SBA Communications Eyes 6G Leasing Rebound, Edge Data Centers and Buybacks

Key Points

• SBA Communications expects a future U.S. tower-leasing recovery following a planned 6G spectrum auction next year, with deployment potentially beginning in late 2028 or early 2029 after spectrum clearance.
• The company is exploring edge data centers at tower sites, with roughly half of its locations potentially suitable, though customer demand for the computing capacity remains uncertain.
• SBA is prioritizing share repurchases as its preferred use of approximately $600 million in annual excess capital, while navigating DISH churn, Brazil’s near-term consolidation headwinds and continued Central American growth.

SBA Communications NASDAQ: SBAC sees a cyclical recovery in U.S. tower leasing tied to future spectrum deployment, while also identifying edge computing, Latin American growth and share repurchases as areas of focus, Executive Vice President and Chief Financial Officer Marc Montagner said during an RBC communications infrastructure session.

Montagner said U.S. wireless carrier capital spending typically rises after operators acquire spectrum and deploy a new generation of technology, before declining during a subsequent “harvest” period. He said capital expenditures for the three major U.S. carriers historically have reached about 25% of revenue at cycle peaks and fallen to roughly 15% during slower periods.

“In 2022, 2023, we were right at a 25% mark. Last year and this year, we were at about the 15% mark,” Montagner said. Despite the current trough, he said SBA continues to grow, estimating growth of about $35 million this year compared with approximately $78 million in 2022.

Spectrum Auction and Edge Computing

Montagner pointed to a planned 6G spectrum auction in the first half of next year as a potential future leasing catalyst. He said the spectrum would require roughly 18 months to clear, putting potential deployment activity in late 2028 or early 2029. The Federal Communications Commission is expected to auction 160 megahertz of spectrum, he added, suggesting there could be more than three bidders and potentially participation from satellite operators.

He also discussed opportunities for edge data centers at tower sites. SBA believes about half of its sites could accommodate a small data center, according to Montagner. He said companies have raised capital and are negotiating leases to place mini data centers at the base of towers, where they could benefit from existing power, fiber and low-latency connectivity.

However, Montagner said customer demand for the computing capacity remains uncertain. “When I ask them, ‘Have you signed any, basically a retail customer or people are going to use that compute?’ I get very fuzzy answers,” he said, adding that he expects demand could emerge over the next year or so.

SBA intends to remain principally a passive infrastructure provider, leasing vertical tower space and horizontal ground space. For edge data center tenants, it could also provide power where requested, Montagner said, because those facilities’ power needs are relatively limited.

Brazil and Central America Outlook

Montagner said Brazil represents about 15% of SBA’s revenue and 15% of tower cash flow. He described the company as bullish on the country’s long-term outlook but acknowledged near-term headwinds from carrier consolidation churn in 2026 and 2027.

He said 5G deployment in Brazil remains below 50% and that carriers face coverage and deployment requirements from regulators. SBA has about 12,000 towers in Brazil and does not anticipate expanding through mergers and acquisitions in that market, Montagner said.

In Central America, SBA built 7,000 sites for Millicom last year under a 15-year U.S.-dollar-denominated contract that escalates with U.S. CPI, he said. The company has commitments from Millicom for another 2,500 build-to-suit sites and has locked in a net-to-high-single-digit growth rate in U.S. dollars, according to Montagner.

Montagner also agreed that it could make sense to consolidate the company’s portfolio and potentially seek buyers for certain non-core smaller markets.

DISH Exposure and Carrier Activity

Regarding DISH Network, Montagner said SBA expects about $56 million of revenue from the company this year, which he characterized as churn. SBA also had about $100 million in short-term leases with DISH and roughly $100 million in unpaid payments, for which it has filed a claim in bankruptcy court.

“I have no idea what the recovery is going to be,” Montagner said, calling the potential recovery immaterial to SBA. He said equipment left by DISH on SBA towers has been deemed abandoned. If SBA receives demand for the space, it removes the equipment and re-leases the location; otherwise, it leaves the equipment in place until it can re-lease the space.

Montagner said SBA’s 10-year agreement signed with Verizon last year is performing well, while its master lease agreement with AT&T runs through April 2028 and has been steady. T-Mobile has slowed somewhat this year amid a focus on free cash flow, he said.

Capital Allocation

Montagner said SBA generates approximately $600 million of excess capital annually after accounting for figures including roughly $1 billion in EBITDA, $250 million of maintenance capital expenditures, $530 million of dividends and $500 million of cash interest expense.

The company paid down about $70 million of debt in 2023 and repurchased about $500 million of shares last year, he said. SBA plans to remain flexible based on its share price, master lease opportunities and interest rates, but is currently leaning toward buybacks. Montagner said the company’s AFFO per share was about $12 and its share repurchase yield was above 6.5%, compared with debt recently raised at 5.25%.

“Right now we’re indexing towards share buyback,” he said.

About SBA Communications (NASDAQ:SBAC)

SBA Communications Corporation is a real estate investment trust that owns, operates and develops wireless communications infrastructure. Its portfolio primarily includes communications towers, rooftops, small-cell networks and distributed antenna systems used by wireless service providers, government agencies and other communications customers.

The company generates revenue mainly by leasing antenna space and related infrastructure to tenants, who install equipment used to provide wireless voice and data services.

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