SBAC Q1 2025: 75% U.S. New Leasing from Co-Locations Signals Demand Cycle Shift
SBAC’s first quarter saw a decisive shift in U.S. leasing, with 75% of new revenue driven by co-locations, highlighting a demand-led cycle and a robust backlog that positions the company for continued growth. Capital allocation flexibility, a new $1.5 billion buyback authorization, and disciplined portfolio moves further underscore management’s confidence. Investors should watch the pace of backlog conversion and international churn as key drivers for 2025 and beyond.
Summary
- Co-Location Mix Surges: U.S. new leasing revenue was 75% from co-locations, marking a structural shift in network investment.
- Backlog and Services Momentum: Leasing and services backlogs both increased, raising full-year services outlook and visibility into future growth.
- Capital Return Commitment: New $1.5 billion buyback plan and 13% dividend hike reinforce management’s confidence and balance sheet strength.
Performance Analysis
SBAC’s core tower leasing business delivered steady growth, with U.S. gross organic leasing revenue up 5.2% year-over-year and net growth of 1% after churn, reflecting ongoing network densification by mobile network operator (MNO) customers. The standout metric was the mix shift: 75% of new domestic leasing revenue came from new co-locations (COLOs, new third-party tenants on existing towers) rather than amendments (upgrades by existing tenants), a dynamic not seen in several years and a direct result of increased carrier activity and regulatory-driven deployments.
Backlog expansion was a key theme, with both leasing and services backlogs rising quarter-over-quarter, indicating sustained demand ahead. The U.S. services segment, which provides engineering and network services largely tied to SBAC’s own towers, outperformed expectations, prompting a full-year guidance increase. Internationally, organic leasing growth was 1.6% net (7.2% gross), but churn remained elevated at 5.6%, especially in Brazil and other markets experiencing carrier consolidation. Portfolio optimization continued, with exits from Colombia and the Philippines completed, and a partial early close on the Millicom Central America tower acquisition.
- Co-Location Mix Shift: 75% of new U.S. leasing revenue came from co-locations, up sharply from prior periods.
- Backlog Outpaces Billings: New leasing and services applications exceeded signings, expanding future revenue visibility.
- Elevated International Churn: Consolidation-driven churn remains a drag, especially in Brazil, but is expected to moderate over time.
SBAC’s balance sheet remains robust, with net debt to adjusted EBITDA at 6.4x (historical low end), a mostly fixed-rate debt profile, and significant liquidity. The company repurchased 583,000 shares post-quarter and announced a new $1.5 billion buyback plan, underscoring capital return discipline even as M&A multiples remain high.
Executive Commentary
"Most encouraging, though, is that our leasing backlog also grew from December 31st, meaning we are adding new applications at a greater pace than we are signing up new business. This bodes well for the balance of the year. We also continue to see a higher percentage of our new U.S. leasing business coming from new lease co-locations versus amendments to existing leases."
Brendan Cavanaugh, President and CEO
"Given the strong start to the year, we are increasing our full year outlook for all key metrics, including site leasing revenue, tower cash flow, adjusted EBITDA, FFO and FFO per share as compared to our initial 2025 guidance. The primary drivers of these increases include inline first quarter results, the closing of a small portion of the acquisition of towers from Millicom earlier than expected, an improved outlook for services, slightly higher straight-line revenue due to the extension of some leases and a reduction in the share count from recently completed buybacks."
Mark Montagnier, Chief Financial Officer
Strategic Positioning
1. U.S. Macro Tower Demand and Co-Location Shift
The U.S. leasing environment has pivoted toward new co-locations, as carriers accelerate network densification and meet regulatory requirements (notably T-Mobile’s post-Sprint merger obligations). This shift increases the average revenue per new lease compared to amendments and signals a healthy, multi-year investment cycle for tower infrastructure.
2. Backlog Expansion and Conversion Visibility
SBAC’s leasing and services backlogs both grew, with management highlighting that new applications are outpacing new business signings. The book-to-bill cycle for new co-locations has shortened to 3–9 months, suggesting revenue acceleration in the second half and into 2026 as backlog converts to billings.
3. Services Segment Outperformance
Network services, primarily construction and engineering tied to SBAC’s towers, outperformed due to one major carrier moving faster than expected. This segment is highly correlated with leasing activity, and management raised its full-year outlook, demonstrating operational leverage and capacity to scale with demand.
