Executives
Mark DeRussy - Director of Finance
Brendan T. Cavanagh - Chief Financial Officer and Senior Vice President
Jeffrey A. Stoops - Chief Executive Officer, President and Director
Analysts
Sandeep Gupta - Barclays Capital, Research Division
Richard H. Prentiss - Raymond James & Associates, Inc., Research Division
Jonathan A. Schildkraut - Evercore Partners Inc., Research Division
Jonathan Atkin - RBC Capital Markets, LLC, Research Division
Simon Flannery - Morgan Stanley, Research Division
Brett Feldman - Deutsche Bank AG, Research Division
Richard Yong Choe - JP Morgan Chase & Co, Research Division
David W. Barden - BofA Merrill Lynch, Research Division
Kevin Smithen - Macquarie Research
Colby Synesael - Cowen and Company, LLC, Research Division
SBA Communications (SBAC) Q3 2012 Earnings Call November 6, 2012 10:00 AM ET
Operator
Ladies and gentlemen, thank you for standing by, and welcome to SBA Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Mark DeRussy, Director of Finance. Please go ahead, sir.
Mark DeRussy
Thank you. Good morning, everyone, and thank you for joining us for SBA's Third Quarter 2012 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.
Please know that some of the information we will discuss in this call is forward-looking, including but not limited to, any guidance for 2012, 2013 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, November 6, 2012, and we have no obligation to update any forward-looking statement we may make.
Our comments will include non-GAAP financial measures as defined by Regulation G. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and the other information required by Regulation G has been posted to our website, sbasite.com.
With that, I'd like to turn the call over to Brendan to comment on our third quarter results.
Brendan T. Cavanagh
Thank you, Mark. Good morning. As you saw from our press release last night, our third quarter financial and operational results were excellent. We exceeded the high end of our guidance for leasing revenue, adjusted EBITDA, AFFO, and services revenue. Total revenues were $238.6 million, up 35.9% over the year-earlier period. Site leasing revenues for the third quarter were $208.8 million or a 35.2% increase over the third quarter of 2011.
Our leasing revenue growth was driven by organic growth and portfolio growth, including the impact of the Mobilitie acquisition, which closed during the second quarter of this year. The vast majority of our site leasing revenue comes from the U.S. and its territories, with approximately 6% of total leasing revenue coming from international operations. Site leasing segment operating profit was $162.2 million or an increase of 34.5% over the third quarter of 2011. Site leasing contributed 97.2% of our total segment operating profit.
Tower cash flow for the third quarter of 2012 was $155.9 million or a 28.2% increase over the year-earlier period. Tower cash flow margin was 79.3% compared to 79.8% in the year-earlier period. Margins were slightly impacted by the addition of the less mature Mobilitie portfolio. Our fourth quarter 2012 guidance assumes a sequential decline in Tower cash flow margin to reflect the less mature TowerCo sites, which were added on October 1. We expect margins to resume sequential growth in the first quarter of 2013.
We continue to experience strong leasing demand, both domestically and internationally. Amendments, which were predominantly from AT&T, Verizon and Sprint, continue to be numerous and contributed approximately 85% of U.S. leasing revenue added in the quarter. The Big 4 U.S. carriers contributed approximately 81% of our consolidated incremental leasing activity in the quarter. We have a solid leasing backlog and expect that the fourth quarter will be another strong one in terms of customer activity. We are off to a good start in the quarter and expect a strong finish to the year.
Our Services revenues were $29.8 million compared to $21 million in the year-earlier period. Services segment operating profit was $4.7 million in the third quarter compared to $3.1 million in the third quarter of 2011. Services segment operating profit margin was 15.8% compared to 14.8% in the year-earlier period.
SG&A expenses for the third quarter were $17.6 million, including noncash compensation charges of $3.6 million. SG&A expenses were $15.4 million in the year-earlier period, including noncash compensation charges of $2.7 million. As a percentage of revenue, SG&A declined 142 basis points to 7.4% compared to the third quarter of 2011. We expect this positive momentum to continue into the fourth quarter and 2013, reflecting the efficiency, by which we believe we can materially add assets.
Adjusted EBITDA was $146.6 million or a 30.3% increase over the year-earlier period. Adjusted EBITDA margin was 64.7% in the third quarter of 2012 compared to 64.9% in the year-earlier period. Strong, organic margin expansion from our leasing segment was offset by the inclusion of the less mature Mobilitie towers and an increase in our lower-margin Services revenues.
