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Crown Castle International Corp. (NYSE:CCI)

Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference

March 05, 2013 2:05 pm ET

Executives

Jay A. Brown - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Brett Feldman - Deutsche Bank AG, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

All right, if everybody will please take their seat. We're going to go ahead and get started with the first session of the afternoon. I'm very pleased to welcome back to the conference this year, Jay Brown, the Chief Financial Officer of Crown Castle International. This will be the same Q&A format that we've been using for most of our presentations over the last 1.5 days. Jay, thanks for coming back.

Jay A. Brown

Thanks, Brett, for having me here. It's good to be here.

Question-and-Answer Session

Brett Feldman - Deutsche Bank AG, Research Division

Great. So let's just start off talking a little bit about the demand environment in the U.S. for towers. You've given guidance for the year. Could you kind of just break down what are the key things that are driving your U.S. leasing outlook for 2013?

Jay A. Brown

Yes. We're in a phenomenal environment for towers today, with all 4 of the big 4 operators in the U.S. deploying cell sites. You've got Verizon, AT&T, Sprint and T-Mobile, all of them working on LTE deployment next-generation services. And in an environment where obviously the consumer is demanding more video, faster data, and so the carriers are out spending a lot of money and a lot of CapEx on upgrading their sites, improving their sites, adding additional sites. And so if you look back over the last decade or so, I really can't remember another time when you had this many operators working on as largest scale deployment as they are currently working on. And then I think and another important note to that is that it's really a multiyear deployment that they're in the middle of. And so in even in the sort of best of days of leasing in the tower business, you had some visibility or we would have some visibility based on public comments for maybe the next 8 to 12 months as to what the carriers were going to do, and all 4 of those operators are really in the middle of a multiyear plan to improve and upgrade their network. And so we not only see good activity for 2013, but think that continues on for the next several years as the carriers continue to work on upgrading their networks.

Brett Feldman - Deutsche Bank AG, Research Division

Just so we sort of know what have you factored in and what you haven't, you mentioned that the 4 major carriers are obviously a key component of what's driving business. We are starting to see Clearwire come back to life again. They actually are taking cash from Sprint now, they are actively pursuing an LTE build. Is that a meaningful component of your outlook for this year?

Jay A. Brown

We really didn't include any leasing from Clearwire. And I would put down in a similar camp with things like the safety network that's being talked about on the national level, the LightSquared spectrum, the DISH spectrum, Clearwire and their spectrum. You have a number of opportunities as we look at the business for long legs of growth and a long runway for future growth related to that spectrum that today's really laying fallow in the hands of the operators. We're not seeing a lot of leasing [ph] activity from any of those names currently. But based on the growth and the demand for consumer services, I would expect over time that we'll see that spectrum deployed and under what fashion it's deployed and maybe under what name it's ultimately marketed and deployed, difficult today to say. But over the long term, I think that spectrum gets deployed and that will be a good thing for our industry.

Brett Feldman - Deutsche Bank AG, Research Division

So I want to talk a little bit about the master lease agreements because you've signed a couple of them, to understand how they influence the revenue you get as carriers go through their upgrades. And we may have to go carrier-by-carrier to the extent you've made these things public. But some of them, I believe, is kind of presell amendments, some of it's pay-as-you-go and some of it's a little bit of a hybrid. What I'm really trying to get a handle on is to what extent does the pace of upgrade activity actually influence the generation of incremental revenues? And what types of activities would be above and beyond the scope of your MLAs?

Jay A. Brown

Yes. For the way that we structured agreements with the big 4 operators in the U.S. over the last several years, the cash revenue growth that we're seeing in the business and that's when we look at our AFFO metric, the growth there, that really mimics the activity level from the operators. We did that in various forms in terms of the way we structured the agreements with the carriers. Some of them wanted to go ahead like in the case of AT&T, we agreed to allow them and they agreed to pay us rent on 100% of the sites that they were currently on for an amendment that they thought would look like they're 4G deployment, LTE deployment across 100% of their sites. And so to the extent that we're having activity today from AT&T as their upgrading their network on a site that they're already on, at the level that they're currently deployed on, on the tower, that doesn't provide additional rent to us beyond what's already in the run rate. However, there is cash provisions in those agreements that's increasing the amount of cash receipts that we're getting from AT&T, for instance, just to take one example, and so...

