Mark C. DeRussy, CFA - Vice President, Finance Brendan T. Cavanagh - Chief Financial Officer & Executive Vice President Jeffrey A. Stoops - President, Chief Executive Officer & Director.

Jonathan Atkin - RBC Capital Markets LLC Philip A. Cusick - JPMorgan Securities LLC Jonathan Schildkraut - Evercore ISI David W. Barden - Bank of America Merrill Lynch Amir Rozwadowski - Barclays Capital, Inc. Simon Flannery - Morgan Stanley & Co. LLC Mike L. McCormack - Jefferies LLC Brett Feldman - Goldman Sachs & Co.

Whitney Fletcher - Deutsche Bank Securities, Inc. Colby Synesael - Cowen and Company Nicholas Del Deo - MoffettNathanson Matthew Heinz - Stifel, Nicolaus & Co., Inc. Michael Bowen - Pacific Crest Securities.

Ladies and gentlemen, thank you for standing by, and welcome to the SBA First Quarter Results Call. At this time, all lines are in a listen-only mode. Later, we'll conduct a question-and-answer session. 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..

Thank you, Ryan. Good evening, everyone, and thank you for joining us for SBA's first quarter 2016 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 will discuss on this call is forward-looking, including but not limited to, any guidance for 2016 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business.

Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in today's press release and our SEC filings, which documents are publicly available.

These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, May 2, and we have no obligation to update any forward-looking statement we may make.

Our comments will include non-GAAP financial measures, as defined in Regulation G as well as other key operating metrics. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G can be found in our Supplemental Financial Data package.

In addition to the Regulation G information, this package also contains other current and historical financial data. This is located on our Investor Relations landing page at ir.sbasite.com. With that, I'll turn the call over to Brendan..

Thank you, Mark. Good evening. As you saw from our press release, we had another great quarter. We were above the high end of our guidance for site leasing revenue, tower cash flow, adjusted EBITDA and AFFO. Total GAAP site leasing revenues for the first quarter were $374.5 million or a 1.3% increase over the first quarter of 2015.

Eliminating the impact of changes in foreign currency exchange rates, total GAAP site leasing revenue increased 5.2% over the year-earlier period. Total cash site leasing revenue was $365.6 million in the first quarter, an increase of 2.8% compared to the year earlier period.

Eliminating the impact of changes in foreign currency exchange rates, total cash site leasing revenue increased 6.5%. Our first quarter cash leasing revenue included approximately $2 million of miscellaneous revenues not forecasted to repeat at the same level in future periods.

On a gross basis, constant currency organic total cash site leasing revenue growth was 8.1%. On a net basis, including the negative impacts of approximately 2.4% from iDEN decommissioning and 1.6% from normal churn, organic growth was 4.1%.

As we discussed last quarter, the loss of iDEN revenue during 2015 will negatively impact year-over-year growth rates during the first three quarters of 2016. Domestic cash site leasing revenue was $311.2 million in the first quarter, an increase of 4.3% compared to the year-earlier period.

On a gross basis, organic domestic cash site leasing revenue growth was 7.5%. On a net basis, including the negative impact of approximately 2.8% from iDEN decommissioning and 1.8% from normal churn, organic growth was 2.9%.

Approximately 63% of incremental domestic leasing revenue added came from amendments and the big four carriers represented 75% of total incremental domestic leasing revenue added during the quarter. Domestic tower cash flow for the first quarter was $254.3 million, an increase of 4% over the year earlier period.

Domestic tower cash flow margin was 81.7% compared to 81.9% in the year earlier period, negatively impacted by the iDEN churn. International cash site leasing revenue was $54.5 million in the first quarter of 2016, a decrease of 4.5% compared to the year-earlier period.

However, eliminating the impact of changes in foreign currency exchange rates, international cash site leasing revenue increased 18.5% driven by both organic growth and acquisitions.

On a constant currency basis, net organic international cash leasing revenue growth was 12.1%, inclusive of 0.9% of churn, most of which was from one narrowband customer in Canada. Gross and net organic growth in Brazil was 13.5%. During the first quarter, cash site leasing revenue denominated in currencies other than U.S.

dollars was 10.3% of total cash site leasing revenue. Brazil represented 6.6% of cash site leasing revenue excluding pass-through revenues, and 9.6% of all cash site leasing revenues during the quarter.

International tower cash flow for the first quarter was $37 million, a decrease of 6.1% compared to the prior year or an increase of 14.8% eliminating the impact of changes in foreign currency exchange rates. International tower cash flow margin was 68% compared to 69.1% in the year-earlier period.

Adjusted EBITDA in the first quarter was $274.7 million, an increase of 1.3%. Eliminating the impact of changes in foreign exchange rates, adjusted EBITDA growth was 4.2%. Eliminating both the impact of FX changes and the impact of iDEN churn, adjusted EBITDA growth was 7.4%.

Adjusted EBITDA margin was 70.3% in the first quarter compared to 68.5% in the year-earlier period. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter. AFFO decreased 1.2% to $182.4 million in the first quarter compared to $184.6 million in the year-earlier period.

