filings.toolsItem 16. FORM 10-K SUMMARY
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Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SBA COMMUNICATIONS CORPORATION | |
| By: | /s/ Jeffrey A. Stoops |
| Jeffrey A. Stoops Chief Executive Officer and President | |
| Date: | February 28, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Steven E. Bernstein | Chairman of the Board of Directors | February 28, 2023 |
| Steven E. Bernstein | ||
| /s/ Jeffrey A. Stoops | Chief Executive Officer and President | February 28, 2023 |
| Jeffrey A. Stoops | (Principal Executive Officer) | |
| /s/ Brendan T. Cavanagh | Chief Financial Officer and Executive Vice President | February 28, 2023 |
| Brendan T. Cavanagh | (Principal Financial Officer) | |
| /s/ Brian D. Lazarus | Chief Accounting Officer and Senior Vice President | February 28, 2023 |
| Brian D. Lazarus | (Principal Accounting Officer) | |
| /s/ Mary S. Chan | Director | February 28, 2023 |
| Mary S. Chan | ||
| /s/ Duncan H. Cocroft | Director | February 28, 2023 |
| Duncan H. Cocroft | ||
| /s/ George R. Krouse Jr. | Director | February 28, 2023 |
| George R. Krouse Jr. | ||
| /s/ Jack Langer | Director | February 28, 2023 |
| Jack Langer | ||
| /s/ Kevin L. Beebe | Director | February 28, 2023 |
| Kevin L. Beebe | ||
| /s/ Fidelma Russo | Director | February 28, 2023 |
| Fidelma Russo | ||
| /s/ Jay L. Johnson | Director | February 28, 2023 |
| Jay L. Johnson |
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SBA Communications Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SBA Communications Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders' deficit, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-1
| Accounting for Ground Leases | ||
| Description of the Matter | As more fully described in Note 2 to the consolidated financial statements, the Company recognizes a right-of-use asset and a lease liability for its operating lease contracts, initially measured at the present value of the lease payments. As of December 31, 2022, the Company had $2.4 billion of operating lease right-of-use assets, net, $260.1 million of current operating lease liabilities, and $2.0 billion of long-term lease liabilities. For the period ended December 31, 2022, the total operating lease right-of-use assets obtained for new operating lease liabilities were $171.2 million and adjustments associated with lease modifications and reassessments were $47.1 million. The Company’s primary operating lease obligations are its long-term lease contracts for land that underlies its tower structures. The Company’s ground leases generally do not provide a readily determinable implicit discount rate. When the rate implicit in the lease is not readily determinable, the Company calculates the present value of the lease payments by estimating the Company’s incremental borrowing rate (“IBR”). The IBR is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. The process to estimate the Company’s IBR includes the use of unobservable inputs and considers the public credit rating of the Company, observable debt yields of the Company and the related debt’s seniority, adjustments for leases denominated in different currencies, and the remaining lease term. The Company’s ground lease liabilities require reassessment of the lease terms or lease payments as a result of contract modifications, addition of significant leasehold improvements which impact the assessment of optional renewals that are reasonably certain of being exercised, or the exercise of renewal options by tenants, which differ from prior expectations. The IBR is computed on a lease-by-lease basis upon each of these reassessments. Auditing the Company’s accounting for ground leases was complex and involved a high degree of subjective auditor judgment because of the significant judgment exercised by the Company to account for ground leases. The IBR is estimated using the unobservable inputs discussed above related to the collateral and term of the leased assets, and the related lease liability is sensitive to changes in the Company's IBR. The determination of the lease term requires evaluating renewal options in making the determination of the period for which the Company is reasonably certain to remain on the site. The frequency with which leases must be reassessed adds to the complexity associated with auditing the ground lease related balances. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated, and tested the design and operating effectiveness of the Company’s internal controls related to accounting for ground leases. For example, we tested the Company’s controls over the review of the accounting policy, including the methodology and assumptions used to estimate the IBR and the remaining lease term. We also tested the controls over the review of ground lease contracts and the key system functionality used to account for ground leases. To test the Company’s accounting for ground leases, our audit procedures included, among others, evaluating the methodology used to calculate the IBR, evaluating the assumptions and underlying data used by the Company to estimate the IBR, identifying events which require reassessment of the lease term or lease payments, and estimating the remaining lease term. We involved our valuation specialists to assist in the evaluation of the methodologies and assumptions applied to estimate the IBR. Specifically, we compared the Company’s credit rating used in the IBR estimate to independent third-party sources and compared the Company’s existing borrowing rate for collateralized assets to observable debt yields of the Company. We compared the inputs used to adjust for lease payments to be made over varying periods and in various currencies to third-party sources. We assessed the remaining lease term by selecting a sample of new ground leases and ground lease modifications and reassessments for which we independently evaluated the period the Company is reasonably certain to remain on the site, and compared to the remaining lease term in the Company’s audited schedules. We also evaluated the Company’s disclosures included in Note 2 to the consolidated financial statements. |
| /s/ Ernst & Young LLP |
| We have served as the Company’s auditor since 2002. |
Boca Raton, Florida
February 28, 2023
F-2
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 143,708 | $ | 367,278 | ||
| Restricted cash | 41,959 | 65,561 | ||||
| Accounts receivable, net | 184,368 | 101,950 | ||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 79,549 | 48,844 | ||||
| Prepaid expenses and other current assets | 33,149 | 30,813 | ||||
| Total current assets | 482,733 | 614,446 | ||||
| Property and equipment, net | 2,713,727 | 2,575,487 | ||||
| Intangible assets, net | 2,776,472 | 2,803,247 | ||||
| Operating lease right-of-use assets, net | 2,381,955 | 2,268,470 | ||||
| Acquired and other right-of-use assets, net | 1,507,781 | 964,405 | ||||
| Other assets | 722,373 | 575,644 | ||||
| Total assets | $ | 10,585,041 | $ | 9,801,699 | ||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, | ||||||
| AND SHAREHOLDERS' DEFICIT | ||||||
| Current Liabilities: | ||||||
| Accounts payable | $ | 51,427 | $ | 34,066 | ||
| Accrued expenses | 101,484 | 68,070 | ||||
| Current maturities of long-term debt | 24,000 | 24,000 | ||||
| Deferred revenue | 154,553 | 184,380 | ||||
| Accrued interest | 54,173 | 49,096 | ||||
| Current lease liabilities | 262,365 | 238,497 | ||||
| Other current liabilities | 48,762 | 18,222 | ||||
| Total current liabilities | 696,764 | 616,331 | ||||
| Long-term liabilities: | ||||||
| Long-term debt, net | 12,844,162 | 12,278,694 | ||||
| Long-term lease liabilities | 2,040,628 | 1,981,353 | ||||
| Other long-term liabilities | 248,067 | 191,475 | ||||
| Total long-term liabilities | 15,132,857 | 14,451,522 | ||||
| Redeemable noncontrolling interests | 31,735 | 17,250 | ||||
| Shareholders' deficit: | ||||||
| Preferred stock - par value $0.01, 30,000 shares authorized, no shares issued or outstanding | — | — | ||||
| Common stock - Class A, par value $0.01, 400,000 shares authorized, 107,997 shares and | ||||||
| 108,956 shares issued and outstanding at December 31, 2022 and December 31, 2021, | ||||||
| respectively | 1,080 | 1,089 | ||||
| Additional paid-in capital | 2,795,176 | 2,681,347 | ||||
| Accumulated deficit | (7,482,061) | (7,203,531) | ||||
| Accumulated other comprehensive loss, net | (590,510) | (762,309) | ||||
| Total shareholders' deficit | (5,276,315) | (5,283,404) | ||||
| Total liabilities, redeemable noncontrolling interests, and shareholders' deficit | $ | 10,585,041 | $ | 9,801,699 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Revenues: | |||||||||
| Site leasing | $ | 2,336,575 | $ | 2,104,087 | $ | 1,954,472 | |||
| Site development | 296,879 | 204,747 | 128,666 | ||||||
| Total revenues | 2,633,454 | 2,308,834 | 2,083,138 | ||||||
| Operating expenses: | |||||||||
| Cost of revenues (exclusive of depreciation, accretion, | |||||||||
| and amortization shown below): | |||||||||
| Cost of site leasing | 445,685 | 386,391 | 373,778 | ||||||
| Cost of site development | 222,965 | 159,093 | 102,750 | ||||||
| Selling, general, and administrative expenses | 261,853 | 220,029 | 194,267 | ||||||
| Acquisition and new business initiatives related | |||||||||
| adjustments and expenses | 26,807 | 27,621 | 16,582 | ||||||
| Asset impairment and decommission costs | 43,160 | 33,044 | 40,097 | ||||||
| Depreciation, accretion, and amortization | 707,576 | 700,161 | 721,970 | ||||||
| Total operating expenses | 1,708,046 | 1,526,339 | 1,449,444 | ||||||
| Operating income | 925,408 | 782,495 | 633,694 | ||||||
| Other income (expense): | |||||||||
| Interest income | 10,133 | 3,448 | 2,981 | ||||||
| Interest expense | (353,784) | (352,919) | (367,874) | ||||||
| Non-cash interest expense | (46,109) | (47,085) | (24,870) | ||||||
| Amortization of deferred financing fees | (19,835) | (19,589) | (20,058) | ||||||
| Loss from extinguishment of debt, net | (437) | (39,502) | (19,463) | ||||||
| Other income (expense), net | 10,467 | (74,284) | (222,159) | ||||||
| Total other expense, net | (399,565) | (529,931) | (651,443) | ||||||
| Income (loss) before income taxes | 525,843 | 252,564 | (17,749) | ||||||
| (Provision) benefit for income taxes | (66,044) | (14,940) | 41,796 | ||||||
| Net income | 459,799 | 237,624 | 24,047 | ||||||
| Net loss attributable to noncontrolling interests | 1,630 | — | 57 | ||||||
| Net income attributable to SBA Communications | |||||||||
| Corporation | $ | 461,429 | $ | 237,624 | $ | 24,104 | |||
| Net income per common share attributable to SBA | |||||||||
| Communications Corporation: | |||||||||
| Basic | $ | 4.27 | $ | 2.17 | $ | 0.22 | |||
| Diluted | $ | 4.22 | $ | 2.14 | $ | 0.21 | |||
| Weighted-average number of common shares | |||||||||
| Basic | 107,957 | 109,328 | 111,532 | ||||||
| Diluted | 109,386 | 111,177 | 113,465 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Net income | $ | 459,799 | $ | 237,624 | $ | 24,047 | |||
| Adjustments related to interest rate swaps | 167,423 | 93,087 | (98,771) | ||||||
| Foreign currency translation adjustments | 4,172 | (47,814) | (140,098) | ||||||
| Comprehensive income (loss) | 631,394 | 282,897 | (214,822) | ||||||
| Comprehensive loss attributable to noncontrolling interests | 1,834 | — | 109 | ||||||
| Comprehensive income (loss) attributable to SBA | |||||||||
| Communications Corporation | $ | 633,228 | $ | 282,897 | $ | (214,713) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(in thousands)
| Accumulated | |||||||||||||||||
| Class A | Additional | Other | Total | ||||||||||||||
| Common Stock | Paid-In | Accumulated | Comprehensive | Shareholders' | |||||||||||||
| Shares | Amount | Capital | Deficit | Loss, Net | Deficit | ||||||||||||
| BALANCE, December 31, 2019 | 111,775 | $ | 1,118 | $ | 2,461,335 | $ | (5,560,695) | $ | (568,765) | $ | (3,667,007) | ||||||
| Net income attributable to SBA | |||||||||||||||||
| Communications Corporation | — | — | — | 24,104 | — | 24,104 | |||||||||||
| Common stock issued in connection with equity | |||||||||||||||||
| awards and stock purchase plans, offset | |||||||||||||||||
| by the impact of net share settlements | 1,113 | 11 | 53,683 | — | — | 53,694 | |||||||||||
| Non-cash stock compensation | — | — | 70,363 | — | — | 70,363 | |||||||||||
| Adjustments related to interest rate swaps | — | — | — | — | (98,771) | (98,771) | |||||||||||
| Repurchase and retirement of common stock | (3,069) | (31) | — | (859,304) | — | (859,335) | |||||||||||
| Foreign currency translation adjustments | |||||||||||||||||
| attributable to SBA Communications | |||||||||||||||||
| Corporation | — | — | — | — | (140,046) | (140,046) | |||||||||||
| Dividends on common stock | — | — | — | (208,133) | — | (208,133) | |||||||||||
| Adjustment to redemption amount related to | |||||||||||||||||
| noncontrolling interests | — | — | 749 | — | — | 749 | |||||||||||
| BALANCE, December 31, 2020 | 109,819 | 1,098 | 2,586,130 | (6,604,028) | (807,582) | (4,824,382) | |||||||||||
| Net income attributable to SBA | |||||||||||||||||
| Communications Corporation | — | — | — | 237,624 | — | 237,624 | |||||||||||
| Common stock issued in connection with equity | |||||||||||||||||
| awards and stock purchase plans, offset | |||||||||||||||||
| by the impact of net share settlements | 1,017 | 10 | 14,744 | — | — | 14,754 | |||||||||||
| Non-cash stock compensation | — | — | 85,779 | — | — | 85,779 | |||||||||||
| Adjustments related to interest rate swaps | — | — | — | — | 93,087 | 93,087 | |||||||||||
| Repurchase and retirement of common stock | (1,880) | (19) | — | (582,559) | — | (582,578) | |||||||||||
| Foreign currency translation adjustments | |||||||||||||||||
| attributable to SBA Communications | |||||||||||||||||
| Corporation | — | — | — | — | (47,814) | (47,814) | |||||||||||
| Dividends and dividend equivalents | |||||||||||||||||
| on common stock | — | — | — | (254,568) | — | (254,568) | |||||||||||
| Contribution from partner for | |||||||||||||||||
| noncontrolling interest | — | — | (2,500) | — | — | (2,500) | |||||||||||
| Adjustment to redemption amount related to | |||||||||||||||||
| noncontrolling interests | — | — | (2,806) | — | — | (2,806) | |||||||||||
| BALANCE, December 31, 2021 | 108,956 | 1,089 | 2,681,347 | (7,203,531) | (762,309) | (5,283,404) | |||||||||||
| Net income attributable to SBA | |||||||||||||||||
| Communications Corporation | — | — | — | 461,429 | — | 461,429 | |||||||||||
| Common stock issued in connection with equity | |||||||||||||||||
| awards and stock purchase plans, offset | |||||||||||||||||
| by the impact of net share settlements | 341 | 3 | 28,302 | — | — | 28,305 | |||||||||||
| Non-cash stock compensation | — | — | 101,846 | — | — | 101,846 | |||||||||||
| Adjustments related to interest rate swaps | — | — | — | — | 167,423 | 167,423 | |||||||||||
| Repurchase and retirement of common stock | (1,300) | (12) | — | (431,654) | — | (431,666) | |||||||||||
| Foreign currency translation adjustments | |||||||||||||||||
| attributable to SBA Communications | |||||||||||||||||
| Corporation | — | — | — | — | 4,376 | 4,376 | |||||||||||
| Dividends and dividend equivalents | |||||||||||||||||
| on common stock | — | — | — | (308,305) | — | (308,305) | |||||||||||
| Adjustment to redemption amount related to | |||||||||||||||||
| noncontrolling interests | — | — | (16,319) | — | — | (16,319) | |||||||||||
| BALANCE, December 31, 2022 | 107,997 | $ | 1,080 | $ | 2,795,176 | $ | (7,482,061) | $ | (590,510) | $ | (5,276,315) |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
| Net income | $ | 459,799 | $ | 237,624 | $ | 24,047 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
| Depreciation, accretion, and amortization | 707,576 | 700,161 | 721,970 | ||||||
| Non-cash asset impairment and decommission costs | 42,807 | 31,790 | 39,501 | ||||||
| Non-cash compensation expense | 99,909 | 84,402 | 68,890 | ||||||
| (Gain) loss on remeasurement of U.S. denominated intercompany loans | (20,295) | 66,285 | 220,354 | ||||||
| Loss from extinguishment of debt, net | 437 | 36,718 | 17,838 | ||||||
| Deferred income tax expense (benefit) | 32,901 | (8,510) | (63,187) | ||||||
| Non-cash interest expense | 46,109 | 47,085 | 24,870 | ||||||
| Amortization of deferred financing fees | 19,835 | 19,589 | 20,058 | ||||||
| Other non-cash items reflected in the Statements of Operations | 9,742 | 9,881 | 2,979 | ||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||
| Accounts receivable and costs and estimated earnings in excess of | |||||||||
| billings on uncompleted contracts, net | (81,351) | (38,237) | 38,195 | ||||||
| Prepaid expenses and other assets | (29,746) | (28,243) | 2,614 | ||||||
| Operating lease right-of-use assets, net | 135,473 | 114,321 | 109,935 | ||||||
| Accounts payable and accrued expenses | 25,118 | (473) | 13,173 | ||||||
| Long-term lease liabilities | (129,471) | (113,292) | (100,847) | ||||||
| Other liabilities | (33,143) | 30,795 | (14,357) | ||||||
| Net cash provided by operating activities | 1,285,700 | 1,189,896 | 1,126,033 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
| Acquisitions | (1,176,092) | (1,257,704) | (271,418) | ||||||
| Capital expenditures | (214,443) | (133,694) | (128,566) | ||||||
| Purchase of investments | (881,781) | (1,731,111) | (1,288,705) | ||||||
| Proceeds from sale of investments | 878,138 | 1,730,477 | 1,239,206 | ||||||
| Other investing activities | 524 | (31,228) | 3,117 | ||||||
| Net cash used in investing activities | (1,393,654) | (1,423,260) | (446,366) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
| Borrowings under Revolving Credit Facility | 975,000 | 1,935,000 | 895,000 | ||||||
| Repayments under Revolving Credit Facility | (605,000) | (1,965,000) | (1,005,000) | ||||||
| Proceeds from issuance of Senior Notes, net of fees | — | 1,485,373 | 1,479,484 | ||||||
| Repayment of Senior Notes | — | (1,870,909) | (759,143) | ||||||
| Proceeds from issuance of Tower Securities, net of fees | 839,885 | 2,924,005 | 1,335,895 | ||||||
| Repayment of Tower Securities | (640,000) | (1,335,000) | (1,200,000) | ||||||
| Termination of interest rate swap | — | — | (176,200) | ||||||
| Repurchase and retirement of common stock | (431,666) | (582,578) | (859,335) | ||||||
| Payment of dividends on common stock | (306,766) | (253,580) | (207,689) | ||||||
| Proceeds from employee stock purchase/stock option plans | 38,303 | 86,688 | 99,129 | ||||||
| Payments related to taxes on stock options and restricted stock units | (9,958) | (71,904) | (45,080) | ||||||
| Other financing activities | 4,728 | (12,831) | (26,078) | ||||||
| Net cash (used in) provided by financing activities | (135,474) | 339,264 | (469,017) | ||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (2,915) | (13,082) | (8,962) | ||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (246,343) | 92,818 | 201,688 | ||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH: | |||||||||
| Beginning of year | 435,626 | 342,808 | 141,120 | ||||||
| End of year | $ | 189,283 | $ | 435,626 | $ | 342,808 |
(continued)
F-7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||
| Cash paid during the period for: | |||||||||
| Interest | $ | 378,574 | $ | 360,098 | $ | 351,886 | |||
| Income taxes | $ | 32,320 | $ | 25,568 | $ | 20,275 | |||
| SUPPLEMENTAL CASH FLOW INFORMATION OF NON-CASH | |||||||||
| ACTIVITIES: | |||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 171,203 | $ | 33,315 | $ | 78,674 | |||
| Operating lease modifications and reassessments | $ | 48,946 | $ | 36,817 | $ | (10,550) | |||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 3,860 | $ | 2,100 | $ | 1,087 | |||
| Deferred payment on acquired assets | $ | — | $ | — | $ | 77,124 |
The accompanying notes are an integral part of these consolidated financial statements.
