Aug 2, 2011
Executives
Mark DeRussy – Director of Finance Jeffrey Stoops – Chief Executive Officer Brendan Cavanagh – Chief Financial Officer
Analysts
Suhail Chandy – Wedbush Securities Simon Flannery – Morgan Stanley Ric Prentiss – Raymond James Jason Armstrong – Goldman Sachs Jonathan Schildkraut – Evercore Partners Jonathan Atkin – RBC Capital Clay Moran – Benchmark Richard Choe – JP Morgan James Ratcliffe – Barclays Capital Gray Powell – Wells Fargo Securities David Barden – BofA/Merrill Lynch Michael Rollins – Citi Investment Research
Operator
Welcome to the SBA Second Quarter Results Conference Call. (Operator Instructions) I would now like to turn the conference over to our host Director of Finance, Mr.
Mark DeRussy. Please go ahead.
Mark DeRussy
Good morning everyone and thank you for joining us today for SBA second quarter 2011 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, as well as 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 2011 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 last night’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 statements we may make. Our statements are as of today August 2, 2011, and we have no obligations to update any forward-looking statement we may make.
Our comments today will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other information required by Regulation G has been posted on our website spasite.com.
With that out of the way I will turn the call over to Brendan to comment on our second quarter results.
Brendan Cavanagh
Thanks Mark, good morning. As you saw from our press release last night our second quarter financial and operational results were very strong.
We exceeded the high end of our guidance for site leasing revenues, Tower cash flow and adjusted EBITDA and increased those elements of our full year 2011 outlook. Total revenues were a $171.1 million up 10.7% over the year earlier period.
Site leasing revenues for the second quarter were a $150.2 million or a 14% increase over the second quarter of 2010. Our leasing revenue growth was driven by both organic and portfolio growth.
The vast majority of our site leasing revenue comes from the U.S. and its territories with approximately 3% of total leasing revenue coming from international operations.
We had an FX benefit of only $32,000 in the quarter. Site leasing segmenting operating profit was $118.1 million or an increase of 16% over the second quarter of 2010.
Site leasing contributed 97.6% of our total segment operating profit. Tower cash flow for the second quarter of 2011 was a $118.6 million or a 14.3% increase over the year earlier period.
Tower cash flow margin was 80.1% compared to 79.5% in the year earlier period. We have now close to two consecutive quarters of tower cash flow margins of 80% notwithstanding the higher number of less mature new build towers we have put into operation.
This success reflects both the strength of our organic revenue growth as well as our cost control including the results of our ground lease purchase efforts. Operationally, we are experiencing strong leasing demand both domestically and internationally.
We had one of the most active quarters ever in terms of leasing activity. Our incremental organic leasing revenue added per tower during the quarter accelerated from both the year earlier period and the first quarter of this year.
Amendments which were predominantly from AT&T and Verizon continue to show strength and contributed over one-half of total incremental leasing revenue added in the quarter. It is primarily the high level of newly signed leases and amendments in the second quarter that drives the increase to our full year site leasing revenue outlook.
Our leasing backlog right now is good and we expect that the third quarter will be another solid one in terms of customer activity and we expect high levels of activity to continue throughout 2011. Our services revenues were $20.9 million compared to $22.8 million in the year earlier period.
Services segment operating profit was $2.9 million in the second quarter of 2011 compared to $2.8 million in the second quarter of 2010. Services segment operating profit margin was 13.9% compared to 12.4% in the year earlier period a 150 basis point improvement.
In the second quarter, we had a few projects pushed back several months on the services side most of which have now commenced. We are expecting a larger second half for services and we are maintaining our full year 2011 guidance for services revenue.
SG&A expenses for the second quarter was $16.8 million including non cash compensation charges of $3.1 million and acquisition related expenses of $1 million. SG&A expenses were $15.7 million in the year earlier period, including non cash compensation chargers of $2.7 million and $1.4 million of acquisition related expense.
Adjusted EBITDA was $109.5 million or a 14.6% increase over the year earlier period. Adjusted EBITDA margin continue to grow and was 64.8% in the second quarter of 2011 up from 62.3% in the year earlier period, a 250 basis point increase.
Equity free cash flow for the second quarter of 2011 was $63.7 million compared to $54.2 million in the year earlier period, an increase of 17.6%. Equity free cash flow per share for the second quarter of 2011 was $0.57 compared to $0.47 in the year earlier period, an increase of 21.3%.