Excluding the impact of both iDEN churn and changes in foreign exchange rates, AFFO increased 8.1%. AFFO per share increased 2.8% to $1.45. Excluding the impact of both iDEN churn and changes in foreign currency exchange rates, AFFO per share increased 12.1% over the year earlier period.

In addition to these items, also excluding the impact of the year-over-year decline in our services business, AFFO per share increased 14.2%. We are extremely encouraged by our growth in AFFO per share after normalizing for these temporal issues. Particularly considering the historically modest leasing environment we're currently in.

This growth demonstrates the underlying strength of our core leasing businesses and its ability to generate mid-teens compounded growth in AFFO per share on a constant currency basis. This gives us great confidence in our ability to continue creating significant value for our shareholders for years to come.

We continue to selectively deploy capital towards portfolio growth. In the first quarter, we acquired 117 communication sites for $75.3 million in cash. We also built 71 sites during the first quarter. These additional sites are located in both domestic and international markets.

We continue to invest in the land under our sites as this is both strategically beneficial and almost always immediately accretive. During the quarter, we spent an aggregate of $14.7 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 74% of our towers and the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years.

Shifting gears, with regard to the company's tax status, we continue as of the date of our last federal income tax filing to file as a C Corporation.

However, we have taken the necessary steps to ensure we are operating in accordance with all necessary requirements to allow the company to choose to convert the filing as a real estate investment trust at any time. We have not officially made that election as of today.

Several factors including financial, strategic, valuation and tax considerations will impact the timing of our eventual decision to convert to a REIT. On the tax front, we currently have gross, Federal NOLs of approximately $1.2 billion. We have begun using some of these NOLs over the last year or so to offset taxable income.

Our current projections suggest we will use up these NOLs entirely sometime during 2020. In addition, our current accumulated earnings and profits balance is a deficit. We anticipate having positive accumulated E&P sometime during 2017.

We will continue to consider these factors and others in determining the appropriate time for SBA to officially convert to REIT status. Finally, our first quarter earnings press release includes an updated outlook for full-year 2016.

The adjustments we've made to our full-year guidance, since it was originally provided, have been driven primarily by changes in foreign exchange rates and adjustments to our expectations for carrier leasing and services activity levels from the levels we assumed when initially setting 2016 guidance back in early November.

Beginning with our 2017 full-year guidance, in order to provide the most accurate outlook possible and to be more in line from a timing perspective with our customers budgeting cycles, we will now be providing initial annual guidance for the first time each year when we report our fourth quarter results for the prior year.

We believe having full year results for the prior year and better information at our carrier's customers annual spending plans will allow for greater precision when we provide our initial full-year guidance outlook. At this point I'll turn things over to Mark who will provide an update on our liquidity position and balance sheet..

Thank you, Brendan. SBA ended the quarter with $8.6 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $129.1 million. Our net debt to annualized adjusted EBITDA leverage ratio was 7.7 times.

Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.4 times. We ended the quarter with $20 million outstanding under our $1 billion revolver and we have zero outstanding as of today.

At quarter end, the weighted average coupon of our outstanding debt is 3.9% and our weighted average maturity is approximately five years. During the quarter, we repurchased 507,000 shares of common stock for $50 million at an average price per share of $98.65.

We currently have $650 million of authorization remaining under our stock repurchase program. Quarter end shares outstanding were 125.5 million. We have no debt maturities in 2016. Our next maturity is $550 million of securitization notes due April 2017.

We believe the prevailing rates to refinance these notes in the securitization market today would allow us to further reduce our weighted average interest rates. We feel good about our balance sheet strategy, and our ability to refinance existing debt and access additional capital if desired.

Our debt prices across our capital structure continue to reflect the stability in and attractiveness of our underlying business. Our leverage target remains in the 7 times to 7.5 times range.

Our primary capital allocation focus is portfolio growth that meets our investment return requirements, which could be augmented with share repurchases at prices that we believe are below intrinsic value as we have done over the past several quarters. With that, I'll turn the call over to Jeff..

Thanks, Mark, and good evening, everyone. As you heard from Brendan earlier, we had a solid start to 2016. Our customers in the aggregate were and are still very active with their networks, particularly in the U.S. with amendments to existing macro site infrastructure.

The driver for all this activity continues to be that the demand for mobile data is outstripping network capabilities even after all of the benefits of spectral efficiency and improvements to technology. We believe this dynamic continues for years to come and as a result we remain very optimistic about our future.

In the U.S., customer activity has remained steady for three straight quarters in terms of both contract volume and revenue added. The type of work we are seeing continues to be primarily around AWS-1 and 700 megahertz deployments as well as re-farming of 2G and 3G spectrum to LTE.

We are in the very early innings of AWS-3, WCS or 2.5 gigahertz spectrum deployments, all of which remain opportunities ahead of us. By application and executed contract volume, the activity is substantially amendments.

The amount of activity around and investment in our customer's existing macro sites continues to be robust and underscores the importance of macro sites in our customer's network plans. We expect the investments in macro sites by our U.S. customers will remain heavily weighted towards amendments for the remainder of this year.