F-8
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
**1.**GENERAL
SBA Communications Corporation (the “Company” or “SBAC”) was incorporated in the State of Florida in March 1997. The Company is a holding company that holds all of the outstanding capital stock of SBA Telecommunications, LLC (“Telecommunications”). Telecommunications is a holding company that holds the outstanding capital stock of SBA Senior Finance, LLC (“SBA Senior Finance”), and other operating subsidiaries which are not a party to any loan agreement. SBA Senior Finance is a holding company that holds, directly or indirectly, the equity interest in certain subsidiaries that issued the Tower Securities (see Note 11) and certain subsidiaries that were not involved in the issuance of the Tower Securities. With respect to the subsidiaries involved in the issuance of the Tower Securities, SBA Senior Finance is the sole member of SBA Holdings, LLC and SBA Depositor, LLC. SBA Holdings, LLC is the sole member of SBA Guarantor, LLC. SBA Guarantor, LLC directly or indirectly holds all of the capital stock of the companies referred to as the “Borrowers” under the Tower Securities. With respect to subsidiaries not involved in the issuance of the Tower Securities, SBA Senior Finance holds all of the membership interests in SBA Senior Finance II, LLC (“SBA Senior Finance II”) and certain non-operating subsidiaries. SBA Senior Finance II holds, directly or indirectly, all the capital stock of certain international subsidiaries and certain other tower companies (known as “Tower Companies”). SBA Senior Finance II also holds, directly or indirectly, all the capital stock and/or membership interests of certain other subsidiaries involved in providing services, including SBA Network Services, LLC (“Network Services”) as well as SBA Network Management, Inc. (“Network Management”) which manages and administers the operations of the Borrowers.
As of December 31, 2022, the Company owned and operated wireless towers in the United States and its territories. In addition, the Company owned towers in Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, Panama, Peru, South Africa, the Philippines, and Tanzania. Space on these towers is leased primarily to wireless service providers. As of December 31, 2022, the Company owned and operated 39,311 towers of which 17,416 are domestic and 21,895 are international, of which 12,677 are located in Brazil.
**2.**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements is as follows:
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company and its majority and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The significant estimates made by management relate to the allowance for doubtful accounts, the costs and revenue relating to the Company’s construction contracts, stock-based compensation assumptions, valuation allowance related to deferred tax assets, fair value of long-lived assets, the useful lives of towers and intangible assets, anticipated property tax assessments, incremental borrowing rate for lease accounting, fair value of investments, and asset retirement obligations. Management develops estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the information available. These estimates ultimately may differ from actual results and such differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks, money market funds, commercial paper, highly liquid short-term investments, and other marketable securities with an original maturity of three months or less at the time of purchase. These investments are carried at cost, which approximates fair value.
Restricted Cash
The Company classifies all cash pledged as collateral to secure certain obligations and all cash whose use is limited as restricted cash. This includes cash held in escrow to fund certain reserve accounts relating to the Tower Securities as well as for
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payment and performance bonds and surety bonds issued for the benefit of the Company in the ordinary course of business, as well as collateral associated with workers’ compensation plans (see Note 4).
Investments
Investment securities with original maturities of more than three months but less than one year at time of purchase are considered short-term investments and are classified in prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets. The Company’s short-term investments primarily consist of certificates of deposit with maturities of less than a year. Investment securities with maturities of more than a year are considered long-term investments and are classified in other assets on the accompanying Consolidated Balance Sheets. Long-term investments consist of strategic investments in companies and are accounted for under the cost and equity method. Gross purchases and proceeds from sales of the Company’s investments are presented within Cash flows from investing activities on the Company’s Consolidated Statements of Cash Flows. During the year ended December 31, 2022 and 2021, no gain or loss was recorded related to the sale or maturity of investments.
Property and Equipment
Property and equipment are recorded at cost or at estimated fair value (in the case of acquired properties), adjusted for asset impairment and estimated asset retirement obligations. Costs for self-constructed towers include direct materials and labor, indirect costs and capitalized interest. Approximately $0.6 million, $0.5 million, and $0.6 million of interest cost was capitalized in 2022, 2021 and 2020, respectively.
Depreciation on towers and related components is provided using the straight-line method over the estimated useful lives, not to exceed the minimum lease term of the underlying ground lease. In making the determination of the period for which the Company is reasonably certain to remain on the site, the Company will assume optional renewals are reasonably certain of being exercised for the greater of: (1) a period sufficient to cover all tenants under their current committed term where the Company has provided rights to the tower not to exceed the contractual ground lease terms including renewals and (2) a period sufficient to recover the investment of significant leasehold improvements located on the site. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the minimum lease term of the lease. For all other property and equipment, depreciation is provided using the straight-line method over the estimated useful lives.
The Company performs ongoing evaluations of the estimated useful lives of its property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. If the useful lives of assets are reduced, depreciation may be accelerated in future years. Property and equipment under capital leases are amortized on a straight-line basis over the term of the lease or the remaining estimated life of the leased property, whichever is shorter, and the related amortization is included in depreciation expense. Expenditures for maintenance and repair are expensed as incurred.
Asset classes and related estimated useful lives are as follows:
| Towers and related components | 3 - 15 years |
| Furniture, equipment, and vehicles | 2 - 7 years |
| Data Centers, buildings, and leasehold improvements | 10 - 30 years |
Betterments, improvements, and significant repairs, which increase the value or extend the life of an asset, are capitalized and depreciated over the estimated useful life of the respective asset. Changes in an asset’s estimated useful life are accounted for prospectively, with the book value of the asset at the time of the change being depreciated over the revised remaining useful life. There has been no material impact for changes in estimated useful lives for any years presented.
Deferred Financing Fees
Financing fees related to the issuance of debt have been deferred and are being amortized using the effective interest rate method over the expected duration of the related indebtedness (see Note 11). For all of the Company’s debt, except for the Revolving Credit Facility where the debt issuance costs are being presented as an asset on the accompanying Consolidated Balance Sheets, debt issuance costs are presented on the balance sheet as a direct deduction from the related debt liability rather than as an asset.
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Intangible Assets
The Company classifies as intangible assets the fair value of current leases in place at the acquisition date of towers and related assets (referred to as the “Current contract intangibles”), and the fair value of future tenant leases anticipated to be added to the acquired towers (referred to as the “Network location intangibles”). These intangibles are estimated to have a useful life consistent with the useful life of the related tower assets, which is typically 15 years. For all intangible assets, amortization is provided using the straight-line method over the estimated useful lives as the benefit associated with these intangible assets is anticipated to be derived evenly over the life of the asset.
Impairment of Long-Lived Assets
The Company evaluates its individual long-lived and related assets with finite lives for indicators of impairment to determine when an impairment analysis should be performed. The Company evaluates its tower assets and Current contract intangibles at the tower level, which is the lowest level for which identifiable cash flows exists. The Company evaluates its Network location intangibles for impairment at the tower leasing business level. The Company has established a policy to at least annually, or earlier if indicators of impairment arise, evaluate its tower assets and Current contract and Network location intangibles for impairment.
The Company records an impairment charge when an investment in towers or related assets has been impaired, such that future undiscounted cash flows would not recover the then current carrying value of the investment in the tower and related intangible. If the future undiscounted cash flows are lower than the carrying value of the investment in the tower and related intangible, the Company calculates future discounted cash flows and compares those amounts to the carrying value. The Company records an impairment charge for any amounts lower than the carrying value. Estimates and assumptions inherent in the impairment evaluation include, but are not limited to, general market and economic conditions, historical operating results, geographic location, lease-up potential, and expected timing of lease-up. In addition, the Company makes certain assumptions in determining an asset’s fair value for the purpose of calculating the amount of an impairment charge.
The Company recognized impairment charges of $43.2 million, $33.0 million, and $40.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. Refer to Note 3 for further detail of these amounts.
Fair Value Measurements
The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:
| Level 1 | Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Revenue Recognition and Accounts Receivable
Site leasing revenues
Revenue from site leasing is recognized on a straight-line basis over the current term of the related lease agreements. Receivables recorded related to the straight-line impact of site leases are reflected in other assets on the Consolidated Balance Sheets. Rental amounts received in advance are recorded as deferred revenue on the Consolidated Balance Sheets. Revenues from site leasing represent 89% of the Company’s total revenues for the year ended December 31, 2022. For additional information on tenant leases, refer to the Leases section below.
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Site development revenues
Site development projects in which the Company performs consulting services include contracts on a fixed price basis that are billed at contractual rates. Revenue is recognized over time based on milestones achieved, which are determined based on costs incurred. Amounts billed in advance (collected or uncollected) are recorded as deferred revenue on the Consolidated Balance Sheets.
Revenue from construction projects is recognized over time, determined by the percentage of cost incurred to date compared to management’s estimated total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contracts nears completion. Refer to Note 5 for further detail of costs and estimated earnings in excess of billings on uncompleted contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable.
The site development segment represents approximately 11% of the Company’s total revenues for the year ended December 31, 2022. The Company accounts for site development revenue in accordance with ASC 606, Revenue from Contracts with Customers. Payment terms do not result in any significant financing arrangements. Furthermore, these contracts do not typically include variable consideration; therefore, the transaction price that is recognized over time is generally the amount of the total contract.
Accounts receivable
The accounts receivable balance was $184.4 million and $102.0 million as of December 31, 2022 and 2021, respectively, of which $59.6 million and $24.6 million related to the site development segment as of December 31, 2022 and 2021, respectively. Refer to Note 15 for further detail of the site development segment.
Credit Losses
According to ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, an expected credit loss impairment model is used for financial instruments, including trade receivables, which requires entities to consider forward-looking information to estimate expected credit losses over the lifetime of the asset, resulting in earlier recognition of losses for receivables that are current or not yet due. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers’ trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected considers aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition, and macroeconomic conditions. Balances are written off when determined to be uncollectible. ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2018-19”) clarified that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842. The Company is exposed to credit losses which are subject to this standard primarily through the site development business segment which provides consulting and construction related services.
The following is a rollforward of the allowance for doubtful accounts for the Company’s site leasing and site development businesses:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Beginning balance | $ | 12,135 | $ | 15,693 | $ | 21,202 | |||
| Provision for doubtful accounts | 632 | 440 | 620 | ||||||
| Write-offs | (1,793) | (1,597) | (23) | ||||||
| Recoveries (1) | (2,204) | (1,947) | (3,524) | ||||||
| Acquisitions | 116 | — | — | ||||||
| Currency translation adjustment | 280 | (454) | (2,582) | ||||||
| Ending balance | $ | 9,166 | $ | 12,135 | $ | 15,693 |
(1)Amounts include annual installment payments related to the Oi S.A. reorganization. The fourth and final annual installment payment was received during the year ended December 31, 2022.
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Cost of Revenue
Cost of site leasing revenue includes ground lease rent, property taxes, amortization of deferred lease costs, maintenance, fuel, energy, and other tower operating expenses. Cost of site development revenue includes the cost of materials, salaries, and labor costs, including payroll taxes, subcontract labor, vehicle expense, and other costs directly and indirectly related to the projects. All costs related to site development projects are recognized as incurred.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is "more-likely-than-not" that those assets will not be realized. The Company considers many factors when assessing the likelihood of future realization, including the Company’s recent cumulative earnings by taxing jurisdiction, expectations of future taxable income, prudent and feasible tax planning strategies that are available, the carryforward periods available to the Company for tax reporting purposes and other relevant factors.
The Company began operating as a REIT for federal income tax purposes effective January 1, 2016. As a REIT, the Company generally is not subject to corporate level federal income tax on taxable income it distributes to its stockholders as long as it meets the organizational and operational requirements under the REIT rules. However, certain subsidiaries have made an election with the IRS to be treated as a taxable REIT subsidiary (“TRS”) in conjunction with the Company's REIT election. The TRS elections permit the Company to engage in certain business activities in which the REIT may not engage directly, so long as these activities are conducted in entities that elect to be treated as TRSs under the Code. A TRS is subject to federal and state income taxes on the income from these activities. Additionally, the Company has included in TRSs the Company’s tower operations in most foreign jurisdictions; however, the REIT holds selected tower assets in Puerto Rico and USVI. Those operations will continue to be subject to foreign taxes in the jurisdiction in which such assets and operations are located regardless of whether they are included in a TRS.
The Company will continue to file separate federal tax returns for the REIT and TRS for the year ended December 31, 2022. The REIT had taxable income during the year ended December 31, 2022 and paid a dividend and utilized net operating losses (“NOLs”) to offset its remaining 2022 distribution requirement. Some of the Company’s TRSs generated NOLs which will be carried forward to use in future years. A portion of the deferred tax asset generated by the NOLs are reserved by a valuation allowance.
The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return if applicable. The Company has not identified any tax exposures that require a reserve. To the extent that the Company records unrecognized tax exposures, any related interest and penalties will be recognized as interest expense in the Company’s Consolidated Statements of Operations.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and purchases under the Company’s employee stock purchase plans. The Company records compensation expense, for stock options, RSUs, and PSUs on a straight-line basis over the vesting period; however, compensation expense related to certain PSUs are subject to adjustment on performance relative to the established targets. Compensation expense for stock options is based on the estimated fair value of the options on the date of the grant using the Black-Scholes option-pricing model. Compensation expense for RSUs and PSUs is based on the fair market value of the units awarded at the date of the grant. Fair value for a portion of the PSUs was calculated using a Monte Carlo simulation model.