Our strong growth in equity free cash flow per share is a result of solid adjusted EBITDA growth combined with a declining share count. Net loss attributable to SBA Communications Corporation during the second quarter was $29.8 million compared to a net loss of $83.7 million in the year earlier period.
Net loss per share for the second quarter was $0.27 compared to a net loss per share of $0.72 in the year earlier period. Weighted average shares outstanding for the quarter were a $112.3 million, down from a $115.7 million a year ago due to stock repurchase activity.
Quarter end shares outstanding were down to $111.4 million. In the second quarter we acquired 140 towers and built 151 towers ending the quarter with 9574 towers owned and the rights to manage approximately 4400 additional communication sites.
As of June 30th, we owned 8988 towers in the US and its territories and 586 in international markets. Total cash capital expenditures for the second quarter of 2011 were a $111.3 million consisting of $4.6 million of non-discretionary cash capital expenditures such as tower maintenance and general corporate CapEx and $106.7 million of discretionary cash capital expenditures.
Non-discretionary CapEx included about $500,000 of storm related damage above estimated insurance recovery from tornadoes, floods and mud slides that impacted a number of our markets in the second quarter. Discretionary cash CapEx for the second quarter include $68.6 million incurred in connection with acquisitions, exclusive of any working capital adjustments; $27 million in new tower construction including construction in progress and $3.9 million for growth augmentations and tower upgrades.
The augmentation figure does not reflect approximately $2.6 million or 67% of cash reimbursements paid by our customers. With respect to the land underneath our towers, we spent an aggregate of $9.8 million to buy land and easements and to extend ground lease terms.
Our investments in land are both strategically beneficial and almost always aggregately accretive. As of June 30, 2011, approximately 33.4% of our tower sites were located on land that we own or control for more than 50 years.
That number jumped 130 basis points in one quarter alone. Approximately, 70% of our tower sites were located on land that we own or control for more than 20 years.
The average remaining life under our ground leases including renewal options under our control has been extended to 32 years. At this point I’m going to turn things over to Mark who will provide an update on our liquidity position and balance sheet.
Jeffrey Stoops
Thanks Brendan. We are very active in the capital markets during the second quarter.
We repurchased approximately 1.9 million shares of our common stock for $75 million on an average $38.59. We currently have $225 million remaining under our existing $300 million optimization.
Stock repurchases continue to be an important component within our overall capital allocation process to maximize shareholder value. We continue to view them as a tool to be utilized opportunistically rather than systematically.
As of the end of the quarter we have cumulatively repurchased seven million shares on an average price of $37.19 since we began our open market repurchase activities in late 2009. Additionally, we took several steps to improve our overall liquidity position and to further improve our debt maturity profile.
First we extended the maturity of our existing $500 million revolving credit facility from February 2015 out to June 2016. We also increased permitted total secured leverage on the act of securing the facility from five times to six times.
As of the end of the second quarter the total amount available to us under this facility was the full $500 million. Secondly, we obtained the new $500 million seven year senior secured term loan B.
The term loan was issued at 99.75% at par and will bear interest at either the base rate plus 1.75% with a 2% base rate floor or LIBOR plus 2.75 % for the 1% LIBOR floor. The term loan will mature in June 2018 a year in which we previously had no debt maturing.
The proceeds from the term loan were used to pay down the existing balance on the revolver and the remainder can be used for general corporate purposes including stock repurchases. Additional information about the term loan and changes to our revolver can be found in 8-K which we filed on July 7, 2011.
We ended the quarter with $3.5 billion of total debt. We had cash, cash equivalents, short term restricted cash and short term investments of $305 million resulting in net debt of $3.2 billion.
Our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times. The same approximate level that it has been for the last seven quarters.
Our net secured debt to annualized adjusted EBITDA leverage ratio was 3.3 times. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a very strong 2.8 times.
As of the end of the second quarter, our debt had a weighted average annual cash coupon of 4.7% and a weighted average remaining maturity of approximately five years. 86% of our total debt was fixed rated.
We believe our balance sheet is in excellent shape as we have no material debt maturities prior to 2013 and we believe we have ample liquidity to meet our business plan and growth objectives. The $500 million we had available to us under our revolver combined with our cash, cash equivalent, short term investments and short term restricted cash of $305 million, gave us total liquidity of approximately $805 million as of the end of the quarter.
Including anticipated equity free cash flow over the next 12 months we have over $1 billion of committed and available liquidity. With that I will now turn the call over to Jeff.
Jeffrey Stoops
Thanks Mark and good morning everyone. As you have heard we did have a great quarter.