AFFO increased 42.8% to $93.1 million compared to $65.2 million in the third quarter of 2011. AFFO per share increased an industry-leading 28.8% to $0.76 compared to $0.59 in the third quarter of 2011.
Net loss attributable to SBA Communications Corporation during the third quarter was $52.4 million compared to a net loss of $33.3 million in the year-earlier period. Contributing to net loss in the third quarter were $5.7 million in acquisition-related expenses, primarily associated with the Mobilitie and TowerCo transactions and a $22.6 million charge related to the early retirements of our remaining 8% senior notes and the Mobilitie bridge loan. Net loss per share for the third quarter was $0.43 compared to $0.30 per share in the year-earlier period. Quarter-end shares outstanding were 121.8 million.
In the third quarter, we acquired 37 towers and built 99 towers. We ended the quarter with 13,257 owned towers, an increase of 36% versus the year-earlier period. 11,541 of the towers were in the U.S. and its territories and 1,716 in international markets.
Total cash capital expenditures for the third quarter of 2012 were $57.8 million, consisting of $3.1 million of nondiscretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $54.7 million of discretionary cash capital expenditures.
Discretionary cash CapEx for the third quarter includes $20.8 million incurred in connection with tower acquisitions, exclusive of any working capital adjustments and paid earnouts. Discretionary cash CapEx also included $17.1 million in new tower construction, including construction in progress, and $6 million for gross augmentations and tower upgrades. Of the $6 million augmentation figure, approximately $5 million or 83% was reimbursed by our customers.
With respect to the land underneath our towers, we spent an aggregate of $10.4 million to buy land and easements and to extend ground lease terms. Our investments in land are both strategically beneficial and almost always immediately accretive. At the end of the quarter, we owned or controlled for more than 20 years, the land underneath approximately 70% of our towers. At the end of the quarter, the average remaining life under our ground leases, including renewal options under our control, is approximately 30 years pro forma for TowerCo.
In September and October, we completed our previously announced sale of certain gas assets to ExteNet for $125 million. We received $94.3 million in cash during the third quarter and $5.7 million in cash during the fourth quarter, which collectively represent a total of $100 million in agreed-upon cash consideration for the transaction. We also received a note for $25 million. Results of these operations are reflected as income from discontinued operations in the statement of operations. The results of these operations have been excluded from our calculations of Tower cash flow, adjusted EBITDA and AFFO.
At this point, I will turn things over to Mark, who will provide an update on our liquidity position and balance sheet.
Mark DeRussy
Thanks, Brendan. SBA ended the third quarter with $5.4 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $1.5 billion, resulting in net debt of $3.9 billion. Our net debt to annualized adjusted EBITDA leverage ratio was 6.7X. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 2.9X.
We were extraordinarily active in the capital markets during the third quarter. In July, we issued 800 million of senior notes due 2020. The notes were issued at par and bear interest at a rate of 5.75%. The proceeds from this offering were used in part due to prepaid in full the Mobilitie bridge loan and repay all amounts outstanding under our revolver.
In August, we issued 610 million of secured Tower revenue securities. The securities were issued at par and bear interest at 2.93%. They have an anticipated repayment date of December 2017 and a final maturity date of 2042. The proceeds from this offering were used to call the remaining $244 million in principal outstanding of our 8% senior notes, pay a portion of the cash consideration in connection with the TowerCo acquisition and for general corporate purposes.
In September, we issued 500 million of senior notes due 2019. These notes were issued at par and bear interest at a rate of 5.625%. The proceeds from this offering were used to pay a portion of cash consideration in connection with the TowerCo acquisition. Also in September, we borrowed an incremental $300 million under our existing credit agreement in the form of a 7-year term loan B. The loan was issued at a 25 basis point discounted par and will accrue interest at LIBOR plus 2.75% with a 1% LIBOR floor.
Finally, on October 1, we issued 4.6 million shares of Class A common stock, representing the equity component of the TowerCo transaction. These shares were subsequently sold by the selling shareholders in an underwritten offering. As of the end of the third quarter, our debt had a weighted average annual cash coupon of 4.3% and a weighted average remaining maturity of just under 5 years. 82% of our total debt is fixed rate.