Asset Retirement Obligations
The Company has entered into ground leases for the land underlying the majority of the Company’s towers. A majority of these leases require the Company to remove improvements only or restore land interests to their original condition upon termination of the ground lease.
In determining the measurement of the asset retirement obligations, the Company considered the nature and scope of the contractual restoration obligations contained in the Company’s ground leases, the historical retirement experience as an indicator of future restoration probabilities, intent in renewing existing ground leases through lease termination dates, current and future value, timing of estimated restoration costs, and the credit adjusted risk-free rate used to discount future obligations.
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The Company recognizes asset retirement obligations in the period in which they are incurred, if a reasonable estimate of a fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related tower fixed assets, and over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the estimated useful life of the tower. As of December 31, 2022 and 2021, the asset retirement obligation was $79.8 million and $53.6 million, respectively, and is included in other long-term liabilities on the Consolidated Balance Sheets. Upon settlement of the obligations, any difference between the cost to retire an asset and the recorded liability is recorded in Asset impairment and decommission costs on the Consolidated Statements of Operations.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, and is comprised of net income (loss), other foreign currency adjustments, and adjustments related to interest rate swaps designated as cash flow hedges.
Foreign Currency Translation
All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its functional currency are translated at period-end exchange rates, while revenues and expenses are translated at monthly average exchange rates during the year. Unrealized translation gains and losses are reported as foreign currency translation adjustments through Accumulated other comprehensive loss, net in the Consolidated Statement of Shareholders’ Deficit.
For foreign subsidiaries where the U.S. dollar is the functional currency, monetary assets and liabilities of such subsidiaries, which are not denominated in U.S. dollars, are remeasured at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at monthly average rates prevailing during the year. Remeasurement gains and losses are reported as Other income (expense), net in the Consolidated Statements of Operations.
Intercompany Loans Subject to Remeasurement
In accordance with Accounting Standards Codification (ASC) 830, the Company remeasures foreign denominated intercompany loans with the corresponding change in the balance being recorded in Other income (expense), net in the Consolidated Statements of Operations as settlement is anticipated or planned in the foreseeable future. The Company recorded a $12.9 million gain, a $44.3 million loss, and a $145.6 million loss, net of taxes, on the remeasurement of intercompany loans for the years ended December 31, 2022, 2021, and 2020, respectively, due to changes in foreign exchange rates. During the year ended December 31, 2022, the Company funded $768.2 million and repaid $122.8 million under its intercompany loan agreements. As of December 31, 2022 and 2021, the aggregate amount outstanding under the intercompany loan agreements subject to remeasurement with the Company’s foreign subsidiaries was $1.5 billion and $872.9 million, respectively.
Acquisitions
Under ASU 2017-01, Clarifying the Definition of a Business, the Company’s acquisitions will generally qualify for asset acquisition treatment under ASC 360, Property, Plant, and Equipment, rather than business combination treatment under ASC 805 Business Combinations. For acquisitions, the aggregate purchase price is allocated on a relative fair value basis to towers and related intangible assets. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management at the time. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets or require acceleration of the amortization expense of intangible assets in subsequent periods. External, direct transaction costs will be capitalized as a component of the cost of the asset acquired. The Company will continue to expense internal acquisition costs as incurred. For business combinations, the estimates of the fair value of the assets acquired and liabilities assumed at the date of an acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition date). During the measurement period, the Company will adjust assets and/or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in a revised estimated value of those assets and/or liabilities as of that date. As of December 31, 2022, there were no material acquisitions with purchase price allocations that were preliminary other than for the acquisition from Grupo TorreSur (“GTS”) in Brazil. Refer to Note 7 for further details about this acquisition.
In connection with certain acquisitions, the Company may agree to pay contingent consideration (or earnouts) in cash or stock if the communication sites or businesses that are acquired meet or exceed certain performance targets over a period of one year
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to three years after they have been acquired. Contingent consideration in connection with asset acquisitions will be recognized at the time when the contingency is resolved or becomes payable and will increase the cost basis of the assets acquired.
Leases
ASU No. 2016-02, Leases (“Topic 842”) requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments and any prepaid rent amounts. The Company has elected not to separate nonlease components from the associated lease component for all underlying classes of assets.
The components of the right-of-use lease liabilities as of December 31, 2022 and 2021 are as follows (in thousands):
| December 31, | December 31, | ||||||||
| 2022 | 2021 | ||||||||
| (in thousands) | |||||||||
| Current operating lease liabilities | $ | 260,082 | $ | 236,804 | |||||
| Current financing lease liabilities | 2,283 | 1,693 | |||||||
| Current lease liabilities | $ | 262,365 | $ | 238,497 | |||||
| Long-term operating lease liabilities | $ | 2,037,496 | $ | 1,979,239 | |||||
| Long-term financing lease liabilities | 3,132 | 2,114 | |||||||
| Long-term lease liabilities | $ | 2,040,628 | $ | 1,981,353 |
Operating Leases
Ground leases. The Company enters into long-term lease contracts for land that underlies its tower structures. Ground lease agreements generally include renewal options which can be exercised exclusively at the Company’s election. In making the determination of the period for which the Company is reasonably certain to remain on the site, the Company will assume optional renewals are reasonably certain of being exercised for the greater of: (1) a period sufficient to cover all tenants under their current committed term where the Company has provided rights to the tower not to exceed the contractual ground lease terms including renewals and (2) a period sufficient to recover the investment of significant leasehold improvements located on the site (generally 15 years).
Substantially all leases provide for rent rate escalations. In the United States and the Company’s international markets, ground leases and other property interests either (1) contain specific annual rent escalators or (2) escalate annually in accordance with an inflationary index. Increases or decreases in lease payments that result from subsequent changes in the index or rate are accounted for as variable lease payments.
Office leases. The Company’s office leases consist of long-term leases for international, regional, and certain site development office locations. Office leases include a single lease component, lease of the office space, and sometimes nonlease components such as common area maintenance expenses. The lease term for office leases are generally considered to be the contractually committed term.
Finance Leases
Vehicle leases. The Company leases vehicles that are used in its site development business. These leases are accounted for as financing leases and have lease terms that are contractually committed and do not include optional renewal terms.
Acquired right-of-use assets. In connection with certain acquisitions, the Company may acquire the exclusive right to lease and operate communication sites for a period that represents (1) a major part of the remaining economic life of the underlying assets and/or (2) the purchase price represents substantially all of the fair value of the underlying asset. The Company accounts for these arrangements as financing leases. Payments associated with the right-of-use of these assets are typically fully funded at the acquisition date and will be recognized over the respective lease term. The right-of-use assets related to these transactions are recorded in Acquired and other right-of-use assets, net on the Consolidated Balance Sheets.
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Discount Rate
When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, the Company’s ground leases generally do not provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement or upon a modification. The Company uses publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.
Lease Cost
Variable lease payments include escalations based on an inflationary index and are initially recognized using the prevailing index at the date of initial measurement or upon reassessment of the lease term. Subsequent changes in standard cost of living increases are recognized as variable lease costs. Variable lease payments also include contingent rent provisions.
The components of lease cost, lease term, and discount rate as of December 31, 2022 and 2021 are as follows:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | ||||||||
| (in thousands) | |||||||||
| Amortization of acquired and other right-of-use assets | $ | 24,733 | $ | 13,483 | |||||
| Interest on finance lease liabilities | 171 | 118 | |||||||
| Total finance lease cost | 24,904 | 13,601 | |||||||
| Operating lease cost | 275,903 | 260,690 | |||||||
| Variable lease cost | 61,128 | 49,176 | |||||||
| Total lease cost | $ | 361,935 | $ | 323,467 | |||||
| Weighted-Average Remaining Lease Term as of 2022 and 2021: | |||||||||
| Operating leases | 13.7 years | 14.4 years | |||||||
| Finance leases | 51.3 years | 68.9 years | |||||||
| Weighted-Average Discount Rate as of 2022 and 2021: | |||||||||
| Operating leases | 5.7% | 5.6% | |||||||
| Finance leases | 3.5% | 2.9% | |||||||
| For the year ended | |||||||||
| Other information: | December 31, 2022 | December 31, 2021 | |||||||
| Cash paid for amounts included in measurement of lease liabilities: | |||||||||
| Cash flows from operating leases | $ | 259,788 | $ | 242,567 | |||||
| Cash flows from finance leases | $ | 2,258 | $ | 1,734 |
Tenant (Operating) Leases
The Company enters into long-term lease contracts with wireless service providers to lease antenna space on towers that it owns or operates. Each tenant lease relates to the lease or use of space at an individual site. Tenant leases are generally for an initial term of five years to 15 years with multiple renewal periods, which are at the option of the tenant. Tenant leases typically (1) contain specific annual rent escalators, (2) escalate annually in accordance with an inflationary index, or (3) escalate using a combination of fixed and inflation adjusted escalators, including the renewal option periods.
Tenant lease agreements generally include renewal options which can be exercised exclusively at the tenant’s election. The only common exception is if the Company no longer has a right to the ground underlying the site, the lease agreements permit the Company to terminate the lease. Despite high frequency of renewal of options to extend the lease by its tenants, the Company has concluded that the exercise of a renewal option by a tenant is not reasonably certain of occurrence; therefore, only the current committed term is included in the determination of the lease term.
Certain tenant leases provide for a reimbursement of costs incurred by the Company. The Company pays these costs directly and is not relieved of the primary obligation for the expenses. These reimbursements are recorded as revenue on the Statements of Operations.
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Deferred Lease Costs
ASU 2016-02 defines initial direct costs as incremental costs that would not have been incurred if the lease had not been obtained. These costs, including commissions paid related to the origination of specific tenant leases, are deferred and amortized over the remaining lease term. Initial direct costs were approximately $3.3 million, $2.9 million, and $1.2 million for the years ended December 31, 2022, 2021, and 2020, respectively. Amortization expense related to deferred initial direct costs was $1.9 million, $1.4 million, and $1.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022 and 2021, unamortized deferred initial direct costs were $7.7 million and $6.3 million, respectively, and are included in other assets on the Consolidated Balance Sheets.
Reference Rate Reform
ASU 2020-04, ASU 2021-01, and ASU 2022-06, Reference Rate Reform, provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. An entity may elect to apply the amendments prospectively through December 31, 2024. The ICE Benchmark Administration Limited (“IBA”) ceased the publication of USD LIBOR for the 1 week and 2 month tenors on December 31, 2021 and will cease all other tenors on June 30, 2023. On July 7, 2021, the Company amended its Revolving Credit Facility to provide mechanics relating to a transition away from LIBOR as a benchmark interest rate and the replacement of LIBOR by an alternative benchmark rate. Refer to Note 11 for further discussion of the Revolving Credit Facility. As of December 31, 2022, the Company has not modified any other contracts as a result of reference rate reform and is evaluating the impact this standard may have on its consolidated financial statements.
Derivatives and Hedging Activities
The Company enters into interest rate swaps to hedge the future interest expense from variable rate debt and reduce the Company’s exposure to fluctuations in interest rates. At inception, the Company evaluates the interest rate swaps to determine whether they qualify for hedge accounting. In accordance with ASU 2017-12 (ASC 815 - Derivatives and Hedging), hedge accounting should be provided only if the derivative hedging instrument is expected to be, and actually is, effective at offsetting changes in fair values or cash flows of the hedged item. The effective portion of the gain or loss is recorded in Accumulated other comprehensive loss, net on the Consolidated Balance Sheets. The ineffective portion of the gain or loss from the interest rate swap is recognized in earnings immediately. On a quarterly basis, the Company evaluates whether the cash flow hedge remains highly effective in offsetting changes in cash flows. Refer to Note 21 for further discussion of the interest rate swaps.
**3.**FAIR VALUE MEASUREMENTS
Items Measured at Fair Value on a Recurring Basis—The Company’s asset retirement obligations are measured at fair value on a recurring basis using Level 3 inputs and are recorded in Other long-term liabilities in the Consolidated Balance Sheets. The fair value of the asset retirement obligations is calculated using a discounted cash flow model.
Refer to Note 20 for discussion of the Company’s redeemable non-controlling interests.
Items Measured at Fair Value on a Nonrecurring Basis— The Company’s long-lived and intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs. The Company considers many factors and makes certain assumptions when making this assessment, including but not limited to: general market and economic conditions, historical operating results, geographic location, lease-up potential, and expected timing of lease-up. The fair value of the long-lived and intangible assets is calculated using a discounted cash flow model.
F-17
Asset impairment and decommission costs for all periods presented and the related impaired assets primarily relate to the Company’s site leasing operating segment. The following summarizes the activity of asset impairment and decommission costs (in thousands):
| For the year | |||||||||
| ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Asset impairment (1) | $ | 34,734 | $ | 24,813 | $ | 31,552 | |||
| Write-off of carrying value of decommissioned towers | 8,095 | 6,349 | 7,456 | ||||||
| Other (including third party decommission costs) | 331 | 1,882 | 1,089 | ||||||
| Total asset impairment and decommission costs | $ | 43,160 | $ | 33,044 | $ | 40,097 |
(1)Represents impairment charges resulting from the Company’s regular analysis of whether the anticipated future cash flows from certain towers are sufficient to recover the carrying value of the investment in those towers.
The Company’s long-term investments were $40.7 million and $47.9 million as of December 31, 2022 and 2021, respectively, and are recorded in Other assets on the Consolidated Balance Sheets. Some of these investments provide for the Company to increase their investment in the future through call options exercisable by the Company and put options exercisable by the investee. These put and call options are recorded at fair market value. The estimation of the fair value of the investment involves the use of Level 3 inputs. The Company evaluates these investments for indicators of impairment. The Company considers impairment indicators such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist and the fair value of the investment is below the carrying amount, the investment could be impaired. During the year ended December 31, 2022, the Company recognized an impairment loss of $0.9 million associated with one of its cost method investments. The Company did not recognize any impairment loss associated with its investments during the years ended December 31, 2021 and 2020.
Fair Value of Financial Instruments— The carrying values of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, and short-term investments approximate their estimated fair values due to the shorter maturity of these instruments. The Company’s estimate of its short-term investments is based primarily upon Level 1 reported market values. As of December 31, 2022 and 2021, the Company had $1.3 million and $0.8 million, respectively, of short-term investments. The Company purchased and sold $0.9 billion, $1.7 billion, and $1.2 billion of short-term investments for the years ended December 31, 2022, 2021, and 2020, respectively.
The Company determines fair value of its debt instruments utilizing various Level 2 sources including quoted prices and indicative quotes (non-binding quotes) from brokers that require judgment to interpret market information including implied credit spreads for similar borrowings on recent trades or bid/ask prices. The fair value of the Revolving Credit Facility is considered to approximate the carrying value because the Company does not believe its credit risk has changed materially from the date the applicable Eurodollar Rate was set for the Revolving Credit Facility (112.5 to 150.0 basis points). Refer to Note 11 for the fair values, principal balances, and carrying values of the Company’s debt instruments.
For discussion of the Company’s derivatives and hedging activities, refer to Note 2 and Note 21.
**4.**CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
The cash, cash equivalents, and restricted cash balances on the Consolidated Statements of Cash Flows consist of the following:
| As of | As of | As of | |||||||||
| December 31, 2022 | December 31, 2021 | December 31, 2020 | Included on Balance Sheet | ||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | $ | 143,708 | $ | 367,278 | $ | 308,560 | Cash and cash equivalents | ||||
| Securitization escrow accounts | 35,820 | 64,764 | 31,507 | Restricted cash - current asset | |||||||
| Payment, performance bonds, and other | 6,139 | 797 | 164 | Restricted cash - current asset | |||||||
| Surety bonds and workers compensation | 3,616 | 2,787 | 2,577 | Other assets - noncurrent | |||||||
| Total cash, cash equivalents, and restricted cash | $ | 189,283 | $ | 435,626 | $ | 342,808 |
Pursuant to the terms of the Tower Securities (see Note 11), the Company is required to establish a securitization escrow account, held by the indenture trustee, into which all rents and other sums due on the towers that secure the Tower Securities are directly deposited by the lessees. These restricted cash amounts are used to fund reserve accounts for the payment of (1) debt service
F-18
costs, (2) ground rents, real estate and personal property taxes, and insurance premiums related to towers, (3) trustee and servicing expenses, and (4) management fees. The restricted cash in the securitization escrow account in excess of required reserve balances is subsequently released to the Borrowers (as defined in Note 11) monthly, provided that the Borrowers are in compliance with their debt service coverage ratio and that no event of default has occurred. All monies held by the indenture trustee are classified as restricted cash on the Company’s Consolidated Balance Sheets.
