SBA Communications Corporation (SBAC) Q4 2017 Earnings Conference Call Transcript

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SBA Communications Corp. (NASDAQ: SBAC)Q4 2017 Earnings Conference CallFeb. 26, 2018, 5:00 p.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to the SBA fourth quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given to you at that time. If you should require assistance during today's call, please press * then 0 and an operator will assist you offline. Also, as a reminder, today's conference is being recorded. I would now like to turn the call over to your Vice President of Finance, Mr. Mark DeRussy. Please go ahead.

Mark DeRussy -- Vice President of Finance

Good evening, and thank you for joining us for SBA's fourth quarter 2017 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 2018 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, February 26th, and we have no obligation to update any forward-looking statement we may make.

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In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.

With that, I will turn it over to Brendan to comment on our fourth quarter results.

Brendan Cavanagh -- Chief Financial Officer

Thanks, Mark. Good evening. SBA ended the year with another strong quarter. We again had another steady operational performance in our leasing business, as well as a positive contribution from our services business. Total GAAP site leasing revenues for the fourth quarter were $414.1 million and cash site leasing revenues were $410.1 million. Foreign exchange rates were generally in line with our estimates for the fourth quarter, which we previously provided with our third quarter earnings release.

Same-tower recurring cash revenue leasing growth for the fourth quarter, which is calculated on a constant currency basis, was 5% over the fourth quarter of 2016, including the impact of 2.1% of churn. On a gross basis, same-tower growth was 7.1%. Domestic same-tower recurring cash leasing revenue growth over the fourth quarter of last year was 6.6% on a gross basis, and 4.1% on a net basis, including 2.5% of churn, 73% of which was related to Metro Leap and Clearwire terminations.

Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 9.9%, including 70 basis points of churn, or 10.6% on a gross basis. Grossed organic growth in Brazil was 12%. Domestic operational leasing activity represented new revenue signed up during the quarter was a little lighter than expected, as a couple of US carriers were preparing for big deployment initiatives, which have since commenced. Our services business benefited from those preparations in the fourth quarter in the form of site audits and other advance work.

Newly signed-up domestic leasing revenue came about two-thirds from amendments and one-third from new leases. The big four carriers represented 94% of total incremental domestic leasing revenue that was added during the quarter. While our somewhat modest domestic leasing activity during the fourth quarter in terms of signings will have some impact on projected revenue growth during the first half of 2018, our domestic leasing application backlog saw and continues to see meaningful growth, which bodes well for sequential growth throughout 2018.

International leasing activity was very good in the fourth quarter and increased from the third quarter. We again saw positive contributions from all of our markets, with Brazil and Panama, in particular, delivering very strong results. During the fourth quarter, 86.1% of cash site leasing revenue was denominated in US dollars. The majority of non-US dollar denominated revenue was from Brazil, with Brazil representing 12.7% of all cash site-leasing revenues during the quarter, and 9% of cash site leasing revenue excluding revenues from pass-through expenses.

With regard to fourth quarter churn, we continue to see churn from leases with Metro Leap and Clearwire consistent with our expectations. As of December 31st, we have approximately $18 million of annual, recurring, run-rate revenue from leases with Metro Leap and Clearwire that we ultimately expect to churn off over the next two to three years. We have reduced that number due to the actual lease terminations that have occurred, but also in part due to revised expectations for less churn than originally anticipated, due to indications that some of these leases will be kept and upgraded. Domestic churn in the fourth quarter from all other tenants on an annual same-tower basis was 66 basis points.

Tower cash flow for the fourth quarter was $327 million. We continue to effectively manage the direct costs associated with our towers, allowing us to continue to produce industry-leading operating margins. Domestic tower cash flow margin was 82.4% in the quarter. International tower cash flow margin was 68.2%, and 89.8%, excluding the impact of pass-through reimbursable expenses.

Adjusted EBITDA in the fourth quarter was $310.1 million. Our adjusted EBITDA results in the quarter were due to solid results from both our leasing and services businesses. Services revenues in the fourth quarter were $29 million, up 26.6% over the fourth quarter of 2016. Cash SG&A for the quarter was better than expectations due to solid cost control, as well as some reductions in legal and other reserves, and it continues to decline as a percentage of total revenue.

Adjusted EBITDA margin was 70.6% in the quarter, compared to 70% in the year-earlier period. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margins were 75.1%. Approximately 99% of our total adjusted EBITDA was attributable to our tower-leasing business in the fourth quarter.

AFFO in the fourth quarter was $211.8 million. Our AFFO per share increased 9.2% to $1.78. AFFO was negatively affected during the quarter by approximately $1 million of non-discretionary CapEx associated with Hurricanes Harvey, Irma, and Maria. An additional $500,000 associated with tax expense recorded in connection with the new tax law passed in December. These taxes related to state tax exposures around foreign accumulated ENB, and states where we did not have NRLs.

In addition to our positive fourth quarter financial results, we also had a successful quarter with regard to capital allocation. During the fourth quarter, we acquired 989 communication sites, for $250.2 million, including 941 sites located in Brazil. We also built 176 sites during the fourth quarter. Subsequent to quarter end, we have acquired 308 additional communication sites at an aggregate purchase price of $79.5 million.

As of today, we also have 1,038 additional sites under contract for acquisition at an aggregate price of $308.5 million. 811 of these additional sites under contract are located in El Salvador and are to be purchased from a local subsidiary of Millicom International. We anticipate these sites will close in several tranches throughout the second half of 2018. The Millicom transaction will increase SBA's position as the largest tower company in El Salvador, a country we have been in for almost eight years and where all of our tenant lease contracts are denominated in US dollars, as well as expanding our relationship with Millicom, a leading wireless carrier in several of our markets.