In the third quarter, we did not purchase any shares of our common stock. We currently have $150 million remaining under our existing $300 million authorization. Stock repurchases continue to be an important component within our overall capital allocation process. However, we continue to view them as opportunistic rather than systematic.
We're very pleased with the balance sheet as we approach the end of 2012. We have long-term financing in place for both the Mobilitie and TowerCo transactions, as well as $700 million in committed capacity under our revolver. This year, we have raised $2.4 billion in debt at a weighted average maturity of 6.7 years. We believe the capital market decisions we have made in 2012 have put us in a good position as we look into 2013 and beyond, particularly with respect to refinancing our convertible notes due in 2013.
And with that, I'll turn the call over to Jeff.
Jeffrey A. Stoops
Thanks, Mark, and good morning, everyone. Happy Election Day. As you have heard, we did have a great quarter, meeting or exceeding the high end of our guidance across key financial metrics. Once again, we led our industry and a number of important growth metrics, including growth and AFFO per share. Our organic leasing activity was particularly strong, with the highest revenue added per tower in many years. We expect strong levels of activity to continue through the remainder of 2012 and all through 2013. We are experiencing strong demand across our entire portfolio, both domestic and international.
In the U.S., we are in the middle stages of 4G deployments for some customers and early stages for others. We are seeing the benefits in both our leasing and services segments. We expect to benefit from this technological upgrade for the next several years, as carriers build out their initial coverage footprints to be followed by capacity spending, as consumer adoption increases. We are seeing cell splitting in certain 4G markets, although domestic leasing activity continues to center around customer overlays and upgrades to existing antenna sites.
Internationally, we are seeing strong growth in new cell sites, with a lot of basic 3G coverage builds still ongoing in Central America. And we look forward to the introduction of 4G into those international markets in the future. As a result of anticipated continued strong demand from our U.S. and international customers, we are guiding the strong organic leasing growth in 2013.
In the third quarter, we had our most active quarter with respect to executed lease amendments in the company's history. AT&T and Verizon continue to be very busy and represented well over half of our new business in the quarter. We saw a substantial increase from Sprint due to its Network Vision Project, and we have just began to work with T-Mobile on its 4G upgrade.
In the third quarter, we entered into an agreement with T-Mobile extending the length of the terms on approximately 2,800 legacy SBA Towers and providing for increased cash escalators for certain period of time in exchange for T-Mobile's rights to deploy 4G equipment on a lesser number of sites. This agreement has since been extended to 520 TowerCo towers, where T-Mobile was a tenant. With the agreements now in place, T-Mobile's working hard to bring 4G to our sites, and that now makes all 4 U.S. carriers extremely busy with us on technology upgrades, positively impacting both our leasing and services segments.
Our services segment produced the highest revenue and gross profit in 7 years, with a level of activity that has consistently grown as we move through the year. We expect continued strong services segment contribution for the remainder of 2012 and all through 2013. We had a good quarter building towers and buying or extending the land under our towers. We were tremendously busy in the debt capital markets, raising $2.2 billion in 4 separate transactions in the third quarter alone. We acquired 37 towers in the quarter, as we're ready to close the pending TowerCo transaction.
We closed the TowerCo acquisition on October 1, adding 3,256 towers. As of today, we own 16,517 towers and have increased our portfolio year-to-date by almost 60%. The integration of our acquisitions is going very well, and the assets are attracting good demand from our customers. A sizable amount of our backlog relates to these new assets.
One of the clear benefits we are enjoying from these acquisitions is the reduction in SG&A expense as a percentage of revenue, reflecting our ability to maximize the efficiency and capabilities of our back office. As Brendan mentioned, SG&A expense has declined as a percentage of total revenue, and we expect additional reductions as TowerCo is reflected in our results of operations.
Given our success with these acquisitions and our expectation of being backed within our target leverage range of 7.0 to 7.5x net debt annualized adjusted EBITDA by the end of the fourth quarter, we are ready to continue with additional portfolio growth. We will look both domestically and internationally and believe that we will find some attractive opportunities that will meet our investment requirements. We are once again establishing a goal of 5% to 10% portfolio growth in 2013, while maintaining our target leverage levels. Our initial 2013 guidance reflects a lower level of portfolio growth. And if we are successful in consummating some acquisitions, I would expect our initial 2013 outlook to increase.