Our backlogs remained steady compared to last quarter, but we have not yet seen any material increase in activity levels. We have increased our full-year leasing revenue guidance due to improved assumptions around foreign currency translation.

Our full-year leasing revenue guidance now also reflects our first quarter outperformance, some pickup from acquisitions and assumes continued steady incremental revenue added in the U.S. through the end of the year at a fourth quarter to fourth quarter U.S.

and consolidated cash leasing revenue growth rate of 7.2% and 8.0%, respectively, on a gross basis at the midpoint of guidance. Aside from the guidance changes due to foreign currency translation, these other adjustments had a de minimis impact on our full-year leasing revenue guidance of approximately 0.1%.

With regard to our services guidance, we revised our 2016 outlook downward to primarily reflect reduced work from Sprint compared to the amount we recognized from Sprint in 2015. Services work from other customers is expected to remain steady for the remainder of 2016 consistent with the activity we saw from those customers in 2015.

Internationally, we had a very good first quarter with constant currency gross same tower, cash revenue growth of approximately 13%. Leasing activity occurred across all of our markets and with a variety of carriers. Demand for our international towers remain solid. We built 61 new towers internationally in the first quarter.

Activity across our five Central American markets was very good. Our largest international market, Brazil, also continues to perform very well on a constant currency basis. It was our best same tower gross organic growth market year-over-year at almost 14%.

We continue to have operational success, building new sites for our customers and securing new leases and amendments on our existing portfolio. We expect solid long-term growth for our business in Brazil. Carrier networks in Brazil significantly lagged those here in the U.S. 4G deployments are in the early stages.

The deployment of 700-megahertz is still largely to come in Brazil, and the demographics of the population heavily support expanding wireless consumption. We continue to execute very well across all of our markets, and the quality of our assets is evident. Tower cash flow margins were once again close to 80%, and well over 80% in the U.S.

We expect tower cash flow margins to increase even further as we move into 2017. We expanded our industry-leading adjusted EBITDA margins by 180 basis points to 70.3% in the first quarter versus last year. And our cash SG&A expenses remain very low as a percentage of cash revenue.

This was the first time we, or for that matter anyone in our industry, posted adjusted EBITDA margins above 70%. Excluding pass-through revenues, our tower cash flow and adjusted EBITDA margins would be even higher. We remain very focused on our margin performance as we view it as the best gauge of our operating performance.

As Mark mentioned earlier, we are maintaining our 7.0 times to 7.5 times net debt to adjusted EBITDA leverage target based on our expectations around organic growth, interest rates staying lower for longer and our excellent access to the capital markets. Our balance sheet and liquidity position remain in great shape.

SBA remains a favorite issuer in several debt markets, and our debt trades very well in the secondary market. Over the next 12 months, we expect our liquidity to be steady and remain over $1.5 billion including the cash we generate. As always, capital allocation remains a primary area of focus.

In the first quarter, we allocated capital in a very balanced fashion. We invested approximately $170 million, of which $75 million was for acquisitions, $50 million for stock repurchases and lesser amounts for new tower builds, land purchases and tower augmentations.

Our first preference for capital allocation remains to invest in quality assets that meet our return hurdles both domestically and internationally as we believe quality asset growth at the right price is the best way to increase long-term shareholder value. The opportunity set remains good.

There are number of additional acquisition opportunities, both domestic and international, that we are currently evaluating.

As we have shown, however, if we do not believe those opportunities are at the right price or terms, we're quite comfortable using our leverage capacity to buy back our own stock when we believe the share price is below intrinsic value.

We believe our continued thoughtful approach to capital allocation will create significant additional value for our shareholders for years to come. Looking forward, we see many years of continued activity from our customers which will generate additional revenue opportunities for SBA.

The AWS-3, WCS and 2.5-gigahertz spectrum deployments, I mentioned earlier, will accelerate and deployments will occur of the DISH spectrum, the FirstNet spectrum and the soon-to-be-auctioned 600-megahertz spectrum.

The FCC just announced that TV broadcasters have indicated willingness to sell the maximum amount of 600-megahertz spectrum targeted by the FCC, which we think will provide substantial activity for us in our primarily non-urban tower portfolio in years to come.

More spectrum is anticipated to be made available in connection with 5G, which we also expect to provide opportunities for us.

While much is unknown about 5G at this point, particularly in the non-urban markets, we expect a dramatic increase in the number of antenna, changes in antenna technology and size, the need for locations for C-RAN base stations, and backhaul and fronthaul aggregation points, and backup power resources.

All these items that I'm confident others will keep macro sites a critically important part of our customers' networks. We see similar dynamics and prospects in our international markets. The deployment of the 700-megahertz spectrum in Brazil is an example of a large spectrum deployment yet to come.

With our high-quality asset portfolio, we have spent close to 20 years carefully assembling, we are very well positioned to participate in this activity, which over time we expect to be very material. Near-term, in addition to the prospects for solid customer activity, in all our markets and particularly in the U.S.

post the 600-megahertz auction spend, we expect a number of SBA-specific items will improve in 2017. We will have moved past reporting periods, which include the impact of the iDEN churn. We expect year-to-year variations in our amortization of augmentation reimbursements to have smoothed considerably.