We continue to look for opportunities to add quality assets to markets where we are comfortable operating and can leverage our existing scale and platform to maximize returns. We also continue to invest in the land under our sites, which provides both strategic and financial benefits. During the quarter, we spent an aggregate of $19.6 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 70% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years.

Beyond portfolio investments, we also invested in significant share repurchase during the quarter. During the fourth quarter, we spent $311.1 million to repurchase 1.9 million shares at an average price of $160.15 per share. Our total 2017 share repurchases were $850 million for 5.8 million shares, representing an average price of $146.17 per share. Share repurchases remain an important contributor to our efforts to continually grow AFFO per share.

Looking ahead now, our earnings press release includes our outlook for the fiscal year 2018. Our outlook reflects anticipated growth in both our leasing and services businesses. We anticipate a meaningful increase in domestic operational leasing activity in 2018 over 2017, driven largely by incremental activity from Sprint and the ramp-up of [inaudible] [00:11:05] related activity with AT&T.

Combined with steady contributions from T-Mobile and Verizon, we expect to see domestic leasing activity in the form of new lease and amendment signings build throughout the year, which should begin to show itself in the financial results in the second half of the year. We expect that this increased domestic leasing activity will result in a very positive run-rate leasing revenue level by year-end. We have also assumed a decline in year-over-year domestic churn levels by about one-third.

In our international business, our outlook anticipates continued steady, organic leasing contributions, as well as incremental contributions from the sites acquired over the last couple of months and those under contract expected to be closed later this year, offset in part by our lower contribution from tenant escalators in Brazil, due to the decline in the Brazilian PPI rate. We have forecasted a slight weakening in the Brazil foreign exchange rate in 2018, with a blended average FX rate during 2018 of 3.3 Brazilian Reals to $1.00 US. The exchange rate is assumed to weaken throughout the year.

Our full-year 2018 outlook does not assume any further acquisitions beyond those under contract today and it does not assume any share repurchases at all. We have incorporated the interest costs of our recently priced securitization offering, but we have not assumed any additional financing activity throughout the rest of the year. We have also assumed slightly increasing LIBOR rate throughout the year, impacting our floating-rate debt.

Our non-discretionary cash capital expenditures include $3.5 million of estimated CapEx associated with repairs due to Hurricanes Harvey, Irma, and Maria. We estimate an increase in our cash taxes of approximately $3 to $4 million at the mid-point, mostly related to state taxes where we do not have any NOLs and increases in our international taxes. Our tax assumptions take into account the minor implications we anticipate in connection with the new tax legislation passed in December.

Finally, our outlook for AFFO per share is based on assumed, weighted average number of diluted common shares of 118.4 million, which assumption is influenced in part by estimated future share prices. We are excited and optimistic about 2018. For the first time in years, all four of the major US wireless carriers are actively investing in their networks, creating great opportunities for SBA to continue reporting increasing growth and solid financial results.

With that, I will turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

Mark DeRussy -- Vice President of Finance

Thanks, Brendan. SBA ended the year with $9.3 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.5X, at the high end of our targeted range of 7 to 7.5X. Our fourth quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.7X. We ended the year with $40 million outstanding under our $1 billion revolver, and have $75 million outstanding as of today.

On October 13th, we issued $750 million of unsecured senior notes. These notes bear interest at a rate of 4% per year, payable semi-annually, and mature on October 1, 2022. Net proceeds from this offering were used to repay $460 million outstanding under our revolving credit facility and for general corporate purposes. On February 16th, we agreed through our Tower Trust, to issue $640 million of secured tower revenue securities at a fixed interest rate of 3.448% payable monthly. This offering is expected to close March 9, 2018, and the securities are expected to have an anticipated repayment date in March 2023, and a final maturity date in March 2048.

The proceeds of this offering, in combination with borrowings under the revolving credit facilities, will be used to repay in full our 2013 1-C and 2013 1-D tower securities. Pro forma for this transaction, the weighted average coupon of our outstanding debt is 3.7%, and our weighted average maturity is approximately 4.4 years. As Brendan mentioned earlier, during 2017, we purchased 5.8 million shares of common stock for $850 million at an average price per share of $146.17, leaving us with $150 million of authorization remaining under our stock repurchase program.

On February 16th, our Board of Directors approved the authorization of a new $1 billion stock repurchase plan replacing the prior plan. This new plan authorizes the company to purchase from time to time our outstanding stock through open market repurchases in compliance with Rule 10b-18 and/or in privately negotiated transactions at management's discretion. Shares repurchased under the plan will be retired, and the plan has no time deadline. As of today, the full $1 billion is available under the plan.

The Company shares outstanding at December 31, 2017, are 116.4 million, down from 121 million at year-end 2016. With that, I'll turn the call to Jeff.

Jeffrey Stoops -- President and Chief Executive Officer

Thanks, Mark. Good evening, everyone. As you heard from Brendan earlier, we had another good quarter and overall, a really good 2017. Throughout the year we were able to deliver solid financial results exceeding our expectations and our initial guidance. We also continued to grow our portfolio and shrink our share count through balanced capital allocation. We created value on many fronts in 2017, whether from growth in AFFO per share, growth in return on invested capital to levels well above our cost of capital, for material gains in our share price.

We're well positioned for 2018 and beyond. In the US, current operational customer activity is the highlight. All four major US wireless carriers are active for the first time in years. Although in early stages, this activity has driven our domestic leasing backlog to a multi-year high. During the fourth quarter, we signed a Master Lease Agreement with Sprint which commits them to amendment and co-location activity over the next year and a half, while also extending out the current term on thousands of their existing lease agreements. In addition, FirstNet activity and amendments have commenced. Since our last earnings call, all 50 states formally opted into FirstNet and AT&T began submitting amendment applications incorporating FirstNet needs. We expect to see this activity increase as we move through 2018.

