Telecom tower and infrastructure company SBA Communications raised its guidance for the full year and touted a new master lease agreement with AT&T, but its executives also said that while 5G deployment activity continues, the second quarter saw a slow-down.
SBA reported net income for the quarter of $202 million for the quarter, with site leasing revenues up nearly 8% from the same time last year. International activity was higher than expected, and the company’s total revenues for the quarter were $678.5 million, up 4.1% year-over-year. Site development revenues, however, were $52.4 million compared to $71.8 million in the prior-year period, a drop of 27.1%.
“Each of our largest U.S. customers remained active with their networks. Our customers continue to add equipment to sites in support of 5G through the deployment of new spectrum bands as well as to expand coverage through brand new colocations. We did, however, see the same slowdown in activity that many others have discussed,” said CEO Jeff Stoops on the company’s quarterly call. He said that the company had expected leasing growth in the U.S. market to “moderate as we move through 2023,” levels were lower than the company had expected in Q2—which, he continued, might be partly in anticipation of a new master leasing agreement that the company just signed with AT&T, which it also announced as part of its Q2 financial update. That new, multi-year leasing deal is focused on streamlining AT&T’s 5G deployments across SBA’s infrastructure.
“We believe that these variations in activity are part of the normal cycle of carrier network investment that we have seen over time, a large initial burst of coverage activity as the next generation of technology starts to be deployed, followed by many years of coverage completion and capacity building,” Stoops said, adding, “We are confident that there will be additional material network investment over the next several years.”
Stoops also said that SBA’s services business was down year-over-year from a peak in 2022, but that 2023 will still be the company’s second-biggest service year in its history.
International leasing activity for SBA’s infrastructure assets overseas (Brazil is its largest international market) was ahead of the company’s expectations and is expected to contribute $1 million more than expected to leasing and amendment activity this year.
Both Ericsson and Nokia’s most recent results have also been impacted by carriers pulling back on additional 5G-related investments. Nokia lowered its guidance for its full-year sales, citing weakness in North America as one of the contributing factors. Ericsson also saw a drop in its network sales in North America, as customers worked through their existing inventory and the build-out pace “moderated.”
SBA said that tower upgrades accounted for 42% of U.S. bookings, while new leases made up 58%. AT&T, T-Mobile US, Verizon and Dish Wireless represented nearly 90% of the company’s leasing activity. SBA added that legacy Sprint leases are now being decommissioned faster than expected, with about $20-$30 million in Sprint-related lease churn expected in 2024, $35-45 million in 2025 and $45-$55 million in 2026, falling to $10-$20 million by 2027.
SBA bought nine new communication sites for $7.2 million and built 64 new sites during the second quarter, with additional agreements in place to buy 134 sites in existing markets for a total of $72.9 million. Those site purchases are expected to close by the end of the year. The company also bought $10.1 million in land and easements and to extend ground lease terms.