In the quarter we beat estimates, signed up enough new organic business to meaningfully raise our full year 2011 outlook and secured $1 billion of liquidity during the next 12 months. I feel we ended the quarter in one of, if not the strongest positions in our history.
Embedded in all of that continues to be a great macro environment for additional customer spending both domestically and internationally. It will be hard to imagine that AT&T or Verizon could be any busier on network development.
Combined they have contributed the majority of our new leasing growth in the first half of 2011. We expect materially the same levels of activity from these two customers as we finish the year and throughout 2012.
On top of that it appears Sprint is moving closer to launching the implementation of Network Vision, which we expect will be a material source of additional business for us. Our international business is doing well and when you add it all up you get a strong expected finish for SBA in 2011 and a very strong 2012.
I want to hit on a number of topics that I know are of interest to our investors before we open it up for questions. The first topic is Sprint.
We are in the process of negotiating a master agreement with Sprint regarding the implementation of Network Vision and potential network sharing. We are optimistic that an agreement will be reached but it has not happened to-date and it may never happen.
Our increased 2011 outlook does not include any impact from Network Vision or Network Sharing. With respect to the increases in our 2011 outlook, the vast majority of the increases attributable to organic leasing business signed in the second quarter which will begin to accrue revenue sometime in the second half.
A small piece of the increase for 2011 is due to additional acquisitions, more of the benefit from these acquisitions will be enjoyed in 2011. We intend to provide our initial 2012 outlook when we release our third quarter results as we have in the last couple of years.
With respect to acquisitions and portfolio growth, the number of opportunities that are available to us has grown materially since our last call. Just as importantly, things have settled down somewhat with respect to the ramifications of an AT&T/T-Mobile merger.
Where there is significant same-tower overlap, there is evaluation conversation and sellers expected. It is the logical response I thought would happen, and now I’m pleased to say that we are seeing it in the market.
I’m confident that our company will continue to grow materially through portfolio growth on terms that continue to meet or exceed our unlevered internal rate of return targets. We posted an increase in acquisition activity in the second quarter and we are working on a much larger pool of opportunity, some of which we expect to place under contract before yearend.
While this acquisition activity will likely have little impact to our 2011 financial results because of timing, full impact would be enjoyed in 2012 and beyond. We continue to pursue portfolio growth opportunities both domestically and internationally.
We are very pleased with our international results so far. In our more developed markets Canada and Panama, we are on track to produce high teens or better unlevered internal rates of return.
I fully expect to be able to say the same thing about Costa Rica in two years, which is a market that for us will consist entirely of newly-built towers. While we have enjoyed good success so far internationally, it is hard work.
You have to be very committed as to both time and resources. You have to become part of local community and gain the trust of your customers.
In most new international markets, carriers have no familiarity with independent tower ownership and operation. Most importantly, you have to be very selective about the markets you enter.
We are very pleased with the markets we have chosen, but we have passed on many more international opportunities that we have pursued. We hope to expand to our international business into additional markets, but only with the same selectivity as we have in the past.
Portfolio growth will be materially and positively impacted this year by new tower builds. We had a great second quarter building a 151 towers in the U.S.
and internationally, that is the most we have built in a quarter in over 10 years. We expect triple digit new build production to continue in the third and fourth quarters.
We had another quarter of material stock repurchase activity. Through stock repurchases we have reduced our share count meaningfully in the last 18 months.
We evaluate and execute stock repurchases opportunistically based on the absolute price of our stock and relative to acquisition opportunities. In the second quarter that analysis favored stock repurchases.
Going forward we will conduct similar evaluations quarterly, assuming the evaluations shows similar long term financial impact from a potential acquisition or stock repurchase our bias remains towards portfolio growth. Whether portfolio growth or stock repurchases we have plenty of liquidity for investment.
We are very pleased with the results of our $500 million institutional loan issue, we achieved tight pricing and execution. We carefully considered our choice of market and choose the floating rate market primarily to diversify our funding sources, but also because of floating rate market was quicker, cheaper, more stable and more certain than the securitization market.
We believe we achieved an annual interest rate that is approximately a 100 basis points lower than a comfortable seven year issue would have been in the securitized market. Based on all of our analysis around future potential movements in LIBOR we believe that we will pay no more and likely less than aggregate interest under our new $500 million institutional loan, than had we issued in the securitization market.
More importantly this is very low cost capital that we fully expect to be able to invest accretively and at value creating ways for our shareholders. Even the current state of capital markets affairs, we feel very good to have this much liquidity readily available.
