July 26, 2016 — Crown Castle International reported a strong second quarter, which reflected an “overall healthy leasing environment.” Site rental revenue grew 9 percent year over year to $805 million, with organic revenue growth of 7 percent. Those numbers included 6.2 percent from new leasing growth and 3.3 percent from escalators, minus 2.5 percent in churn.
“We’ve been able to grow through both organically and acquisitions, including integrating those acquisitions effectively,” said Jay Brown, president and CEO. “This solid execution has resulted in very good financial performance.”
The tower company met or exceeded the midpoint of its Q2 outlook in site rental gross margin, adjusted EBITDA, AFFO and AFFO per share. As a result, it increased its midpoints for the year.
CapEx Spend Favors Small Cells Over Towers
Brown said the current business environment for building towers is radically different from the turn of the 21st century, when Crown Castle built 1,000 to 2,000 towers annually.
“Today, we build less than 50 towers on an annual basis. And the reason for that is because we just don’t see the incremental returns as high enough,” he said.
Capex for small cells exceeded towers during the quarter. Year over year, small cell capex grew to $85.4 million from $53 million. Tower capex shrank to $75.9 million from $110.5 million. Investment in small cells represents a significant long-term growth opportunity, according to Brown.
“From a capital allocation standpoint, we are particularly excited about the small cell opportunities that we see ahead of us,” Brown said. “We’re choosing today to invest in and build immature assets because we believe there will be an environment over time that will fill those assets up and increase the yield.”