Why did the net loss increase in 2006 even though operating income improved?

Operating income rose to $19.5 million from $4.2 million, but total other expense increased to $152.4 million from $96.7 million. The main drivers were interest expense of $81.3 million (up from $40.5 million), amortization of deferred financing fees of $11.6 million, and a $57.2 million loss from write-off of deferred financing fees and extinguishment of debt, tied to the repurchase of the 9 3/4% senior discount notes and 8 1/2% senior notes and repayment of the $1.1 billion bridge loan.

How much debt does SBA carry and when does it come due?

Total debt was $1.555 billion at December 31, 2006. The $405.0 million Initial CMBS Certificates have an anticipated repayment date of November 15, 2010, and the $1.15 billion Additional CMBS Certificates have an anticipated repayment date of November 15, 2011. Final repayment dates are 2035 and 2036. If the mortgage loan is not repaid by the anticipated repayment dates, the interest rate will significantly increase. The $160.0 million senior revolving credit facility, which matures December 21, 2007, had no amounts outstanding at year-end.

What risks do tenant consolidation and customer concentration pose?

The filing says Cingular and former AT&T Wireless had leases on 290 towers with annualized contractual revenue of about $14.9 million, and Sprint Nextel had multiple leases on 555 towers with about $27.1 million. Cingular has terminated leases with $1.5 million of annualized revenue in 2006 and received non-renewal notices covering $4.4 million for leases expiring within 24 months. The company states that losing duplicate leases could cause it to lose 50% or more of the Cingular-related revenue on those towers, and that Sprint Nextel could also terminate or not renew leases where it has other nearby antenna sites.

Does SBA pay dividends, and what limits its ability to distribute cash?

SBA has never paid a dividend on any class of common stock and does not expect to pay cash dividends in the foreseeable future, intending to retain earnings to fund growth. The CMBS Certificates and senior credit facility restrict dividends, stock repurchases and other distributions except under certain circumstances. As a holding company, SBA depends on distributions from its subsidiaries, whose ability to pay dividends is also restricted by the debt terms.

What are the company's plans for 2007?

SBA intends to build 80 to 100 new towers in 2007 and pursue tower acquisitions. It expects cash capital expenditures for tower maintenance and general corporate purposes of $8.0 million to $10.0 million, and discretionary cash capital expenditures of at least $75.0 million to $80.0 million, mainly for new builds, ground lease purchases and acquisitions. It also states that, as of February 22, 2007, it had acquired 16 towers since December 31, 2006 and had pending acquisition agreements for 148 towers. Management expects to fund these expenditures from cash on hand, operating cash flow, the senior credit facility and Class A common stock issued in acquisitions.

SBAC 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.

SBA Communications Corporation reported a net loss of $133.4 million^a for 2006, compared with $94.7 million in 2005, while revenue rose to $351.1 million from $260.0 million.

Site leasing revenue reached $256.2 million^b, up from $161.3 million, and the company attributed much of the growth to the AAT Acquisition, which it completed in April 2006 for $634.0 million in cash plus 17,059,336 Class A shares. Operating income improved to $19.5 million from $4.2 million, but interest expense, loss on extinguishment of debt and amortization of financing fees pushed results further into the red. Management states it expects to keep incurring significant losses.

Leverage rose sharply during the year. Total indebtedness was $1.555 billion^c at December 31, 2006, versus $784.4 million a year earlier, and shareholders' equity increased to $385.9 million from $81.4 million, largely from stock issued for acquisitions. Nearly all debt is secured CMBS certificates: $405.0 million of Initial CMBS Certificates due for anticipated repayment in November 2010 and $1.15 billion of Additional CMBS Certificates issued November 2006 with anticipated repayment in November 2011.

The filing notes that failure to repay by these dates would significantly increase the interest rate, and that a debt service coverage ratio below 1.30 times triggers cash trapping. Concentration and tenant risk are material. Sprint Nextel and Cingular (now AT&T) accounted for 27.6%^d and 21.4% of total revenues in 2006.