Brett Feldman - Deutsche Bank AG, Research Division

So it's presold in a sense?

Jay A. Brown

It's, in essence, presold. Now we didn't presell in AT&T's case -- so maybe we can talk about each of the operators. That may be the easiest way to do it. In the case of AT&T, along with any of the other operators, we didn't presell any brand new leases. But to the extent that its tenant, a carrier goes on a tower that they're not currently on or to the extent that they go on a level, a different level on that tower, we didn't presell any of that activity. So that's all incremental revenue, all incremental revenue growth. In the case of Verizon, the way that we structured our agreements with Verizon today, we didn't presell any amendments either. So all of the amendment activity that we're seeing from Verizon today, that's additive, both to cash and to our site rental revenues on a GAAP basis. In the case of T-Mobile and Sprint, it's a mixed bag. So some of the sites that they go on with certain types of equipment, we've presold portions of that. Other installations and other types of equipment that they're adding is not presold. So there's a mix there with regards to amendment-related activity. In terms of brand-new leases out of either T-Mobile or Sprint, all of that would be additive to both cash received, as well as to the revenue.

Brett Feldman - Deutsche Bank AG, Research Division

Got it. And the reason I asked is people are very aware that there is an intense level of amendment activity going on right now. So we generically say that activity is very high. And based on the timeframes that maybe AT&T and Verizon in particular and some of the other operators have outlined for upgrading their existing sites, it seems that maybe the activity might start to decelerate as we go into next year. However, if that is followed up by new site additions or new revenues, it seems that under certain of your MLAs, like with AT&T, that would be additive. Is that correct? Meaning, that they could do less with you, but they could do more that creates new revenue?

Jay A. Brown

The amendment activity that's currently going on in the market -- and your understanding, is right. The amendment activity that's going on currently in the market, you've got all 4 operators, as I mentioned before, doing that type of activity. That activity if you think about it and relate it to revenue, activity and revenue are 2 different things. The activity level that's going on currently in the industry, where it's all amendments and making up probably 80% to 90% of the activity, if you looked at the people actually out doing the work and installing equipment, that activity is very high. It doesn't necessarily correlate though to actual revenue growth directly from activity levels. So an amendment generally can be 3 -- 1/3 to 1/4 of what a brand-new installation on a tower is. And if they're adding that equipment in an amendment form, then we're getting, every time you would count maybe an activity at a site, we've got kind of 1/4 of a revenue or 1/3 of a brand-new tenant, to the extent that they're going on a site, the activity could be 1/3 less than the same amount of revenue for us. It's also true that oftentimes, we will see activity, if you want to think about it that way from the carriers, where they'll go out and they'll replace existing antennas and lines with the new technology and upgrade it, but they haven't actually used any more space on the tower, so there's not additional rent associated with it. So the activity, if you were to go out and measure activity in the market in terms of how the subcontractors, how busy they are, they're at a level of busy-ness that's really never been seen in the industry before. And that's certainly challenging for our customers as they're trying to improve their network. But if you correlate that to revenue growth in the tower industry, I think there's a lot of legs still to go here. And oftentimes, what we've seen in the past is as the carriers move from the amendment activity towards in-fill sites and adding additional brand-new sites, the growth is actually slightly higher in those periods of time where they're doing full brand-new installations on sites or doing infill sites, going on towers that they're not currently on in order to meet a hole in their network. That oftentimes leads to higher revenue growth rather than the amendment cycle that we're currently in. Certainly, the amendment cycle that we're currently in is driving nice revenue and cash growth, but the periods of time in which we've seen full installations and new deployments oftentimes is the higher revenue growth period. And it looks like, based on what the carriers are currently working on with regards to Verizon and AT&T, they're nearing towards the end, as they've talked about publicly, nearing towards the end of the amendment activity and moving much more towards the brand-new cell sites that they need. And usually, that's a pretty good thing for us.