Payment and performance bonds relate primarily to collateral requirements for tower construction currently in process by the Company. Other restricted cash includes $6.0 million held in escrow as of December 31, 2022 related to the Company’s acquisition activities. Cash is pledged as collateral related to surety bonds issued for the benefit of the Company or its affiliates in the ordinary course of business and primarily related to the Company’s tower removal obligations. As of December 31, 2022 and 2021, the Company had $42.3 million in surety and payment and performance bonds for which no collateral was required to be posted. The Company periodically evaluates the collateral posted for its bonds to ensure that it meets the minimum requirements. As of December 31, 2022 and 2021, the Company had pledged $2.3 million as collateral related to its workers’ compensation policy.
**5.**COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The Company’s costs and estimated earnings on uncompleted contracts are comprised of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Costs incurred on uncompleted contracts | $ | 137,736 | $ | 75,967 | ||
| Estimated earnings | 51,287 | 28,851 | ||||
| Billings to date | (134,665) | (61,628) | ||||
| $ | 54,358 | $ | 43,190 |
These amounts are included in the Consolidated Balance Sheets under the following captions:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 79,549 | $ | 48,844 | ||
| Billings in excess of costs and estimated earnings on | ||||||
| uncompleted contracts (included in Other current liabilities) | (25,191) | (5,654) | ||||
| $ | 54,358 | $ | 43,190 |
At December 31, 2022 and 2021, the two largest customers comprised 96.7% and 93.3%, respectively, of the costs and estimated earnings in excess of billings on uncompleted contracts, net of billings in excess of costs and estimated earnings.
**6.**PREPAID EXPENSES AND OTHER CURRENT ASSETS AND OTHER ASSETS
The Company’s prepaid expenses and other current assets are comprised of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Short-term investments | $ | 1,331 | $ | 778 | ||
| Prepaid real estate taxes | 3,333 | 3,331 | ||||
| Prepaid taxes | 10,639 | 11,096 | ||||
| Other current assets | 17,846 | 15,608 | ||||
| Total prepaid expenses and other current assets | $ | 33,149 | $ | 30,813 |
F-19
The Company’s other assets are comprised of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Straight-line rent receivable | $ | 388,638 | $ | 348,519 | ||
| Interest rate swap asset (1) | 182,860 | 60,324 | ||||
| Loans receivable | 39,922 | 37,376 | ||||
| Deferred lease costs, net | 7,747 | 6,345 | ||||
| Deferred tax asset - long term | 16,173 | 51,918 | ||||
| Long-term investments | 40,696 | 47,889 | ||||
| Other | 46,337 | 23,273 | ||||
| Total other assets | $ | 722,373 | $ | 575,644 |
(1)Refer to Note 21 for more information on the Company’s interest rate swaps.
7**.**ACQUISITIONS
The following table summarizes the Company’s acquisition activity:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Tower acquisitions (number of towers) | 4,790 | 991 | 233 |
The following table summarizes the Company’s cash acquisition capital expenditures:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Acquisitions of towers and related intangible assets (1)(2)(3) | $ | 489,888 | $ | 274,752 | $ | 181,473 | |||
| Acquisition of right-of-use assets (2)(4) | 602,574 | 950,536 | — | ||||||
| Land buyouts and other assets (5)(6) | 83,630 | 32,416 | 89,945 | ||||||
| Total cash acquisition capital expenditures | $ | 1,176,092 | $ | 1,257,704 | $ | 271,418 |
(1)During the year ended December 31, 2022, the Company closed on 1,445 sites from Airtel Tanzania for $176.1 million. Legal title has been fully transferred for 1,295 of the towers. The remaining 150 towers are pending post-closing due diligence and continue to be accounted for as acquired and other right-of-use assets, net on the consolidated balance sheet until transfer of title for these towers is completed, which the Company anticipates to be in tranches through the end of the second quarter of 2023. Upon legal transfer, these assets will be reclassified to tower related assets. During this period of time, the Company has all the economic rights and obligations related to these towers.
(2)During the year ended December 31, 2022, the Company acquired 2,632 sites from GTS in Brazil for $728.2 million, net of working capital adjustments, of which $168.5 million is included in acquisitions of towers and related intangible assets and $559.8 million is included in acquisition of right of use assets.
(3)The year ended December 31, 2021 includes $77.1 million of acquisitions completed during the fourth quarter of 2020 which were not funded until the first quarter of 2021.
(4)During the year ended December 31, 2021, the Company acquired the exclusive right to lease and operate utility transmission structures, which included existing wireless tenant licenses from PG&E for $950.5 million, net of working capital adjustments.
(5)Excludes $17.9 million, $16.3 million, and $12.3 million spent to extend ground lease terms for the years ended December 31, 2022, 2021, and 2020, respectively.
(6)The years ended December 31, 2022 and 2020 include amounts paid related to the acquisitions of data centers.
As of December 31, 2022, the purchase price allocation for GTS consisted of $23.8 million of property and equipment, net, $142.2 million of intangible assets, net, $48.8 million of operating lease right-of-use assets, net, $529.3 million of acquired and other right-of-use assets, net, $18.3 million of long-term lease liabilities, and $2.4 million of other net assets assumed. During the year ended December 31, 2022, in addition to the acquisition of GTS, the Company acquired 2,158 towers and related assets and liabilities consisting of $124.5 million of property and equipment, net, $209.8 million of intangible assets, net, $125.0 million of operating lease right-of-use assets, net, $38.0 million of acquired and other right-of-use assets, net, $106.6 million of long-term lease liabilities, $24.3 million of acquisition related holdbacks, and $2.2 million of other net liabilities assumed. In the year ended December 31, 2022, the
F-20
Company concluded that for all of its acquisitions, except for one purchased for $49.9 million in cash, substantially all of the value of its tower acquisition is concentrated in a group of similar identifiable assets.
During the year ended December 31, 2021, in addition to the PG&E acquisition, the Company acquired 278 towers and related assets and liabilities consisting of $26.1 million of property and equipment, net, $135.8 million of intangible assets, net, $18.6 million of operating lease right-of-use assets, net, and $0.8 million of other net liabilities assumed.
During the year ended December 31, 2020, the Company acquired 233 towers and related assets and liabilities consisting of $30.1 million of property and equipment, net, $218.1 million of intangible assets, net, and $66.8 million of other net liabilities assumed.
Subsequent to the year ended December 31, 2022, the Company purchased or is under contract to purchase 31 communication sites for an aggregate consideration of $23.2 million in cash. The Company anticipates that these acquisitions will be consummated by the end of the second quarter of 2023.
The maximum potential obligation related to contingent consideration for acquisitions were $10.1 million and $11.6 million as of December 31, 2022 and 2021, respectively. No such amounts have been recorded on the Company’s Consolidated Balance Sheet.
**8.**PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Towers and related assets (1) | $ | 5,650,902 | $ | 5,323,803 | ||
| Construction-in-process (2) | 77,564 | 47,565 | ||||
| Furniture, equipment, and vehicles | 67,403 | 59,939 | ||||
| Land, buildings, and improvements | 889,293 | 848,051 | ||||
| Total property and equipment | 6,685,162 | 6,279,358 | ||||
| Less: accumulated depreciation | (3,971,435) | (3,703,871) | ||||
| Property and equipment, net | $ | 2,713,727 | $ | 2,575,487 |
(1)Includes amounts related to the Company’s data centers.
(2)Construction-in-process represents costs incurred related to towers and other assets that are under development and will be used in the Company’s site leasing operations.
Depreciation expense was $274.0 million, $271.8 million, and $287.0 million for the years ended December 31, 2022, 2021, and 2020, respectively. At December 31, 2022 and 2021, unpaid capital expenditures that are included in accounts payable and accrued expenses were $7.5 million and $7.3 million, respectively.
**9.**INTANGIBLE ASSETS, NET
The following table provides the gross and net carrying amounts for each major class of intangible assets:
| As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||||
| Gross carrying | Accumulated | Net book | Gross carrying | Accumulated | Net book | |||||||||||||
| amount | amortization | value | amount | amortization | value | |||||||||||||
| (in thousands) | ||||||||||||||||||
| Current contract intangibles | $ | 5,170,187 | $ | (3,060,494) | $ | 2,109,693 | $ | 4,890,427 | $ | (2,749,594) | $ | 2,140,833 | ||||||
| Network location intangibles | 1,893,048 | (1,226,269) | 666,779 | 1,783,640 | (1,121,226) | 662,414 | ||||||||||||
| Intangible assets, net | $ | 7,063,235 | $ | (4,286,763) | $ | 2,776,472 | $ | 6,674,067 | $ | (3,870,820) | $ | 2,803,247 |
All intangible assets noted above are included in the Company’s site leasing segment. Amortization expense relating to the intangible assets above was $406.0 million, $411.9 million, and $434.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.
F-21
Estimated amortization expense on the Company’s intangibles assets is as follows:
| For the year ended December 31, | (in thousands) | ||||||||
| 2023 | $ | 392,676 | |||||||
| 2024 | 362,709 | ||||||||
| 2025 | 352,706 | ||||||||
| 2026 | 337,424 | ||||||||
| 2027 | 286,579 |
**10.**ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The Company’s accrued expenses are comprised of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Salaries and benefits | $ | 27,727 | $ | 24,962 | ||
| Real estate and property taxes | 8,422 | 8,336 | ||||
| Unpaid capital expenditures | 7,476 | 7,295 | ||||
| Acquisition related holdbacks | 25,681 | 957 | ||||
| Other | 32,178 | 26,520 | ||||
| Total accrued expenses | $ | 101,484 | $ | 68,070 |
The Company’s other current liabilities are comprised of the following:
| As of | As of | |||||
| December 31, 2022 | December 31, 2021 | |||||
| (in thousands) | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 25,191 | $ | 5,654 | ||
| Taxes payable | 10,641 | 7,736 | ||||
| Other | 12,930 | 4,832 | ||||
| Total other current liabilities | $ | 48,762 | $ | 18,222 |
**11.**DEBT
The principal values, fair values, and carrying values of debt consist of the following (in thousands):
| As of | As of | |||||||||||||||||||
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||
| Maturity Date | PrincipalBalance | Fair Value | CarryingValue | PrincipalBalance | Fair Value | CarryingValue | ||||||||||||||
| Revolving Credit Facility | Jul. 7, 2026 | $ | 720,000 | $ | 720,000 | $ | 720,000 | $ | 350,000 | $ | 350,000 | $ | 350,000 | |||||||
| 2018 Term Loan | Apr. 11, 2025 | 2,292,000 | 2,280,540 | 2,284,007 | 2,316,000 | 2,289,945 | 2,304,697 | |||||||||||||
| 2014-2C Tower Securities (1) | Oct. 8, 2024 | 620,000 | 598,480 | 618,099 | 620,000 | 641,793 | 617,095 | |||||||||||||
| 2018-1C Tower Securities (1) | Mar. 9, 2023 | — | — | — | 640,000 | 650,163 | 637,812 | |||||||||||||
| 2019-1C Tower Securities (1) | Jan. 12, 2025 | 1,165,000 | 1,095,776 | 1,159,860 | 1,165,000 | 1,174,728 | 1,157,446 | |||||||||||||
| 2020-1C Tower Securities (1) | Jan. 9, 2026 | 750,000 | 665,633 | 745,480 | 750,000 | 746,498 | 744,052 | |||||||||||||
| 2020-2C Tower Securities (1) | Jan. 11, 2028 | 600,000 | 506,574 | 595,586 | 600,000 | 605,268 | 594,774 | |||||||||||||
| 2021-1C Tower Securities (1) | Nov. 9, 2026 | 1,165,000 | 991,705 | 1,155,724 | 1,165,000 | 1,144,846 | 1,153,700 | |||||||||||||
| 2021-2C Tower Securities (1) | Apr. 9, 2027 | 895,000 | 756,302 | 887,443 | 895,000 | 883,213 | 886,116 | |||||||||||||
| 2021-3C Tower Securities (1) | Oct. 9, 2031 | 895,000 | 686,134 | 886,495 | 895,000 | 902,446 | 885,976 | |||||||||||||
| 2022-1C Tower Securities (1) | Jan. 11, 2028 | 850,000 | 855,899 | 840,053 | — | — | — | |||||||||||||
| 2020 Senior Notes | Feb. 15, 2027 | 1,500,000 | 1,375,815 | 1,487,013 | 1,500,000 | 1,550,790 | 1,484,178 | |||||||||||||
| 2021 Senior Notes | Feb. 1, 2029 | 1,500,000 | 1,286,250 | 1,488,402 | 1,500,000 | 1,446,975 | 1,486,848 | |||||||||||||
| Total debt | $ | 12,952,000 | $ | 11,819,108 | $ | 12,868,162 | $ | 12,396,000 | $ | 12,386,665 | $ | 12,302,694 | ||||||||
| Less: current maturities of long-term debt | (24,000) | (24,000) | ||||||||||||||||||
| Total long-term debt, net of current maturities | $ | 12,844,162 | $ | 12,278,694 |
F-22
(1)The maturity date represents the anticipated repayment date for each issuance.
The Company’s future principal payment obligations over the next five years (based on the outstanding debt as of December 31, 2022 and assuming the Tower Securities are repaid at their respective anticipated repayment dates) are as follows:
| For the year ended December 31, | (in thousands) | ||||
| 2023 | $ | 24,000 | |||
| 2024 | 644,000 | ||||
| 2025 | 3,409,000 | ||||
| 2026 | 2,635,000 | ||||
| 2027 | 2,395,000 |
The table below reflects cash and non-cash interest expense amounts recognized by debt instrument for the periods presented:
| For the year ended December 31, | ||||||||||||||||||||
| Interest | 2022 | 2021 | 2020 | |||||||||||||||||
| Rates as of | Cash | Non-cash | Cash | Non-cash | Cash | Non-cash | ||||||||||||||
| December 31, 2022 | Interest | Interest | Interest | Interest | Interest | Interest | ||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revolving Credit Facility | 5.610% | $ | 21,862 | $ | — | $ | 6,414 | $ | — | $ | 6,070 | $ | — | |||||||
| 2018 Term Loan (1) | 2.510% | 50,052 | 45,756 | 44,342 | 45,756 | 68,963 | 23,452 | |||||||||||||
| 2013-2C Tower Securities | — | — | — | 17,027 | — | 21,584 | — | |||||||||||||
| 2014-2C Tower Securities | 3.869% | 24,185 | — | 24,185 | — | 24,185 | — | |||||||||||||
| 2015-1C Tower Securities | — | — | — | — | — | 8,589 | — | |||||||||||||
| 2016-1C Tower Securities | — | — | — | — | — | 10,972 | — | |||||||||||||
| 2017-1C Tower Securities | — | — | — | 9,201 | — | 24,354 | — | |||||||||||||
| 2018-1C Tower Securities | 3.448% | 21,291 | — | 22,281 | — | 22,281 | — | |||||||||||||
| 2019-1C Tower Securities | 2.836% | 33,428 | — | 33,428 | — | 33,428 | — | |||||||||||||
| 2020-1C Tower Securities | 1.884% | 14,391 | — | 14,391 | — | 6,675 | — | |||||||||||||
| 2020-2C Tower Securities | 2.328% | 14,159 | — | 14,159 | — | 6,568 | — | |||||||||||||
| 2021-1C Tower Securities | 1.631% | 19,419 | — | 12,255 | — | — | — | |||||||||||||
| 2021-2C Tower Securities | 1.840% | 16,782 | — | 2,982 | — | — | — | |||||||||||||
| 2021-3C Tower Securities | 2.593% | 23,492 | — | 4,176 | — | — | — | |||||||||||||
| 2022-1C Tower Securities | 6.599% | 5,961 | — | — | — | — | — | |||||||||||||
| 2014 Senior Notes | — | — | — | — | — | 3,352 | 112 | |||||||||||||
| 2016 Senior Notes | — | — | — | 44,092 | 990 | 53,625 | 1,109 | |||||||||||||
| 2017 Senior Notes | — | — | — | 2,333 | — | 30,000 | — | |||||||||||||
| 2020 Senior Notes | 3.875% | 58,125 | 353 | 58,125 | 339 | 46,769 | 197 | |||||||||||||
| 2021 Senior Notes | 3.125% | 46,875 | — | 43,229 | — | — | — | |||||||||||||
| Other | 3,762 | — | 299 | — | 459 | — | ||||||||||||||
| Total | $ | 353,784 | $ | 46,109 | $ | 352,919 | $ | 47,085 | $ | 367,874 | $ | 24,870 |
(1)The 2018 Term Loan has a blended rate of 2.510% which includes the impact of the interest rate swap entered into on August 4, 2020 which swapped $1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% per annum through the maturity date of the 2018 Term Loan. Excluding the impact of the interest rate swap, the 2018 Term Loan was accruing interest at 6.140% as of December 31, 2022. Refer to Note 21 for more information on the Company’s interest rate swap.