Speaking of international, we continue to be very pleased with our international activity. International towers have grown to 1,716 at the end of the quarter, an increase of approximately 150% over the year-earlier period. International site leasing revenue grew 121% year-over-year. While U.S. portfolio growth occupied most of our focus this year, we continue to have an interest in expanding our international business into new markets. We expect in 2013, that we will be actively looking for the right new international markets in which to expand as well as continuing to materially grow our existing international markets.
Our access to capital and balance sheet are both in great shape. We've had a very successful year in the capital markets. We've termed out all of the debt associated with our Mobilitie and TowerCo acquisitions on favorable terms and interest rates. While our undrawn $700 million revolver plus cash on hand is more than sufficient to satisfy in cash all of our expected obligations related to our 1.875% convertible notes due May 2013. We are planning on some additional debt financing prior to the May 2013 convert maturity. We're planning on this so as to preserve our revolver availability and to ensure that we will be able to stay fully invested to our target leverage range, if we so choose. Our outlook assumes $600 million of such additional debt financing.
As our initial 2013 guidance indicates, we expect the current strength in our business to continue into 2013. One of the drivers of this substantial growth we expect to set forth in our initial 2013 outlook is strong, anticipated organic lease up against a much larger portfolio of towers.
With respect to organic Tower cash flow growth, we are forecasting materially the same level of incremental organic carrier activity on a cash revenue added per tower basis in 2013 as we expect for 2012. We see a tremendous amount of amendment activity again in 2013.
We have included no material contribution in 2013 from any customer that was not reasonably active in 2012, so that would exclude DISH, Clearwire and public safety. Our 2013 outlook includes benefits from the Sprint and T-Mobile agreements to both cash and noncash site leasing revenue, but our Tower cash flow, adjusted EBITDA and AFFO outlooks are all on a cash basis.
Total noncash leasing revenue in 2013 is estimated to be approximately $60 million. For those of you doing margin analysis, since our definitions of Tower cash flow and adjusted EBITDA exclude noncash items, you need to subtract noncash items from site leasing revenue to calculate margin. When you do, you'll see that we are expecting relatively stable margin performance in 2013, notwithstanding having added a substantial number of lower-margin Mobilitie and TowerCo assets. And this is a result of expected strong organic leasing growth.
In our site leasing revenue outlook, we have factored in a churn allowance in the guidance, which includes all known churn plus an additional unallocated amount similar to those churn levels we have experienced during the last couple of years. On the services side, we are expecting another strong year similar to full year expected 2012. With respect to net cash interest, we are assuming 3 month LIBOR remains at or below 0.5% throughout 2013.
As is our custom, our outlook includes only those towers we own, intend to build or have under agreement to acquire as of today, and we do not guide to any stock repurchases. As a result, we are today, including our initial 2013 guidance, a level of discretionary capital investment well below 2012 levels and well below our guided AFFO.
As I mentioned earlier, it will be our goal to invest additional amounts of capital and portfolio growth or perhaps stock repurchases or perhaps both. Assuming the one additional financing contemplated in our outlook ahead of the maturity of our 2013 convertible notes, we will have significant liquidity that could be deployed for additional asset growth and/or stock repurchases.
Based on our estimated 2013 year-end run rate adjusted EBITDA, we could invest approximately an additional $750 million or more into portfolio growth and still maintain our target net debt annualized adjusted EBITDA leverage levels.
In the aggregate, we believe our initial 2013 outlook is strong with potential opportunities for improvement throughout the year. Our focus next year is straightforward: Execute well against a favorable macro environment, add quality growth assets and continue to take advantage of what is expected to be a favorable financing market. We expect to, once again, produce material growth across a number of key metrics, including growth at AFFO per share.
Before we open it up for questions, I 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. They do a great job, our customers recognize that, and as a result, we are a preferred provider for our customers' network needs. Our customers are, and we think will remain extremely busy, improving and expanding their wireless networks. We look forward to continued success as we finish this year and move into 2013. And Lola, at this time, we're ready for questions.
Question-and-Answer Session
Operator
[Operator Instructions] And first, we'll go to the line of James Ratcliffe of Barclays.
Sandeep Gupta - Barclays Capital, Research Division
This is Sandeep Gupta for James. Can you talk about -- for your international business, what's the mix of growth between new tendencies and amendment revenue? And where do you think the international markets are and their growth cycle? And I have a follow up.