4. Capital Allocation and Portfolio Discipline
Management executed on both capital return and portfolio optimization, completing the exits from Colombia and the Philippines, and closing part of the Millicom acquisition early. The new $1.5 billion buyback plan and 13% dividend increase highlight a commitment to shareholder returns, enabled by a strong balance sheet and ample liquidity.
5. International Transition and Churn Management
International operations remain challenged by elevated churn, especially in Brazil due to ongoing carrier consolidation. Management expects churn to stay high in the near term but anticipates a return to organic growth as rationalization completes and remaining operators invest for the long term.
Key Considerations
This quarter marks a clear inflection in U.S. leasing demand and a proactive stance on capital allocation, but investors must weigh ongoing international headwinds and the lag between backlog build and revenue recognition.
Key Considerations:
- U.S. Leasing Cycle Strengthening: Co-location-led growth and robust backlog point to a durable investment cycle, with regulatory and competitive drivers fueling demand.
- Backlog Conversion Timing: The lag between new signings and revenue recognition means much of this quarter’s activity will benefit late 2025 and 2026 results.
- International Churn and Recovery: Carrier consolidation in Brazil and other markets is pressuring growth, but management expects stabilization and eventual recovery as rationalization completes.
- Capital Return Flexibility: The new $1.5 billion buyback plan and increased dividend are supported by low leverage and a fixed-rate debt profile, allowing continued investment optionality.
- M&A Landscape Remains Challenging: Private market tower multiples remain well above public valuations in the U.S., limiting large-scale acquisition opportunities for now.
Risks
International churn remains elevated due to ongoing carrier consolidation, especially in Brazil, and may depress organic growth until rationalization is complete. U.S. macroeconomic uncertainty or a slowdown in carrier capex could delay backlog conversion. M&A discipline is needed as private multiples remain high, and integration of new systems (including ERP and AI-driven processes) carries execution risk, though management expresses confidence in these initiatives.
Forward Outlook
For Q2 2025, SBAC guided to:
- Continued growth in U.S. leasing and services revenue, with backlog conversion expected to accelerate in the second half.
- Steady international organic growth, with churn expected to remain elevated near term, especially in Brazil.
For full-year 2025, management raised guidance across all key metrics, including leasing revenue, tower cash flow, adjusted EBITDA, FFO, and FFO per share. Factors cited include:
- Stronger-than-expected services performance and backlog growth.
- Partial early close of Millicom Central America towers, with the bulk expected by September 1 (pending regulatory approval).
- Lower share count from buybacks and higher straight-line revenue from lease extensions.
Takeaways
SBAC’s Q1 results demonstrate a pivot toward co-location-led growth, strong backlog momentum, and disciplined capital return, but international churn and backlog-to-billing lag remain areas to monitor.
- Structural U.S. Demand Shift: The surge in co-location leasing signals a new phase in network investment, with implications for revenue mix and margin profile.
- Capital Allocation Leverage: Management’s willingness to buy back shares during market dislocation and increase dividends highlights confidence and balance sheet strength.
- Backlog Conversion Pace: Investors should track the speed at which growing backlog turns into revenue, especially as new leasing activity outpaces historic cycles.
Conclusion
SBAC enters the remainder of 2025 with strong demand signals, a robust backlog, and ample capital return firepower. The company’s focus on operational execution and disciplined portfolio management positions it to capitalize on a multi-year network investment cycle, though international churn and timing of backlog conversion warrant continued scrutiny.
Industry Read-Through
SBAC’s results highlight a clear inflection in U.S. wireless infrastructure demand, with co-location activity outpacing amendments for the first time in years. This signals that carriers are prioritizing new site deployments to meet regulatory and competitive pressures, a tailwind for tower operators with dense portfolios. The backlog build and book-to-bill compression suggest that other tower REITs (such as AMT and CCI) may see similar revenue acceleration in the coming quarters. Internationally, carrier consolidation remains a headwind, but as rationalization completes, a return to organic growth is likely for those with scale and local relationships. Investors across the telecom infrastructure sector should watch for backlog conversion rates, churn stabilization, and the impact of capital return discipline as key differentiators going forward.