Based on current exchange rates, the headwinds experienced from foreign currency translations would be greatly reduced, and could, if current exchange rates are maintained, actually turn into a tailwind in the fourth quarter of this year.

As Brendan mentioned earlier, when you adjust for some of these temporal items, you can see how strong our underlying results are and why we're so excited about the long-term value creation prospects for SBA.

As a result, today we are introducing our goal of over $10 per share of AFFO in 2020 representing compounded growth of AFFO per share in the mid-teens on a constant currency basis. The future remains very bright. The business continues to be steady and predictable with ample opportunities to add revenue.

We expect to continue to see good and steady leasing activity from our domestic and international customers driven by the growth in mobile data traffic worldwide. We're very well capitalized, and have many opportunities to create value through capital allocation.

Wireless growth shows no signs of slowing, more infrastructure will be required and we are excited to be a key participant in that story. Ryan, we're now ready for questions..

Okay. Our first question comes from the line of Jonathan Atkin with RBC Capital. Please go ahead..

Jonathan?.

Mr. Atkin you might have your mute button on..

Yes. Thanks very much. So, I was interested in the $10 per share in AFFO guidance by 2020.

And what would be the right way to think about this split between international and domestic? And then turning to the full-year guidance, it looks like you increased it entirely on FX and also by sort of like a lesser amount than the amount you beat this quarter, and I wonder if that had to do with the fact you're building fewer new towers this year.

You did rest, you got the tower build guidance, what are some of the factors there for the 2016 guide? Thanks..

Yeah. In terms of the splits between international and domestic, we're really projecting ongoing revenue growth rate similar to where we are today. We feel conservative view on the next four years. And in terms of asset growth, it's probably two-thirds international, one-third domestic.

Although, the asset growth projections and all of that, Jonathan, are really right at the low end of our traditional 5% to 10% portfolio growth per year. So, we feel it's extremely achievable goal that we put forth..

Jonathan, on the full-year guidance changes, you're correct that most of the change was due to FX. So, if you take the leasing revenue guidance, we increased our midpoint of that guidance by $11.5 million from the previous version. $13 million positive increase was due to FX, as we discussed.

So, the net change otherwise was a reduction of only $1.5 million at the midpoint. In the first quarter, we beat – when you exclude the FX component of our outperformance in the first quarter, we outperformed by $4.2 million.

So that leaves us basically a reduction that's a little less than $6 million for the balance of the year from what we were assuming previously. And that's basically all due to the slower activity levels we expect organically during the rest of the year from what we were previously anticipating.

There's a modest amount of pickup from some M&A that we did, but that's less than $2 million. So, basically the changes the reduction in domestic organic activity..

And the tower build expectation dropped by 60 [towers] (26:08). Just interested in where that's taking place, and what drove that..

Yeah. That's correct. Most of the reduction is due to anticipating in building less towers in Brazil. Many of the Brazil new builds that were expected to be completed toward the latter half of the year anyway.

So, based on the progress or the pace of progress with our customers where we are right now, we're expecting that some of those sites will probably slip into next year, but because many of them were expected to be completed toward the end of the year, the impact on our forecasted revenues and TCF is relatively small..

Thanks very much..

Sure..

Next question comes from the line of Phil Cusick with JPMorgan. Please go ahead..

Hey, guys. Thanks. So, first to follow up on the domestic. So, at this point, you're not looking for any sort of carrier ramp for the rest of the year.

Is that fair?.

Yeah. I think given the fact that we need to see something material between now and the end of the third quarter for it to impact our full-year financial results, Phil. And the fact that the 600-megahertz auction looks like it may be bigger now and last longer based on the reports that came out of the FCC on Friday.

We're guiding to steady revenue growth between now and the end of the year..

I think that makes sense.

And then, so for the fourth quarter domestic, you'd be at 8% year-over-year growth?.

Yeah. On a consolidated basis, not U.S., consolidated..

I'm sorry. And what will that U.S.

be?.

7.2% gross on a U.S..

7.2% a gross. Yeah..

That's a midpoint of guidance..

Yeah. Perfect. Okay. And then Brazil, I mean, you're saying things are slipping a little bit. I'm hearing that things in Brazil sound just almost completely dead.

Do you feel like the growth there is sort of petering out further as we go through the year? What does that look like?.

No. I think the comment that Brendan made was directed to new builds. Actually, the lease up activity has been fine and steady. So, we really are not projecting any material changes between now and the end of the year in terms of the organic picture in Brazil.

Now, we would agree we think it could be a lot better if the economy were better down there, but we're actually doing just fine in spite of what is, as you said, a very tough economy..

If I can, one more. Can you remind us what you lose by converting to a REIT? What do you lose in terms of flexibility? Thanks..

Well, in our case, there's not a lot of lost flexibility because we already are operating as though we are a REIT today. So, from an operation standpoint and some of the administrative headaches that go with it, we're actually already set up now to deal with those. It's really more just about using those NOLs while we have the flexibility to do it.