Under the risk factors, Cingular and former AT&T Wireless had leases on 290 towers with annualized contractual revenue of about $14.9 million, and Sprint Nextel had multiple leases on 555 towers with about $27.1 million. The company operated 5,551 towers at year-end 2006 and plans 80 to 100 new builds in 2007.

02—Key points

Key Highlights

Total revenues rose 35.0% to $351.1 million in 2006, driven by site leasing revenue of $256.2 million (up 58.8%) following the AAT Acquisition.
Net loss widened to $133.4 million ($1.36 per share) from $94.7 million in 2005, mainly due to $99.7 million of interest expense and $57.2 million of losses from debt extinguishment and deferred financing fee write-offs.
Operating income improved to $19.5 million from $4.2 million, and Adjusted EBITDA increased 69.8% to $161.8 million.
Total indebtedness was $1.555 billion at year-end 2006, versus $784.4 million in 2005, almost entirely fixed-rate CMBS certificates; the company reduced its weighted average cost of debt from 7.35% to 5.96%.
The AAT Acquisition added 1,850 towers, bringing the portfolio to 5,551 towers, and tenants rose to 13,602 from 8,278.
Sprint Nextel (27.6%) and Cingular (now AT&T) (21.4%) were the largest customers by share of total 2006 revenues, creating client concentration risk.
Cash flow from operations was $76.0 million in 2006, and the company reported $46.1 million in cash and cash equivalents at year-end, with a $160.0 million revolving facility providing $29.0 million of availability.

03—Questions

Frequently Asked Questions

Why did the net loss increase in 2006 even though operating income improved?
Operating income rose to $19.5 million from $4.2 million, but total other expense increased to $152.4 million from $96.7 million. The main drivers were interest expense of $81.3 million (up from $40.5 million), amortization of deferred financing fees of $11.6 million, and a $57.2 million loss from write-off of deferred financing fees and extinguishment of debt, tied to the repurchase of the 9 3/4% senior discount notes and 8 1/2% senior notes and repayment of the $1.1 billion bridge loan.
How much debt does SBA carry and when does it come due?
Total debt was $1.555 billion at December 31, 2006. The $405.0 million Initial CMBS Certificates have an anticipated repayment date of November 15, 2010, and the $1.15 billion Additional CMBS Certificates have an anticipated repayment date of November 15, 2011. Final repayment dates are 2035 and 2036. If the mortgage loan is not repaid by the anticipated repayment dates, the interest rate will significantly increase. The $160.0 million senior revolving credit facility, which matures December 21, 2007, had no amounts outstanding at year-end.
What risks do tenant consolidation and customer concentration pose?
The filing says Cingular and former AT&T Wireless had leases on 290 towers with annualized contractual revenue of about $14.9 million, and Sprint Nextel had multiple leases on 555 towers with about $27.1 million. Cingular has terminated leases with $1.5 million of annualized revenue in 2006 and received non-renewal notices covering $4.4 million for leases expiring within 24 months. The company states that losing duplicate leases could cause it to lose 50% or more of the Cingular-related revenue on those towers, and that Sprint Nextel could also terminate or not renew leases where it has other nearby antenna sites.
Does SBA pay dividends, and what limits its ability to distribute cash?
SBA has never paid a dividend on any class of common stock and does not expect to pay cash dividends in the foreseeable future, intending to retain earnings to fund growth. The CMBS Certificates and senior credit facility restrict dividends, stock repurchases and other distributions except under certain circumstances. As a holding company, SBA depends on distributions from its subsidiaries, whose ability to pay dividends is also restricted by the debt terms.
What are the company's plans for 2007?
SBA intends to build 80 to 100 new towers in 2007 and pursue tower acquisitions. It expects cash capital expenditures for tower maintenance and general corporate purposes of $8.0 million to $10.0 million, and discretionary cash capital expenditures of at least $75.0 million to $80.0 million, mainly for new builds, ground lease purchases and acquisitions. It also states that, as of February 22, 2007, it had acquired 16 towers since December 31, 2006 and had pending acquisition agreements for 148 towers. Management expects to fund these expenditures from cash on hand, operating cash flow, the senior credit facility and Class A common stock issued in acquisitions.

04—Continue

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