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.”
May 5, 2016 — Enjoying a solid start to 2016, SBA Communications reported that carrier activity was consistent with the last three quarters of 2015, featuring mostly amendments to existing macro sites, according to the towerco’s first quarter earnings call. Aside from normal churn and an iDEN de-commissioning hangover, which will last most of 2016, SBA achieved organic leasing revenue growth of 8.1 percent in the first quarter.
“By application and executed contract volume, the activity is substantially amendments,” said Jeffrey Stoops, president and CEO. “We expect the investments in macro sites by our U.S. customers will remain heavily weighted towards amendments for the remainder of this year.”
SBA projected increased growth in the long term (by 2020) through new sites and amendment activity, but conservative short-term estimates led Wells Fargo Securities to maintain its Market Perform rating for its stock.
“While this is a positive, SBAC continued to speak to a more muted domestic spending environment, which does not seem to be changing near term,” wrote Senior Analyst Jennifer Fritzsche.
During the quarter, carrier activity centered on the AWS-1 (Advanced Wireless Services at 1.7 GHz and 2.1 GHz) and 700 MHz deployments, as well as refarming of 2G and 3G spectrum to LTE,
“We are in the very early innings of AWS-3 (1.6 GHz, 1.75 GHz, 2.15 GHz), WCS (Wireless Communications Service at 2.3 GHz) and 2.5 GHz spectrum deployments all of which remain opportunities ahead of us,” Stoops said. “The amount of activity around an investment in our customers’ existing macro sites continues to be robust and underscores the importance of macro sites in our customers’ network plans.”
SBA lowered its services guidance to reflect reduced work from Sprint, while other carriers are expected to remain steady, compared with last year.
Carrier activity reported by American Tower in the first quarter took place in the AWS-3, WCS, and 2.5 GHz bands, as well as through refarming 2G and 3G spectrum into 4G in the 800 MHz and PCS bands. Refarming drove amendments as old antennas were swapped out for more advanced antennas, according to James Taiclet, American president and CEO.
“This shift drives further investment into cell sites through technologies such as carrier aggregation as well as adding new cell sites to reduce the transmission radius and, therefore, the quality improvement for each signal,” he said. “This increase in cell site density is expected to drive incremental collocation opportunities on macro towers, as customers like us demand higher and higher peak speeds to enhance our user experience.”
Organic growth of U.S. property revenue is projected to be 5.5 percent by American Tower, compared with 12 percent for international properties.
Crown Castle International
Crown Castle saw organic site rental revenue grow 7 percent plus 3 percent cash escalations minus 2 percent from churn in the first quarter.
Jay Brown, Crown Castle CFO, also said carrier activity won’t increase in 2016. Additionally, the execution of new leases and amendments will be backloaded, 40 percent in the first half and 60 percent in the second half.
“Our view is that leasing activity in the full year of 2016 is going to be very similar to what we saw in 2015. And we continue to hold that view,” he said.
April 26, 2016 — Crown Castle International exceeded its expectations in the first quarter 2016 and raised its outlook for the full year as organic site rental revenue grew $55 million or 8 percent year over year. The first quarter saw 7 percent growth from new leasing activity plus 3 percent from escalations, minus 2 percent tenant non-renewals, the company said during it quarterly earnings call.
While the tower business is good for CCI, the majority of its current capex is devoted to its small cell business, which comprises 16,500 miles of fiber. While small cells account for $385 million, or 12 percent, of annualized site rental revenues, it is obvious CCI sees a bright future in them.
“We are as excited as we have ever been by the opportunities in small cells,” Jay Brown, CCI CFO, said. “Our small cell conversations with the carriers have increasingly become more positive with the passage of time and we are seeing the business model of small cells play out very similarly to that of towers.”
Brown walked through two case studies that illustrated the collocation economics of small cells as the fiber infrastructure. The first one was located in Denver, which originally comprised 14 miles of fiber connecting 18 tenant nodes on 18 poles for the first carrier. Since then two carriers have been added to the system, which now numbers 17 miles of fiber connecting 65 tenant nodes on 26 poles in the public right-of-way.
“In aggregate, this system currently generates a yield of approximately 20 percent, based on the recurring cash flows and the capital we invested in the system. As you can see with this system, we have been able to leverage the initial investment by collocating additional tenant nodes on the fiber to drive our returns,” Brown said.
The system CCI has in Las Vegas consists of 36 miles of fiber supporting 77 tenant nodes on 77 poles. The yield of 13 percent is less than Denver, because it hosts only two carriers. A third one, however, is on the way.
“We are currently working with a third carrier to collocate nodes on this fiber network and anticipate adding that third carrier to this system in the next six months,” Brown said.