It's about some state tax implications that we might incur if we were to convert because we'd have taxable REIT subsidiaries that today are consolidated within our entire reporting structure. So, there would be some, while very small some negative tax implications if we were to convert earlier..

Great. Thanks, guys..

Yeah..

Your next question comes from line of Jonathan Schildkraut with Evercore. Please go ahead..

Good evening, and thank you for taking the questions. A couple if I may. The first is, just taking a look at the iDEN churn and the implications here, and obviously it's a very big headwind.

If I understood correctly though, coming into this year, the iDEN churn we were experiencing at the end of last year was related to the TowerCo set of assets that you had required.

And, I guess, I was under the impression that there were more single tenant sticks in that portfolio such that you'd be able to ramp down some of the costs, some of the site leasing revenue went away.

I was wondering if we could get a perspective of whether that's actually happening or if there were some other reason why you've maintained those sites. Again, just looking at sort of the impact on AFFO guidance. And then I'll circle back with the second question if I may..

Yeah. Jonathan, we actually did go into it, the TowerCo deal, with the understanding that there were sites that if we were not able to add second tenets, we would decommission those sites and eliminate the costs associated with them.

We actually have been able to do that over the last couple of years, many of them in advance of the termination date that took place in October. So, we did realize a number of savings there. There are some others that were still doing that on, but that's been in, kind of, building in our numbers over the last couple of years..

Okay. That's actually very helpful. It's great to hear that you're continuing to find some opportunities in the private markets, I guess, both domestically and abroad.

And I was just wondering if you might give us a little insight into what's going on from a pricing perspective for those assets, or are you seeing any change in terms of the expectations set of the private tower companies given that right now we're at a slightly slower secular growth than we've seen maybe in some prior years? Thank you..

Yeah. The expectations are slowly changing, Jonathan, because we're walking away from probably more deals in the U.S. than we do.

There is a fair amount though of product out there that it's available, and we'll continue to pursue it and only pursue it to the end when we see prices that make sense for us over both the short-term and long-term period of time.

I think there is a little bit still of unrealistic views of reality from some of the sellers, particularly those that have the single tenant towers because while the carrier activity is pretty darn good around amendments, it's slower on brand new cell-siting as I think everybody knows.

And that, some folks who are building these towers still are unwilling to accept that, but those are not the ones we're buying..

That makes sense. If I could sneak one more in here, you gave the gross growth for the U.S. and consolidated. I guess, you just reviewed that with Phil.

I was wondering if you – because you may have just moved past it too quickly from me, if you have the net numbers to correspond to the 7.2% and the 8.0%?.

Yeah, sure. So, for the 8.0%, we would be basically around 6.5%, mid-6%s, and for the domestic, we would expect to be in the mid-5%s, around 5.5%..

Thanks so much for taking the questions..

Okay..

Our next question comes from the line of David Barden with Bank of America. Please go ahead..

Hey, guys. Thanks for taking the questions.

I guess, the first one would be maybe, Brendan, could you walk through your expectations on how the Brazilian exposure will exist through a potential Oi debt restructuring and all the different kinds of options that Oi has to, kind of, cycle through to address their debt situation? Definitely getting questions on just kind of what the risk is to that process because I don't think a lot of people are familiar with the 'bankruptcy process' in Brazil.

And then the second question is, I think, Brendan, again, I think you used the words, historically low activity levels here in the U.S.

I was wondering could you comment on any potential that maybe the Verizon towers over American tower have been taking market share from the market in general because it's the first time they've been available, and obviously there's kind of a new car smell that goes with that and then that goes away in 2017, and the market dynamic for towers normalizes a little or is that not an issue? Thanks..

David, at the risk of disappointing you, this is Jeff. I'm going to answer the Brazil question, because I was spending a lot of time with our Brazilian team on it. Right now, Oi is pursuing an out-of-court restructuring, which would leave our involvement in our contracts unchanged.

We have not been asked to opine, we've not been asked to participate in this process. And if it is successful, there's no changes for us other than we have a financially stronger customer down there. So, we are rooting for that to occur. If it doesn't occur, Brazil has two types of bankruptcy, judicially.

The first thing I talked about was an out of judicial process. The two types of bankruptcy in Brazil judicial are essentially very much the same as the U.S. Chapter 7 and the U.S. Chapter 11.

If Brazil or if Oi pursues a judicial remedy, we're very confident that it would only be in the restructuring side of things, which, again, based on the laws down there, they would not be able to terminate our operating leases.

So we feel extremely good about how we're going to come out of this Oi debt restructuring process, whether it's out-of-court or in-court. And then I would add that just like in the United States, if, in fact, the judicial process turns into a Chapter 7 liquidation, that would be the scenario in which we could lose our leases.

We don't expect to see that even in the slightest..

And, David, on your other question, I think the words I used were historically modest, not necessarily historically low. But in either case, I think everybody knows that leasing activity has been depressed in terms of historical levels over the last year-and-a-half.