Internationally, we also had a very good finish for the year. Our fourth quarter international operational leasing activity was the best of the year, including another very strong quarter in Brazil. Our international leasing activity increased sequentially each quarter during 2017, giving us great confidence for this portion of our business heading into 2018. The international activity this quarter came about 60% from amendments and 40% from new leases, and FX rates came generally in line with our estimates heading into the quarter.

Our execution across the organization continues to be excellent, with continued 80% tower cash flow margins and 70% adjusted EBITDA margins, notwithstanding the steady addition of a material amount of new, less mature, lower margin sites for the portfolio. We grew our portfolio 6.5% during 2017, within our target range of 5 to 10%. Based on our sites acquired thus far in 2018 and those that we have under contract, we believe we are in good shape to meet our 5 to 10% portfolio growth totals again this year.

During the fourth quarter, we closed on the addition of over 900 sites in Brazil. These sites are high quality, immature sites with the majority of revenues coming from TIM and Vivo. Only 2% of the revenue in this portfolio come from Oi, giving us a nice revenue diversification there. We continue to perform well in Brazil and anticipate that these new sites will complement the lease-up success we've had on our existing portfolio in Brazil. The decline in inflation and the stabilization of the currency, as well as the formal approval of Oi's judicial reorganization plan, all provide a backdrop in Brazil which bodes well for continued growth for SBA.

In addition to Brazil, we have continued to expand our presence in several of our other markets. In January, we closed on the addition of over 250 sites across Peru and Colombia. In February, we entered into an agreement to purchase over 800 sites in El Salvador from Millicom. We're particularly pleased with the Millicom transaction, as it expands our dominant position in El Salvador as the No. 1 tower company and adds incremental US dollar-denominated revenues to our overall portfolio.

Heading into 2018, we continue to believe that we are on track to achieve our goal of $10 or more of AFFO per share by 2020. Throughout 2017, we stayed exactly within our net debt target range of 7.0 to 7.5X, and we applied a very balanced approach to capital allocation with a healthy mix of asset additions and share repurchases. In 2018, we expect more of the same. As demonstrated by the success of our recently priced securitization refinancing, we continue to have strong access to capital. Our securitization was priced at a spread of 85 basis points over Treasury, representing the lowest spread to Treasuries for any 5-year, single A-rated tower issuance since the financial crisis in 2008.

So even in the rising interest rate environment, we continue to be a favored issuer in all of the markets in which we issue debt. We have great access to capital and routinely price at the tight end of comparably rated securities.

The tower basis continues to be extremely attractive, and we're pleased to be a leader in our industry. In 2017, we saw steady activity across all of our markets and we executed extremely well. We were able to grow our portfolio, shrink our outstanding share count, manage our financing costs, and expand our already industry-leading operating margin. We created additional value for our shareholders. The growing activity levels of our customers and the associated growth in our leasing backlogs give us optimism for continued solid performance in 2018 and beyond.

I'd like to thank our employees and our customers for their contributions to our success and I look forward to sharing with you our results throughout the year.

With that, Operator, we're now ready for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you wish to ask a question, please press * then 1 on your touchtone phone. You will hear a tone indicating you've been placed in queue and you may remove yourself from the queue at any time by pressing the # key. Once again, if you do have a question, please press * then 1. Our first question comes from the line of Rick Prentiss with Raymond James. Please go ahead

Richard Prentiss -- Raymond James & Associates -- Analyst

Good afternoon, guys. A couple questions on the guidance, if I could. So, Jeff and Brendan, I think you mentioned that you're seeing FirstNet activity and lease amendments. Can you help us understand, is FirstNet in guidance? Ramping through the year? Not in? Just trying to gauge. I know you don't like to call out individual customers, but obviously, it's a big project. So just trying to gauge what you kind of baked into that from a FirstNet standpoint. Do you expect to sign an MLA with AT&T and FirstNet?

Brendan Cavanagh -- Chief Financial Officer

Rick, we have included some impact from FirstNet in our guidance because as we mentioned, we've seen some actual executions of amendments already that obviously influenced the amounts that we're expecting to report during 2018. We also have some FirstNet amendment applications in our backlogs that have influenced our expectation. But it is expected to build throughout the year and I think you'll see the majority of that impact toward the latter part of the year and into next year.

Richard Prentiss -- Raymond James & Associates -- Analyst

As far as thinking about an MLA with AT&T, I know in the past you haven't done a lot of them, but it sounded like you might have done one with Sprint I think I heard Jeff say.

Jeffrey Stoops -- President and Chief Executive Officer

Yeah, we did do one with Sprint, Rick. We did one previously with Sprint. We've done with T-Mobile. So it's certainly not out of the question. But as to whether we will or not, I would just kind of leave that one alone and we'll see what happens. I mean, we're not religiously or fundamentally opposed to it, it just has to be the right deal for both parties.

Richard Prentiss -- Raymond James & Associates -- Analyst

Right, that makes sense. But it sounds like Sprint MLA is done. So that's kind of maybe fully in guidance then? The Sprint side?

Brendan Cavanagh -- Chief Financial Officer

It's in to the extent that there are specifics, but the commitment is over a period of time to sign up a certain amount of business. But the timing of that is not absolute. Depending on how that flows in, it could be different than what we've assumed.

Jeffrey Stoops -- President and Chief Executive Officer

It's a multi-year agreement that isn't really granular in terms of orderly commitments. It's more of commitments over the whole term of the agreement. So to Brendan's point, it will depend really on timing.

Richard Prentiss -- Raymond James & Associates -- Analyst

So it sounds like there could be upside to both those customers getting more active, but there's some in guidance, is that fair?

