Basis of Presentation

6 Months Ended

Jun. 30, 2019

1.BASIS OF PRESENTATION

The accompanying consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for SBA Communications Corporation and its subsidiaries (the “Company”). These financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. The results of operations for an interim period may not give a true indication of the results for the year. Certain reclassifications have been made to prior year amounts or balances to conform to the presentation adopted in the current year.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements and accompanying notes, the actual amounts, when known, may vary from these estimates.

Foreign Currency Translation

All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its functional currency are translated at period-end exchange rates, while revenues and expenses are translated at monthly average exchange rates during the period. Unrealized remeasurement gains and losses are reported as foreign currency translation adjustments through Accumulated Other Comprehensive Loss in the Consolidated Statement of Shareholders’ Deficit.

For foreign subsidiaries where the U.S. dollar is the functional currency, monetary assets and liabilities of such subsidiaries, which are not denominated in U.S. dollars, are remeasured at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at monthly average rates prevailing during the year. Unrealized translation gains and losses are reported as other income (expense), net in the Consolidated Statements of Operations.

Intercompany Loans Subject to Remeasurement

In accordance with Accounting Standards Codification (ASC) 830, the Company remeasures foreign denominated intercompany loans with the corresponding change in the balance being recorded in Other income (expense), net in the Consolidated Statement of Operations as settlement is anticipated or planned in the foreseeable future. The Company recorded a $6.0 million gain and a $58.7 million loss, net of taxes, on the remeasurement of intercompany loans for the three months ended June 30, 2019 and 2018, respectively, and a $4.6 million gain and a $57.6 million loss, net of taxes, on the remeasurement of intercompany loans for the six months ended June 30, 2019 and 2018, respectively, due to changes in foreign exchange rates. As of June 30, 2019 and December 31, 2018, the aggregate amount outstanding under the two intercompany loan agreements with the Company’s Brazilian subsidiary was $434.8 million and $536.9 million, respectively.

Leases

The Company adopted ASU No. 2016-02, Leases (“Topic 842”) using the modified retrospective adoption method with an effective date of January 1, 2019. The consolidated financial statements for 2019 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. The Company has elected not to separate nonlease components from the associated lease component for all underlying classes of assets.

The adoption of the new lease standard had a significant impact on the Company’s Consolidated Balance Sheets resulting in the recognition of $2.6 billion of right-of-use assets, net, $226.0 million of current lease liabilities, and $2.3 billion of long-term lease liabilities. The right-of-use assets included $266.3 million of rent prepayments and financing lease right-of-use assets, net which were previously reported in Prepaid expenses and other current assets, Other assets, and Property, Plant and Equipment, net on the Consolidated Balance Sheets. In addition, the Company recognized a $21.0 million cumulative effect adjustment, net of tax, to Accumulated deficit on the Consolidated Balance Sheet related to the unamortized deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842.

The adoption of Topic 842 did not have a significant impact on the Company’s lease classification or a material impact on its Consolidated Statements of Operations and liquidity. Additionally, the adoption of Topic 842 did not have a material impact on the Company’s debt covenant compliance under its current agreements.

The components of the right-of-use assets and lease liabilities as of June 30, 2019 are as follows (in thousands):



Operating lease right-of-use assets, net	$	2,498,979
Financing lease right-of-use assets, net		3,622
Right-of-use assets, net	$	2,502,601

Current operating lease liabilities	$	230,594
Current financing lease liabilities		1,087
Current lease liabilities	$	231,681

Long-term operating lease liabilities	$	2,233,883
Long-term financing lease liabilities		1,641
Long-term lease liabilities	$	2,235,524

Operating Leases

Ground leases. The Company enters into long-term lease contracts for land that underlies its tower structures. Ground lease agreements generally include renewal options which can be exercised exclusively at the Company’s election. In making the determination of the period for which the Company is reasonably certain to remain on the site, the Company will assume optional renewals are reasonably certain of being exercised for the greater of: (1) a period sufficient to cover all tenants under their current committed term where the Company has provided rights to the tower not to exceed the contractual ground lease terms including renewals, and (2) a period sufficient to recover the investment of significant leasehold improvements located on the site.

Substantially all leases provide for rent rate escalations. The most common provisions provide for fixed rent escalators which typically average 2-3% annually. The Company also has ground leases that include consumer price index escalators, particularly in its South American operations. Increases or decreases in lease payments that result from subsequent changes in the index or rate are accounted for as variable lease payments.