Before we open it up for questions, I do want to recognize the contributions of our employees and customers to our success. Our employees work really hard to achieve the goals of our customers.
Our employees do a great job, our customers recognize that and as a result we are a preferred provider for our customer’s network needs. Our customers are and we think will remain extremely busy improving and expanding their wireless networks.
We look forward to continued success in 2011 and beyond. Mary at this time will open up for questions.
Operator
Thank you. (Operator Instructions) And our first question comes from the line of Suhail Chandy with Wedbush.
Please go ahead.
Suhail Chandy – Wedbush Securities
Thank you for taking the question. Congrats on the quarter.
You know, congratulations on this, you have mentioned that you were open to now a masterly figuring end. Any color that you can provide would be very helpful.
My specific question is, one, in the past when I had initiated on this and I had kind of looked at the economics my understanding is that side by side negotiations have superior economics. Now, you are obviously changing to go towards mass lease (ph) could you possibly give us kind of some of the criteria that you would evaluate this on.
Jeffrey Stoops
Yeah. I think the reason that we may likely enter into a master agreement with Sprint where we have not done that previously is that the number of issues that are being addressed vis-à-vis the sprint negotiation are such that it essentially requires that it would be done in a master type format.
And our prior course of action really has nothing to do with the fundamental view of master versus lease specific. It really is all driven by economics to us and the same will be true as we hope to move forward and see if we can get something done with the Sprint.
But, really, the master concept versus lease specific is much more due to the number of issues that are being discussed with spreads.
Suhail Chandy – Wedbush Securities
Great. Thanks.
Just one housekeeping question before I go back into the queue. The relevant covenant that you have on net debt to annualized adjusted EBITDA, is that still 8.9?
Jeffrey Stoops
No. That is now 9.5.
Suhail Chandy – Wedbush Securities
Great. Thanks a lot.
Operator
Thank you and our next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead.
Simon Flannery – Morgan Stanley
Thank you very much and good morning. Jeff you talked about the good leasing activity that you are seeing.
I think one of the things that was striking about the PCS call earlier today was that they are talking about the strong demand of daily usage. It's obviously not a surprise, but clearly driving higher CapEx.
They also noted that they were going to be deploying microwave backhaul. So I just wondered if you could just give us a little bit more color about what you are seeing your customers doing in general in terms of trying to deal with the high usage demands from smartphones.
Are you seeing a lot of sales betting going on? Are you seeing more use of microwave backhaul and other color, if you could give us about how the growth and data traffic is really benefitting SPA?
Jeffrey Stoops
We are seeing all of that Simon, but what we are seeing in particular varies by carrier. Verizon still is mostly, but not entirely, focused on overlaying its existing network to be able to offer 4G service.
AT&T is also now fully engaged in that, but also still self splitting and building out some additional capacity and then as you move into different folks such as a Metro. Metro given their particular spectrum position and the choice of offering 4G service through the same spectrum that they are offering 3G service is kind of more by definition a cell splitting type of deployment.
So it really kind of varies across the board based on carriers, the spectrum positions and the technologies they are using, but everyone’s relatively pretty busy.
Simon Flannery – Morgan Stanley
And just a follow-up finally on the Sprint stuff. If you sign an MLA in the next, let's say, a month or so, is that going to – are you going to be able to get much in the way of revenues in say Q4, is it really going to bleed over into 2012?
How quickly can they move on?
Jeffrey Stoops
Well, there would be potentially a couple of different aspects to that and we need to keep things extremely general, because we don’t have an agreement yet. But there can be a non-cash pickup that might be faster and more substantive and then there could also be a cash pickup that would be driven by actually how much work Sprint really gets done this year.
Simon Flannery – Morgan Stanley
Okay. Thank you.
Operator
Thank you. And our next question comes from the line Ric Prentiss with Raymond James.
Please go ahead.
Ric Prentiss – Raymond James
Yeah, thanks. I wanted to piggyback on some of Simon’s comments there.
Jeff, I appreciate the color you have given us on the Sprint process and that in fact your 2011 increase does not include Sprint vision or sharing. Can you talk a little bit about MetroPCS, because like Simon was mentioning, Metro just ended their conference call, so they were going to be increasing the CapEx guidance in 2011, increasing microwave usage, have you noticed the application jet from MetroPCS?
And when somebody does a microwave, what’s typically the amendment revenue that you see?