Brendan Cavanagh -- Chief Financial Officer

It's fair.

Richard Prentiss -- Raymond James & Associates -- Analyst

Okay. Then a lot of us are all still trying to figure out FirstNet. Is it going to be mostly co-location and mostly amendment activity? What are you seeing so far from AT&T and what the nature of a FirstNet touch might look like, with the one client? FirstNet plus AWS3 and WCS.

Jeffrey Stoops -- President and Chief Executive Officer

So far for us, it's mostly amendments. It's a wide range of equipment needs because AT&T has a very wide range of existing equipment loads throughout the network. So, I really can't generalize and say it's 3 radios, 3 antennas, 6 radios, 6 antennas. It's really very much diverse across the board. But in our case, it looks like it's going to be primarily amendments.

Richard Prentiss -- Raymond James & Associates -- Analyst

Okay. The last one for me, they're all kind of interrelated. I think you mentioned the acquired network churn has gotten better, maybe domestic churn down a third year-over-year, and some of the acquired network churn maybe not going to occur. Was that baked into the MLAs? I'm just trying to think of how you got notification of that from the carriers.

Brendan Cavanagh -- Chief Financial Officer

No, not directly baked into the MLAs. We were, as we gave you a number each quarter as to what we saw as the total potential impact from Metro Leap and Clearwire specifically. Some of that was based on our estimates and our view on which sites they would be keeping and which ones they wouldn't be. As we've gotten renewal notices on some of those or they haven't terminated them as renewal dates have come up, it's obviously affected it. Then to some degree on the Clearwire, there was a little bit within the MLA where we saw certain sites being upgraded that we previously thought might go away. So a little bit of that but most of it was just leases being renewed that we would've otherwise expected to be turned off.

Richard Prentiss -- Raymond James & Associates -- Analyst

Makes sense. Thanks for all the transparency and detail. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Phil Cusick with JP Morgan. Please go ahead.

Richard (for Phil Cusick) -- JP Morgan -- Analyst

Hi, this is Richard for Phil. Just wanted to get a little more clarification on the Sprint MLA. What is the current contract language before the MLA and what is that now? In terms of, I guess you alluded to earlier the amount of activity could drive higher numbers. Given where the guidance was, we would expect it a little bit higher of a potential number. How can that change given [inaudible] [00:28:07]?

Jeffrey Stoops -- President and Chief Executive Officer

Well, there was no MLA with Sprint previously. So all the leases with Sprint were on their own terms, which I think average --

Brendan Cavanagh -- Chief Financial Officer

We had about four years. I mean, there was the old MLA we did a few years ago that had extended some term --

Jeffrey Stoops -- President and Chief Executive Officer

Had some carry over --

Brendan Cavanagh -- Chief Financial Officer

-- but each one had its own term end date [inaudible] [00:28:31].

Jeffrey Stoops -- President and Chief Executive Officer

So this does not apply to all of our Sprint leases. It applies to a substantial number. We're not going to give you total granularity on this because we're not supposed to per our agreement with Sprint. But we do have, for the leases that this does apply to, we have multi-year extended terms and there are certain amendments -- 2.5 commitments -- and also new COLO commitments over a period of time that Sprint has agreed to. So by the end of the agreement, there will be a certain amount of business that they will have obligated themselves to. That can all be accelerated by when they actually agree to do that, but by the end of the agreement, we know that it will be there because that is the drop-dead date on the obligation.

Richard (for Phil Cusick) -- JP Morgan -- Analyst

And then in terms of the organic growth, 4.1% in 4Q '17, X churn 6.6%, how should we think about how that ramps through the year in terms of actual activity versus churn kind of coming down and the non-acquired network churn continues to ramp down? So given those three pieces, how should we think about it?

Brendan Cavanagh -- Chief Financial Officer

Just as a refresher on that number first, it is really representative of the trailing 12 months' activity because you're comparing the fourth quarter in this case to the fourth quarter of 2016, so everything that happens in between there impacts it. So as we start to move into the first part of the year, the influence of what occurred during 2017 also carried with these first few quarters. But we would expect by the end of the year to see that number increase based on our expectations, based on the backlogs that we talked about building, we expect to see a lot more lease-up taking place. So by the time we get toward the end of the year, that number will be higher in terms of the gross leasing number. On the churn fees, we do expect that to continue to step down. We have a small amount of [inaudible] churn in the fourth quarter next year that may impact the fourth quarter, but we do expect to be otherwise below 2% on our same-tower churn numbers, primarily due to a drop-off in the consolidation-related churn.

Jeffrey Stoops -- President and Chief Executive Officer

But still with a chunk of that left?

Brendan Cavanagh -- Chief Financial Officer

Yeah, with still some left.

Richard (for Phil Cusick) -- JP Morgan -- Analyst

Thank you.

Operator

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

Nick Del Deo -- MoffettNathanson -- Analyst

Thanks for taking my question. Obviously, you can't talk the specifics of the Sprint deal. I guess more generally speaking, can you walk us through your current thinking what asks from a carrier would make a proposed MLA unacceptable and what sort of price and protections would have to be included to make it palatable and something you'd be willing to sign? Because historically you've been more cautious on this front than some of your peers. I just want to understand where you are.

Jeffrey Stoops -- President and Chief Executive Officer

There are a lot of different puts and takes, Nick. But the single most, or at least the one point that the agreements that we have been willing to enter into have all shared is equipment specificity.

Nick Del Deo -- MoffettNathanson -- Analyst

Okay, so safe to assume --

Jeffrey Stoops -- President and Chief Executive Officer

It's all, the equipment entitlements are all laid out very clearly. That's the one constant in the now three Master Leases that SBA has entered into.