Brett Feldman - Deutsche Bank AG, Research Division

And just to make sure I understand this right, just because busy-ness levels are the highest it's been in a long time, and it'll probably inevitably slow as amendments slow. From your standpoint, it doesn't necessarily mean that your incremental revenues are peaking? The opportunity to continue to see those remain strong if they start adding new sites, if they start going on to new levels?

Jay A. Brown

That's right. And everything would suggest, when you look at kind of quality of networks and where the holes are in the networks and where data traffic is coming, I think there's a lot of factors that would suggest today, as you look at them, that there's a lot more cell sites that are needed. And again I would point out, historically, in the industry, you really didn't have the wireless carriers talking about a 2- to 3-year plan in terms of how many cell sites they needed or how much capital was needed. It was usually kind of an every year thing, where we waited until end of the fourth quarter, beginning of the first quarter, and then we kind of got some guidance on what CapEx was going to look like or how many cell sites they were going to deploy in a given year. And all 4 of the operators really have laid out publicly pretty specific 2- to 3-year plans on the number of cell sites that were needed, the number of small cells that were needed, how many amendments they needed to do in terms of upgrading their existing technologies. And so there's a pretty long runway, at least relative to historical -- the way the history, the industry has run, the way the carriers have talked about publicly their need for additional cell sites and been clear about that on a multiyear basis rather than kind of at 8 to 12 months of visibility.

Brett Feldman - Deutsche Bank AG, Research Division

So an example of that would be AT&T, which at their Analyst Day, outlined Project VIP, which includes 2 things that could be helpful to Crown Castle, the addition of 10,000 new cell sites over 2 years, which it sounds like is above-and-beyond the revenue commitments in the MLAs if you win business there. And then a major investment in DAS. So I was hoping we could talk about the extension which you're seeing any of that business from AT&T yet and the extent to which some of that has been factored into your outlook for this year?

Jay A. Brown

Yes. We're early days on the deployment of new macro sites, the 10,000 sites that they talked about, as I think that we believe that's coming towards the end of this year and into 2014 and beyond. In terms of the small cell business, we're seeing a lot of that demand really across all of the operators. And the small cell business that we have, which has historically been focused on distributed antenna systems, has become a little bit more broad to include small cells today in a more generic sense. And we speak about it in that way. Has been as the carriers have focused on deploying macro sites, those meet the need in a lot of locations. But when we get into, I like to refer to them as the nooks and crannies in places where macro sites really can't meet the need, these small cell networks are terrific at providing increased density of network and coverage in places where they don't currently have coverage, as well as significant amounts of capacity. And for years, I think on the whiteboard, it made sense for the carriers to use small cells to meet network demands, but they didn't really invest capital there. And over the last couple of years, certainly since the end of 2011, I think the carriers have been much more public and vocal about the fact that they need small cell solutions in order to provide their network. And we think it's a business that provides great returns to the shareholders. And so we've been in it for about 5 years, but the vast majority of our investment and the vast majority of the systems that we've built and acquired have really come in the last 12 to 18 months, most notably with the $1 billion acquisition that we did of NextG at the end of 2011 that closed at the beginning of 2012. We talked about, when we did that acquisition that we thought the DAS business that we had acquired from them, over the next 5 years that we would increase EBITDA by 5 to 6x. And a year into it, a little over a year into it, we're tracking slightly ahead of that plan in terms of revenue and EBITDA growth and seeing a lot of opportunities there. We've seen great co-location on the systems. In terms of the margins, they've come in right about where we expected them to be, and we've seen strong lease-up across the big operators and are pretty excited about what that could mean longer term in the U.S. business and believe that AT&T's comments that you're referencing are really just the beginning of what's going to be a pretty significant deployment of small cells over the coming years.

Brett Feldman - Deutsche Bank AG, Research Division

Do you feel well-positioned to get some of that business with AT&T, particularly on DAS? It sounds like they would like to have a reasonable amount of control over the network, maybe just walk us through the extent to which you think you're going to add value here or you're actually getting traction?

Jay A. Brown

In the early days of the distributed antenna systems business, there was a lot of control by the third-party infrastructure provider, us. And that was difficult for the carriers to get there on. And they were -- we were successful in some places, and frankly not as successful as we would like to be in other places. And as the architecture has developed and you have obviously a lot of the equipment manufacturers developing small cells for the operators, it puts more of the electronics and more of the control in their hands. And we simply become the infrastructure provider owning the fiber and owning locations where cabinets, where they can place their equipment. So most of the systems that we're doing today, really all of the smart components of the network, are in the hands of the operators, and they control that portion. And we're really just the provider of the cabinets and the fiber and the infrastructure for them to deploy. And that's exactly where we want to be. I mean, that's where we've tried to transition the business. And frankly, it's developed in the right way from our perspective, where the control of the network and the operations of the network is in the hands of the carriers. And we're simply just an infrastructure provider.

Brett Feldman - Deutsche Bank AG, Research Division

So can we talk about then how maybe the economic model is evolving being along with the infrastructure? The way it used to work, and I'm sure there's still some deals where it works this way, was there was a pretty heavy upfront payment by the carrier to the DAS provider in part because you have heavy upfront construction costs. NextG's independent company didn't have much of a balance sheet. And then, of course, they were buying equipment. And so it seems that the upfront commitment by the carrier may be lower now, is that correct, if only because they're not buying the equipment from you? But how about the way you're structuring upfront payments versus recurring, per node payments?

Jay A. Brown

Yes. The plan is, and we've been transitioning the business this way, in part as the model has developed towards much more of like a tower model where we put the capital in upfront, the carriers pay us ongoing rent over a long period of time. There were a number of smaller operators as you referenced who were financed by private equity, and frankly didn't have the balance sheet or capital to invest to buy equipment and then lease it over a long period of time to the operators. And so it was simply carriers had to buy all of it from the network provider, day one, and then there was a small amount of rent over time. And we've seen those deals have largely, have moved significantly over time towards much more of like a tower model. I think it will continue to do so particularly as the newer deployments where the capital is really owned and purchased by the carriers. So they still have the upfront payment, but it really doesn't have anything to do with the infrastructure provider. We'll then be continuing to do things like building the fiber and constructing the cabinets at the various node locations, and then the carriers installing their equipment on those sites and it looking much more like a traditional tower model where we're putting the capital in upfront and then collecting rent over time. The contracts, frankly, look very similar to towers, in terms of they pay us a fixed amount per month, the rents collected on a monthly basis, those contracts have annual escalators, that're generally 3% to 4%, they're usually 6%, just like the tower agreements. The carriers are committed to us for between 10 and 15 years, just like towers. In terms of the operating expense side, generally speaking, once we have the operating expense associated with that first network embedded into it, we don't see a significant amount of additional operating expenses as we add additional carriers to the network. And so the incremental margins are very high. And then in terms of lease-up, what we've seen in DAS has been slightly faster than traditional towers. So if we go back and look at the last 4 years or so of history that we have on these sites, the amount of tenants per network, if you will, or per system, if you were to track that back to kind of a tenant adds per tower and compare that to tenant adds per network, DAS has been leasing up slightly faster than what traditional towers had leased up from the 1999 in those early days, 1999 to kind of 2007 or 2008 as networks were being deployed in the early stages.

Brett Feldman - Deutsche Bank AG, Research Division

That was going to be the next question, which is there's been some questioning by investors about how well DAS is going to lease up in part because it comes down to how unique each DAS network is. And so, for example, you showed us one at CTIA in the French Quarter of New Orleans. It was this very unique system. It was a part of the town that was a virtual island, and it was the only infrastructure solution. How common is it to build a DAS network that has that level of unique characteristics to it where it's identical to a tower and sort of monopolizing your ability to deploy in a location. Whereas how many of them are you building kind of on a custom basis for one carrier that may not nearly have the lease up potential that a tower or a very unique island base system might have?