Office leases. The Company’s office leases consist of long-term leases for international, regional, and certain site development office locations. Office leases include a single lease component, lease of the office space and sometimes nonlease components such as common area maintenance expenses. The lease term for office leases are generally considered to be the contractually committed term.

Finance Leases

Vehicle leases. The Company leases vehicles that are used in its site development business. These leases are accounted for as financing leases and have lease terms that are contractually committed and do not include optional renewal terms.

Discount Rate

When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, the Company’s ground leases generally do not provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement or upon a modification. The Company uses publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.

Lease Cost

Variable lease payments include escalations based on standard cost of living indexes and are initially recognized using the prevailing index at the date of initial measurement or upon reassessment of the lease term. Subsequent changes in standard cost of living increases are recognized as variable lease costs. Variable lease payments also include contingent rent provisions.

The components of lease cost, lease term, and discount rate as of June 30, 2019 are as follows:



	For the three months		For the six months
	ended June 30, 2019		ended June 30, 2019
	(in thousands)
Amortization of right-of-use assets	$	284	$	621
Interest on finance lease liabilities		26		54
Total finance lease cost		310		675
Operating lease cost ⁽¹⁾		66,523		134,822
Variable lease cost⁽¹⁾		9,424		17,166
Total lease cost	$	76,257	$	152,663

Weighted Average Remaining Lease Term as of June 30, 2019
Operating leases				17.7 years
Finance leases				3.1 years

Weighted Average Discount Rate as of June 30, 2019
Operating leases				6.1%
Finance leases				3.9%

Other information:			For the six months
			ended June 30, 2019
Cash paid for amounts included in measurement of lease liabilities:
Cash flows from operating leases			$	118,615
Cash flows from finance leases			$	621

(1)For the three and six months ended June 30, 2018, operating lease cost were $69.6 million and $137.6 million, respectively. For the three and six months ended June 30, 2018, variable lease cost were $6.8 million and $13.6 million, respectively.

Tenant (Operating) Leases

The Company enters into long-term lease contracts with wireless service providers to lease antenna space on towers that it owns or operates. Each tenant lease relates to the lease or use of space at an individual site. Tenant leases are generally for an initial term of five to ten years with multiple 5-year renewal periods at the option of the tenant. Tenant leases typically contain specific rent escalators, which can be fixed or escalate in accordance with a standard cost of living index, including the renewal option periods.

Tenant lease agreements generally include renewal options which can be exercised exclusively at the tenant’s election. The only common exception is if the Company no longer has a right to the ground underlying the site, the lease agreements permit the Company to terminate the lease. Despite high frequency of renewal of options to extend the lease by its tenants, the Company has concluded that the exercise of a renewal option by a tenant is not reasonably certain of occurrence; therefore, only the current committed term is included in the determination of the lease term.

Certain tenant leases provide for a reimbursement of costs incurred by the Company. The Company pays these costs directly and is not relieved of the primary obligation for the expenses. These reimbursements are recorded as revenue on the Statements of Operations.

Deferred Lease Costs

Prior to the adoption of ASU 2016-02, the Company deferred certain initial direct costs associated with the origination of tenant leases and lease amendments and amortized these costs over the remaining lease term. These costs included an allocation of a portion of the employees’ total compensation and payroll related benefits related to time spent performing those activities. Such

deferred costs were approximately $3.1 million and $5.9 million for the three and six months ended June 30, 2018. Amortization expense related to these deferred costs was $3.0 million and $6.1 million for the three and six months ended June 30, 2018 and is included in cost of site leasing on the Consolidated Statements of Operations. As of December 31, 2018, unamortized deferred lease costs were $27.0 million.

ASU 2016-02, defines initial direct costs as incremental costs that would not have been incurred if the lease had not been obtained. These costs, including commissions paid related to the origination of specific tenant leases, will continue to be deferred and amortized over the remaining lease term. Upon adoption, the Company recognized a $21.0 million cumulative effect adjustment, net of tax, to Accumulated deficit on the Consolidated Balance Sheets. This adjustment reflects the recognition of unamortized deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842.

Initial direct costs were approximately $0.6 million and $1.1 million for the three and six months ended June 30, 2019. Amortization expense related to deferred costs was $0.4 million and $0.7 million for the three and six months ended June 30, 2019. As of June 30, 2019, unamortized deferred lease costs were $4.3 million and were included in other assets on the Consolidated Balance Sheets.