Nick Del Deo -- MoffettNathanson -- Analyst

Okay, got it. Maybe one on inflation because that's been the topic du jour. With long-term contracts and fixed escalators, it's worked well with inflation at subdued levels but could introduce some issues if inflation rose to levels above where it's been or what was contemplated when the standard kind of 3% escalator was set. Can you talk a bit about some of the tools or strategies you could employ to help offset some of those issues if we do see inflation meaningfully higher than where it stands today?

Jeffrey Stoops -- President and Chief Executive Officer

Well, if we see inflation meaningfully higher, I think the vast majority of the likely region will be a greatly improved economy, which we believe would translate into improved spending, a better consumer. That's all going to help us on the organic growth side. Obviously, we're going to have pricing ability on any type of new asset, on any type of amendment. One of the benefits of the way we do business is we don't have any agreements in place, but for this one with Sprint, which is somewhat limited in its application. So we do have kind of carte blanche ability to price new types of activity.

Where we would continue to be limited is on the renewal, where the agreements are dictated by the existing escalator in place. So we turn our attention toward managing more on the expense side and dealing with things potentially on the financing side to manage all that.

Brendan Cavanagh -- Chief Financial Officer

Maybe one thing to add is that our expense base is largely fixed. The majority of our expenses are also tied to fixed escalators. That's our ground leases. Obviously, given our large margins, there's a limited expense base. We won't see an increase in our operating expenses at a time where we're not able to increase our revenue base at similar rates.

Nick Del Deo -- MoffettNathanson -- Analyst

Okay. That's helpful. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Spencer Kurn with New Street Research. Please go ahead.

Spencer Kurn -- New Street Research -- Analyst

Hey, guys. Thanks for taking the question. Just to understand your guidance for new leasing activity, it looks like you're guiding to $44 million in '18, which is just modestly up from the $42 million you reported in '17. Based on your comments about things picking up during the year, is it the case, just thinking about the slope of that revenue, that we could actually see new leasing revenue decline a little bit in the first half of the year and then ramping sharply in the back half? Or would you expect it to be sort of slow and steadily increasing?

Brendan Cavanagh -- Chief Financial Officer

Yeah, I think we would expect it to be steadily increasing throughout the year. We're not expecting material drops. The reality is it's not that volatile, the activity levels. So, as we continue to see our backlogs increase, we would expect to see our leasing revenue also increase. I think it will be relatively flat here in the first part of the year based on modest activity in the second half of 2017 and then starting to increase in the back half of the year.

Jeffrey Stoops -- President and Chief Executive Officer

I mean, let's be clear. You said material. We're not expecting any drops. We're not expecting any drops, in revenue especially.

Spencer Kurn -- New Street Research -- Analyst

Got it. Thanks. Then just one more if I may. It looks like at the mid-point of your guidance for AFFO per share, you're forecasting growth of about 7.5% in '18. Then to meet your $10 per share target by 2020, you've got to assume you can grow at about 15% a year for the next two years after that. Is that the real trajectory we should be expecting for the next three years or is it likely the case that you'll do capital, you'll repurchase shares or you'll buy assets throughout the year such that the trajectory of AFFO per share in '17 to '20 is a lot smoother?

Jeffrey Stoops -- President and Chief Executive Officer

We have always, I think, been very clear that we extend to stay through this path to $10 or more of AFFO per year, fully invested to our target leverage range of 7 to 7.5X. If you look at our guidance and you run those numbers out, you'll see that we need to invest more capital to do that. We've also, I think, been very clear that additional stock repurchases are a very large component of getting to that $10 or more of AFFO per share. So, we intend to do some more capital allocations.

Spencer Kurn -- New Street Research -- Analyst

Great. Thanks so much.

Operator

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

Brett Feldman -- Goldman Sachs -- Analyst

Thanks. Hopefully, this is the last Sprint MLA question. This is just a point of clarification. It does look like your mix of revenue from Sprint was higher in the quarter than we've seen in a long time and you also have an increase in straight line revenues projected for this year. Is that all related to the Sprint MLA or is there something else going on that we need to understand?

Brendan Cavanagh -- Chief Financial Officer

That's all related to the Sprint MLA.

Brett Feldman -- Goldman Sachs -- Analyst

Okay. Then just maybe stepping back, a bigger picture question. We always get the questions around towers versus small cells. I think the way you framed it in the past is that what you really covet is site exclusivity. We've seen some other operators who have a similar philosophy maybe do a bit more deals in those spaces. I'm curious as you look at the way wireless infrastructure is evolving, are you starting to see other infrastructure solutions, maybe more small cell opportunities or otherwise, that are actually capturing some of the site exclusivity you look for? You may actually look to do more of it. Or are you still very comfortable that your traditional tower leasing business, domestically and internationally, is going to consume the vast majority of whatever incremental capital you put into infrastructure?

Jeffrey Stoops -- President and Chief Executive Officer

I think the macro business will consume the vast majority, Brett. But clearly, there are real estate opportunities that will be small-cell oriented that are exclusive in nature that are definitely worth pursuing. Those are the ones that we are looking at and looking for and actually have a few.

Brett Feldman -- Goldman Sachs -- Analyst

Is there anything from your conversations with carriers about all these massive projects that they're beginning to ramp that has maybe made it more clear where those opportunities lie?

Jeffrey Stoops -- President and Chief Executive Officer

The things that we're looking for tend to be more one-off and more very asset specific and not really suitable for competitive bids. I think by nature you don't have an exclusive asset if that's how it's created. So there's a vast variety of different assets out there that are going to come into play here. Some of them are going to be good. Actually, we haven't talked a whole lot about it because it's not very material at all, but we are doing exactly some of that business where we think it's a very exclusive asset.