Jeffrey Stoops
We are seeing Metro to be active, I wouldn’t put them in the same nor would I think anyone would expect them to be in the same category of contribution as an AT&T or Verizon, but they are out there doing things. And the microwave pricing, Ric, depends primarily on two things, whether the size of the microwave dish and whether it is a one half or a piggyback half where it comes in and then goes back out with a second dish.
And that’s a pretty wide spectrum of pricing when you consider all those things and I’m going to give you a broad range. They go from $300 a month for a single small dish to well over a $1000 for bigger double installations.
Ric Prentiss – Raymond James
Okay. And the second question is on the M&A side, good to see the pipeline flowing again and people’s expectations on prices.
Can you tell us a little bit about where you are seeing M&A pricing domestic and international and then on your tower builds, what kind of returns are you looking for on a day one tower build cash on cash and where do you think you can grow it?
Brendan Cavanagh
Yeah, the US pricing is probably in the 17ish times, maybe 18 times range or what I would call average high growth assets going forward, the kind of stuff that we’ve focused on. Internationally, the same assets, at least the stuff that we are interested in pursuing is running hundreds of basis points lower than that on a TCF basis.
So, we continue to be attracted to that, again, for the right asset where our risk adjusted returns internationally will well exceed our returns on a US basis. On the new builds, the key for us continues to be building towers where over time on a portfolio basis you will average 1.5 to 2 tenants or better.
All the towers that we build are one tenant on day one, but they generally will need to see some additional growth before our goals are fully met. So, and you get a fairly wide range between US and international on day one cash on cash, but it would be mid to high single digit day one returns, which obviously would grow materially with the addition of a second tenant.
Operator
And Ric, does that answer your question?
Ric Prentiss – Raymond James
Yes, it does, thank you.
Operator
Thanks. Our next question comes from the line of Jason Armstrong with Goldman Sachs, please go ahead.
Jason Armstrong – Goldman Sachs
Hi, thanks, good morning. Maybe just one follow up on Sprint, there are several questions.
As you said, last year you weren’t philosophically opposed to lease modifications that others were signing, it was just a different view on the economics. I’m wondering, it doesn’t seem like this is the case, but is there any sort of philosophical hang up you have around allowing spectrum flexibility and/or allowing non-controlled entities on to an incumbent network?
And then second question just to follow-up on Ric’s. On new builds, obviously very strong activity in the quarter and going forward.
Has anything changed around the anchor tenant profile that you are requiring in these new builds? Thanks.
Jeffrey Stoops
The first question Jason, you know, we are not opposed to network sharing, I think that’s what you are getting at with the question as long as it looks like the right economic deal for us and obviously has to be mutually acceptable to both parties. So, now we are not fundamentally opposed to that and that is in fact one of the aspects that is being discussed with Sprint.
There is really no change on the new builds in terms of the anchor tenants, I mean, most of the new builds that we did in the quarter; actually more of the majority were in Costa Rica where our anchor tenant was either Telefónica or Oclaro, so pretty good credit quality there and that continues to be the case in the U.S. as well.
Jason Armstrong – Goldman Sachs
Great, thanks Jeff.
Operator
Thank you. And our next question comes from the line of Jonathan Schildkraut with Evercore.
Please go ahead.
Jonathan Schildkraut – Evercore Partners
Great. Thank you for taking the question.
Two questions please. First, I noticed that gross margins on the site leasing side continue to tick up.
We are just wondering if that is a function of higher tenancy, just continued execution if there is something else there. And then, if I can ask another question about Sprint and your MLA negotiations and you highlighted some of the complexities that you go into figuring out the right structure for that contract.
One of the things with other tower operators is that their negotiations do include some components of iDEN decommissioning which in some cases are capping the downsize from that process which will take place. So, obviously over several years.
Is that one of the complexities that’s kind of impacting the timeframe around coming to conclusion on that agreement?
Jeffrey Stoops
Yes, the – one of the points the major points the elements of the discussions with Sprint includes the timing of – their desired timing of decommissioning iDEN. So that is one of the elements that is at play here.
Brendan, do you want to take the margin question?
Brendan Cavanagh
Sure. Yeah, Jonathan, margins do continue to climb every quarter and, you know, it’s function of a couple of things.
Obviously as we add revenue growth through organic lease up we're adding close to a 100% margin in many cases so that helps to continue to see our margins pushing up. In addition we’ve done some things on the cost side to keep costs relatively flat, even though we’ve been growing the portfolio.