Terms of the Senior Credit Agreement
On July 7, 2021, the Company, through its wholly owned subsidiary, SBA Senior Finance II LLC, amended its Revolving Credit Facility to (1) increase the total commitments under the Facility from $1.25 billion to $1.5 billion, (2) extend the maturity date of the Facility to July 7, 2026, (3) lower the applicable interest rate margins and commitment fees under the Facility, (4) provide mechanics relating to a transition away from LIBOR as a benchmark interest rate and the replacement of LIBOR by an alternative benchmark rate, (5) incorporate sustainability-linked targets which will adjust the Facility’s applicable interest and commitment fee rates upward or downward based on how we perform against those targets, and (6) amend certain other terms and conditions under the Senior Credit Agreement.
F-23
The Senior Credit Agreement, as amended, requires SBA Senior Finance II to maintain specific financial ratios, including (1) a ratio of Consolidated Net Debt to Annualized Borrower EBITDA not to exceed 6.5 times for any fiscal quarter, (2) a ratio of Consolidated Net Debt (calculated in accordance with the Senior Credit Agreement) to Annualized Borrower EBITDA for the most recently ended fiscal quarter not to exceed 6.5 times for 30 consecutive days and (3) a ratio of Annualized Borrower EBITDA to Annualized Cash Interest Expense (calculated in accordance with the Senior Credit Agreement) of not less than 2.0 times for any fiscal quarter. The Senior Credit Agreement contains customary affirmative and negative covenants that, among other things, limit the ability of SBA Senior Finance II and its subsidiaries to incur indebtedness, grant certain liens, make certain investments, enter into sale leaseback transactions, merge or consolidate, make certain restricted payments, enter into transactions with affiliates, and engage in certain asset dispositions, including a sale of all or substantially all of their property. The Senior Credit Agreement is also subject to customary events of default. Pursuant to the Second Amended and Restated Guarantee and Collateral Agreement, amounts borrowed under the Revolving Credit Facility, the Term Loans and certain hedging transactions that may be entered into by SBA Senior Finance II or the Subsidiary Guarantors (as defined in the Senior Credit Agreement) with lenders or their affiliates are secured by a first lien on the membership interests of SBA Telecommunications, LLC, SBA Senior Finance, LLC and SBA Senior Finance II and on substantially all of the assets (other than leasehold, easement and fee interests in real property) of SBA Senior Finance II and the Subsidiary Guarantors.
The Senior Credit Agreement, as amended, permits SBA Senior Finance II, without the consent of the other lenders, to request that one or more lenders provide SBA Senior Finance II with increases in the Revolving Credit Facility or additional term loans provided that after giving effect to the proposed increase in Revolving Credit Facility commitments or incremental term loans the ratio of Consolidated Net Debt to Annualized Borrower EBITDA would not exceed 6.5 times. SBA Senior Finance II’s ability to request such increases in the Revolving Credit Facility or additional term loans is subject to its compliance with customary conditions set forth in the Senior Credit Agreement including compliance, on a pro forma basis, with the financial covenants and ratios set forth therein and, with respect to any additional term loan, an increase in the margin on existing term loans to the extent required by the terms of the Senior Credit Agreement. Upon SBA Senior Finance II’s request, each lender may decide, in its sole discretion, whether to increase all or a portion of its Revolving Credit Facility commitment or whether to provide SBA Senior Finance II with additional term loans and, if so, upon what terms.
Revolving Credit Facility under the Senior Credit Agreement
The Revolving Credit Facility consists of a revolving loan under which up to $1.5 billion aggregate principal amount may be borrowed, repaid and redrawn, based upon specific financial ratios and subject to the satisfaction of other customary conditions to borrowing. Amounts borrowed under the Revolving Credit Facility accrue interest, at SBA Senior Finance II’s election, at either (1) the Eurodollar Rate plus a margin that ranges from 112.5 basis points to 150.0 basis points or (2) the Base Rate plus a margin that ranges from 12.5 basis points to 50.0 basis points, in each case based on the ratio of Consolidated Net Debt to Annualized Borrower EBITDA, calculated in accordance with the Senior Credit Agreement. In addition, SBA Senior Finance II is required to pay a commitment fee of between 0.15% and 0.25% per annum on the amount of unused commitment. Borrowings under the Revolving Credit Facility may be used for general corporate purposes. SBA Senior Finance II may, from time to time, borrow from and repay the Revolving Credit Facility. Consequently, the amount outstanding under the Revolving Credit Facility at the end of the period may not be reflective of the total amounts outstanding during such period.
The key terms of the Revolving Credit Facility are as follows:
| Unused | Financial Covenant | |||||
| Interest Rate | Commitment | Compliance | ||||
| as of | Fee as of | Status as of | ||||
| December 31, 2022 (1) | December 31, 2022 (2) | December 31, 2022 | ||||
| Revolving Credit Facility | 5.610% | 0.140% | In Compliance |
(1)
(1)The rate reflected includes a 0.050% reduction in the applicable spread as a result of meeting certain sustainability-linked targets as of December 31, 2021.
(2)The rate reflected includes a 0.010% reduction in the applicable commitment fee as a result of meeting certain sustainability-linked targets as of December 31, 2021.
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The table below summarizes the Revolving Credit Facility’s activity during the years ended December 31, 2022 and 2021 (in thousands):
| For the year | ||||||
| ended December 31, | ||||||
| 2022 | 2021 | |||||
| Beginning outstanding balance | $ | 350,000 | $ | 380,000 | ||
| Borrowings | 975,000 | 1,935,000 | ||||
| Repayments | (605,000) | (1,965,000) | ||||
| Ending outstanding balance | $ | 720,000 | $ | 350,000 |
Subsequent to December 31, 2022, the Company borrowed an additional $15.0 million and repaid $165.0 million under the Revolving Credit Facility, and as of the date of this filing, $570.0 million was outstanding.
Term Loan under the Senior Credit Agreement
2018 Term Loan
On April 11, 2018, the Company, through its wholly owned subsidiary, SBA Senior Finance II LLC, obtained a term loan (the “2018 Term Loan”) under the amended and restated Senior Credit Agreement. The 2018 Term Loan consists of a senior secured term loan with an initial aggregate principal amount of $2.4 billion that matures on April 11, 2025. The 2018 Term Loan accrues interest, at SBA Senior Finance II’s election at either the Base Rate plus 75 basis points (with a zero Base Rate floor) or the Eurodollar Rate plus 175 basis points (with a zero Eurodollar Rate floor). The 2018 Term Loan was issued at 99.75% of par value. As of December 31, 2022, the 2018 Term Loan was accruing interest at 6.140% per annum. Principal payments on the 2018 Term Loan are made in quarterly installments on the last day of each March, June, September, and December in an amount equal to $6.0 million. The Company incurred financing fees of approximately $16.8 million in relation to this transaction, which are being amortized through the maturity date.
During the year ended December 31, 2022, the Company repaid an aggregate of $24.0 million of principal on the 2018 Term Loan. As of December 31, 2022, the 2018 Term Loan had a principal balance of $2.3 billion.
On August 4, 2020, the Company, through its wholly owned subsidiary, SBA Senior Finance II, entered into an interest rate swap for $1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% per annum through the maturity date of the 2018 Term Loan.
The IBA ceased the publication of USD LIBOR for the 1 week and 2 month tenors on December 31, 2021 and intends to cease all other tenors on June 30, 2023. Since LIBOR will be ceasing, the Company will need to amend its credit facilities to transition the 2018 Term Loan and the interest rate swap to an alternative benchmark rate before June 30, 2023.
Secured Tower Revenue Securities
Tower Revenue Securities Terms
As of December 31, 2022, the Company, through a New York common law trust (the “Trust”), had issued and outstanding an aggregate of $6.9 billion of Secured Tower Revenue Securities (“Tower Securities”). The sole asset of the Trust consists of a non-recourse mortgage loan made in favor of certain of the Company’s subsidiaries that are borrowers on the mortgage loan (the “Borrowers”) under which there is a loan tranche for each Tower Security outstanding with the same interest rate and maturity date as the corresponding Tower Security. The mortgage loan will be paid from the operating cash flows from the aggregate 9,896 tower sites owned by the Borrowers as of December 31, 2022. The mortgage loan is secured by (1) mortgages, deeds of trust, and deeds to secure debt on a substantial portion of the tower sites, (2) a security interest in the tower sites and substantially all of the Borrowers’ personal property and fixtures, (3) the Borrowers’ rights under certain tenant leases, and (4) all of the proceeds of the foregoing. For each calendar month, SBA Network Management, Inc., an indirect subsidiary (“Network Management”), is entitled to receive a management fee equal to 4.5% of the Borrowers’ operating revenues for the immediately preceding calendar month.
The Borrowers may prepay any of the mortgage loan components, in whole or in part, with no prepayment consideration, (1) within twelve months (in the case of the component corresponding to the 2019-1C Tower Securities, 2020-1C Tower Securities, 2021-1C Tower Securities, 2021-2C Tower Securities, and 2022-1C Tower Securities Series) or eighteen months (in the case of the
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components corresponding to the 2014-2C Tower Securities, 2020-2C Tower Securities, and 2021-3C Tower Securities) of the anticipated repayment date of such mortgage loan component, (2) with proceeds received as a result of any condemnation or casualty of any tower owned by the Borrowers or (3) during an amortization period. In all other circumstances, the Borrowers may prepay the mortgage loan, in whole or in part, upon payment of the applicable prepayment consideration. The prepayment consideration is determined based on the class of the Tower Securities to which the prepaid mortgage loan component corresponds and consists of an amount equal to the net present value associated with the portion of the principal balance being prepaid and calculated in accordance with the formula set forth in the mortgage loan agreement.
To the extent that the mortgage loan components corresponding to the Tower Securities are not fully repaid by their respective anticipated repayment dates, the interest rate of each such component will increase by the greater of (1) 5% and (2) the amount, if any, by which the sum of (x) the 10 year U.S. treasury rate plus (y) the credit-based spread for such component (as set forth in the mortgage loan agreement) plus (z) 5%, exceeds the original interest rate for such component.
Pursuant to the terms of the Tower Securities, all rents and other sums due on any of the towers owned by the Borrowers are directly deposited by the lessees into a controlled deposit account and are held by the indenture trustee. The monies held by the indenture trustee after the release date are classified as short-term restricted cash on the Consolidated Balance Sheets (see Note 4). However, if the Debt Service Coverage Ratio, defined as the net cash flow (as defined in the mortgage loan agreement) divided by the amount of interest on the mortgage loan, servicing fees and trustee fees that the Borrowers are required to pay over the succeeding twelve months, as of the end of any calendar quarter, falls to 1.30x or lower, then all cash flow in excess of amounts required to make debt service payments, to fund required reserves, to pay management fees and budgeted operating expenses and to make other payments required under the loan documents, referred to as “excess cash flow,” will be deposited into a reserve account instead of being released to the Borrowers. The funds in the reserve account will not be released to the Borrowers unless the Debt Service Coverage Ratio exceeds 1.30x for two consecutive calendar quarters. If the Debt Service Coverage Ratio falls below 1.15x as of the end of any calendar quarter, then an “amortization period” will commence and all funds on deposit in the reserve account will be applied to prepay the mortgage loan until such time that the Debt Service Coverage Ratio exceeds 1.15x for a calendar quarter. In addition, if any of the Tower Securities are not fully repaid by their respective anticipated repayment dates, the cash flow from the towers owned by the Borrowers will be trapped by the trustee for the Tower Securities and applied first to repay the interest, at the original interest rates, on the mortgage loan components underlying the Tower Securities, second to fund all reserve accounts and operating expenses associated with those towers, third to pay the management fees due to Network Management, fourth to repay principal of the Tower Securities and fifth to repay the additional interest discussed above. Furthermore, the advance rents reserve requirement states that the Borrowers are required to maintain an advance rents reserve at any time the monthly tenant Debt Service Coverage Ratio is equal to or less than 2:1 and for two calendar months after such coverage ratio again exceeds 2:1. The mortgage loan agreement, as amended, also includes covenants customary for mortgage loans subject to rated securitizations. Among other things, the Borrowers are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets.
The table below sets forth the material terms of the Company’s outstanding Tower Securities as of December 31, 2022:
| Security (1) | Issue Date | Amount Outstanding(in millions) | Interest**** Rate (2) | Anticipated Repayment Date | Final Maturity Date | |||||||||
| 2014-2C Tower Securities | Oct. 15, 2014 | $620.0 | 3.869% | Oct. 8, 2024 | Oct. 8, 2049 | |||||||||
| 2019-1C Tower Securities | Sep. 13, 2019 | $1,165.0 | 2.836% | Jan. 12, 2025 | Jan. 12, 2050 | |||||||||
| 2020-1C Tower Securities | Jul. 14, 2020 | $750.0 | 1.884% | Jan. 9, 2026 | Jul. 11, 2050 | |||||||||
| 2020-2C Tower Securities | Jul. 14, 2020 | $600.0 | 2.328% | Jan. 11, 2028 | Jul. 9, 2052 | |||||||||
| 2021-1C Tower Securities | May 14, 2021 | $1,165.0 | 1.631% | Nov. 9, 2026 | May 9, 2051 | |||||||||
| 2021-2C Tower Securities | Oct. 27, 2021 | $895.0 | 1.840% | Apr. 9, 2027 | Oct. 10, 2051 | |||||||||
| 2021-3C Tower Securities | Oct. 27, 2021 | $895.0 | 2.593% | Oct. 9, 2031 | Oct. 10, 2056 | |||||||||
| 2022-1C Tower Securities (3) | Nov. 23, 2022 | $850.0 | 6.599% | Jan. 11, 2028 | Nov. 9, 2052 |
(1)The Company incurred $9.0 million, $12.8 million, $8.0 million, $6.4 million, $12.9 million, $9.5 million, $9.5 million, and $10.1 million in financing fees relating to the issuances of the 2014-2C Tower Securities, 2019-1C Tower Securities, 2020-1C Tower Securities, 2020-2C Tower Securities, 2021-1C Tower Securities, 2021-2C Tower Securities, 2021-3C Tower Securities, and 2022-1C Tower Securities, respectively. The financing fees are being amortized through the anticipated repayment date of the related Tower Security.
(2)Interest payable monthly.
(3)Net proceeds from this offering were used to repay the entire aggregate principal amount of the 2018-1C Tower Securities ($640.0 million) and the 2018-1R Tower Securities ($33.7 million), repay amounts outstanding under the Revolving Credit Facility, and for general corporate purposes.
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In connection with the issuance of the 2022-1C Tower Securities, SBA Properties, LLC, SBA Sites, LLC, SBA Structures, LLC, SBA Infrastructure, LLC, SBA Monarch Towers III, LLC, SBA 2012 TC Assets PR, LLC, SBA 2012 TC Assets, LLC, SBA Towers IV, LLC, SBA Monarch Towers I, LLC, SBA Towers USVI, Inc., SBA Towers VII, LLC, SBA GC Towers, LLC, SBA Towers V, LLC, and SBA Towers VI, LLC (collectively, the “Borrowers”), each an indirect subsidiary of SBAC, and Midland Loan Services, a division of PNC Bank, National Association, as servicer, on behalf of the Trustee entered into the Second Loan and Security Agreement Supplement and Amendment pursuant to which, among other things, (1) the outstanding principal amount of the mortgage loan was increased by $850 million (but increased by a net of $210 million after giving effect to repayment of the loan components relating to the 2018-1C Tower Securities) and (2) the Borrowers became jointly and severally liable for the aggregate $6.9 billion borrowed under the mortgage loan corresponding to the 2014-2C Tower Securities, 2019-1C Tower Securities, the 2020-1C Tower Securities, 2020-2C Tower Securities, 2021-1C Tower Securities, 2021-2C Tower Securities, 2021-3C Tower Securities, and 2022-1C Tower Securities. The new loan, after eliminating the risk retention securities, accrues interest at the same rate as the 2022-1C Tower Securities and are subject to all other material terms of the existing mortgage loan, including collateral and interest rate after the anticipated repayment date.
