sort of buckets or innings, however you choose to describe it?
Maybe the third inning.
I'm an innings kind of guy, how about the third inning.
I think that's our last question, right, Laurie?
We do have one remaining question in the queue.
Okay. We'll take that last one and we’ll call it a night.
We'll go back to Ric Prentiss with Raymond James. Your line is open.
I took it up and see if any questions asked. Jeff I wanted to press a little bit on your comment about open to exploring other markets beyond the Western Hemisphere. Can you share with us what would make an attractive market? I know people have looked at European assets but none of the U.S. guys have really jumped at it. So help us understand as you look at portfolio both outside of markets you're already in. What would make an attractive market and what obviously look at every drag but kind of walk us through how you think about other market?
Well something where we feel after taking into account all the risks and potential negatives weighed appropriately against the potential growth in the upsize we can make a appropriate, positive spread on our way.
I mean we're pretty good at this stuff in terms of operations. And we have found that particularly Latin America and South America, Brazil in particular where I think everyone has really kind of been blinded by the movements in the reals to actually how we've really what we've done down there on every other aspect.
We take those things and we can take those skills to other markets. Europe for us has been a problem just because the returns haven't been there based on the competition from the European infrastructure funds who fund in euros and can borrow money at zero percent and things like that.
So we'll be looking at other conceivably higher risk parts of the globe that of course would have to be carefully looked at and evaluated and would have to come with obviously double-digit plus returns for them to make sense for us. But assuming they did and we did our homework we would not be afraid to go there.
And do you check how many carriers are on, just trying to think - how we should think about the checking of the box and what makes it attractive…
I mean you've got to obviously have to have the right multiplicity of carriers to make the model work. It's going to be very rare if ever situation where you can go into a two carrier market. We have been able to do that Nicaragua for example and done very, very well. But that's I think much more the exception rather than the rule. So you're generally going to be looking at three-carrier market and a relatively evenly spread three-carrier market not a disproportionate three-carrier market.
You're going to need - and a lot of these other markets you're going to need to understand the politics and where they all basically feeding off of the telecom industry because there's a lot of that in parts of the world and there's a lot to it, we would never take it lightly but we would never say unequivocally never. I don't think that's what our shareholders expect us to do. They expect us to get in there, do the work and make the right decision.
I'll turn it back to our speakers for closing remarks.
Well, thanks everyone for joining us and we look forward to our next call where we will wrap up our year results and give you our 2019 outlook.
Ladies and gentlemen, this will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.