Dear Shareholders,
2022 proved yet again that macro towers are the cornerstone of communications infrastructure. As we entered the new year, the world started to feel relief from the hardships brought by COVID-19. Businesses were busier. People returned to restaurants, family gatherings, and live events. COVID-19 relented, and everyday life started to feel normal once again. 2022 was off to a strong start.
However, the good times would not last long. In February, Russia invaded Ukraine, setting off geopolitical alarms and creating shockwaves through the capital markets. The world watched and hoped for a quick and peaceful resolution; however, when one was not realized, we were again thrust into a tenuous market. Not weeks later, headlines of inflation and increased costs started to emerge. Businesses and households were experiencing change, creating new global concerns and capital market instabilities. Inflation continued to climb, and policymakers began to act, hiking interest rates more quickly than at any time in recent history. Slowing the economy and damping consumer demand became the goal. Again, adding to market fragility and creating new business challenges. Fast forward to today; recession may be inevitable, and the future unknown. However, as I reflect on the many challenges we faced in 2022, SBA again stood tall in the face of adversity.
2022 reaffirmed what I already knew; even in periods of immense uncertainty, cellular towers are critical infrastructure, and SBA has the best portfolio in the world in terms of asset quality. I am incredibly proud of the quality of service we provide to our customers, enabling them to offer 4G and, increasingly, 5G wireless service to their users. I am proud of the financial results we reported including robust domestic organic lease-up, record-breaking services revenue and strong year-over-year AFFO per share growth. While operating within the new business environment and making prudent, risk-adjusted decisions, we executed well and positioned ourselves for an exciting 2023.
Amid a turbulent stock market, we reported strong financial results in 2022, completing one of our best years operationally in recent history. SBA grew cash site leasing revenue, tower cash flow and Adjusted EBITDA by 10.8%, 9.4%, and 10.1%, respectively. We posted very healthy tower cash flow and Adjusted EBITDA margins of 80.7% and 68.2%. Our services segment smashed our internal expectations, allowing us to raise our guidance for the segment each quarter and finishing the year $94 million above the midpoint of our initial outlook. We finished the year with $297 million of revenue and $74 million of gross profit, the best year in our services history. We posted the highest AFFO per share in the industry, $12.25 per share, a 14.1% increase from 2021. We ended the year at 6.9x net debt to LQA Adjusted EBITDA, slightly below our target range of 7.0 to 7.5x, giving us plenty of capital capacity for the right opportunity. Our net cash interest coverage ratio was also a solid 4.7x at the end of the year. We ended the year with an ROIC of 10.5%, an impressive return for any long-lived assets. The 2022 year was an all-around success.
Operationally, we saw tremendous activity both domestically and internationally. Our customers were laser-focused on providing a great overall experience for their users. For 5G service, that means reduced latency, high reliability, and ultra-fast speeds. In the United States, all four major carriers were busy with 5G deployments, either building a new network, upgrading their networks with newly available spectrum or recycling existing spectrum from older technologies. T-Mobile was busy integrating Sprint’s 2.5 GHz spectrum. Both AT&T and Verizon began deploying newly acquired C-band. And the newest entrant, Dish, worked towards their goal of covering 70% of the U.S. population with 5G by June 2023. Each quarter, we posted sequentially higher gross and net same-tower organic growth, ending the year at 8.5% and 5.0%, respectively. We expect strong activity to continue into 2023 as mid-band spectrum gets rolled out across the entire country. C-band and 3.45 GHz deployments are each expected to be material contributors. Not to be outdone by the U.S., our international customers were extremely busy as well. Telefonica, Claro, TIM, Airtel, Tigo, Vodacom, all worked on their 4G and 5G network expansion goals. The number of connected devices and consumers’ appetite for wireless services continues to grow and carriers are investing heavily in their networks to keep up. Big data, artificial intelligence, virtual reality and smart applications are all finding their way to the wireless network and all reasons why I am so excited about the future.