The table below sets forth the material terms of the Company’s Tower Securities that have been repaid as of December 31, 2022:
| Security (1) | Issue Date | Amount Outstanding(in millions) | Interest**** Rate (2) | Anticipated Repayment Date | Actual Repayment Date | |||||||||
| 2013-2C Tower Securities | Apr. 18, 2013 | $575.0 | 3.722% | Apr. 11, 2023 | Oct. 14, 2021 | |||||||||
| 2015-1C Tower Securities | Oct. 14, 2015 | $500.0 | 3.156% | Oct. 8, 2020 | Jul. 14, 2020 | |||||||||
| 2016-1C Tower Securities | Jul. 7, 2016 | $700.0 | 2.877% | Jul. 9, 2021 | Jul. 14, 2020 | |||||||||
| 2017-1C Tower Securities | Apr. 17, 2017 | $760.0 | 3.168% | Apr. 11, 2022 | May 14, 2021 | |||||||||
| 2018-1C Tower Securities | Mar. 9, 2018 | $640.0 | 3.448% | Mar. 9, 2023 | Dec. 15, 2022 |
(1)The Company incurred $11.0 million, $11.5 million, $9.5 million, $10.2 million, $8.6 million in financing fees relating to the issuances of the 2013-2C Tower Securities, 2015-1C Tower Securities, 2016-1C Tower Securities, 2017-1C Tower Securities, and 2018-1C Tower Securities, respectively, which were being amortized through the anticipated repayment date of the related Tower Security. In addition, the Company incurred $2.0 million, $0.6 million, $2.0 million, $2.0 million, $0.4 million of deferred financing fees and accrued interest related to the repayment of the 2013-2C Tower Securities, 2015-1C Tower Securities, 2016-1C Tower Securities, 2017-1C Tower Securities, and 2018-1C Tower Securities, respectively, which are reflected in loss from extinguishment of debt on the Consolidated Statement of Operations.
(2)Interest was payable monthly.
Risk Retention Tower Securities
The table below sets forth the material terms of the Company’s outstanding Risk Retention Tower Securities as of December 31, 2022:
| Security | Issue Date | Amount Outstanding(in millions) | Interest**** Rate (1) | Anticipated Repayment Date | Final Maturity Date | |||||||||
| 2019-1R Tower Securities | Sep. 13, 2019 | $61.4 | 4.213% | Jan. 12, 2025 | Jan. 12, 2050 | |||||||||
| 2020-2R Tower Securities | Jul. 14, 2020 | $71.1 | 4.336% | Jan. 11, 2028 | Jul. 9, 2052 | |||||||||
| 2021-1R Tower Securities | May 14, 2021 | $61.4 | 3.598% | Nov. 9, 2026 | May 9, 2051 | |||||||||
| 2021-3R Tower Securities | Oct. 27, 2021 | $94.3 | 4.090% | Oct. 9, 2031 | Oct. 10, 2056 | |||||||||
| 2022-1R Tower Securities | Nov. 23, 2022 | $44.8 | 7.870% | Jan. 11, 2028 | Nov. 9, 2052 |
(1)Interest payable monthly.
To satisfy certain risk retention requirements of Regulation RR promulgated under the Exchange Act, SBA Guarantor, LLC, a wholly owned subsidiary, purchased the Risk Retention Tower Securities. Principal and interest payments made on the 2019-1R Tower Securities, 2020-2R Tower Securities, 2021-1R Tower Securities, 2021-3R Tower Securities, and 2022-1R Tower Securities eliminate in consolidation.
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The table below sets forth the material terms of the Company’s Risk Retention Tower Securities that have been repaid as of December 31, 2022:
| Security | Issue Date | Amount Outstanding(in millions) | Interest**** Rate (1) | Anticipated Repayment Date | Final Maturity Date | |||||||||
| 2017-1R Tower Securities | Apr. 17, 2017 | $40.0 | 4.459% | Apr. 11, 2022 | May 14, 2021 | |||||||||
| 2018-2R Tower Securities | Mar. 9, 2018 | $33.7 | 4.949% | Mar. 9, 2023 | Dec. 15, 2022 |
(1)Interest was payable monthly.
To satisfy certain risk retention requirements of Regulation RR promulgated under the Exchange Act, SBA Guarantor, LLC, a wholly owned subsidiary, purchased the Risk Retention Tower Securities. Principal and interest payments made on the 2017-1R Tower Securities and 2018-1R Tower Securities eliminated in consolidation.
Debt Covenants
As of December 31, 2022, the Borrowers met the debt service coverage ratio required by the mortgage loan agreement and were in compliance with all other covenants as set forth in the agreement.
Senior Notes
Indentures Governing Senior Notes
The Indentures governing the Senior Notes contain customary covenants, subject to a number of exceptions and qualifications, including restrictions on the ability of SBAC and Telecommunications to (1) incur additional indebtedness unless the Consolidated Indebtedness to Annualized Consolidated Adjusted EBITDA Ratio (as defined in the Indenture), pro forma for the additional indebtedness does not exceed, with respect to any fiscal quarter, 9.5x for SBAC, (2) merge, consolidate, or sell assets, (3) make restricted payments, including dividends or other distributions, (4) enter into transactions with affiliates, and (5) enter into sale and leaseback transactions and restrictions on the ability of the Restricted Subsidiaries of SBAC (as defined in the Indentures) to incur liens securing indebtedness.
The table below sets forth the material terms of the Company’s outstanding senior notes as of December 31, 2022:
| Senior Notes (1) | Issue Date | Amount Outstanding(in millions) | Interest Rate Coupon | Maturity Date | Interest Due Dates | Optional Redemption Date | ||||||
| 2020 Senior Notes | Feb. 4, 2020 | $1,500.0 | 3.875% | Feb. 15, 2027 | Feb. 15 & Aug. 15 | Feb. 15, 2023 | ||||||
| 2021 Senior Notes | Jan. 29, 2021 | $1,500.0 | 3.125% | Feb. 1, 2029 | Feb. 1 & Aug. 1 | Feb. 1, 2024 |
(1)The Company incurred $18.0 million and $14.8 million in financing fees in relation to the issuance of the 2020 Senior Notes and 2021 Senior Notes, respectively. The financing fees are being amortized through the maturity date of the related senior note.
Each of the senior notes is subject to redemption, at the Company’s option, in whole or in part on or after the date set forth above. During the subsequent three twelve-month periods, the senior notes are redeemable, at the Company’s option, at reducing redemption prices based on the applicable interest rate coupon (as set forth in the indenture) plus accrued and unpaid interest. Subsequent to such date, the senior notes become redeemable until maturity at 100% of the principal plus accrued and unpaid interest. In addition, prior to February 1, 2024 (in the case of the 2021 Senior Notes), the Company may, at its option, use the net proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the notes originally issued at a redemption price of 103.125% (in the case of the 2021 Senior Notes) plus accrued and unpaid interest. The Company may redeem the 2020 Senior Notes during the twelve-month period beginning on the following dates at the following redemption prices: February 15, 2023 at 101.938%, February 15, 2024 at 100.969%, or February 15, 2025 until maturity at 100.000%, of the principal amount of the 2020 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest. The Company may redeem the 2021 Senior Notes during the twelve-month period beginning on the following dates at the following redemption prices: February 1, 2024 at 101.563%, February 1, 2025 at 100.781%, or February 1, 2026 until maturity at 100.000%, of the principal amount of the 2021 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest.
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The table below sets forth the material terms of the Company’s Senior Notes that have been redeemed as of December 31, 2022:
| Senior Notes | Issue Date | Amount Outstanding(in millions) | Interest Rate Coupon | Financing fees at issuance (1)(in millions) | Maturity Date | Redemption Date | ||||||
| 2014 Senior Notes | Jul. 1, 2014 | $750.0 | 4.875% | $11.6 | Jul. 15, 2022 | Feb. 20, 2020 | ||||||
| 2016 Senior Notes | Aug. 15, 2016 | $1,100.0 | 4.875% | $12.8 | Sep. 1, 2024 | Nov. 8, 2021 | ||||||
| 2017 Senior Notes | Oct. 13, 2017 | $750.0 | 4.000% | $8.9 | Oct. 1, 2022 | Feb. 11, 2021 |
(1)Financing fees were being amortized through the maturity date.
In connection with the redemption of the 2014 Senior Notes, the Company paid a $9.1 million call premium and expensed $7.7 million for the write-off of the original issue discount and financing fees. In connection with the redemption of the 2016 Senior Notes, the Company paid a $13.4 million call premium and expensed $10.3 million for the write-off of the original issue discount and financing fees. In connection with the redemption of the 2017 Senior Notes, the Company paid a $7.5 million call premium and expensed $4.2 million for the write-off of financing fees. These expenses are reflected in loss from extinguishment of debt on the Consolidated Statement of Operations.
**12.**SHAREHOLDERS’ EQUITY
Common Stock Equivalents
The Company has outstanding stock options, time-based restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) which were considered in the Company’s diluted earnings per share calculation (see Note 16).
Registration of Additional Shares
The Company filed a shelf registration statement on Form S-4 with the Securities and Exchange Commission registering 4.0 million shares of its Class A common stock in 2007. These shares may be issued in connection with acquisitions of wireless communication towers or antenna sites and related assets or companies that own wireless communication towers, antenna sites, or related assets. During the years ended December 31, 2022 and 2021, the Company did not issue any shares of Class A common stock under this registration statement. As of December 31, 2022, the Company had approximately 1.2 million shares of Class A common stock remaining under this registration statement.
On February 26, 2021, the Company filed with the Securities and Exchange Commission an automatic shelf registration statement for well-known seasoned issuers on Form S-3ASR, which enables the Company to issue shares of its Class A common stock, preferred stock, debt securities, warrants, or depositary shares as well as units that include any of these securities. The Company will file a prospectus supplement containing the amount and type of securities each time it issues securities using its automatic shelf registration statement on Form S-3ASR. For the years ended December 31, 2022 and 2021, the Company did not issue any securities under this automatic shelf registration statement.
On August 6, 2020, the Company filed a registration statement on Form S-8 with the Securities and Exchange Commission registering 3.4 million shares of the Company’s Class A common stock, consisting of 3.0 million shares of Class A common stock issuable under the 2020 Performance and Equity Incentive Plan (the “2020 Plan”) and 400,000 shares of Class A common stock subject to awards granted under the 2010 Performance and Equity Incentive Plan (the “2010 Plan”) that may become available for issuance or reissuance, as applicable, under the 2020 Plan if such awards are forfeited or are settled in cash or otherwise expire or terminate without the delivery of the shares (see Note 13).
Stock Repurchases
The Company’s Board of Directors authorizes the Company to purchase, from time to time, outstanding Class A common stock through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, and/or in privately negotiated transactions at management’s discretion based on market and business conditions, applicable legal requirements, and other factors. Once authorized, the repurchase plan has no time deadline and will continue until otherwise modified or terminated by the Company’s Board of Directors at any time in its sole discretion. Shares repurchased are retired. On October 28, 2021, the Company’s Board of Directors authorized a new $1.0 billion stock repurchase plan, replacing the prior plan authorized on November 2, 2020, which had a remaining authorization of $125.1 million. As of the date of this filing, the Company had $504.7 million authorization remaining under the new plan.
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The following is a summary of the Company’s share repurchases:
| For the year | |||||||||
| ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Total number of shares purchased (in millions) (1) | 1.3 | 1.9 | 3.1 | ||||||
| Average price paid per share (1) | $ | 332.00 | $ | 309.79 | $ | 280.17 | |||
| Total price paid (in millions) (1) | $ | 431.6 | $ | 582.5 | $ | 856.0 |
(1)Amounts reflected are based on the trade date and differ from the Consolidated Statements of Cash Flows which reflects share repurchases based on the settlement date.
Dividends
As a REIT, the Company is required to distribute annually at least 90% of its REIT taxable income after the utilization of any available NOLs (determined before the deduction for dividends paid and excluding any net capital gain). As of December 31, 2022, $545.2 million of the federal NOLs are attributes of the REIT. The Company may use these NOLs to offset its REIT taxable income, and thus any required distributions to shareholders may be reduced or eliminated until such time as the Company’s NOLs have been fully utilized. The amount of future distributions will be determined, from time to time, by the Board of Directors to balance the Company’s goal of increasing long-term shareholder value and retaining sufficient cash to implement the Company’s current capital allocation policy, which prioritizes investment in quality assets that meet the Company’s return criteria, and then stock repurchases when the Company believes its stock price is below its intrinsic value. The actual amount, timing, and frequency of future dividends will be at the sole discretion of the Board of Directors and will be declared based upon various factors, many of which are beyond the Company’s control.
As of December 31, 2022, the Company paid the following cash dividends:
| Payable to Shareholders | ||||||||
| of Record at the Close | Cash Paid | Aggregate Amount | ||||||
| Date Declared | of Business on | Per Share | Paid | Date Paid | ||||
| February 27, 2022 | March 10, 2022 | $0.71 | $76.9 million | March 25, 2022 | ||||
| April 24, 2022 | May 19, 2022 | $0.71 | $76.6 million | June 14, 2022 | ||||
| July 31, 2022 | August 25, 2022 | $0.71 | $76.7 million | September 20, 2022 | ||||
| October 30, 2022 | November 17, 2022 | $0.71 | $76.7 million | December 15, 2022 |
Dividends paid in 2022 and 2021 were ordinary taxable dividends.
Subsequent to December 31, 2022, the Company declared the following cash dividends:
| Payable to Shareholders | Cash to | |||||
| of Record at the Close | be Paid | |||||
| Date Declared | of Business on | Per Share | Date to be Paid | |||
| February 20, 2023 | March 10, 2023 | $0.85 | March 24, 2023 |
**13.**STOCK-BASED COMPENSATION
On February 25, 2020, the Company’s 2010 Plan expired by its terms. On May 14, 2020, the Company’s shareholders approved the 2020 Plan which provides for the issuance of up to 3.0 million shares of the Company’s Class A common stock (of which approximately 2.5 million shares remain available for future issuance as of December 31, 2022), plus additional shares of Class A common stock (a) subject to awards granted under the 2010 Plan that may become available for issuance or reissuance, as applicable, under the 2020 Plan if such awards are forfeited or are settled in cash or otherwise expire or terminate without the delivery of the shares or (b) which become issuable under the 2020 Plan by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of outstanding shares of Class A common stock.
Commencing with the 2020 equity award, the Company modified the type of equity granted to certain employees to align long-term compensation with Company performance. Under the new structure, the Company continued to issue RSUs; however, RSUs will now vest ratably over three years rather than four years. The Company further replaced stock options with PSUs which will cliff vest at the end of three years. PSUs have performance metrics for which threshold, target, and maximum parameters are
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established at the time of the grant. The performance metrics are used to calculate the number of shares that will be issuable when the awards vest, which may range from zero to 200% of the target amounts. At the end of each three year performance period, the number of shares that vest will depend on the results achieved against the pre-established performance metrics. Furthermore, effective with the 2020 grant, RSUs and PSUs will accrue dividend equivalents prior to vesting, which will be paid out only in respect to shares that actually vest.
Stock Options
The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses a combination of historical data and historical volatility to establish the expected volatility, as well as to estimate the expected option life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following assumptions were used to estimate the fair value of options granted using the Black-Scholes option-pricing model:
| For the year ended December 31, | |||||||||
| 2022 | 2020 | ||||||||
| Risk free interest rate | 2.53% | 1.66% | |||||||
| Dividend yield | 0.90% | 1.3% | |||||||
| Expected volatility | 27.2% | 20.4% | |||||||
| Expected lives | 4.3 years | 4.6 years |
There were no options granted during the year ended December 31, 2021.