Brett Feldman -- Goldman Sachs -- Analyst

Great. Thank you for taking the question.

Operator

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

Amir Rozwadowski -- Barclays -- Analyst

Thanks very much. Good afternoon, folks. A couple questions if I may. In thinking about some of the commentary that has come out of the carriers more recently about using alternative sites, either public infrastructure for sites or potentially using other tower providers or building certain sites like AT&T and Verizon had talked about, have you seen any changes when it comes to their behavior when it comes to looking to upgrade those sites? Another question on sort of the Sprint side. I appreciate that you can't provide necessarily all the full details, but has there been any change to the escalator structure that you guys have seen historically? Any color along those lines would be very helpful.

Jeffrey Stoops -- President and Chief Executive Officer

No change on the escalator, Amir. On the other, no real changes in any material way impact our business. I do think over time that our customers in their never-ending quest for different, cheaper, lower options may find the occasional alternative here or there. But I don't think it will ever prove to be anything material. I think we'll always be subsumed within what we believe will be ever-shrinking churn assumption.

Amir Rozwadowski -- Barclays -- Analyst

That's very helpful. One last one if I may. If we think about your capital allocation strategy and then your goal for long-term AFFO, it does sound like the way we should be thinking about things is really leaning more toward the share buyback versus M&A. Is that the appropriate assumption that we should be making?

Jeffrey Stoops -- President and Chief Executive Officer

Not necessarily. If you look at what we've done over really just since our last earnings, you can see a heavy bias of capital allocation toward M&A. It's really very opportunistic in where we see the greatest opportunity for long-term value creation. There was a period of time where we saw that in share repurchases. The last four, six months or so we've seen that in M&A. So I really can't give you one way or the other there. But what I can tell you is that we do intend to stay leveraged, absent some huge jump well beyond where we are in interest rates. We do intend to stay levered in the 7 to 7.5X range and use that investment capital for either M&A or share repurchases. We continue to have the bias toward M&A, where we could find the right opportunities.

Amir Rozwadowski -- Barclays -- Analyst

Thank you very much for the incremental color.

Operator

Thank you. Our next question comes from the line of Batya Levi with UBS. Please go ahead.

Batya Levi -- UBS -- Analyst

Great, thank you. Just to follow up, first domestically, does the guidance assume any activity from the [inaudible] [00:43:44] point. On international, it looked like churn picked up slightly. Is there anything to point out there? How do the recent acquisitions internationally compare to your existing portfolios in terms of tendency churn? Finally, again, looking at other opportunities to acquire portfolios, do you see any change in the level of activity from competitors, maybe valuation of these assets? Thank you.

Brendan Cavanagh -- Chief Financial Officer

The first question was about DSH and guidance. There's nothing specific in there related to DSH at this point.

Jeffrey Stoops -- President and Chief Executive Officer

The international churn was related to, primarily one unique situation in Latin America. One customer that is not going to repeat itself.

Brendan Cavanagh -- Chief Financial Officer

Small customer.

Jeffrey Stoops -- President and Chief Executive Officer

Small customer. And actually it did get worked out and we prefer not to name it at this point. The M&A market continues to be very competitive. We stop and we start and we're opportunistic around our capital allocation because it is very competitive and I don't think that's going to change given the desirability of high-quality tower assets. But there are good opportunities out there. We're pretty good at ferreting them out. We will continue to look to do that. But it is competitive. I think you had one more question.

Batya Levi -- UBS -- Analyst

Just in terms of the recent international acquisitions, if that portfolio is any different than what you have in [inaudible] [00:45:26] right now?

Jeffrey Stoops -- President and Chief Executive Officer

Well, the Highline deal in Brazil. Low maturity, good revenue skewed toward TIM and Vivo. High-quality towers. So that is a little bit different characteristics from our Oi concentration in Brazil. It gives us a nice diversification, which is one of the leading attractions there. The [inaudible] again, very immature towers. We had somewhat of a structured transaction where we arrived on a price based on the rent that we agreed that Millicom would pay. We arrived at what we thought was a very attractive price per tower given that market. We know that market very well because we were already the leading tower company in that market. But high quality towers, Millicom is the leading provider in that market, so we know getting very good locations and it should be opportunities for the other three players in that market to co-locate.

Every one of those deals has a little bit of a different twist and turn and that all has to play into the analysis and the decision making.

Batya Levi -- UBS -- Analyst

Okay. Is focus still mainly in Americas or would you look to expand outside of that region?

Jeffrey Stoops -- President and Chief Executive Officer

We continue to be primarily a Western Hemisphere-focused company but we will look in other areas and we will seek good opportunity and good value creation where it presents itself.

Batya Levi -- UBS -- Analyst

Okay, thank you.

Operator

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

David Barden -- Bank of America -- Analyst

Hey, guys. Thanks so much. Brendan, I think you mentioned the assumption that you're making on higher international taxes and then also an assumption on what's going to happen to LIBOR. I think those two things are kind of grinding in the AFFO growth, I think, relative to the proved out [inaudible] [00:47:43] services growth. Could you give us a little bit more color on what you're baking in numerically into that outlook? That would be super helpful. Then just kind of following up on something we were talking about earlier. I think in the script, again, Brendan, you had something to the effect that the higher stock price makes you think higher about the buybacks. Obviously, there's a mathematical equation in there, but I was wondering if just because the stock has done so well, does that make the underlying M&A transactions that much more of an attractive use of capital relative to buybacks at the margin? Thanks.