Jeffrey A. Stoops
The amendment new cell site split internationally is probably 90-10, 90% new cell sites, 10% amendments, I think reflecting the capacity or -- excuse me, the coverage built stage that a lot of those markets are in. We see them as being several years behind maybe as many as 5 to 10 years behind the U.S., in terms of their development but proceeding on exactly the same path. So we're pretty excited about years to come of good international growth.
Sandeep Gupta - Barclays Capital, Research Division
And also about your DAS portfolio. Would you think you're satisfied with the current scale, or you need to scale further through acquisitions?
Jeffrey A. Stoops
Well, we really don't have a DAS portfolio. We chose several years ago to be active in that space through our investment in ExteNet, of which we're a sizable minority holder. We sold slightly more than half the DAS assets that we bought from Mobilitie to ExteNet, which Brendan mentioned, and I think we announced the closing of that. So that's how we invest and stay active through the DAS side of things. And we're extremely pleased with how ExteNet is doing, and how that portion of the world I think is going to be -- continue to be an important part of wireless infrastructure.
Operator
And next, we'll go to the line of Rick Prentiss with Raymond James.
Richard H. Prentiss - Raymond James & Associates, Inc., Research Division
A couple of questions. First, obviously, it's been really tough up in the northeast with Hurricane Sandy. Hopefully, your employees were okay. But can you update us as far as what impact Hurricane Sandy had on your operations, and how are things currently?
Jeffrey A. Stoops
Yes. First of all, our hearts go out to the people up there, whose lives are still dislocated, and we know there are many. Thankfully, we have no employee issues, other than difficulty in getting around. We have no reported material damage to our towers. There's a lot of power out that prevents cell sites from working, because the battery backups have all run out by now. Our obligations, and we're working hard to do this, is to make sure that our customers have access to the site, cleared roads, ability to get to their equipment and get them up and running. And we feel very confident that we'll be able to do that very quickly. So having said all that, again, while the Sandy thing is a heartache for so many people, we don't really see it having any material impact on our business.
Richard H. Prentiss - Raymond James & Associates, Inc., Research Division
Okay. Second question is with the timing maybe of that $600 million financing to take out the 1 7/8 convert. What is your assumption as far as when you would execute that $600 million transaction in the guidance? And then the 3.5% rate that's -- the assumed rate, is that basically signaling to us that you might be able to do securitization on the TowerCo assets?
Jeffrey A. Stoops
Brendan, what we assume in guidance, February or March?
Brendan T. Cavanagh
We assume, actually, March. End of the first quarter was the timing assumption, correct.
Jeffrey A. Stoops
And yes, we do expect to try and securitize some of those TowerCo assets in DAS financing. I mean, DAS financing is -- let me say that our first choice at this time would be to do that financing through a securitization, although we certainly left ourself room and have the structural capacity to do it in the bank market as well.
Richard H. Prentiss - Raymond James & Associates, Inc., Research Division
I think it's October 14, convert that's out there, the 4% one. Should we think of that maybe being more -- possibly in shares, given how successful your stock price has been and hopefully will continue to be?
Jeffrey A. Stoops
No, I mean we're working to position the company to retire all that in cash, because we believe that the cash that we'll be able to access through the debt markets will have a lower yield than our shares on an AFFO per share basis. And the result and impact on long-term AFFO per share leads towards cash settlement. Now we'll balance all that against leverage and what other portfolio growth opportunities that we have at the time, but we kind of always think about positioning the company to settle these things for cash, Rick.
Operator
And next, we'll go to the line of Jonathan Schildkraut with Evercore Partners.
Jonathan A. Schildkraut - Evercore Partners Inc., Research Division
Just 2 really -- in your prepared remarks, you mentioned seeing strong demand for your new assets. Just wondering if you could give us some kind of color comparison to your other assets, the relative demand. And if demand is different, are you seeing more new sites for the new assets? Or is it still kind of broadly amendment activity. And then secondly, in terms of looking at international markets, just wondering if your focus is still on Latin America, Central America or if you're looking to other geographies?