The following table summarizes the Company’s activities with respect to its stock option plans for the years ended December 31, 2022, 2021 and 2020 as follows (dollars and shares in thousands, except for per share data):
| Weighted- | Weighted-Average | |||||||||
| Average | Remaining | |||||||||
| Number | Exercise Price | Contractual | Aggregate | |||||||
| of Shares | Per Share | Life (in years) | Intrinsic Value | |||||||
| Outstanding at December 31, 2019 | 4,507 | $ | 133.68 | |||||||
| Granted | 10 | $ | 240.99 | |||||||
| Exercised | (1,287) | $ | 110.59 | |||||||
| Forfeited/canceled | (28) | $ | 168.11 | |||||||
| Outstanding at December 31, 2020 | 3,202 | $ | 143.01 | |||||||
| Exercised | (1,290) | $ | 120.90 | |||||||
| Forfeited/canceled | (13) | $ | 179.67 | |||||||
| Outstanding at December 31, 2021 | 1,899 | $ | 157.76 | |||||||
| Granted | 10 | $ | 328.99 | |||||||
| Exercised | (233) | $ | 141.41 | |||||||
| Forfeited/canceled | (3) | $ | 179.16 | |||||||
| Outstanding at December 31, 2022 | 1,673 | $ | 161.02 | 2.4 | $ | 199,888 | ||||
| Exercisable at December 31, 2022 | 1,407 | $ | 155.62 | 2.3 | $ | 175,456 | ||||
| Unvested at December 31, 2022 | 266 | $ | 189.76 | 3.5 | $ | 24,432 |
The weighted-average per share fair value of options granted during the years ended December 31, 2022 and 2020 was $82.28 and $41.09, respectively.
The total intrinsic value for options exercised during the years ended December 31, 2022, 2021, and 2020 was $45.2 million, $287.8 million, and $235.0 million, respectively. Cash received from option exercises under all plans for the years ended December 31, 2022, 2021, and 2020 was approximately $31.6 million, $80.3 million, and $142.5 million, respectively. The tax benefit realized for the tax deductions from option exercises under all plans was $18.4 million, $11.4 million, and $16.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.
The aggregate intrinsic value for stock options in the preceding table represents the total intrinsic value based on the Company’s closing stock price of $280.31 as of December 31, 2022. The amount represents the total intrinsic value that would have been received by the holders of the stock-based awards had these awards been exercised and sold as of that date.
F-31
Additional information regarding options outstanding and exercisable at December 31, 2022 is as follows:
| Options Outstanding | Options Exercisable | |||||||||||
| Weighted-Average | Weighted- | Weighted- | ||||||||||
| Remaining | Average | Average | ||||||||||
| Range | Outstanding | Contractual Life | Exercise Price | Exercisable | Exercise Price | |||||||
| (in thousands) | (in years) | (in thousands) | ||||||||||
| $95.01 - $140.00 | 337 | 0.9 | $ | 110.38 | 337 | $ | 110.38 | |||||
| $140.01 - $180.00 | 548 | 2.2 | $ | 156.54 | 548 | $ | 156.54 | |||||
| $180.01 - $230.00 | 765 | 3.2 | $ | 182.85 | 516 | $ | 182.97 | |||||
| $230.01 - $330.00 | 23 | 7.5 | $ | 281.49 | 6 | $ | 246.30 | |||||
| 1,673 | 1,407 |
The following table summarizes the activity of options outstanding that had not yet vested:
| Weighted- | |||||
| Average | |||||
| Number | Fair Value | ||||
| of Shares | Per Share | ||||
| (in thousands) | |||||
| Unvested as of December 31, 2021 | 733 | $ | 33.74 | ||
| Options granted | 10 | $ | 82.28 | ||
| Vested | (473) | $ | 33.55 | ||
| Forfeited | (4) | $ | 33.74 | ||
| Unvested as of December 31, 2022 | 266 | $ | 35.91 |
As of December 31, 2022, the total unrecognized compensation expense related to unvested stock options outstanding under the Plans is $1.5 million. That cost is expected to be recognized over a weighted-average period of 2.3 years.
The total fair value of options vested during 2022, 2021, and 2020 was $15.9 million, $22.7 million, and $28.8 million, respectively.
Restricted Stock Units and Performance-Based Restricted Stock Units
The following table summarizes the Company’s RSU and PSU activity for the year ended December 31, 2022:
| RSUs | PSUs (1) | |||||||||
| Weighted-Average | Weighted-Average | |||||||||
| Number of | Grant Date Fair | Number of | Grant Date Fair | |||||||
| Shares | Value per Share | Shares | Value per Share | |||||||
| (in thousands) | (in thousands) | |||||||||
| Outstanding at December 31, 2021 | 243 | $ | 230.20 | 298 | $ | 304.46 | ||||
| Granted | 105 | $ | 329.18 | 140 | $ | 389.44 | ||||
| Vested | (116) | $ | 219.46 | (2) | $ | 330.97 | ||||
| Forfeited/canceled | (10) | $ | 286.55 | (7) | $ | 337.20 | ||||
| Outstanding at December 31, 2022 | 222 | $ | 280.66 | 429 | $ | 332.18 |
(1)PSUs represent the target number of shares granted that are issuable at the end of the three year performance period. Fair value for a portion of the PSUs was calculated using a Monte Carlo simulation model.
Employee Stock Purchase Plan
The Board of Directors of the Company adopted the 2018 Employee Stock Purchase Plan (“2018 Purchase Plan”) which reserved 300,000 shares of Class A common stock for purchase. The 2018 Purchase Plan permits eligible employee participants to purchase Class A common stock at a price per share which is equal to 85% of the fair market value of Class A common stock on the last day of an offering period. For the years ended December 31, 2022 and 2021, 24,754 shares and 25,031 shares, respectively, of Class A common stock were issued under the 2018 Purchase Plan, which resulted in cash proceeds to the Company of approximately $6.7 million and $6.4 million, respectively. At December 31, 2022, 184,977 shares remained available for issuance under the 2018 Purchase Plan.
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In addition, the Company recorded $1.2 million, $1.1 million, and $1.1 million of non-cash compensation expense relating to the shares issued under the 2018 Purchase Plan for each of the years ended December 31, 2022, 2021, and 2020, respectively.
Non-Cash Compensation Expense
The table below reflects a breakout by category of the non-cash compensation expense amounts recognized on the Company’s Statements of Operations for the years ended December 31, 2022, 2021, and 2020, respectively:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Cost of revenues | $ | 2,490 | $ | 2,483 | $ | 2,074 | |||
| Selling, general and administrative | 97,419 | 81,919 | 66,816 | ||||||
| Total cost of non-cash compensation included | |||||||||
| in income before provision for income taxes | $ | 99,909 | $ | 84,402 | $ | 68,890 |
In addition, the Company capitalized $1.9 million, $1.4 million, and $1.5 million of non-cash compensation for the years ended December 31, 2022, 2021, and 2020, respectively, to fixed assets.
**14.**INCOME TAXES
As discussed in Note 2, the Company began operating in compliance with REIT requirements for federal income tax purposes effective January 1, 2016. As a REIT, the Company must distribute at least 90 percent of its taxable income (including dividends paid to it by its TRSs) except to the extent offset by NOLs. In addition, the Company must meet a number of other organizational and operational requirements. It is management's intention to adhere to these requirements and maintain the Company's REIT status. Most states where the Company operates conform to the federal rules recognizing REITs. Certain subsidiaries have made an election with the Company to be treated as TRSs in conjunction with the Company's REIT election; the TRS elections permit the Company to engage in certain business activities in which the REIT may not engage directly. A TRS is subject to federal and state income taxes on the income from these activities. A provision for taxes of the TRSs and of foreign branches of the REIT is included in its consolidated financial statements.
Income (loss) before provision (benefit) for income taxes by geographic area is as follows:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Domestic | $ | 438,116 | $ | 265,636 | $ | 151,421 | |||
| Foreign | 87,727 | (13,072) | (169,170) | ||||||
| Total | $ | 525,843 | $ | 252,564 | $ | (17,749) |
The provision (benefit) for income taxes consists of the following components:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Current provision: | |||||||||
| State | $ | 6,115 | $ | 543 | $ | 753 | |||
| Foreign | 27,028 | 22,907 | 20,638 | ||||||
| Total current | 33,143 | 23,450 | 21,391 | ||||||
| Deferred provision (benefit) for taxes: | |||||||||
| Federal | (6,856) | 20 | (7,552) | ||||||
| State | (956) | (2,730) | (4,684) | ||||||
| Foreign | 32,780 | (9,516) | (59,956) | ||||||
| Change in valuation allowance | 7,933 | 3,716 | 9,005 | ||||||
| Total deferred | 32,901 | (8,510) | (63,187) | ||||||
| Total provision (benefit) for income taxes | $ | 66,044 | $ | 14,940 | $ | (41,796) |
F-33
A reconciliation of the provision (benefit) for income taxes at the statutory U.S. Federal tax rate (21%) and the effective income tax rate is as follows:
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| (in thousands) | |||||||||
| Statutory federal expense | $ | 110,427 | $ | 53,039 | $ | (3,727) | |||
| Rate and permanent differences on non-U.S. earnings (1) | 20,996 | 9,586 | (7,531) | ||||||
| State and local tax expense | 5,585 | (1,539) | (3,707) | ||||||
| REIT adjustment | (86,670) | (56,457) | (35,539) | ||||||
| Permanent differences | (3,257) | 6,105 | (736) | ||||||
| Property, equipment, and intangible basis differences | 8,471 | — | — | ||||||
| Other | 2,559 | 490 | 439 | ||||||
| Valuation allowance | 7,933 | 3,716 | 9,005 | ||||||
| Provision (benefit) for income taxes | $ | 66,044 | $ | 14,940 | $ | (41,796) |
(1)This item includes the effect of foreign exchange rate changes which were previously shown on a separate line.
The components of the net noncurrent deferred income tax asset (liability) accounts are as follows:
| As of December 31, | |||||||||
| 2022 | 2021 | ||||||||
| (in thousands) | |||||||||
| Deferred tax assets: | |||||||||
| Net operating losses | $ | 46,521 | $ | 56,445 | |||||
| Property, equipment, and intangible basis differences | 13,506 | 11,601 | |||||||
| Accrued liabilities | 12,504 | 8,890 | |||||||
| Non-cash compensation | 30,501 | 11,637 | |||||||
| Operating lease liability | 265,710 | 221,287 | |||||||
| Deferred revenue | 5,656 | 4,646 | |||||||
| Allowance for doubtful accounts | 1,430 | 1,512 | |||||||
| Currency translation | 78,287 | 98,918 | |||||||
| Other | 10,518 | 8,479 | |||||||
| Valuation allowance | (73,546) | (66,134) | |||||||
| Total deferred tax assets, net (1) | 391,087 | 357,281 | |||||||
| Deferred tax liabilities: | |||||||||
| Property, equipment, and intangible basis differences | (152,207) | (134,005) | |||||||
| Right of use asset | (254,368) | (211,146) | |||||||
| Straight-line rents | (18,659) | (19,054) | |||||||
| Deferred foreign withholding taxes | (9,088) | (10,313) | |||||||
| Other | (1,531) | (1,571) | |||||||
| Total deferred tax liabilities, net (1) | $ | (44,766) | $ | (18,808) |
(1)Of these amounts, $16,173 and $60,939 are included in Other assets and Other long-term liabilities, respectively, on the accompanying Consolidated Balance Sheets as of December 31, 2022. As of December 31, 2021, $51,918 and $70,726 are included in Other assets and Other long-term liabilities, respectively, on the accompanying Consolidated Balance Sheet.
A deferred tax asset is reduced by a valuation allowance if based on the weight of all available evidence, including both positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that the value of such assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. All sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies, should be considered.
F-34
The Company has recorded a valuation allowance for certain deferred tax assets as management believes that it is not “more-likely-than-not” that the Company will generate sufficient taxable income in future periods to recognize the assets. Valuation allowances of $73.5 million and $66.1 million were being carried to offset net deferred income tax assets as of December 31, 2022 and 2021, respectively. The net change in the valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $7.4 million and an increase of $2.9 million, respectively.
The Company has available at December 31, 2022, a federal NOL carry-forward of approximately $622.6 million. $588.4 million of these NOL carry-forwards will expire between 2026 and 2037, and $34.2 million have an indefinite carry-forward. As of December 31, 2022, $545.2 million of the federal NOLs are attributes of the REIT. The Company may use these NOLs to offset its REIT taxable income, and thus any required distributions to shareholders may be reduced or eliminated until such time as the NOLs have been fully utilized. The Internal Revenue Code places limitations upon the future availability of NOLs based upon changes in the equity of the Company. If these occur, the ability of the Company to offset future income with existing NOLs may be limited. In addition, the Company has available at December 31, 2022, a foreign NOL carry-forward of $82.7 million and a net state operating tax loss carry-forward of approximately $339.6 million. These net operating tax loss carry-forwards began to expire in 2023.
The tax losses generated in tax years 2004 through 2015 remain subject to audit adjustment, and tax years 2016 and forward are open to examination by the major jurisdictions in which the Company operates.
The Company is subject to income tax and other taxes in the geographic areas where it holds assets or operates, and the Company periodically receives notifications of audits, assessments, or other actions by taxing authorities. In certain jurisdictions, taxing authorities may issue notices and assessments that may not be reflective of the actual tax liability for which the Company will ultimately be liable. In the process of responding to assessments of taxes that the Company believes are not reflective of the Company’s actual tax liability, the Company avails itself of both administrative and judicial remedies. The Company evaluates the circumstances of each notification or assessment based on the information available and, in those instances in which the Company does not anticipate a successful defense of positions taken in its tax filings, a liability is recorded in the appropriate amount based on the underlying assessment.
In connection with a current assessment in Brazil, the taxing authorities have issued income tax deficiencies related to purchase accounting adjustments for tax years 2016 through 2019. The Company strongly disagrees with the assessment and have filed an appeal with the higher appellate taxing authorities as the Company believes the proposed adjustments are without merit. The Company estimates that there is a more likely than not probability that the Company’s position will be sustained upon appeal. Accordingly, no liability has been recorded. The Company will continue to vigorously contest the adjustments and expect to exhaust all administrative and judicial remedies necessary to resolve the matters, which could be a lengthy process. There can be no assurance that these matters will be resolved in the Company’s favor, and an adverse outcome, or any future tax examinations involving similar assertions, could have a material effect on the Company’s results of operations or cash flows in any one period. As of December 31, 2022, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued to be between zero and $89.7 million (excluding penalties and interest, which as of such date would have been $79.5 million).
The Company removed the permanent reinvestment assertion as of December 31, 2018 for all foreign earnings of the Company’s foreign jurisdictions except Argentina. The Company subsequently also removed its permanent reinvestment assertion on the investment in the Company’s Guatemala, El Salvador, and Nicaragua subsidiaries. As a result, the Company has recorded cumulative deferred foreign withholding taxes of $9.1 million at December 31, 2022. No additional income taxes have been provided for any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations except as noted in Guatemala, El Salvador, and Nicaragua. The deferred incomes taxes related to the Guatemala, El Salvador, and Nicaragua subsidiaries are immaterial and determining the amount of unrecognized deferred tax liability for any additional outside basis differences in indefinitely reinvested entities is not practicable.
