Executive Summary / Key Takeaways

• Portfolio Transformation Masks Underlying Strength: SBA Communications is simultaneously exiting subscale international markets (Canada, Philippines, Colombia) while scaling aggressively in Central America through the 7,000-tower Millicom acquisition, creating a more focused, higher-growth portfolio that trades near-term disruption for long-term compounding.

• Churn Headwinds Are Peaking, Not Structural: While domestic Sprint consolidation will cause $51 million in 2025 churn and international markets face elevated consolidation-related terminations (particularly Oi in Brazil), management's guidance and commentary point to a "significant step down" in churn by 2026, suggesting organic growth is poised to accelerate materially once these legacy issues clear.

• Services Surge Signals Leasing Pipeline: The 81% year-over-year growth in site development revenue during Q3 2025 represents a leading indicator of carrier network investment that will convert to higher-margin leasing revenue with a typical 6-12 month lag, making the current leasing slowdown temporary rather than demand-driven.

• Balance Sheet Reset Unlocks Investment Grade Path: Reducing target leverage to 6-7x net debt/EBITDA from historical 7x+ levels is not mere conservatism—it's a strategic move to access investment-grade bond markets, which would reduce refinancing risk for $12.5 billion of debt and lower the single biggest headwind facing the business: interest rate resets on low-cost legacy debt.

• Valuation Reflects Transitional Risk, Not Structural Decline: Trading at 19.4x EV/EBITDA and 19.2x P/FCF, SBAC's multiple compressions reflect legitimate near-term churn and rate headwinds, but fail to price in the portfolio quality improvement and potential organic growth reacceleration as Central America scales and churn normalizes.

Setting the Scene: The Tower REIT at a Strategic Crossroads

SBA Communications Corporation, founded in 1989 and headquartered in Boca Raton, Florida, operates at the critical infrastructure layer of the wireless economy, leasing space on 44,581 communication towers to mobile network operators under long-term contracts with built-in rent escalators. The business model is fundamentally simple yet powerfully defensive: carriers must continuously invest in network densification and coverage expansion to meet exploding data demand, making tower space non-discretionary real estate with pricing power and 97.7% of segment operating profit derived from leasing activities.

The company elected REIT status in 2016, transforming its capital return profile and attracting yield-oriented investors, but this structure also imposes discipline: it must distribute most taxable income while maintaining sufficient cash flow to service debt and fund growth. This tension between growth investment and dividend sustainability sits at the heart of SBAC's current strategic inflection point.

Three powerful forces are converging to reshape SBAC's investment narrative. First, the domestic tower market is digesting the final waves of Sprint consolidation churn while simultaneously seeing carriers accelerate 5G deployments and fixed wireless access investments. Second, international markets—particularly Brazil and Central America—are experiencing carrier consolidation that creates near-term pain but ultimately strengthens surviving operators and rationalizes network overlap. Third, and most critically, SBAC is executing a deliberate portfolio transformation, shedding markets where it cannot achieve meaningful scale (Canada, Philippines, Colombia) and doubling down on regions with superior growth fundamentals and USD-denominated revenue streams.

This strategic reset occurs against a backdrop of rising interest rates that threaten to transform SBAC's greatest historical advantage—$12.5 billion of low-cost debt with a 3.7% weighted average rate—into a future earnings headwind as refinancings come due. The company's decision to reduce target leverage to 6-7x net debt/EBITDA, announced in November 2025, represents a direct response to this challenge, prioritizing balance sheet flexibility and investment-grade access over maximum financial engineering.

Business Model Evolution: From Geographic Sprawl to Strategic Focus

SBAC's recent portfolio moves reveal a management team increasingly disciplined about capital allocation and scale economics. The exit from Canada in October 2025—generating CAD 27 million in annual leasing revenue but sold because the company "could not achieve meaningful scale"—exemplifies this mindset. While the financial impact was immaterial, the strategic signal is profound: SBAC will no longer tolerate subscale positions that consume management attention without moving the needle on growth or returns.