Jeffrey A. Stoops
Yes, Jonathan, the new assets are actually seeing a little more cell splitting, which is what we are -- we're contemplating and banking on. It's not yet to the levels that we expect in years to come as 4G becomes -- the coverage gets built out and then they go back in for capacity, but we're encouraged by the amount of activity that we've seen so far. So you're going to have a higher new cell splitting mix of added revenue on the new assets. In terms of international, we continue to like the Western Hemisphere. But we are open and looking all throughout the world for the right opportunities, as we look to grow the company. But I would have to continue to say that the Western Hemisphere continues to be our bias.
Jonathan A. Schildkraut - Evercore Partners Inc., Research Division
Great. If I could just sneak one more question in. The $750 million or more that you highlighted as potential fuel for further investment in 2013, is that based on the 7% -- pardon me, 7x debt to EBITDA or 7.5x debt to EBITDA?
Brendan T. Cavanagh
Probably closer to the 7.5X.
Operator
Next, we'll go next to the line of Jonathan Atkin with RBC Capital Markets.
Jonathan Atkin - RBC Capital Markets, LLC, Research Division
I had a question about ExteNet and to what extent you might anticipate making additional investments or if capital calls or what not, that would represent a use of cash. And then on the iDEN decommissioning that Sprint has announced, I think a lot of the equipment still, actually, needs to be taken down. I'm interested in just some color on what you're seeing in your portfolio and how that might impact your 2013 outlook?
Jeffrey A. Stoops
Yes, on ExteNet, Jonathan, we continue to like our investment and continue in general to have a desire to increase our investment. The note that we took back from ExteNet in the sale of the DAS assets is convertible, should we so choose at the time, if ever that they decide to go out and raise additional equity, and we structured that for exactly that reason. So if the world continues to move in the direction that it's moving in terms of DAS and small sells, we will continue to have an interest in expanding our relationship with an investment in ExteNet. In terms of the iDEN, it's a bit unclear to us, because Sprint has the ability to power down its equipment and yet leave the equipment on the sites for certain periods of time. So we don't actually know whether certain item sites are still transmitting or not. We do have rights to perform the services work, to take that equipment down. We haven't done much of that in 2012, and we have some of that in our guidance for 2013. But in terms of what our numbers reflect and whether we have a numeric path to actually confirm or check how much of Sprint's iDEN network is actually powered or not, we can't tell you.
Jonathan Atkin - RBC Capital Markets, LLC, Research Division
I guess, I was interested more in how the lease terminations play a role in your 2017 outlook.
Jeffrey A. Stoops
Yes, we have -- as part of the deal that we cut last year, we have a specified runoff of iDEN termination rights for Sprint, and we have included in our guidance $5 million to $6 million of that revenue loss in our 2013 outlook.
Jonathan Atkin - RBC Capital Markets, LLC, Research Division
Got it. And then on '13, how does it feel to you right now in terms of the seasonality of organic leasing and then the growth compared to 2012? Maybe a little more evenly weighted or markedly back-half-weighted? How does this feel to you right now?
Jeffrey A. Stoops
I think carriers plow right through the year end and go pretty hard right out of the gates in January, based on where we see the projects and what we know of their goals in terms of getting this 4G stuff done. I think it's going to be more equally weighted all through the year.
Operator
Next, we'll go to the line of Simon Flannery with Morgan Stanley.
Simon Flannery - Morgan Stanley, Research Division
Can you talk about the M&A environment? You've, obviously, been active in the U.S. but there's fewer large portfolios available. So do you expect that as you grow your portfolio that more of that will likely be international? Do you still think there's good opportunities domestically? And then also, are you starting to see people coming outside in exceeding their MLAs with some of the traffic that we're starting to see on some of these 4G networks? And do you expect some of that next year as well?
Jeffrey A. Stoops
Yes, I'll answer the second one first. We are seeing instances where folks who we have entered into an MLA with have come back, and are seeking to install equipment outside or above and beyond the parameters that we agreed to, which results in additional leasing revenue for us. And I do think we'll continue to see that and perhaps even more of it in 2013. In terms of M&A, there has been a number of large deals done this year in United States. There remain a couple, less than a handful, of I think, legitimate opportunities for north of 1,000 towers. I think there's somewhere between 5 and 10 -- between 300 and 800 towers. And then there's a whole still a bunch of smaller M&A opportunities in the U.S. and still a lot of towers being built specifically for later sale to companies like us. So I think our growth in the U.S., Simon, will be -- come from a greater numerosity of transactions, but I do think there'll still be plenty of growth opportunities left. I think the odds of the bigger deal, if we find one we like and if actually move on one, might be international.