Jay A. Brown

A node in a DAS system typically covers about 100 yards. So if we're deploying a DAS system, it's in a relatively small area. Now the quantity of those, obviously, can start adding them up to cover a larger geography, but these are really pinpoint precision placements of infrastructure in order to meet the needs by the operator. And in the example that you referenced in the French Quarter in New Orleans that we did, we've got several carriers on that network today in order to meet a demand. More broadly, and we would look at that and describe that as kind of a public setting, and there is and has been for a long period of time, some amount of coverage in the French Quarter that's covered by rooftop sites and the surrounding area, but not enough density of signal and not enough capacity in the spectrum to meet the demand of the consumer for data in those kind of areas. And so they come in with a solution like small cell solution that we brought to the French Quarter, that allowed them to reuse the spectrum, if you will, on a very small basis that significantly increases the network capacity in those locations. And I would tell you that French Quarter is not really that unique. I mean, that's typically the way the systems look. They're meeting a need in a very small area where there may have been some coverage before, but capacity was really an issue, sometimes coverage. DAS is relatively expensive relative to towers. And so if a macro site will meet the need, the carriers would much rather solve it on a macro site basis. And we continue to see this and believe that longer term, macro sites are going to continue to make up the bulk of the carrier's network in terms of the number of subscribers and data traffic and everything else. But there are areas where frankly macro sites just won't meet the need. And so they'll have to come up with a number of solutions. And those will be lots of different things, but we think small cells will be one of those, and it's an area where think we can make various attractive returns. And so as long as there are opportunities where we think there is multiple tenant opportunity and high returns, it's something that we'd like to invest in. The scenario that you raised at the end of your question about doing this for a single carrier or a single tenant, to us that sounds a lot like the in-building systems. There are a number of buildings around the country that would love for somebody to come in and provide an in-building small cell network for a distributed antenna system. And the challenge with those is oftentimes the large tenant in the building has chosen a carrier to provide wireless service to their employees. And so there's not multiple carrier opportunities there. We haven't found the returns to be attractive in that, so it's not been something that we've invested in. For the right rent, obviously, we would do a single carrier solution, but that's not really what we do. And we haven't seen many opportunities there. Our real sweet spot is shared infrastructure and putting capital in, in order to provide that shared solution.

Brett Feldman - Deutsche Bank AG, Research Division

Got it. So you did a couple of big deals, obviously, NextG, you did the T-Mobile deal. I'm wondering about your interest and appetite in continuing to do M&A, and maybe we'll start at home. AT&T has said very vaguely that they're evaluating their real estate holdings. Without going into too much detail of what that means, let's just assume you're looking at their tower assets. Would you have an appetite to do another 10,000, 11,000 tower deal in the U.S. or do you feel that you're sufficiently big enough that you'd rather invest your capital elsewhere?

Jay A. Brown

Yes. It sounds like from the way you phrased the question, we're going to have a big conversation about acquisitions and maybe even more broadly than just domestically. And so maybe let me start from 30,000 feet, talk about capital allocation, and then we can dive into kind of how we think about domestic and international and other things. As we think about allocating capital, I think it's one of the primary ways that we can increase shareholder value over a long period of time. In calendar year 2013, we have over $1,000,000,060 of AFFO that we've forecasted. We'll spend about $350 million to $400 million of that on what I would call normal-course CapEx events, things like buying ground underneath the towers, adding additional equipment, adding additional strength to towers to hold additional equipment. We'll do things like the distributed antenna systems that we were just talking about and building out small cell network. So that's sort of the core CapEx. Beyond that, there's $650 million that's available. And then we could use our balance sheet to do other things. And as we think about those opportunities, for us, it's always an opportunity cost conversation about what could maximize long-term cash flow for sharer or said another way and more simply, when we get to 2015 and 2016, the timeframe in which we would expect to convert to a REIT and pay a dividend, what of these scenarios maximizes the dividend long term. And that's how we allocate capital. And so as we think about a carrier today deploying their site -- selling their sites whether that's AT&T or anybody else, the question for us is really does it make more sense for us to buy towers that somebody else owns that wants to sell them or does it make more sense for us to buy back our own equity, via by our own shares, buy our own towers effectively. And that's a conversation that we've done over a long period of time with management team and with our board. And we've kind of done half-and-half. We've spent about $2.8 million buying back our own shares. We've bought back 1/3 of the company over the years that we've been allocating capital on that basis. And we don't have any aspirations to "grow the business." Ultimately, I think about it as growing the dividend. I want to pay out as much cash per share as I possibly can. And that's the simple goal. And so if there's an acquisition on the table that we think can maximize the long-term dividend, happy to proceed with that acquisition. But if it's not available, then there's not any aspirations just to get larger. And so we would look to allocate that capital buying back our own shares. So an answer to your question, when I look at something domestically, absolutely, we'd look at it. And whether or not we'd be interested in it, it's going to come down to what's the ultimate price of the acquisition and what do we think the growth characteristics of that asset are. And again, not trying to meet some internal hurdle rate necessarily, but against the alternative of, we could buy back our own shares. So would we rather buy back our own shares or would we rather purchase third-party towers?

Brett Feldman - Deutsche Bank AG, Research Division

And just to sort of clarify how you think about transactions, the one I hypothetically threw out, that will be a very big one, it might require the issuance of equity. As you think about the AFFO per share or the dividends, long-term dividend accretion, is there a timeline? In other words, is it, it has to be immediately accretive even if I issue equity or is it really more around that point when you become a REIT, where you want to be highly confident that you're a better dividend payer at that point?

Jay A. Brown

The measure is how much cash is there per share. And that's the goal, and that's what we're focused on. So whether it's an acquisition or whether it's just the investment of capital and buying back our own shares, we're trying to maximize that cash per share long-term to be able to pay it out in the form of a dividend. It's very interesting. If you roll back the clock 2007, we had about 10,000 towers in the portfolio. We had recently done the Global Signal transaction. We increased the share count by roughly 1/3 when we did that transaction and doubled the number of towers that we owned in the U.S. In the most recent transaction, we had about 23,000 towers. We added another 7,000 towers to our portfolio and didn't issue a single share to do that. In the environment, in which we're currently in, we were able to borrow the money at sub-4% for a long-term basis, and we purchased the asset at a little better than a 5% yield currently. So the deal with the transaction was immediately effective, and we didn't suffer any dilution in the transaction. So as I said before about how we've done with shares and buying back 1/3 of what would be the company today based on the transactions that we've taken over time, I think we've done a very good job of growing the portfolio and gaining more sites, at the same time being very sensitive to kind of the share count. So if there were a transaction on the table and it looked like it required some equity to do it, we'd go right back to that measure of what do we think long-term the dividend per share is going to look like. And if it meets that criteria of what I would describe as the best measure of long-term shareholder value, then we would be open to that, but that's a really high hurdle for us and something we've been very judicious about for a long period of time.

Brett Feldman - Deutsche Bank AG, Research Division

You've generally not shown a strong appetite in new international markets. You're already in Australia. You sold it. You paid business years ago. As you watch at how the tower model and the wireless markets are evolving outside the U.S., and your peers have made pretty meaningful investments there, are you beginning to think that perhaps, you could do transactions in these markets that would meet the criteria you just outlined?

Jay A. Brown

It's possible. We continue to look outside of the U.S. and have looked at a number of different markets. The U.S. continues to be the largest and the fastest growing data market anywhere in the world. And when you look at the international growth that's been achieved by our peers, they have, over a long period of time, performed slightly slower growth than what the U.S. has been. And so that's been pretty evident. And so our underwriting assumption as we've looked at a lot of emerging markets, there could always be the kind right of right price and the right growth characteristics and the right market that might be of interest to us. But so far, we haven't seen anything that frankly came anywhere close to being interesting to us. We think there are a lot of risks associated with the emerging markets that are not maybe necessarily completely appreciated. The U.S. has a fantastic environment of very high barriers to entry that we haven't seen in other countries. And then as we think about some of the things like currency risk and taxes, and the ultimate ability to take cash flow and distribute it out to the shareholders, longer term, those become hurdles for us to get over in order to make an investment outside of the U.S. And I certainly don't want to imply we would never do it, but so far, we haven't seen anything that really came close to meeting that criteria. If we did find something that did, on a risk-adjusted basis, we thought it was better than buying back the stock. And I think we're purists in that sense, and we'd be comfortable making an investment. But so far, I haven't seen anything real close to that.

Brett Feldman - Deutsche Bank AG, Research Division

Got it. Does anyone have a question? We have a few minutes left. So we have one over here, just wait one moment for the microphone.

Unknown Analyst

Just a follow-up on your comment regarding buying back stock. Is there some limit on how much you'd buy back, like leverage or number of shares outstanding?

Jay A. Brown

Sure. We don't publicly announce a stock buyback program, if you will, in terms of the number of shares or the dollars spent. It is one of the uses of capital that we used. And frankly, we're not doing it for short-term optics. And so have no desire to announce the plan and hope that the share price goes up as a result of our actions. Frankly, we would rather buy them cheap and so we talked to our Board about it on a quarter basis, and have the discretion to do it as we think is appropriate. And then we quietly go out and buy shares, and within the rule set applied to us as a public company and then announce that. Over the long period of time, in terms of a strategy or how many we would be open to, I think we just continue to invest the capital that we have in front of us that we think are attractive to the long-term growth rates of the company without necessarily defining what those parameters will ultimately look like.

Unknown Analyst

[indiscernible]

Jay A. Brown

Yes, in terms of leverage, we've tried to operate the company between 4 and 6x debt-to-EBITDA. We have said and have done, have indicated a willingness to go outside of that range on the high side for the appropriate asset or the appropriate opportunity. We did that with the T-Mobile transaction that we did. We took leverage up to about 6.5x. I would expect in normal course that we will delever back down within our range, and that deleverage would be accomplished through growth in adjusted EBITDA, not necessarily through taking cash flow and paying down the debt. We may do some of that, but I think largely we would do it more through growth, which is the way we've historically delever-ed the balance sheet and given us some opportunity. So I think generally, we would operate sort of 4 to 6x leverage, but wouldn't say that's a bright line that we wouldn't go above. We've obviously done that in some cases in the past.

Brett Feldman - Deutsche Bank AG, Research Division

Jay, you're currently leasing spectrum to LightSquared. It's about $13 million a year they pay you, that lease funds through October of this year. There's the potential to renew it, there's a potential to buy out options. Any preferences or predictions on how that's going to play out?

Jay A. Brown

I don't have a great prediction on where it's going to fall out. 5 megahertz of nationwide spectrum. We have historically desired to lease that spectrum rather than outright sell it, so we'll just have to wait and see how that develops. But I really don't have great visibility on where we're going to finish out there.

Brett Feldman - Deutsche Bank AG, Research Division

The buyout option is like roughly $150 million? I'm kind of rounding off, but that's what it'd be?

Jay A. Brown

Yes, yes.

Brett Feldman - Deutsche Bank AG, Research Division

We're running a little short in time, and I'm going to ask one last question, which you alluded to before, which was your plans to become a REIT. Could you just sort of refresh us on where are you in the process? You kind of have 2 years you might be targeting, can you help us understand what's going to push you towards maybe '15 or '16?

Jay A. Brown

Yes. Our current NOL balance, we think runs out in the 2015, 2016 timeframe. I expect that we will operate our business in normal course as the C Corp. during the years leading up to that. As we get close to the 2015, 2016 timeframe, convert to a REIT and then proceed from there. As we're using up our current NOL balances and look at the location of capital, to date we think there is plenty of opportunities for us either buying back our own shares or buying other assets. And so we've not listed dividends as high on that list. As we get closer to that date of converting to a REIT, maybe that moves up on the consideration list, but we certainly found assets today that we think are more accretive, and share buyback is more accretive to the long-term outcome of the firm. In terms of this work required to get it done, we've already started preliminary, getting some of that work done, and we'll continue to work on that in normal course. There are obviously a number of tower companies, both public and private companies, who have gone through this private letter ruling process. And so I wouldn't describe towers as being so esoteric to the IRS that this is really difficult or challenging process with them. Our business looks very similar to other tower operators and it's a process we think we'll be very successful in getting a private letter ruling in order to convert to a REIT.

Brett Feldman - Deutsche Bank AG, Research Division

And when would you likely submit the request for that?

Jay A. Brown

Probably in the 2014, 2015 timeframe, something like that, ahead of the necessary date for conversion.

Brett Feldman - Deutsche Bank AG, Research Division

All right. Well, we've basically run through our time. Jay, thanks a lot.

Jay A. Brown

Thanks for having me.

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