One of the questions surrounding small cells has concerned the number of carriers that would want small cell coverage in the same location. Unlike the Denver example, where the majority of the colocation of tenant nodes occurred on the same pole as the first carrier, the collocations in Las Vegas occurred at different pole locations along the existing fiber.
“Because the majority of the investment relates to deploying fiber, our yields increased by collocating additional nodes on our fiber, regardless of whether the colocation occurs on the same pole or on another pole along the fiber,” Brown said. “This is why we often describe the fiber as a tower laid on its side upon which we are aiming to collocate tenant nodes.”
Small cell deployment has driven improved yields on the fiber-optic systems, and CCI expects that trend to continue.
“Given the returns we are seeing from small cells, we believe our continued investments are consistent with our strategy of allocating capital to drive long-term growth in dividends per share,” Brown said.
April 11, 2016 – Some tower portfolios simply go to the highest bidder, others seem to the be the result of long term relationships in the industry. Crown Castle International’s purchase of Tower Development Corporation (TDC) late last week for $461 million could be placed in the latter category. TDC, which owns and operates 336 towers in the United States and Puerto Rico, is the portfolio company of Berkshire Partners, which has a long history of working closely with CCI.
The purchase of the towers, which average two tenants each, is expected to contribute $25 million to $27 million to CCI’s site rental gross margin in the first full year and to be immediately accretive.
The acquisition of TDC brings the giant public tower company full circle with the roots of its long-term relationship with Berkshire Partners, which was one of the original investors in Crown Castle. Along with investing multiple times in CCI, Berkshire worked with its management to build the financial tools needed to participate in the tower industry consolidation, eventually helping it go public in 1998 and with subsequent sales of equity securities.
Additionally, TDC, which was formed in 2009, has developed wireless infrastructure in partnership with CCI.
Berkshire also played a role supplying capital and advice in CCI’s acquisition of the British Broadcasting Corporation’s tower and broadcast assets in 1997, which were divested in 2004.
“There was a true partnership between [Berkshire] management and investors through the key early domestic acquisitions made by CCI, and especially during the ground breaking effort to prove to the BBC that CCI was a worthy outsourcing partner with the operating skills and capital necessary to ensure continued smooth operation of their critical transmission assets,” the firm writes on its website.
At the end of 2015, CCI had operations in 100 U.S. markets, with more than 40,000 towers, 17,000 small cells and 16,000 miles of fiber-optic backhaul.
October 29, 2015 — Crown Castle International reported strong leasing activity in the third quarter with 10 percent growth year over year from new leasing activity and cash escalations. Organic site rental revenue growth was $43 million, or six percent, less 4 percent attributed to tenant non-renewals. The tower company expects the growth to continue in the four quarter and throughout 2016.
“Based on our increased 2015 outlook, we expect to finish 2015 on a strong note and we look to continue this momentum moving into 2016,” said Ben Moreland, Crown Castle president and CEO.
In 2016, Crown anticipates new leasing activity of $170 million, which is similar to 2015 levels. That number is shared by tower leasing ($115 million) and small cell leasing ($55 million). Organic site rental revenue growth next year is expected to be 5.5 percent or $160 million, which consists of 9 percent new leasing activity and escalations on tenant leases, less 4 percent from non-renewals.
The $115 million new leasing figure is consistent with Crown Castle’s long-term expectation of adding one tenant-equivalent per tower over 10 years across its portfolio of 40,000 towers. During the last six years, the tower company’s annual leasing activity has ranged between 0.09 and 0.13 tenants per tower.
“Our organic growth is also supported by annual contracted tenant escalators on our towers and small cell leases of 3 percent, which we expect will contribute $95 million in growth during 2016,” said Jay Brown, Crown Castle CFO.
Small Cells Adding to Bottom Line
During the third quarter, Crown Castle closed on the acquisition of Sunesys, which owns or has the rights to nearly 10,000 miles of fiber in major metro markets across the United States where Crown Castle has a small cell presence.
The contribution of the Sunesys acquisition, in addition to the strong leasing and improved operating leverage, will drive Crown Castle’s projection of 8 percent in AFFO (adjusted funds from operations) per share growth in 2016.
Small cells are already making a difference. Excluding Sunesys, small cell leasing revenue has grown 30 percent so far this year.
“While towers will continue to be the most efficient and cost-effective way for carriers to deploy their networks, we expect carriers to make investments in small cells to enhance their macro networks by bringing cell sites closer to mobile subscribers,” Brown said. “We believe small cells represent the natural progression of network densification and cell splitting by the carriers as they contend with consumer demand for mobile data.”
(Quotes for this article courtesy seeingalpha.com)