Operator
And next, we'll go to the line of Brett Feldman with Deutsche Bank.
Brett Feldman - Deutsche Bank AG, Research Division
During your comments you talked about some churn assumptions, you've made your guidance, you talked about known churn events and then you added to that, which I think is your usual churn rate. I think it's usually about 1.5%. But the known churn event component, is that principally the iDEN stuff you previously outlined? Or is there another impact we need to be accounting for?
Jeffrey A. Stoops
No, it's the iDEN rep.
Brett Feldman - Deutsche Bank AG, Research Division
Okay. And then you were talking about seasonality in leasing, and you noted that you expect 2013 to start off pretty strong. In light of the MLAs that you've put in place, how relevant is seasonality to the performance of your business on a reported basis going forward? Is it less significant than it previously was? How do we think about that as we do channel checks and try to figure out what our model should look like based on the actual leasing dynamics within a given year?
Jeffrey A. Stoops
That's a good question. And I think that points out the difference, of course, in the noncash GAAP straight-line results from the cash. The way the T-Mobile deal was struck. The seasonality's not going to matter, because it's now kind of a locked in increase based on increase escalators, which have already started to kick in. On the Sprint MLA, the seasonality would not impact the GAAP revenue, but it would definitely impact the TCF. And I would encourage everyone, as we've now entered into some of these transactions where the GAAP and the cash impacts differ, to pay most close attention to our TCF numbers, our adjusted EBITDA numbers and our AFFO numbers, all of which are cash based. So see, an up or down first quarter wouldn't impact the GAAP recognition on those 2 contracts. Perhaps it would impact the cash reports, so watch the cash.
Operator
And next, we'll go to the line of Phil Cusick with JPMorgan.
Richard Yong Choe - JP Morgan Chase & Co, Research Division
This is Richard Choe for Phil. Just a few quick follow-ups. In terms of your new assets, you said you're starting to see some good activity there. When can we actually see that hit its run rate? Will it take a few quarters, maybe within the next year? A little more color on that side would be great.
Jeffrey A. Stoops
Well, we're starting to book leases and amendments now. So it's already factoring into the consolidated numbers. But as I mentioned earlier, we expect -- the best is still yet to come as we move on an industry basis through the initial 4G coverage builds into capacity. You're starting to see incremental revenue in our results from those new assets in the third quarter.
Richard Yong Choe - JP Morgan Chase & Co, Research Division
Great. And in terms of the service revenue, I guess, you mentioned a good finish to this year, a good level next year. It seems like we're talking about mid to high 20s per quarter. Is this kind of a new level of service revenue that we could see for longer than this year and into next year? Or do you think this is just the level of activity going on -- there's so much going on for carriers right now?
Jeffrey A. Stoops
Well, I think it's the latter, which is so much activity right now, but we see that level of activity continuing through the rest of this year and all through 2013. So -- I mean, we feel pretty good about the strong services numbers, at least, through the end of next year.
Richard Yong Choe - JP Morgan Chase & Co, Research Division
Great. And just the one final one. I guess, it seems like the business is doing really well, and most of the carriers are doing a lot of activity. Is there any worries with, I guess, AT&T and Verizon kind of pulling back on their CapEx for wireless spending next year and with some of these transactions, between carriers that there will be any pause in activity or people getting a little more conservative until some of these deals close?
Jeffrey A. Stoops
Well, we don't see any signs of that, but if it were to occur, pause or a stoppage by either by AT&T or Verizon would change things. Not just given the magnitude of the work that they've been doing, and we expect that they will continue to do, we don't see any signs of that, however.
Operator
Next we'll go to the line of David Barden with Bank of America.
David W. Barden - BofA Merrill Lynch, Research Division
Jeff, there were reports out yesterday that KPN is going to sell their German tower assets. I was wondering if you could kind of comment on whether that's the sort of Western Hemisphere type international deal that would be appealing to SBA? And then, you also specifically called out you're not putting things like for a standard DISH or Clearwire in the numbers for next year. Can you comment on whether you're seeing any signs of life or activity there, and if so, kind of what kind would be a helpful insight?
Jeffrey A. Stoops
Yes, the -- we are looking worldwide, David. You should not assume that we wouldn't be interested in something like that. We'd have to go through the same analysis that we do everywhere, multiplicity of carriers, where are they in their development cycle, rule of law, all those things. So that would be something that you should not rule out that we might be looking at or something like that. The second question -- what was your second question?
David W. Barden - BofA Merrill Lynch, Research Division
DISH, public safety.
Jeffrey A. Stoops
Where additional things may come from? Clearwire has started to do a little bit around their 4G conversion. But it's not in numbers that we think materially at this point as going to impact 2012 or move the 2013 outlook. DISH is waiting on the FCC. They have folks in place that are starting to think about how they might roll that network out, but it's all really on hold until they hear from the FCC. And public safety's really just getting started. They've had a couple of requests for information that have gone out. I know PCIA, which represents the tower industry, has commented on that. So it's all moving in the right direction. I can't really tell you when it gets to the point of material impact in our numbers. But when we get there, I'll let you know.
David W. Barden - BofA Merrill Lynch, Research Division
And if I can just quick follow-up on that, Jeff. Just in terms of kind of looking at the FirstNet website, and how they're planning on architecting their network. It looks like they're planning on putting up their own radios and their own spectrum, but that they want to piggyback on the existing infrastructure, the commercial carriers. Have you thought it all about or talked at all about kind of how that kind of relationship would work from a pricing and contractual flexibility issue? And have they approached you guys to try to see how flexible you guys might be in terms of helping them get this thing built?
Jeffrey A. Stoops
Yes, that was one idea that was submitted, kind of the shared -- kind of almost the LightSquared idea, with respect to Sprint's network that they had last year. I don't know that it's actually locked in, that they're going that direction, David. I will have to see. I mean, if there were elements of sharing either on the ground or on the tower with existing carriers, they'd have to strike that deal with those folks first. It is a concept that we've wrestled with and dealt with before in the context of Sprint and LightSquared. But in terms of do we have anything yet that approaches kind of financial certainty around what that might look like, the answer is no.
Operator
And next, we'll go to the line of Kevin Smithen with Macquarie.
Kevin Smithen - Macquarie Research
I wondered if you could walk through the specific puts and takes in your forecast for organic side revenue growth in the '13. We're trying to reconcile -- it looks like they're -- given a very strong side revenue guidance for Q4, it looks like there's an implied slowdown in '13, and I'm trying to reconcile. I know there's iDEN decommissioning, but what are the various puts and takes from escalators to churn, and specifically, iDEN churn that you're using in those numbers?
Jeffrey A. Stoops
Well, the iDEN churn is $5 million to $6 million, plus 1% to 1.5% of unallocated churn, because that's kind of where it's been over the years. There's nothing more -- there's nothing else in the churn numbers. So in terms of the revenue -- I mean the problem with the -- if you're working off the GAAP numbers, Kevin, it's going to be impossible to figure out, with all the puts and takes with the GAAP versus the cash. Keep in mind that as you recognize cash revenue, particularly under the Sprint Network Vision contract, which will increase TCF and adjusted EBITDA, it actually lowers the GAAP revenue. So that probably is what you're seeing. And I would suggest that maybe after this call, you get Mark and Brendan on the line, and we can walk you through all that. But if you're basing your analysis off the GAAP revenue, it's not going to be the right picture.
Operator
[Operator Instructions] And next, we'll go to the line of Colby Synesael with Cowen and Company.
Colby Synesael - Cowen and Company, LLC, Research Division
I missed the first part of the call, so I apologize if you've talked about this. But now that you seemed to have signed up the MLAs with T-Mobile, I was wondering if you can give us the average lease term of the Big 4 guys? And if you're willing, what the average lease term is for each of the Big 4?
Jeffrey A. Stoops
It's 9 with Sprint, 7 with T-Mobile and 4-ish for each of AT&T and Verizon.
Operator
And at this time, no one is in queue to ask a question. I'll turn it back for any closing remarks.
Jeffrey A. Stoops
Great. Thanks, Lola. We appreciate everyone's participation on the call today. Look forward with strong finish to the year. We'll speak with you in 2013. Thanks.
Operator
Ladies and gentlemen, this conference will be made available for replay after 1 p.m. today through November 20. You may access the executive replay system at anytime by dialing 1 (800) 475-6701 and entering the access code of 267905. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.
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