So, we're seeing that because the carriers are focused primarily on upgrades at existing sites and capacity builds, not a lot of new sighting. So, I think, we don't believe that there's any impact from the Verizon towers taking market share. We haven't seen any evidence of that at all. So, I don't think that's a cause of this.

And I think if you look across the industry, you wouldn't see any disparity in terms of what each of the tower companies are experiencing..

Perfect. And good answer, Jeff. Thanks..

Good..

Our next question comes from the line of Amir Rozwadowski with Barclays. Please go ahead..

Thank you, very much. Just wanted to follow-up on some of the prior questions around the U.S. activity levels. I guess, what I'm trying to assess is, what has changed with respect to your overall views right now versus last quarter.

Is it that you haven't seen the pickup in activity you had anticipated? And so, given where we are in the year, it's just prudent to make those adjustments, or do you think we're at a sort of shift in terms of demand levels where we're probably not going to see as much leasing activity when it comes to new co-location activity because of some of the capital allocations to different types of structures, small cells or anything along those lines to densify networks..

Amir, I think it's entirely your first premise. I think we're just at the point now, and we were very clear with this on our last couple calls that our initial guidance assumed sequentially increasing activity levels.

And we haven't seen that from end of fourth quarter now to end of first quarter, and because we effectively only have four months or five months to go, that can impact our full year results. At this point, we're just going to guide to steady activity.

But in terms of all the stuff that still needs to be done, and we think will be done in some period of time, we remain very confident about that..

And then, if I may, on your longer term target on the $10 that you had mentioned, how should we think about that relative to growth versus capital allocation towards share buyback or anything along those lines?.

Yeah. I think you should consider it as a mix. And our assumptions around that, and first of all, it's over $10 a share. Assume that we stay levered, it assumes some continued devaluation over time in the Brazilian reals.

It assumes some capital allocation towards new builds, portfolio growth and augmentations and other things, but it does include a healthy slug of that capital allocation to share repurchases..

Excellent. Thank you very much for the incremental color..

Our next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead..

Great. Thank you very much.

Just continuing on that last question on the $10, can you just describe your sort of confidence level at getting more than $10? Is this sort of a base case number or is this a conservative case number? And perhaps you just talk about what escalators you're assuming? Can you continue at the 3%, 3.5% rate in that? And then I think you mentioned that you're cutting your expectations on site development in part because Sprint is doing less.

But what's changed between this quarter and last quarter around that specifically, because it sounds like some of that activity you weren't expecting any way coming into the year? Thanks..

I'll take the last one first. We did have a number of conversations and things, which, through our last call, gave us confidence that maybe the reductions from that client would not be necessary, but that's no longer the case, Simon..

Okay..

In terms of some of the other assumptions around the long-term, we are continuing to assume that U.S. escalators stay in the 3% to 3.5% range. We don't see any reason why that would change. And in Brazil, for example, we use a declining inflation rate over this period of time, down from where it is today.

So, we actually think it's a fairly – you used the word base-case and if you were to see the document that we've prepared we call that our base case, but we do think the assumptions around it are very conservative..

Great. Thank you..

Our next question comes from the line of Mike McCormack with Jefferies. Please go ahead..

Hey, guys. Thanks. Jeff, maybe just a quick comment and I guess you can frame it in the 2020 over $10 guide. Just thinking about your view on long-term growth and whether that's changed over the last six months.

And then maybe just a comment on the carrier behavior out there with respect to pricing, any sort of more aggressive push back from the carriers to you guys when you're signing new deals. Thanks..

Yeah. I think long-term growth – I mean, in the last two years, Mike, I think we've gone from a 20% compounded AFFO per share world down to a mid-teens world, and that's the world that we see going forward. And again that's with fairly non-heroic assumptions around it.

I think when you parse down the operating leverage in our business all the way down to the AFFO per share line, and you look at our continued use of leverage at even assuming increasing rates, but not wildly increasing rates over that period of time, that's how you get there.

So, the biggest change is, from two years ago to today are several percentage points of decline in assumed organic growth rates. So that's kind of our views have changed over the last couple of years. In terms of carrier behavior, hey, look, our customers are fighting for every dime. They're in a very competitive world out there.

They're definitely, as they always have, paying attention to expenses. So, they fight for every last dollar, but we're good partners. They need what we have. We understand what their needs are, and we meet somewhere in the middle and we continue to do good business. But, yeah, our customers are focused on expenses, absolutely..

Great. That's helpful. Thanks, Jeff..

Our next question comes from the line of Brett Feldman with Goldman Sachs. Please go ahead..

Thanks. And just going back to your REIT conversion evaluation, I just want to make sure I get this correct. You're basically saying that if you were to pursue a conversion after next year, you would almost certainly have to pay at a purging dividend.

Is that correct?.

Yeah. Our current forecast say that we will be E&P positive sometime during 2017. So that would be correct if that holds true..

So then, if you were to achieve your base case in excess of $10 a share of AFFO, and you think about what the E&P would accumulate to at that point in time that kind of lines up in terms of when you would have exhausted your NOLs.