The primary item there is the ground lease purchase program and how we’ve retired a lot of our ground leases and reduced that expense, which is our largest expense.
Jonathan Schildkraut – Evercore Partners
All right, thank you.
Operator
Thank you and our next question comes from the line of Jonathan Atkin, RBC Capital. Please go ahead.
Jonathan Atkin – RBC Capital
Yes. I had a question about international.
I’m wondering if you’re seeing competition from other players entering the markets that you recently entered, and then with respect to the portion of revenues, the 3% that was mentioned, could that trend towards double digit anytime in the next few years?
Jeffrey Stoops
We are seeing competition and the revenue trend will continue to grow, won’t be double digit certainly this year, Jonathan, may be on a run rate basis close by the end of next year but maybe not as well. Broadly speaking though, yes, we could get to 10% within say a couple of years.
Jonathan Atkin – RBC Capital
And the competition that doesn’t affect your economic on new builds, does it?
Jeffrey Stoops
No, not in the markets where we’re building heavily because we’ve got certain deals struck with these folks, but kind of competition would impact any type of new activity outside what’s been contracted for. It's very similar to the way it works in the U.S.
Jonathan Atkin – RBC Capital
And then apart from Telefonica and Oclaro, is there a third or fourth carrier worth mentioning at this point that might start to move a little?
Jeffrey Stoops
Well, in Costa Rica, there is the existing incumbent which will also we believe would be a customer which is Esay (ph). They are also in the midst of an upgrade to 3G technology.
So, there will be – when the existing build out is done, there will be three fully developed operating carriers down there plus we’re seeing some new markets entrants in the form of internet type players and other types of, I would say, smaller wireless providers. So it’s actually – it’s exciting market for us and one that we have a great deal of optimism for.
Jonathan Atkin – RBC Capital
Thanks. And then turning to the U.S.
You didn’t sign an MLA last year with another carrier although your two peers did, and yet that doesn’t seem to be pulling down your momentum. So my question then for this year is regardless of an MLA or lack of MLA are you seeing momentum in the second half related to network vision (inaudible) guidance or is that not likely to kick in until next year?
Jeffrey Stoops
That’s specifically network vision right?
Jonathan Atkin – RBC Capital
Yes.
Jeffrey Stoops
Yeah, I mean it could happen in the fourth quarter, we would have to see more activity though than we’re seeing now, I mean, it’s not in our outlook and I wouldn’t want to even suggest to folks that it does end up in our actual 2011 results this year. It could, but it’s not anything that we are guiding anyone to.
Jonathan Atkin – RBC Capital
Great. Thank you very much.
Operator
Thank you and our next question comes from the line of Clay Moran with Benchmark. Please go ahead.
Clay Moran – Benchmark
Thanks, good morning. On the increased M&A opportunities, I am assuming that’s primarily in the U.S.
but I just wanted to ask. Is that U.S.
or what percentage is U.S. versus international?
And then also on the foreign markets it seems you are pretty focused on your current markets. Is that the case or is finding a new market also a priority?
Jeffrey Stoops
Most of the portfolio opportunities we are seeing are in the U.S. but not entirely.
But well more than 50%. And in terms of our international focus this year, we are very open and actually looking for one additional market in which to enter, but we’ve got a lot of work to do right now particularly in Costa Rica to meet the build out rolls and the launch goals of Oclaro and Telefonica.
So we have our hands full and it's working well, but we’re also devoting some time to looking for a new country as well.
Clay Moran – Benchmark
And now it would also be I assume in Central or South America.
Jeffrey Stoops
Well, that’s our primary focus, continues to be at this point in the western hemisphere.
Clay Moran – Benchmark
All right. Okay, thank you.
Operator
Thank you. And our next question comes from the line of Phil Cusick with JP Morgan, please go ahead.
Richard Choe – JP Morgan
Hi this is Richard Choe for Phil. Just a little clarification on the potential Sprint MLA, would you view a Network Sharing agreement carrier as an amendment or more like a new tenant or something in between, and then do you expect to see any kind of follow on network service revenue and is any of that in guidance?
Jeffrey Stoops
It's a good question on the first one. I’m not sure we thought that through in terms of classification.
I think it's probably more of an amendment, but we’ll obviously cross that bridge more definitively when we get to it. And there is no – yes, we do expect or we would anticipate a large increase in the future of services related business, none of which is in our 2011 outlook.
