SBA Communications today announced an agreement to acquire from Pacific Gas and Electric Company (PG&E), license agreements with wireless carriers that attach their equipment to certain electric transmission towers and other utility structures. Specifically, SBA Communications is acquiring the licenses to 700 towers in California, for a purchase price of $973m, equating to $1.4m per tower license. Indeed, SBA Communications expects these assets will generate ~$39.5m in tower cash flow in their first full-year in its portfolio, equating to a multiple of 24.6x.

Overall, the license agreement is structured in the form of a 100-year leasehold interest of the electric transmission towers. Additionally, the agreement allows SBA Communications to continue to market and sub-license access to the towers and structures to additional wireless carriers. Notably, PG&E will receive a portion of this future sub-licensing revenue. Importantly, PG&E is not selling any transmission towers to SBA Communications, as part of this transaction.

PG&E is also entering into a strategic 15-year relationship with SBA Communications, to sub-license and market equipment at additional attachment locations, on up to 28k transmission towers across PG&E’s network. Through this arrangement, PG&E will receive a portion of future revenues from these sub-licensed equipment attachment locations.

SBA Communications – Tower Transaction Implications

SBA Communications owns 16.5k towers in the United States, which represents 50% of the company’s total, of 32.7k towers globally. Therefore, SBA Communications’ agreement with PG&E, for 700 tower licenses, increases the size of its U.S. tower portfolio by ~4%.

Specifically, this transaction adds a portfolio of high-quality, exclusive California locations to SBA Communications’ existing U.S. tower portfolio. Indeed, as 5G network deployments continue, SBA Communications will facilitate the future additional use of these assets by wireless carriers. Notably, the company’s three largest customers are wireless carriers T-Mobile (40% of revenues), AT&T (32% of revenues), and Verizon (19% of revenues).

M&A Offsetting U.S. Organic Revenue Growth Deceleration

SBA Communications’ is using the acquisition of licenses to towers from PG&E to help offset its recent U.S. gross organic revenue growth rate deceleration (i.e., excluding the impact of churn). Indeed, SBA’s U.S. gross organic revenue growth rate has slowed from 8.6% in Q3 2019 to 5.7% in Q3 2020. At the same time, SBA Communications’ U.S. net organic revenue growth rate has also slowed from 5.9% in Q3 2019 to 3.5% in Q3 2020.

SBA Communications Organic Growth

Overall, M&A, such as the PG&E deal helps SBA Communications continue to grow its towers business. Indeed, the company will be able to continue growing its leasing revenues and earnings at 5%+ annually, albeit in-part inorganically.

PG&E – Tower Transaction Implications

Overall, PG&E expects the proceeds from this agreement to help further reduce its financing needs and strengthen its financial position. Notably, PG&E emerged from Chapter 11 bankruptcy, committing to achieve financial stability and bolster its overall financial health. Indeed, selling non-core assets like these license agreements is an example of how PG&E is following through on that commitment.

Adam Simmons covers Towers for Dgtl Infra, including American Tower (NYSE: AMT), Crown Castle (NYSE: CCI), SBA Communications (NASDAQ: SBAC), Cellnex Telecom (BME: CLNX), Vantage Towers (ETR: VTWR), IHS Holding (NYSE: IHS), and many more. Within Towers, Adam focuses on the sub-sectors of ground-based cell towers, rooftop sites, broadcast / radio towers, and 5G. Adam has over 7 years of experience in research and writing for Towers.


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