How big could that purging dividend be if you literally waited until you had no NOLs left to shield your taxes?.

Well, Brett, I mean, you're talking somewhere north of $1 billion certainly. So, I mean, at this stage that's not high on our list of considerations to wait that long, but it would be pretty significant..

So then, I guess, my last question here on this, your largest peers, public peers have already converted to REITs. They ultimately decided to convert when they still had NOLs, and I think the E&P payment was a component of that.

And so, they also decided that on conversion to REIT status, they would initiate dividends even though theoretically they could have postponed it for a bit.

Do you have a view that if you decided to pursue that conversion while you still had NOLs that you would ultimately choose to start paying some level of dividend to align with other re-practices or is that still to be determined?.

Yeah. That's the part it's still to be determined.

In our earlier comments, Brett, assume that we would convert somewhere around the time that we did have positive E&P, so that you don't have an additional drain on the capital structure, but that over $10 per share in 2020 does not assume at this point the commencement of a dividend between now and then. So, that's something yet to be looked at..

Okay. Great. Thank you for that color..

Next question comes from the line of Matthew Niknam of Deutsche Bank. Please go ahead..

Hi, this is actually Whitney on for Matt. Thanks for taking the question. Just one question on leverage. So, it looks like you guys stayed flat at around 7.7 times this quarter above your target range. So, just wondering how we should think about leverage for the rest of the year, and when you plan on kind of getting towards that target goal. Thank you..

Yeah. We continue to target 7.0 times to 7.5 times. We're only above it because we believe our stock has represented extremely strong intrinsically valued opportunity. So, you should see us get back to our target range by the end of the year..

Okay. Great. Thank you..

Next question comes from the line of Colby Synesael with Cowen. Please go ahead..

Great. Just want to go back to the response you had to Brett's question. So, if I heard you correctly, you said that the greater than $10 per share in AFFO in 2020 assumes no dividend is paid between now and that period.

So, it seems like the real decision to potentially transition to a REIT, which, I guess, you voluntarily started talk about today more proactively, would be just because you don't want to pay an E&P purge. So, effectively since you're assuming you're going to be positive in that regard in 2017.

It doesn't seem like there's any reason for us not to assume that you won't transition to a REIT in 2017.

Am I not understanding that correctly?.

Yeah. You may be overstating it a little bit, because initially the E&P is going to be de minimis..

Okay..

It's going to build, but it's not going to be much of anything in 2017..

Right. So, yeah, between 2017 and when it becomes material from your perspective is when you would want to convert.

And then, I guess, as tied to that, when you do become a REIT would you still have the same leverage goals, I mean, the 7 times to 7.5 times? Is there any reason why as a REIT you would think that that would have to change?.

No. It wouldn't have to change other than our assessment of how best to maximize value for our shareholders. I mean, we have, for years, believed and particularly in this interest rate environment that our capital appreciation model of leverage growth was the way to go.

The math continues to support that regardless of whether you're in a REIT tax selection or not, but we will. As we get closer, we'll be evaluating whether a lower leverage, higher payout yield model makes more sense for our shareholders than the leverage capital appreciation model. And that's the issue, that's the decision to be made..

Great. And then my last question, amendments, so I think we've all historically appreciated that in a generational upgrade cycle, 2G, 3G, 4G refers to (49:40) the amendments, and then at some point we're anticipating that we'll see a lot more self-splitting.

And, so far, with 4G that really hasn't played out that way, it continues to be more amendments. And I think you've been asked this question a few times tonight, but I'll try to ask a little bit differently.

It seems like something is different with this current generation upgrade versus those previous, and that's why we're not seeing the cells playing like perhaps we have in the past and you know one or more obvious explanations for that could be small cell, which is more than new cell sites are going towards small cells as opposed to macro towers and that would suggest them that the overall growth rates that we've seen with 2G and 3G historically may not apply then to what we're seeing with 4G, what we'll see on a go forward basis with 5G.

What's your response to that?.

Yeah. I don't see it that way. What I see over the last two years, 2015 and 2016 is a world where our customers have a lot of calls on their capital. I believe it was $45 billion of AWS through spending last year and now in light of the 126-megahertz of 600 spectrum could be that much this year.

You had other things that some of our customers were doing. And at the end of the day, I believe their top priority in addition to growing their business is to maintaining their dividend. So, they're prioritizing things.

And they've concluded, I think, that their highest priority for the time being is to densify their networks, which densify doesn't mean just small cells, it means amendments to all of the macro sites.

And that's where the capital is going, which I find very logical in light of where they happen to be and the amounts of money that they have available to spend without impacting their credit ratings or their dividends. So, I would disagree with you there a little bit, Colby..

Okay. Thank you, Jeff..

Our next question comes from the line of Nick Del Deo with MoffettNathanson. Please go ahead..

Hi. Thanks for taking my question.

First on the $10 per share AFFO goal, is that still achievable in the event that T-Mobile and Sprint get together?.

