Macro Sites Are Preferable

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Telecommunication Tower on Blue SkyExteNet Systems announced their capital restructuring on July 23, and that SBA Communications would be exiting the small cell scene. The tower company had invested in the small cell company five years ago. It decided to take the cash and focus on the macro side of the industry. “Restructuring contemplates both initial and future earn out payment and when it is all said and done we expect to return of more than two times our initial investment of $43 million which we believe will equate to an approximately 13% to 15% internal rate of return,” Jeffrey A. Stoops, President and CEO at SBA said during last week’s conference call. Stoops went on to explain that exiting ExteNet, rather than increasing their investment, will give the company better uses of capital that will produce superior long-term growth in AFFO per share. “Through the experience we have concluded that we prefer the macro site tower business given our history, experience, and the business model’s proven success, operational leverage, and financial advantages,” Stoops said.

SBA’s decision to leave the small cell and DAS world surprised many in the industry, especially since Crown Castle has been vigorously pursuing this technology. But Stoops explained the decision was really a financial one. “[We] concluded that to substantially increase our SG&A [selling, general, and administrative] overhead expense, to vigorously compete for what we believe is the lower margin, capital intensive loan cycle business, which is currently, and we think is going up to stay, [a] relatively small percentage of our customer spending, is inconsistent with our long term views of increasing tower cash flow margin, adjusted EBITDA margin, AFFO margin, and ultimately maximizing AFFO per share. It was really a financial decision as most things we do are, and again it’s all about our quest to constantly maximize AFFO [adjusted funds from operations] per share.”

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August 4, 2015 |
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