Crown Castle International has reduced it 2020 outlook across the board primarily because of tower activity delayed from the second half of 2020 to the first half of 2021, which negatively affected the expected organic contribution to site rental revenues by $20 million and services contribution from towers by $50 million. Additionally, straight-lined revenues from towers for full year 2020 are expected to be $20 million lower than previously expected, also because of the timing of the tower activity as well as fewer lease extensions than previously forecasted.
These changes are offset, however, by $10 million in lower expenses, $30 million in lower interest expense and $25 million in lower sustaining capital expenditures as compared to our prior 2020 outlook.
“Q3’20 came in light of Wall Street expectations for site rental revenue and Adjusted EBITDA, and AFFO/share was more or less in-line,” wrote Eric Luebchow, Wells Fargo senior analyst. “We had expected there to be some risk to 2020 guide given our checks that T-Mobile still hadn’t ramped and AT&T / Verizon pivoted to capital preservation mode, and had cautioned that Street expectation for 2021 were too lofty (AFFO/share +11 percent y/y).”
Crown reported that third quarter site rental revenues grew 4 percent, or $52 million, year over year, including a $70 million organic contribution and a $18 million decrease in straight-lined revenues. The organic number represents 5.5 percent growth, comprised of 9.1 percent growth from new leasing activity and contracted tenant escalations, minus 3.6 percent from tenant non-renewals, according to Jay Brown, Crown Castle’s CEO.
“We delivered solid results in the third quarter and remain on track to generate growth in AFFO per share for 2020 that is consistent with our long-term growth target of 7 percent to 8 percent per year,” Brown said. “With the strong demand we see for our towers and fiber infrastructure as our customers deploy additional cell sites and spectrum in response to the rapid growth in mobile data traffic, we expect 6 percent growth in organic contribution to site rental revenue across both our towers and fiber segments in 2021, supporting an expected acceleration in AFFO per share growth to approximately 10 percent.
Lower CapEx, Increased Small Cell Collocation
Discretionary capital expenditures during the third quarter included $274 million attributed to fiber and $73 million attributed to towers.
Crown expects a $400 million decrease in discretionary capex from 2019 to 2021 because of lower small cell capital expenditures caused by an increase in collocation activity and the completion of several large fiber expansion projects.
Dan Schlanger, Crown Castle’s chief financial officer, said, “We anticipate the combination of lower capital expenditures and higher cash flow growth will allow us to fund our discretionary capital budget next year with free cash flow and incremental debt capacity, consistent with our investment grade credit profile.”