Our balance sheet remained a top priority in 2022. In November, we completed a five-year, $850 million Secured Tower Revenue Securities debt issuance, using proceeds to pay off $640 million of maturing securities as well as pay down a portion of outstanding principal on our revolver, enhancing our liquidity position and terming out a portion of our debt. We were encouraged by the healthy demand from investors. As to future financings, we do not have any debt maturities until October 2024, giving us plenty of flexibility to maneuver in a choppy market. Throughout 2022, the quality of our business and our preponderance of domestic tower revenue shined through. In December, SBA received an upgrade from S&P across each of our ratings, putting us one notch below investment grade for our corporate rating. Shortly after S&P’s upgrade, in March of this year, we also received a one notch upgrade from Moody’s. While we did not take explicit action in pursuit of a credit upgrade, we were pleased with the positive outcome. As it stands today, our preference is not to be investment grade. However, our current rating would allow us to get there in short order if we saw the benefit at some point in the future.
We exceeded our five to ten percent portfolio growth goal, growing our site count by an impressive 15%. The largest contributor came from an existing market, where we acquired 2,600 sites from Grupo TorreSur, increasing our site count in Brazil to over 12,000. These new sites complemented our existing footprint, adding sites in Sao Paulo state, a region where our existing portfolio was under-penetrated. In Tanzania, one of our newer markets, we acquired 1,400 sites from Airtel in a sale-lease back arrangement. This market will require significant wireless investment, and we’re excited about future growth opportunities. Combined, those two acquisitions represent $900 million of invested capital, with both deals accretive to AFFO per share and long-term value creators for our shareholders. We also built over four hundred and fifty sites, allocating $69 million throughout our sixteen markets, including in our newest market, the Philippines. We build high quality sites, built for colocation, in markets where we have near-term visibility to a second or even third tenant. New builds with strong lease-up are some of the best yielding assets in our portfolio and we plan to expand our opportunities moving forward. Our appetite for new assets, both built and acquired sites, continues to be strong, and we will once again in 2023 strive towards our previously stated goal of five to ten percent portfolio growth. We spent $44 million on buying land and ground easements underneath our tower sites, ensuring our sites are secured for many years into the future.
After portfolio growth, our dividend was our third largest capital allocation in 2022. We paid a total of $307 million, a 21% increase compared to 2021 and one of the (if not the) fastest-growing dividends in the REIT space. While the year-over-year increase is substantial, the amount paid represented only 23% of 2022 AFFO, a relatively low payout ratio. This enabled us to continue to invest meaningfully back in the business and we expect to keep a similar formula moving forward. In addition to new assets and our dividend, we allocated $432 million towards repurchasing shares, an ongoing effort to be a share count minimizer. Our view towards capital allocation remains the same after payment of the dividend; analyze and compare all investment opportunities with a focus on prioritizing high quality, long-term, risk-adjusted returns with the goal of maximizing distributable cash flow per share.
In addition to our core tower assets, we continue to pursue adjacent businesses with strong ties back to our tower sites. We are always looking for ways to serve our customers. These businesses include data centers as we prepare ourselves for the convergence of towers and compute capabilities at the edge. Others include energy-as-a-service at our tower site as our customers look to limit their energy consumption and shift towards renewables as part of their ESG goals. While unlikely these businesses become material for SBA in the near term, we believe these will provide very good opportunities in the future.
We have also made tremendous strides with our own ESG strategies and goals as we focus on issues that are most material to our financial performance, operational risk and stakeholder priorities. To mention one in particular, SBA has committed to setting science-based emission reduction targets with the Science Based Targets initiative in accordance with the Paris Agreement. I encourage you to read our 2021 Sustainability Report that can be found on our website for additional details. As a shareholder, we value your input as we work together towards building a more sustainable and connected place for everyone.
I’d like to conclude with a heartfelt thank you. I have announced my retirement, and this will be my final letter to our shareholders. It’s been my great honor to lead this Company for so many years and I have no doubt I am leaving it in capable hands. My time at SBA has been challenging, fulfilling, personally and professionally gratifying and, as importantly, a lot of fun. I want to personally thank all the individuals who helped me build SBA tower by tower. I’m encouraged about the future, and I believe the next 25 years will be as good as the last 25. I look forward to serving as your Chairman of the Board and continuing our great SBA legacy.
Sincerely,
Jeffrey A. Stoops
President and Chief Executive Officer
Read the original letter here.