This discipline extends to the simultaneous exits from the Philippines and Colombia, markets that collectively represented less than 200 sites. These divestitures freed capital and management bandwidth for the transformative Millicom acquisition, which added approximately 7,000 towers across Guatemala, Panama, and Nicaragua for over $550 million. The transaction positions SBAC as the leading tower operator in Central America with over 10,500 pro forma sites, aligning the company with dominant mobile operators under long-term USD-denominated leases and including a substantial build-to-suit component that de-risks future growth.

Why does this geographic concentration matter? Central America offers a rare combination of under-penetrated wireless markets, growing data consumption, and political stability relative to other emerging markets. The USD-denominated lease structure eliminates the foreign exchange volatility that plagues SBAC's Brazilian operations, where 30% of the tower portfolio faces Real depreciation risk. Moreover, the region's carrier consolidation is largely complete, meaning the elevated churn currently depressing international organic growth should moderate significantly, allowing the 8.5% gross organic growth rate to flow through to net growth more efficiently.

The Millicom deal's staging—closing in tranches throughout 2025—also demonstrates operational sophistication. By completing the Guatemala and Panama portions in Q2 and the final 2,020 sites post-Q3, SBAC minimized integration risk while accelerating revenue recognition. Management noted the earlier-than-expected closings contributed $16 million to the increased full-year outlook, proving the acquisition is already accretive and validating the strategic rationale.

The Churn Story: Separating Cyclical Pain from Structural Damage

Churn represents the single most important variable for SBAC's near-term earnings power, and understanding its composition reveals why current headwinds are temporary rather than permanent. Domestic site leasing revenue grew just 1.1% year-over-year in Q3 2025, but this modest figure masks a tale of two forces: robust gross organic growth of 5.3% alongside 3.7% churn, with $11 million of that churn directly attributable to Sprint consolidation.

The Sprint impact is quantified and time-bound: $51 million in 2025, approximately $50 million in 2026, and $20 million thereafter. This predictable drag, while painful, is finite and well-understood. More importantly, non-Sprint domestic churn remains between 1% and 1.5% of revenue, a historically normal level that suggests the core business is healthy. The new long-term agreement with Verizon , structured to be "much more linear" than previous deals with minimum annual commitments over its 10-year term, provides a stable offset to Sprint losses and signals that carriers remain committed to macro tower deployments despite macroeconomic uncertainty.

International churn tells a similar story of temporary disruption. The 8.5% gross organic growth rate in Q3 2025 was eroded by elevated churn "mainly due to ongoing carrier consolidation," particularly the Oi wireless breakup in Brazil. Oi's wireline business, representing approximately $20 million of run-rate revenue, filed for judicial reorganization in July 2025, forcing SBAC to book bad debt allowances and assume additional churn. However, management explicitly stated they expect a "significant step down in churn" once Oi and other consolidation activities resolve, noting that Central America has "already gone through that consolidation" and should see "very minimal" churn going forward.

The situation in Brazil is particularly significant because it represents SBAC's largest international market at 30% of total towers. The country's carrier landscape is consolidating from four to three major players, creating network rationalization that temporarily reduces tenant counts but ultimately strengthens the remaining operators' financial capacity to invest in 5G and beyond. The pain is front-loaded; the gain comes in the form of more creditworthy tenants and reduced competitive intensity on pricing. CFO Brendan Cavanagh's comment that "we're several years really from getting to" normalized AFFO per share growth highlights the timeline, but also the eventual payoff.

Services Surge: The Leading Indicator Market Is Missing

While investors focus on leasing revenue growth, SBAC's site development segment is sending a powerful signal that carrier investment is accelerating. Q3 2025 services revenue surged 81% year-over-year to $75.9 million, driven by "construction-related projects focused on network expansion." Management increased full-year services guidance by $20 million, citing "increased carrier activity" and a growing backlog.

This growth is significant for the leasing business because site development services represent the precursor activity to new tower colocations and amendments. Carriers hire SBAC to identify sites, secure zoning approvals, and construct infrastructure before signing long-term leases. The 81% growth indicates carriers are aggressively expanding their networks, which will convert to leasing revenue as projects complete. This relationship isn't speculative—management noted the correlation between services upside and higher leasing activity, and the six-quarter sequential increase in domestic bookings supports the pipeline.

The shift toward more colocations versus amendments is particularly significant. Colocations—adding new tenants to existing towers—generate higher incremental returns than amendments, which typically involve equipment upgrades on existing leases. While colocations have a longer book-to-bill cycle, they create durable new revenue streams that compound over decades. The fact that Q1 2025 saw "the best new domestic leasing business signed up in several years" with a higher percentage of colocations suggests SBAC is building a stronger foundation for future growth, even if near-term revenue recognition appears modest.

This dynamic also explains why management remains confident despite modest net organic growth numbers. The lag between signing leases and revenue recognition means current results reflect carrier decisions from 6-12 months ago, while today's surging services activity will drive 2026 leasing results. Investors focused solely on quarterly leasing revenue are looking at a rearview mirror while the business accelerates in real-time.

Financial Architecture: Navigating the Interest Rate Headwind

SBAC's balance sheet strategy has become the central battleground for its investment narrative. The company carries $12.5 billion of debt with a weighted average interest rate of 3.8% and average maturity of approximately 3 years. This low-cost debt funded aggressive expansion during the zero-rate era, but refinancing at current rates represents what CFO Brendan Cavanagh calls "the biggest issue" and "a pretty significant headwind."

The math is stark. The next three debt maturities carry interest rate coupons "with a one handle" (i.e., below 2%). Refinancing these at current market rates of 5-6% would increase annual interest expense by approximately $50-75 million, directly reducing AFFO per share growth. This explains why net income declined $15.5 million year-over-year in Q3 despite strong operational performance—interest expense increased $24.4 million due to higher rates and increased borrowing to fund the Millicom acquisition.

Management's response is deliberate and strategic. Reducing the target leverage range to 6-7x net debt/EBITDA from prior levels above 7x serves two purposes. First, it creates a path to investment-grade debt ratings, which would open access to deeper, more robust credit markets and reduce refinancing risk. Second, it provides a buffer to protect the dividend from interest rate volatility while maintaining capacity for share buybacks and opportunistic M&A. The company repurchased 958,000 shares for $194 million in Q3 while simultaneously closing a $550+ million acquisition, demonstrating that lower leverage doesn't preclude capital returns.

The interest rate hedge position provides near-term stability. Approximately 96% of outstanding debt is fixed through swaps and securities, including $2 billion of interest rate swaps on the 2024 Term Loan that lock in a 5.17% rate through April 2028. This means the immediate impact of rate increases is muted, but the headwind grows as hedges roll off and maturities come due. The $750 million ABS security due in January 2026 represents the first test of the new strategy—refinancing this at investment-grade rates would validate the leverage reduction thesis.

Competitive Positioning: The Nimble Number Three

In the tower oligopoly, SBAC occupies a distinct third position behind American Tower's 149,000-site global scale and Crown Castle's 40,000-site U.S. focus. This positioning creates both constraints and opportunities. With 44,581 sites, SBAC lacks American Tower's diversification into data centers and its massive scale advantages in procurement and overhead absorption. However, SBAC's relative nimbleness allows more aggressive portfolio repositioning, as evidenced by the Millicom acquisition and Canadian exit—moves that would be immaterial for American Tower but transformative for SBAC.

The competitive comparison reveals SBAC's strategic trade-offs. American Tower's Q3 2025 property revenue grew 5.9% with 5.0% organic tenant billings growth, outpacing SBAC's domestic net organic growth of 1.6%. American Tower's leverage of 4.9x net debt/EBITDA provides more financial flexibility than SBAC's 6.2x, and its data center expansion offers a second growth vector. However, SBAC's international leasing revenue grew 13.9% on a constant currency basis, significantly outpacing American Tower's international outlook of 5.6% growth, demonstrating SBAC's superior positioning in emerging markets.

Versus Crown Castle , SBAC's advantages are clearer. Crown Castle's fiber business has become a drag on performance, and its higher customer concentration in the U.S. market creates more Sprint -related churn exposure. SBAC's international diversification—60% of sites outside the U.S.—provides a natural hedge against domestic carrier consolidation while offering higher growth potential. Both companies operate at elevated leverage, but SBAC's portfolio quality improvements and path to investment grade create a more compelling risk/reward profile.

The new Verizon agreement highlights SBAC's competitive differentiation. While American Tower and Crown Castle also have master lease agreements, SBAC's deal is explicitly structured to be "much more linear" with minimum annual commitments, providing greater revenue predictability. This matters in an environment where carriers face pressure to optimize capital spending—predictable, committed revenue streams are more valuable than lumpy, discretionary spending patterns.

Risks and Asymmetries: What Could Break the Thesis

The investment case for SBAC hinges on three critical assumptions, each carrying material downside risk. First, that international churn will indeed "step down" as management predicts. If Brazilian carrier consolidation proves more protracted than expected or if economic conditions in South America deteriorate further, elevated churn could persist into 2027 and beyond, depressing the 8.5% gross organic growth rate that underpins the bull case. The Oi (OIBR) wireline reorganization remains fluid, and management's $5 million increase in international churn guidance shows the situation is evolving, not resolved.

Second, that interest rates will stabilize or decline before SBAC's low-cost debt matures. If rates remain elevated or increase further, the refinancing headwind could exceed $100 million annually, overwhelming operational improvements and forcing difficult choices between dividend growth, capital expenditures, and leverage reduction. CFO Cavanagh's admission that "we're several years really from getting to" normalized AFFO growth underscores this timeline risk.

Third, that the services-to-leasing conversion pipeline remains intact. If carrier capital expenditure plans shift from macro towers to small cells or fiber—technologies where SBAC has limited exposure—the 81% services growth may not translate to commensurate leasing gains. The Verizon agreement mitigates this risk for one major customer, but T-Mobile (TMUS) and AT&T (T) spending patterns remain variable.

A key asymmetry lies in the Central American build-to-suit component of the Millicom (TIGO) deal. If 5G deployment accelerates beyond expectations, SBAC's leading position in the region could drive upside to the planned 800 new tower builds for 2025, creating a virtuous cycle of scale and pricing power. Conversely, if deployment slows, the USD-denominated leases provide downside protection that local-currency competitors cannot match.

Valuation Context: Pricing Transition, Not Decline

At $194.27 per share, SBAC trades at an enterprise value of $35.3 billion, representing 19.4x TTM EBITDA and 12.7x revenue. These multiples sit at the high end of the tower REIT sector but reflect a company in strategic transition rather than maturity. The 2.29% dividend yield, while modest compared to traditional REITs, represents only 54% of free cash flow, providing substantial coverage and growth potential.

Peer comparisons frame the relative valuation. American Tower trades at 19.0x EBITDA with superior scale and lower leverage, while Crown Castle (CCI) trades at 17.9x EBITDA despite fiber headwinds. SBAC's premium reflects its superior international growth profile (13.9% vs. American Tower's (AMT) 5.6% guidance) and the optionality from its strategic reset. The market appears to be pricing SBAC as if the churn headwinds and interest rate pressures are permanent, creating potential upside if management's normalization timeline proves correct.

The free cash flow yield of 5.2% (P/FCF of 19.2x) offers a more attractive entry point than earnings multiples suggest, given that AFFO per share growth should reaccelerate once churn abates. Management's guidance that normalized growth could reach "mid- to high single digits" implies that if execution holds, the reacceleration of AFFO per share growth could still lead to significant positive returns, with further upside potential if multiples expand.

Conclusion: The Reset Creates the Opportunity

SBA Communications stands at an inflection point where strategic portfolio transformation, peaking churn headwinds, and balance sheet recalibration converge to create a compelling risk-adjusted opportunity. The company's deliberate exit from subscale markets and aggressive expansion in Central America have positioned it for superior organic growth, while the new Verizon (VZ) agreement and surging services revenue provide visibility that carrier investment remains robust.

The key variable is time. If management's prediction of a "significant step down" in international churn materializes in 2026 and the path to investment-grade debt access reduces refinancing risk, SBAC's underlying earnings power will become clear. The 8.5% international gross organic growth rate and 5.3% domestic gross growth demonstrate the business's health beneath the temporary churn drag.

For investors willing to look through 18-24 months of transition, SBAC offers exposure to essential communications infrastructure with improving portfolio quality, de-risked balance sheet trajectory, and a dividend yield that should reaccelerate as AFFO growth normalizes. The market's focus on near-term headwinds has created a valuation that doesn't reflect the strategic improvements underway, making this reset phase the most attractive entry point in several years.