**15.**SEGMENT DATA
The Company operates principally in two business segments: site leasing and site development. The Company’s site leasing business includes two reportable segments, domestic site leasing and international site leasing. The Company’s business segments are strategic business units that offer different services. They are managed separately based on the fundamental differences in their operations. The site leasing segment includes results of the managed and sublease businesses. The site development segment includes the results of both consulting and construction related activities. The Company’s Chief Operating Decision Maker utilizes segment operating profit and operating income as his two measures of segment profit in assessing performance and allocating resources at the reportable segment level. The Company has applied the aggregation criteria to operations within the international site leasing segment on a basis that is consistent with management’s review of information and performance evaluations of the individual markets in this region. Revenues, cost of revenues (exclusive of depreciation, accretion and amortization), capital expenditures (including assets
F-35
acquired through the issuance of shares of the Company’s Class A common stock) and identifiable assets pertaining to the segments in which the Company continues to operate are presented below.
| Domestic Site | Int'l Site | Site | |||||||||||||
| Leasing | Leasing | Development | Other | Total | |||||||||||
| For the year ended December 31, 2022 | (in thousands) | ||||||||||||||
| Revenues (1) | $ | 1,777,593 | $ | 558,982 | $ | 296,879 | $ | — | $ | 2,633,454 | |||||
| Cost of revenues (2) | 264,149 | 181,536 | 222,965 | — | 668,650 | ||||||||||
| Operating profit | 1,513,444 | 377,446 | 73,914 | — | 1,964,804 | ||||||||||
| Selling, general, and administrative expenses | 102,619 | 62,911 | 22,911 | 73,412 | 261,853 | ||||||||||
| Acquisition and new business initiatives | |||||||||||||||
| related adjustments and expenses | 13,280 | 13,527 | — | — | 26,807 | ||||||||||
| Asset impairment and decommission costs | 33,880 | 9,280 | — | — | 43,160 | ||||||||||
| Depreciation, amortization and accretion | 489,072 | 209,563 | 2,521 | 6,420 | 707,576 | ||||||||||
| Operating income (loss) | 874,593 | 82,165 | 48,482 | (79,832) | 925,408 | ||||||||||
| Other expense (principally interest | |||||||||||||||
| expense and other expense) | (399,565) | (399,565) | |||||||||||||
| Income before income taxes | 525,843 | ||||||||||||||
| Cash capital expenditures (3) | 235,787 | 1,148,941 | 4,057 | 5,610 | 1,394,395 | ||||||||||
| For the year ended December 31, 2021 | |||||||||||||||
| Revenues (1) | $ | 1,681,372 | $ | 422,715 | $ | 204,747 | $ | — | $ | 2,308,834 | |||||
| Cost of revenues (2) | 258,612 | 127,779 | 159,093 | — | 545,484 | ||||||||||
| Operating profit | 1,422,760 | 294,936 | 45,654 | — | 1,763,350 | ||||||||||
| Selling, general, and administrative expenses | 115,458 | 37,768 | 20,636 | 46,167 | 220,029 | ||||||||||
| Acquisition and new business initiatives | |||||||||||||||
| related adjustments and expenses | 14,452 | 13,169 | — | — | 27,621 | ||||||||||
| Asset impairment and decommission costs | 20,135 | 12,763 | — | 146 | 33,044 | ||||||||||
| Depreciation, amortization and accretion | 514,234 | 177,059 | 2,295 | 6,573 | 700,161 | ||||||||||
| Operating income (loss) | 758,481 | 54,177 | 22,723 | (52,886) | 782,495 | ||||||||||
| Other expense (principally interest | |||||||||||||||
| expense and other expense) | (529,931) | (529,931) | |||||||||||||
| Income before income taxes | 252,564 | ||||||||||||||
| Cash capital expenditures (3) | 1,249,075 | 135,591 | 2,563 | 6,269 | 1,393,498 | ||||||||||
| For the year ended December 31, 2020 | |||||||||||||||
| Revenues (1) | $ | 1,558,311 | $ | 396,161 | $ | 128,666 | $ | — | $ | 2,083,138 | |||||
| Cost of revenues (2) | 256,673 | 117,105 | 102,750 | — | 476,528 | ||||||||||
| Operating profit | 1,301,638 | 279,056 | 25,916 | — | 1,606,610 | ||||||||||
| Selling, general, and administrative expenses | 102,889 | 34,905 | 17,663 | 38,810 | 194,267 | ||||||||||
| Acquisition and new business initiatives | |||||||||||||||
| related adjustments and expenses | 10,331 | 6,251 | — | — | 16,582 | ||||||||||
| Asset impairment and decommission costs | 28,887 | 11,210 | — | — | 40,097 | ||||||||||
| Depreciation, amortization and accretion | 539,399 | 174,073 | 2,356 | 6,142 | 721,970 | ||||||||||
| Operating income (loss) | 620,132 | 52,617 | 5,897 | (44,952) | 633,694 | ||||||||||
| Other expense (principally interest | |||||||||||||||
| expense and other expense) | (651,443) | (651,443) | |||||||||||||
| Loss before income taxes | (17,749) | ||||||||||||||
| Cash capital expenditures (3) | 303,366 | 89,762 | 1,752 | 6,191 | 401,071 |
| Domestic Site | Int'l Site | Site | |||||||||||||
| Leasing | Leasing (1) | Development | Other (4) | Total | |||||||||||
| Assets | (in thousands) | ||||||||||||||
| As of December 31, 2022 | $ | 6,308,204 | $ | 3,808,699 | $ | 158,137 | $ | 310,001 | $ | 10,585,041 | |||||
| As of December 31, 2021 | $ | 6,628,156 | $ | 2,870,503 | $ | 87,410 | $ | 215,630 | $ | 9,801,699 |
(1)For the years ended December 31, 2022, 2021, and 2020, site leasing revenue in Brazil was $299.5 million, $233.5 million, and $222.6 million, respectively. Other than Brazil, no foreign country represented a material amount of the Company’s total site leasing revenues in any of the periods presented. Total long-lived assets in Brazil were $1.0 billion and $0.9 billion as of December 31, 2022 and 2021, respectively.
(2)Excludes depreciation, amortization, and accretion.
F-36
(3)Includes cash paid for capital expenditures, acquisitions, and right-of-use assets.
(4)Assets in Other consist primarily of general corporate assets and short-term investments
**16.**EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income attributable to SBA Communications Corporation by the weighted-average number of shares of Class A common stock outstanding for each respective period. Diluted earnings per share was calculated by dividing net income attributable to SBA Communications Corporation by the weighted-average number of shares of Class A common stock outstanding adjusted for any dilutive Class A common stock equivalents, including unvested RSUs, PSUs, and shares issuable upon exercise of stock options as determined under the “Treasury Stock” method.
The following table sets forth basic and diluted net income per common share attributable to common shareholders for the years ended December 31, 2022, 2021, and 2020 (in thousands, except per share data):
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Numerator: | |||||||||
| Net income attributable to SBA | |||||||||
| Communications Corporation | $ | 461,429 | $ | 237,624 | $ | 24,104 | |||
| Denominator: | |||||||||
| Basic weighted-average shares outstanding | 107,957 | 109,328 | 111,532 | ||||||
| Dilutive impact of stock options, RSUs, and PSUs | 1,429 | 1,849 | 1,933 | ||||||
| Diluted weighted-average shares outstanding | 109,386 | 111,177 | 113,465 | ||||||
| Net income per common share attributable to SBA | |||||||||
| Communications Corporation: | |||||||||
| Basic | $ | 4.27 | $ | 2.17 | $ | 0.22 | |||
| Diluted | $ | 4.22 | $ | 2.14 | $ | 0.21 |
For the years ended December 31, 2022, 2021, and 2020, the diluted weighted-average number of common shares outstanding excluded an immaterial number of shares issuable upon exercise of the Company’s stock options because the impact would be anti-dilutive.
**17.**COMMITMENTS AND CONTINGENCIES
The Company is obligated under various non-cancelable operating leases for land, office space, equipment, and site leases. In addition, the Company is obligated under various non-cancelable financing leases for vehicles. The annual minimum lease payments, including fixed rate escalations as of December 31, 2022 are as follows (in thousands):
| Finance Leases | Operating Leases | |||||
| 2023 | $ | 2,425 | $ | 268,472 | ||
| 2024 | 1,633 | 269,901 | ||||
| 2025 | 1,225 | 269,928 | ||||
| 2026 | 408 | 269,649 | ||||
| 2027 | — | 267,767 | ||||
| Thereafter | — | 2,205,896 | ||||
| Total minimum lease payments | 5,691 | 3,551,613 | ||||
| Less: amount representing interest | (276) | (1,254,035) | ||||
| Present value of future payments | 5,415 | 2,297,578 | ||||
| Less: current obligations | (2,283) | (260,082) | ||||
| Long-term obligations | $ | 3,132 | $ | 2,037,496 |
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Tenant (Operating) Leases
The annual minimum tower lease income to be received for tower space rental under non-cancelable operating leases, including fixed rate escalations, as of December 31, 2022 is as follows:
| (in thousands) | ||||||
| 2023 | $ | 2,078,543 | ||||
| 2024 | 1,913,057 | |||||
| 2025 | 1,682,566 | |||||
| 2026 | 1,379,197 | |||||
| 2027 | 1,086,355 | |||||
| Thereafter | 2,403,062 | |||||
| Total | $ | 10,542,780 |
Litigation
The Company is involved in various claims, lawsuits, and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Contingent Purchase Obligations
From time to time, the Company agrees to pay additional consideration (or earnouts) for acquisitions if the towers or businesses that are acquired meet or exceed certain performance targets in the one year to three years after they have been acquired. Please refer to Note 3.
**18.**CONCENTRATION OF CREDIT RISK
The Company’s credit risks consist primarily of accounts receivable with national, regional, and local wireless service providers and federal and state government agencies. The Company performs periodic credit evaluations of its customers’ financial condition and provides allowances for doubtful accounts, as required, based upon factors surrounding the credit risk of specific customers, historical trends, and other information. The Company generally does not require collateral.
The following is a list of significant customers (representing at least 10% of revenue for any period reported) and the percentage of total revenue for the specified time periods derived from such customers:
| For the year ended December 31, | ||||||||
| Percentage of Total Revenues | 2022 | 2021 | 2020 | |||||
| T-Mobile | 36.4% | 36.2% | 34.5% | |||||
| AT&T Wireless | 19.6% | 22.2% | 24.1% | |||||
| Verizon Wireless | 14.5% | 14.7% | 14.1% |
The Company’s site leasing and site development segments derive revenue from these customers. Client percentages of total revenue in each of the segments are as follows:
| For the year ended December 31, | ||||||||
| Percentage of Domestic Site Leasing Revenue | 2022 | 2021 | 2020 | |||||
| T-Mobile | 40.6% | 40.2% | 40.5% | |||||
| AT&T Wireless | 29.0% | 30.5% | 32.2% | |||||
| Verizon Wireless | 20.1% | 19.8% | 18.5% | |||||
| For the year ended December 31, | ||||||||
| Percentage of International Site Leasing Revenue | 2022 (1) | 2021 | 2020 | |||||
| Telefonica | 20.7% | 16.3% | 18.1% | |||||
| Claro | 19.0% | 13.7% | 14.5% | |||||
| TIM | 17.3% | 7.2% | 7.0% | |||||
| Oi S.A. | 3.9% | 28.3% | 28.7% |
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(1)Amounts reflect the sale of Oi S.A.’s wireless assets to Telefonica, Claro, and TIM.
| For the year ended December 31, | ||||||||
| Percentage of Site Development Revenue | 2022 | 2021 | 2020 | |||||
| T-Mobile | 80.1% | 78.2% | 66.8% |
Five customers comprised 71.6% and 65.5% of total gross accounts receivable at December 31, 2022 and 2021, respectively.
**19.**DEFINED CONTRIBUTION PLAN
The Company has a defined contribution profit sharing plan under Section 401(k) of the Internal Revenue Code that provides for voluntary employee contributions up to the limitations set forth in Section 402(g) of the Internal Revenue Code. Employees have the opportunity to participate following completion of three months of employment and must be 21 years of age. Employer matching begins immediately upon the employee’s participation in the plan.
The Company makes a discretionary matching contribution of 75% of an employee’s contributions up to a maximum of $4,000 annually. Company matching contributions were approximately $3.2 million, $2.9 million, and $2.7 million for the years ended December 31, 2022, 2021, and 2020, respectively.
**20.**REDEEMABLE NONCONTROLLING INTERESTS
The Company allocates income and losses to its redeemable noncontrolling interest holders based on the applicable membership interest percentage. At each reporting period, the redeemable noncontrolling interest is recognized at the greater of (1) the initial carrying amount of the noncontrolling interest as adjusted for accumulated income or loss attributable to the noncontrolling interest holder or (2) the redemption value as of the balance sheet date. Adjustments to the carrying amount of redeemable noncontrolling interest are charged against retained earnings (or additional paid-in capital if there are no retained earnings). The fair value of the redeemable noncontrolling interest is estimated using Level 3 inputs.
The components of redeemable noncontrolling interests are as follows (in thousands):
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| Beginning balance | $ | 17,250 | $ | 15,194 | ||
| Net loss attributable to noncontrolling interests | (1,630) | — | ||||
| Foreign currency translation adjustments | (204) | — | ||||
| Purchase of noncontrolling interests | — | (18,000) | ||||
| Contribution from joint venture partner | — | 17,250 | ||||
| Adjustment to redemption amount | 16,319 | 2,806 | ||||
| Ending balance | $ | 31,735 | $ | 17,250 |
**21.**DERIVATIVES AND HEDGING ACTIVITIES
The Company enters into interest rate swaps to hedge the future interest expense from variable rate debt and reduce the Company’s exposure to fluctuations in interest rates. On August 4, 2020, the Company, through its wholly owned subsidiary, SBA Senior Finance II, terminated an existing $1.95 billion cash flow hedge on a portion of its 2018 Term Loan in exchange for a payment of $176.2 million. On the same date, the Company entered into an interest rate swap for $1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% per annum through the maturity date of the 2018 Term Loan. The Company designated this interest rate swap as a cash flow hedge as it is expected to be highly effective at offsetting changes in cash flows of the LIBOR based component interest payments of its 2018 Term Loan. As of December 31, 2022, the hedge remains highly effective; therefore, changes in fair value are recorded in Accumulated other comprehensive loss, net. As of December 31, 2022 and 2021, the interest rate swap had a fair value of $182.9 million and $60.3 million, respectively, and is recorded in Other assets on the Consolidated Balance Sheets.
On August 4, 2020, the Company also terminated its existing interest rate swaps, which were previously de-designated as cash flow hedges. There was no cash transferred in connection with the termination of these swaps. The Company reclassifies the fair value of its interest rate swaps recorded in Accumulated other comprehensive loss, net on their de-designation date to non-cash
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interest expense on the Consolidated Statements of Operations over their respective remaining term end dates which range from 2023 to 2025.
Accumulated other comprehensive loss, net includes an aggregate of $119.6 million gain and a $47.8 million loss as of December 31, 2022 and 2021, respectively.
The Company is exposed to counterparty credit risk to the extent that a counterparty fails to meet the terms of a contract. The Company’s exposure is limited to the current value of the contract at the time the counterparty fails to perform.
The cash flows associated with these activities are reported in Net cash provided by operating activities on the Consolidated Statements of Cash Flows except for the termination of interest rate swaps which are recorded in Net cash used in financing activities.
The table below outlines the effects of the Company’s derivatives on the Consolidated Statements of Operations and Consolidated Statements of Shareholders’ Deficit for the fiscal years ended December 31, 2022, 2021, and 2020.
| For the year ended December 31, | |||||||||
| 2022 | 2021 | 2020 | |||||||
| Cash Flow Hedge - Interest Rate Swap Agreement | (in thousands) | ||||||||
| Change in fair value recorded in Accumulated other comprehensive loss, net | $ | 122,536 | $ | 48,200 | $ | (128,086) | |||
| Amount recognized in Non-cash interest expense | $ | — | $ | — | $ | (6,707) | |||
| Derivatives Not Designated as Hedges - Interest Rate Swap Agreements | |||||||||
| Amount reclassified from Accumulated other comprehensive | |||||||||
| loss, net into Non-cash interest expense | $ | 44,887 | $ | 44,887 | $ | 29,315 |
**22.**QUARTERLY FINANCIAL DATA (unaudited)
| Quarter Ended | ||||||||||||
| December 31, | September 30, | June 30, | March 31, | |||||||||
| 2022 | 2022 | 2022 | 2022 | |||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenues | $ | 686,094 | $ | 675,584 | $ | 652,006 | $ | 619,770 | ||||
| Operating income | 234,664 | 242,987 | 230,978 | 216,779 | ||||||||
| Depreciation, accretion, and amortization | (183,036) | (173,825) | (176,392) | (174,323) | ||||||||
| Net income attributable to SBA Communications Corporation | 103,281 | 100,009 | 69,516 | 188,623 | ||||||||
| Net income per common share - basic | $ | 0.96 | $ | 0.93 | $ | 0.64 | $ | 1.75 | ||||
| Net income per common share - diluted | 0.94 | 0.91 | 0.64 | 1.72 | ||||||||
| Quarter Ended | ||||||||||||
| December 31, | September 30, | June 30, | March 31, | |||||||||
| 2021 | 2021 | 2021 | 2021 | |||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenues | $ | 595,262 | $ | 589,305 | $ | 575,528 | $ | 548,739 | ||||
| Operating income | 197,376 | 211,776 | 199,764 | 173,579 | ||||||||
| Depreciation, accretion, and amortization | (169,895) | (170,916) | (175,469) | (183,881) | ||||||||
| Net income (loss) attributable to SBA Communications Corporation | 48,902 | 47,798 | 152,669 | (11,745) | ||||||||
| Net income (loss) per common share - basic | $ | 0.45 | $ | 0.44 | $ | 1.40 | $ | (0.11) | ||||
| Net income (loss) per common share - diluted | 0.44 | 0.43 | 1.37 | (0.11) |
Because net income (loss) per share amounts are calculated using the weighted-average number of common and dilutive common shares outstanding during each quarter, the sum of the per share amounts for the four quarters may not equal the total income (loss) per share amounts for the year.
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