It is because we don't think, I mean, they're not going to be able to decommission things that quickly. So, yes. The answer to that would be, yes, but then we'd have to read that with – that is not anticipated in that plan. I don't think it would prevent us from getting there, but it might impact the growth rates going forward in the United States..

Okay. Makes sense. And then second question, last quarter you talked having some things in the hopper that could help bolster growth later this year, and they weren't in guidance because they hadn't been signed. So, presumably, they wouldn't have been a driver of the reduction in the outlook.

Are those items still out there? And if so, what might the timing look like if they were to flow through?.

Some of those have come in, Nick, but the backlogs just haven't come in above that.

We needed backlogs to continue to grow, and they've actually been very, very steady, but some of those things that we thought could happen did, but the backlog still are stable and don't support that tick up in activity that we had originally assumed that's going to occur..

Okay. Thanks..

Our next question comes from the line of Matthew Heinz with Stifel. Please go ahead..

Hi. Thanks. Good evening. Just like to get an update, I guess, going back to your capital allocation plans. I think both in terms of portfolio M&A and the buyback, it seems as if the pace of tower M&A continues to decelerate, and looks like you chose not to do any additional buyback since the fourth quarter call.

So, just curious how you're thinking about putting the capital to work right now, and what the implications might be for your debt ratios leverage going forward?.

Well, we have a lot of capital. We have an undrawn revolver and then we have our organic AFFO that we generate. So, we have tremendous liquidity. And, you're right. And to your point, the primary governor at this point is our target leverage range.

So, as we move through that, and EBITDA picks up, and we could actually have a tremendous boost if we see continued improvements in the FX translation rates. But that will largely dictate how much of that liquidity we will spend. It's not a liquidity issue as much as it is just staying around our long time leverage targets..

So, I guess, what I was looking for there was just sort of an update of how you're thinking about the M&A environment. You said that it continues to be kind of sticky in terms of pricing and not necessarily all that attractive.

So, is there any consideration of going down below the target range for the time being when the environment kind of remains less attractive? I guess, how do you think shareholders would react to a de-levering process, kind of a natural organic de-levering process and maybe a move toward a slower growth income driven story for SBA?.

Yeah. I think they would react well if you kind of take that through to its logical conclusion.

But if you do that, you're really giving up the opportunity to use historically low cost debt to grow the company and particularly to buy your stock back at what I think will prove to be extremely attractive pricing, particularly as we move past 2016 and people start to see what the numbers look like once we get rid of the iDEN churn and the other three or four items that we mentioned, which all will look better in 2017.

We think we have some pretty unique opportunities right now that will be maximized if we continue to maintain the capital structure that we have..

Okay. Thanks.

And just as a follow-up, perhaps I missed this before, but could you just remind us what your gross and net same tower growth assumptions are for both domestic and international on the updated 2016 guide?.

Yeah. It measured as a fourth quarter compared to fourth quarter of last year, the consolidated gross number was 8%, net, 6.5% range. On the domestic side, it was about 7.2% at the midpoint of guidance, mid 5%s, 5.5% on a net basis; and internationally, we would expect it to be about 13% both gross and net..

Thank you..

Yeah..

Ryan, we have time for one more question..

Okay. And that question comes from the line of Michael Bowen with Pacific Crest. Please go ahead..

Okay. Thanks a lot. Digging deep here to find something value added here, but couple quick ones, since everybody has hit everything. On the 600-megahertz auction, I took from your comments that maybe you had something baked into your outlook. So, if I'm reading that right from your commentary, if you could address that.

And then, one of the things I was looking at also was your percentage of domestic site leasing revenue. Most of the percentages over the last two years seem to make sense except for T-Mobile. It looks like they basically remained about constant in that 19%, 19.5% range of site leasing revenue.

I would have thought that that would have increased given their activity. Can you kind of point me in the direction of what I'm missing there? Thanks..

Yeah. Brendan is going to take the second one, but I said something a little different on the 600-megahertz. My point on the 600-megahertz is, with the news that came out Friday and the size of the spectrum being offered now kind of at the max.

That may prove to be a bigger call on our customers capital than what folks originally thought or what they even planned for without knowing that the maximum was going to be made available. And the way that auction works now with the greater amount of spectrum being available, it actually could take longer to complete as well.

That was the point I was trying to make..

Yeah. And then, Michael, on the question about T-Mobile, if you go back into the 2014 timeframe and earlier, they were just simply being outpaced by AT&T pretty significantly. So, their percentage wasn't necessarily increasing too much at that point.

Recently it's begun to increase some, but the other factor is that we signed with them an agreement that allowed for a much higher escalator for a period of time. And when you book that on a GAAP basis and those percentages you're looking at are GAAP based, it straight lined in.

So, you don't actually see the revenue contribution from that increasing over time, but you are seeing some increases if you look at the last so many quarters, you'll see that they're actually picking up. I think they're up a full percentage point from six months ago just based on organic new leasing activity..

Okay. Thank you very much..

Yeah..

And thank you everyone for joining us this evening, and we look forward to reporting our second quarter results. Thanks, Ryan..

Thank you. Ladies and gentlemen that does conclude today's conference. Want to thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect..