SBA Communications (NASDAQ: SBAC) is one of those companies that makes other companies happen. The Florida-based firm owns and operates more than 32,000 towers throughout the Americas and South Africa, placing it at the heart of satisfying soaring worldwide demand for wireless communications.
This company makes its money leasing and developing mobile tower sites, and it's been making a lot of money, even through a pandemic. (Remember, folks stuck at home are even more dependent on broadband than they may be at the office, and hard-wired cable isn't available everywhere, or even a first choice when it is.)
We'll look at second-quarter earnings here in a moment, but since we're considering SBA as a retirement play -- a buy and hold -- let's look at the big picture.
Building up the big three
Domestically, more than 90% of SBA Communications' domestic site leasing revenue is derived from T-Mobile (NASDAQ: TMUS, 40.4%), AT&T (NYSE: T, 32.2%), and Verizon (NYSE: VZ 18.6%), so, if you like these companies, this is one of their key infrastructure providers.
And that means critical infrastructure not just for mobile phones but for wireless service in general, including broadband and the expanding availability of 5G networks.
There's a long way to go there, it seems. Think about this like rural electrification's early days and how long it took to reach nearly every home in America. That's where we are with wireless broadband, and it's becoming nearly as essential in many ways.
A reasonably sound second quarter
SBA Communications has just reported second-quarter 2020 net income of $22.8 million, or $0.20 per share, down 28.8% from the $32.0 million reported in the year-ago quarter.
But site leasing revenue was $482.4 million, up 5.1% from the $459 million recorded in the same quarter of 2019. (About three-fourths of SBA's revenue is domestic, but its 32,610 towers as of June 30 were split nearly evenly between U.S. and international locations.)
Significantly, even under such trying circumstances, adjusted funds from operations (AFFO) came in at $259.9 million, up $8.3% from $240.1 million in Q2 2019. That put AFFO per share at $2.29 for the quarter just ended, compared with $2.09 the year before.
Plus, SBA kept its dividend at $0.465 per share for the third straight quarter, up from $0.37 at this point a year ago. That's a nice yield of about 6%.
The company also has bought back $200 million of its own shares so far this year, all in the first quarter, after buying from $470 million to $855 million each year since 2016. It still has $424.3 million left in its approved repurchase plan, so it could juice up share activity if need be with buying of its own.
A "fortress balance sheet" in an essential business
SBA Communications is hardly a penny stock. It closed at about $305 a share on Aug. 21, continuing a rally that began after it plunged, quite temporarily, to as low as about $215 in April. Now it's close to its 52-week high of $323.02, showing investor confidence that this real estate investment trust (REIT) has fully rebounded.
Something else to like here. "In addition to our strong operational performance, during the second quarter and early third quarter we took advantage of very favorable capital markets to build a fortress balance sheet," Jeffrey Stoops, president and CEO, said in the second-quarter press release.
The company ended the quarter with $475 million in cash, cash equivalents, short-term restricted cash, and short-term investments and $10.2 billion of net debt leveraged at a healthy 6.9X to annualized adjusted EBITDA.
Plus, in May it paid off its entire revolving debt facility with $500 million in new unsecured notes at 3.875% and then in July issued another $1.35 billion in notes that it anticipates paying off in 2026 and 2028 (they mature in 2052) with a blended interest rate of 2.081%.
That's cheap money for borrowing, and it's being used to sustain and expand an operation that seems to be in a sweet spot for years to come. In fact, even during a quarter when much of America, including construction work, was shut down, SBA built 79 new towers.
Businesses deemed essential can do that in times like these, and SBA Communications just might be that, too, for a long-term retirement portfolio.