Brendan Cavanagh -- Chief Financial Officer

On the tax assumption, it's actually in our press release if you look down the walk-down of guidance that's in the back for each of the specific items. It shows a range of $17.5 to $22.5 million to $20 million at the mid-point. That's for total taxes. That's up $3 to $4 million. I mentioned international specifically. That's really just because as we get bigger internationally, we generate more taxable income. So that's part of the reason that moves up. On the LIBOR assumptions, we are assuming an increase in LIBOR, but it's somewhat modest. It's about a 25 to 30 basis point move up somewhat evenly throughout the year. So it's moved a little more dramatically than that in the early part of the year, so we'll see whether that assumption holds or not, but that is the assumption.

Then your other question was the M&A versus the stock buyback. Certainly, as the stock becomes more expensive, I mean, really what we're doing here is we're making decisions as to how best to allocate capital and trying to get the best return possible. So we're looking at all of our options in front of us. If the return on the stock buyback isn't as great as it was before relative to the M&A opportunities before us, that may mean more M&A. But I think if you look at the last couple of years, you'll see a pretty good mix of both and I would expect that to be the case moving forward.

Jeffrey Stoops -- President and Chief Executive Officer

I'll just add to that, David, that for any M&A deal, you have to hit the minimum investment requirement. It was only after that that you had the choice between stock repurchases and M&A. So once you hit that minimum, certainly the increased stock price allows for a potentially greater bias toward those M&A opportunities that otherwise qualify.

David Barden -- Bank of America -- Analyst

Thanks for the tip. I appreciate it. Brendan, could I just do one quick follow-up to just the general exposure to the variable rate debt at the margin. Is there anything about the rate environment and what you're looking at happening that makes you want to fix that in the swap market or even through a refi?

Brendan Cavanagh -- Chief Financial Officer

Yeah, I mean, it's something that we're evaluating all the time. I think there are opportunities to do some things but stay posted and we'll do what we can to minimize those costs always.

David Barden -- Bank of America -- Analyst

Thanks, guys. Appreciate it.

Operator

Thank you. Our next question comes from the line of Michael Rollins. Please go ahead.

Michael Rollins -- Citigroup -- Analyst

Hi, thanks. Two if I could. One, could you just review for us which acquisitions are in the revenue guide for 2018? And what might be pending that's not in that acquisition contribution number? Secondly, as you look at the opportunities -- you mentioned Sprint, FirstNet. Can you talk about what peak site leasing growth could look like over the next few years?

Brendan Cavanagh -- Chief Financial Officer

On the M&A question, obviously everything that we've closed to date is clearly in, so the High Line deal, the deal that we mentioned that was in Peru and Colombia. Those are, of course, in. Then anything that's under contract we also included, but there is some variability to that because we've had to make certain assumptions around the timing of when those might close. So in the case of the biggest items, which is the Millicom deal in El Salvador, we have included that in our guidance and that's why our discretionary CapEx is where it is. We've made certain assumptions around the closing of that in tranches throughout the second half of 2018, but the timing on that could shift earlier or later and would have some slight impact on that. But anything that's not signed up under contract is not -- there's nothing included.

Jeffrey Stoops -- President and Chief Executive Officer

On your second question, Mike. We haven't really kind of reduced that to a quantifiable number, but I would say your peak potential would be materially higher than certainly what we are expecting in 2018 and way, way, way higher than what is currently in our guidance.

Michael Rollins -- Citigroup -- Analyst

And maybe a question that you talked about in the past. You used to talk about the exit rate in the fourth quarter of where you expect [inaudible] [00:52:52] leasing to get to. Based on your annual guidance and your comments for some of the backend loading of leasing, can you level set what that fourth quarter to fourth quarter organic growth might look like for the company?

Brendan Cavanagh -- Chief Financial Officer

Yeah, I'd rather not give a specific number but I will say that we expect it to be higher on average than the average growth rate that we've assumed for the full year because we do expect it to grow throughout the year sequentially. So, we definitely would expect to be leaving the year with a higher rate than the average that we've implied here for the full year.

Michael Rollins -- Citigroup -- Analyst

Thanks very much.

Operator

Thank you. Our next question comes from the line of Robert Gutman with Guggenheim Partners. Please go ahead.

Robert Gutman -- Guggenheim Securities -- Analyst

Thanks for taking the question. As I look at the domestic, gross organic growth rate, it looks pretty flat year-over-year right out of the gate. It includes, as you said, some activity from Sprint and FirstNet. I was just wondering the other activity that had been driving prior to LP capacity upgrade, AWS3 overlays, has that stuff remained constant or slowed down? It seems a bit displaced with the other stuff in there. On the church basis, it seems like significant improvement year-over-year and I didn't catch how much of your churn assumption is consolidation versus non-consolidation in 2018?

Jeffrey Stoops -- President and Chief Executive Officer

I think part of the issue that we're trying to carefully make sure people understand here is the difference between operating leasing activity, where people sign up things, but then when it hits the financial statements, which typically is six months later. So while things are happening now and we've included some of that, it's not going to be in the financial statements until the second half. That's what's contributing to the 2018 number.

Things are operationally really good now and we think going to get even better, but you're not going to begin to really see the financial impact of that. Then when you combine that with what was a slower fourth quarter because a couple of these carriers were getting ready for this activity that we're now talking about, that does have an impact in the 2018 financial time period. So you combine all that stuff together and that is what has produced the guidance that we put forth at this time. Do you want to further?

Brendan Cavanagh -- Chief Financial Officer

Yeah. The churn in 2018, basically half of that is associated with Metro Leap and Clearwire consolidation. So it's about 2% is the assumption for full-year over full-year. About 1% of that is from those guys.

Robert Gutman -- Guggenheim Securities -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Matthew Niknam with Deutsche Bank. Please go ahead.

