November 4, 2014 — Crown Castle International’s President and CEO Ben Moreland had good news about the health of tower leasing, saying the long-term industry fundamentals are sound during the company’s third quarter earnings call.
“Looking ahead to 2015, we expect leasing activity from new tenant installations and amendments to existing leases to remain robust and similar to our expectations for 2014, as all four major wireless carriers continue to upgrade their networks to meet consumer demand,” he said.
But the news was not all good. CCI’s growth for 2015 will be slowed by $65 million of non-renewals from the final year of the Sprint iDEN decommissioning, as well as $40 million from network rationalization of Metro PCS, Leap and Clearwire legacy networks.
Although Moreland said continued strong gross leasing activity would drive double-digit organic growth in the next year, the effects of the rationalization are now expected to last beyond next year, resulting in organic growth of 6 percent to 7 percent.
Wall Street reacted badly to the news about the decommissioning headwinds sending the stock down several points. Analysts were all over the place; some upgraded CCI and others downgraded it. RBC Capital Markets trimmed its price target from $90 to $83 for CCI based on lower site rental revenue and AFFO growth forecasts, according to Analyst Jonathan Atkin. On the other hand, Goldman’s Brett Feldman upgraded CCI, lauding its “attractive combination of dividend yield and dividend growth.”
Wells Fargo Senior Analyst Jennifer Fritzsche was on the fence. “We remain on the sidelines given the more muted 2015 outlook, and reiterate our Market Perform rating on CCI shares,” she wrote.
Crown Castle chose the earnings call to announce an increase in its dividend from $1.40 per share to $3.20 per share, a 134-percent increase. The move was seen as a response to activist investor Corvex Management’s call for the tower company to “correct its capital allocation plan” if it wants to bid on the Verizon towers. Moreland said the timing was right to give back more to shareholders.
“We acknowledge that our organic growth rate in the future is likely to be lower than in the past, partly because of the law of large numbers and the headwinds associated with the carrier consolidation on non-renewals we expect over the next three to four years,” Moreland said. “Thus, we believe a larger component of our shareholders’ total return appropriately should come from the current distribution of our very high-quality contracted revenues, primarily serving the four national U.S. carriers.”
The dividend will be paid with 75 percent of CCI’s AFFO, leaving 25 percent to fund organic growth, according to the company. Moreland said future organic growth opportunities will not require a lot of capital to pursue.
“Opinions among shareholders and the investment banks were split between support for distributing a high percentage of our AFFO in the form of dividends and desire for us to maintain a lower payout and continue to retain more flexibility to purchase shares opportunistically,” Moreland said. “We have sized the dividend to retain 25 percent of AFFO, which we believe is necessary to pursue all of our organic growth plans and sustain the business appropriately.”
Moreland did not make any announcements on a possible Verizon tower bid, but said additional acquisitions are on the table. “We will continue to seek external growth through further acquisition opportunities when such acquisitions cover the cost of the new capital and allow us to increase the dividend over time,” he said.