Richard Choe – JP Morgan
And I guess one follow up with – you are saying that the M&A environment has kind of changed for the better and people are realizing I guess the difference with AT&T/T-Mobile merger. Does that change your outlook on buy backs, do you expect them to stay at a high level and shift little bit or do you have enough money and daring enough cash to do both?
Jeffrey Stoops
Well, we certainly have enough liquidity. Our primary governor will be where we want to maintain a target leverage and right now we are comfortable with target leverage being where it is particularly given what we see are great opportunities in both the portfolio growth areas and stock repurchases.
So, in other words, if we do a lot of portfolio growth we probably will be doing less stock repurchases and vice versa in any given quarter.
Richard Choe – JP Morgan
Okay. Thank you.
Operator
Thank you. And our next question comes from the line of James Ratcliffe with Barclays, please go ahead.
James Ratcliffe – Barclays Capital
Good morning and thanks for taking my question. If you could, on a couple of potential resources of revenue, you have talked quite a bit about Sprint.
But if you could talk about perhaps at this point on a public safety network, what you are seeing on a Clearwire and also if any of the growth we are seeing in WiFi deployments by cable operators they are a potential source of growth for you? Thanks.
Jeffrey Stoops
Yeah, I mean those are all potential sources of growth James. The public safety idea gets a lot of discussion.
But in terms of actual implementation we haven’t seen any signs of that just yet. Clearwire seems to be more holding kind of steady in terms of its network and not doing a whole lot at least with us right now, I suspect that has something to do with where that all comes out with respect for them in the Sprint Network Vision scenario.
And we are seeing a number of additional types of local WiFi, WiMAX internet providers, we are seeing an increase in wireless backhaul providers, we are seeing an increase in interested activity from fiber providers, we want to install hubs in our compounds and we haven’t yet seen anything specific from the cable providers and particularly the cable consortium but they have a lot of valuable spectrum there and that I would anticipate over time something gets done with it.
James Ratcliffe – Barclays Capital
Great, thank you.
Operator
Thank you. Our next question comes from the line of Gray Powell with Wells Fargo, please go ahead.
Gray Powell – Wells Fargo Securities
Good morning, thanks for the taking the questions. We just had a couple of them.
I admit this can be a little bit detail focused, I understand that the increase to your rental revenue guidance is mostly organic. But the language in the press release, around the 9% organic growth commentary was unchanged, is that sort of a rounding error, like maybe before you were looking for 8.9% growth, now you are looking for 9.4% growth?
Jeffrey Stoops
Yes.
Gray Powell – Wells Fargo Securities
Got it. And then can you give us a breakdown of the leasing activity related to new sale sites versus amendments in Q2 and what your longer term expectations are for the demand drivers?
Jeffrey Stoops
Yeah, the number of amendments versus new sale sites was probably three or four to one, I mean, the level of amendment activity is truly staggering right now. In terms of revenue it maybe 55-45, 60-40.
Longer term I think we are kind of, I think ultimately you are going to see more of a movement back to brand new sales sites, but maybe not for at least a year given all the, particularly the more of the Verizon and AT&T are doing around 4G, all of which will for the most part take it forward with amendment.
Gray Powell – Wells Fargo Securities
Okay. That’s very helpful.
And I apologize if you have already answered this one. But on the tower expansion plans, it just looks like guidance includes roughly a little over 410 acquisitions and then another 410 new builds.
Can you give us the breakout of US versus international towers for each category?
Jeffrey Stoops
We can, can you call Mark back on that.
Gray Powell – Wells Fargo Securities
No problem at all. Thanks a lot.
Operator
Thank you. And our next question comes from the line of David Barden with Bank of America, please go ahead.
David Barden – BofA/Merrill Lynch
Hi guys, thanks for taking the questions. Just two, if you could, one, we talked about the strong margin that you guys are seeing year-to-date, just looking at the guidance with respect to the magnitude of the revenue increase for the full year relative to the kind of moving of the midpoint of the EBITDA number by chewing the low end.
It seems to suggest that maybe there is some change in the margin mix coming, I was wondering if that was related to the new tower builds and the lower margins that you have on the those at the outset. If you could kind of just speak to that real quick.
And then, I guess, second Jeff just kind of continuing to probe on this topic. I guess, Sprint has kind of t'ed up this analyst day that they are going to have in early October and they have been negotiating this kind of “fourth leg” to their 4G strategy beyond the Vision and the LightSquared and the Clearwire, and it has created a lot of speculation about is it a spectrum company, is it Charlie Ergen and Dish, is it may be taking out Clearwire altogether.
And if you had an educated guess on where you thought that might shake out by October, that would be interesting to hear. Thanks.
Jeffrey Stoops
David, just given the – I probably said way more than I already should about the Sprint negotiations, I’m not going to touch that last one. In terms of the margin, we don’t really see any real changes, I mean, maybe just kind of conservative swaggered SG&A.
David Barden – BofA/Merrill Lynch
Yeah, I mean, I think what you said is true though and that there are a lot of sites that we are building that are new builds as Jeff mentioned earlier, day one have one tenant on it and so the margin is obviously not as great as those gets blended in. So you will see some revenue bump as you add those tenants to those sites with lesser margin.
But for the part I think it is just conservatism around expenses and other things.
Jeffrey Stoops
What we don’t see anything in the second half that’s material or even smaller than material kind of change in the mix and the margins, particularly as they roll in over time.
David Barden – BofA/Merrill Lynch
And I apologize if I could just – I know Jeff you have said more than what you want to say and I thank you for those answers, but just last thing on kind of the back and forth with the Sprint conversations is, are you at all concerned that if you don’t come up with an MLA that’s beneficial for both parties that Sprint would be more inclined to put new business and amendments with other tower companies and be pulling down iDEN sites sooner on the FDA network, and are they kind of using that stick in terms of their negotiations with you guys?
Jeffrey Stoops
No. I mean I fully – we appreciate given the complexities of what Sprint is trying to accomplish, why this has to be in the form of an MLA and I really haven’t thought about it from that perspective because I think we are headed down a path where we are likely to end up with something that obviously has been surely agreeable to both parties.
David Barden – BofA/Merrill Lynch
Okay. thanks guys.
Operator
(Operator Instructions) Next we have Mr. Michael Rollins with Citi Investment Research.
Please go ahead.
Michael Rollins – Citi Investment Research
Thanks. Thanks for taking the question.
Jeff, just a follow up on – just some of the disclosures that you do, as American Tower is pushing towards the REIT conversion, have you given more thought to disclosing metrics on a week basis some of the metrics that we investors care about as well as the ones that you care about recognizing that for you that decision point might be often it says future by at least a few years, but maybe providing investors with more information as people may start comparing tower companies to a larger universe of real estate investments.
Jeffrey Stoops
Yeah. It is something Mike that we kicked around here internally.
We haven’t come to any decision yet. I mean, it is a little bit farther off for us than the other guys as you well said, but it is an issue that we are continuing to consider whether we get well ahead of a potential REIT conversion for ourselves by providing the REIT type data.
So, stay tuned, we don’t have any decisions yet.
Michael Rollins – Citi Investment Research
Thanks.
Operator
Thank you. And our next question comes from the line of Ric Prentiss with Raymond James.
Please go ahead.
Ric Prentiss – Raymond James
It’s been a busy day. I do have a couple of quick follow-ups.
I think you have mentioned maintenance CapEx was up a little bit because of storm damages, but you did say that guidance up for maintenance CapEx just wondering what else might be involved there in splitting US versus international, and another minor item, cash taxes were up a little bit. Is that also being driven by international?
Brendan Cavanagh
Hey Ric it's Brendan. On the CapEx side it's almost all due to some of the storm related damage.
We obviously had some higher non-discretionary CapEx during the second quarter that was due entirely to some of the damage we incurred from the tornados and other significant storms during the quarter and some of the costs that will incur, the cash expenditures that will incur related to that will actually carry over into Q3 which is why there is also some additional increase for the balance of the year. There is some international maintenance expense too with some of the sites that we bought down there, that’s included in that guidance.
On the cash taxes side, it's really not about the international markets. We have had a few areas in particular in Puerto Rico and the US Virgin Islands, where we have seen our NOLs last a little bit faster and we’ve also had some timing shifts with certain states where estimated payments are made this year instead of being delayed to next year that kind of thing.
So some of it's timing and some of it is recurring increase probably about half and half in terms of the bump up.
Ric Prentiss – Raymond James
The maintenance CapEx with the storm damage, is any of that reimbursable from the tenants or is it all borne by you guys?
Brendan Cavanagh
It is not from the tenants. We do have insurance that allows us to recover a portion of it, but the increase that we’ve made is, in our guidance is beyond the insurance recoveries.
Ric Prentiss – Raymond James
Okay. Thanks.
Operator
At this time we have no more questions in queue.
Jeffrey Stoops
All right. Thank you everyone for joining us today and we look forward to joining you again with our third quarter results.
Thanks.
Operator
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