Matthew Niknam -- Deutsche Bank -- Analyst

Hey, guys. Thank you for getting me in. Just two quick ones if I could. One, on the domestic activity, I just want to be clear you mentioned some of the lighter activity during 4Q. Was this from one carrier or several? Is it fair to assume that has all sort of shown up year-to-date or is there some of that may not have surfaced in the first two months of the year and may be driving some of the slower revenue growth early on in '18?

Then secondly, just to follow up on Brett's earlier question. One of your peers is actually investing in fiber in some international markets and maybe complementing the macro business. Is this something that you may consider in some of your LatAm markets, just given the sort of different supply dynamics of fiber in some of these markets relative to the US? Thanks.

Jeffrey Stoops -- President and Chief Executive Officer

On the latter question, we're watching those opportunities and we're certainly open-minded to see if we believe that there can be a better return on investors' capital in those markets or a market, as opposed to the conclusions that we've breached in the United States. Brendan?

Brendan Cavanagh -- Chief Financial Officer

Yeah, on the first question, the activity, as Jeff mentioned, was a little bit lower in the fourth quarter. We have seen it increase as we've come into the tier. So the first two months, our actual activity which we were describing as applications coming in and signing the new agreements, has definitely picked up. But the timing of that influenced the financials, of course, will be delayed. So I think the fourth quarter is definitely impacted or is expected to be impacted a little bit because of revenue recognition by the slower executions in the fourth quarter. But again, based on what's happening now in terms of signing, we feel good that as we get into the latter half of the year, that we'll see some positive uptick there.

Matthew Niknam -- Deutsche Bank -- Analyst

Brendan, if I could just follow up. Was that one specific carrier or was this just a broader phenomenon a quarter across the industry?

Jeffrey Stoops -- President and Chief Executive Officer

No, we said in our comments it was successful.

Brendan Cavanagh -- Chief Financial Officer

Yeah.

Matthew Niknam -- Deutsche Bank -- Analyst

Got it. Thanks.

Operator

Thank you. Our next question comes from the line of Colby Synesael with Cowen and Company. Please go ahead.

Colby Synesael -- Cowen and Company -- Analyst

Great. Thank you. Just regarding Oi, which you called out in the press release, noting you've got what's going on there could be positive. Just wondering if you could kind of break that down a little bit further in terms of what might happen as a result of that? This is kind of more just about getting better clarity. Then secondly, as relates to excess capital, I haven't done the math. I was wondering you could help me out. When you look at the committed M&A that you've already done for this year, for 2018, any sense of how it can frame up what's left over for either additional M&A or a potential buyback? Thank you.

Jeffrey Stoops -- President and Chief Executive Officer

Well, the Oi approval has set out certain terms which require a certain number of the bondholders to convert and there's a certain amount of equity that needs to come in. So there are certain things, Colby, that still need to happen for everything to come out and Oi to resume operations totally outside of the plan, but to have gotten this far and have a plan that is now out there and actionable and people are working on it is certainly a tremendous success and a step in the right direction. In terms of how much is left on the -- why don't we offline kind of help you figure out going back to triangulate back to 7 and 7.5X EBITDA because that's going to get back to where, how much remaining investment capacity is left.

Colby Synesael -- Cowen and Company -- Analyst

Okay, thanks.

Operator

Thank you and --

Jeffrey Stoops -- President and Chief Executive Officer

Operator, we have time for one more question.

Operator

Our final question comes from the line of Amy Yong with Macquarie. Please go ahead.

Amy Yong -- Macquarie -- Analyst

Thanks. Thank you for squeezing me in. I guess if you could talk broadly on all the different bands of spectrum that's getting deployed -- 600, 2.5 -- can you talk at what point we're at for the 600 and how does that change the equipment or the actual pricing structure? Thanks.

Jeffrey Stoops -- President and Chief Executive Officer

Well, we're still in the relatively early innings for the 600 because there's still a fair amount of clearing that has to occur. The equipment is different generally. Larger antennas. In every instance, new radios. So, that is always going to, at least the way we structure our contracts, is going to require an amendment where we have additional revenue opportunities. Now depending on how many radios and how many antennas, Amy, that's obviously going to dictate the final pricing, but it is going to be a revenue opportunity for us in every case where our towers are hit.

I do believe we are in the early innings. There was a fair amount of progress made early on. I have to give T-Mobile a lot of credit. They're all over this. They're working. They have a great plan. They're working hard. They execute extremely well. But there's still a lot of stuff that has to be done on the clearing side for them to get to the rest of it.

Amy Yong -- Macquarie -- Analyst

Got it. Thank you.

Jeffrey Stoops -- President and Chief Executive Officer

Thank you. Operator, that's all for us. I'd like to tell everybody thanks for joining us and we look forward to our next call.

Operator

Thank you. Ladies and gentlemen, this conference call will be available for replay starting today at 8:00 p.m., and will run until March 12th at 12:00 a.m. You may access the replay service by dialing 1-800-475-6701 and entering the access code of 442692. Those numbers again: 800-475-6701 and entering the access code of 442692. That does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive Teleconference. You may now disconnect.

Duration: 63 minutes

Call participants:

Mark DeRussy -- Vice President of Finance

Brendan Cavanagh -- Chief Financial Officer

Jeffrey Stoops -- President and Chief Executive Officer

Richard Prentiss -- Raymond James & Associates -- Analyst

Richard (for Phil Cusick) -- JP Morgan -- Analyst

Nick Del Deo -- MoffettNathanson -- Analyst

Spencer Kurn -- New Street Research -- Analyst

Brett Feldman -- Goldman Sachs -- Analyst

Amir Rozwadowski -- Barclays -- Analyst

Batya Levi -- UBS -- Analyst

David Barden -- Bank of America -- Analyst

Michael Rollins -- Citigroup -- Analyst

Robert Gutman -- Guggenheim Securities -- Analyst

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