Founded in 1994, Crown Castle provides wireless carriers with the infrastructure they need to keep people connected and businesses running. With approximately 40,000 towers and 14,000 small cell nodes supported by approximately 7,000 miles of fiber, Crown Castle is the nation’s largest provider of shared wireless infrastructure with a significant presence in the top 100 US markets.
| |
Crown Castle International Corp. owns, operates, and leases shared wireless infrastructure in the United States and Australia. The company provides towers and other structures, such as rooftops; and distributed antenna systems, a type of small cell network (small cells). It provides access, including space or capacity to its towers, small cells, and third party land interests via long-term contracts in various forms, including license, sublease, and lease agreements. In addition, the company offers network services relating to wireless infrastructure, primarily consisting of antenna installations or subsequent augmentations, as well as site development services relating to wireless infrastructure. As of December 31, 2013, it owned, leased, or managed approximately 39,600 towers in the United States, including Puerto Rico; and approximately 1,700 towers in Australia. The company was founded in 1994 and is headquartered in Houston, Texas.
(Summary) (Company) (Chart)
| 16 August 2016 Price $94.80 1yr Target $105.81 Analysts 16 Dividend $3.54 Payout Ratio 354.00% 1yr Cap Gain 11.61% Yield 3.73% 1yr Tot Return 15.34% P/E 94.42 PEG --- Beta 0.35 | EPS (ttm) $1.00 EPS next yr $1.44 Forward P/E 65.65 EPS next 5yr -0.70% 1yr Price Support --- Market Cap $31.92 Bil Revenues $3.76 Bil Earnings $336.90 Mil Profit Margin 8.93% Quick Ratio 0.90 Current Ratio 0.90 Debt/Equity 1.79 | 1yr RevGR 3.53% 3yr RevGR 14.47% 5yr RevGR 14.29% 1yr EarnGR 325.00% 3yr EarnGR 89.21% 5yr EarnGR --- 1yr DivGR 307.92% 3yr DivGR --- 5yr DivGR --- ROA 1.50% ROE 4.70% |
| |
Overview
Crown Castle owns, operates and leases shared wireless infrastructure, including: (1) towers and other structures, such as rooftops and (2) small cell networks supported by fiber. Their core business is providing access, including space or capacity, to their shared wireless infrastructure via long-term contracts in various forms, including license, sublease and lease agreements. They increase site rental revenues by adding more tenants on a shared wireless infrastructure which will produce significant incremental cash flows from relatively fixed operating costs.
Effective January 1, 2014, the company began operating as a REIT. As of December 31, 2015 the company owned, leased or managed approximately 40,000 towers and 16,000 fiber miles in the US. Approximately 56% and 71% of their towers are located in the 50 and 100 largest U.S. metro areas. The company owned, including fee interests and perpetual easements, land and other property interests on which approximately one-third of their site rental gross margin is derived. They also leased, subleased, managed and/or licensed the land interests on which approximately two-thirds of their site rental gross margin is derived. The leases for the land interests under the towers had an average remaining life in excess of 30 years.
For the year ended December 31, 2015, Crown Castle's customers included AT&T, T-Mobile, Verizon Wireless and Sprint which collectively accounted for 90% of their rental revenues. Site rental revenues represented 82% of 2015 consolidated net revenues and site rental gross margin represented 88% of the company's consolidated gross margin. Site rental revenues are of a recurring nature, and typically in excess of 90% have been contracted for in a prior year (excluding the impact of current year acquisitions).
Site rental revenues typically result from long-term leases with (1) initial terms of five to 15 years, (2) multiple renewal periods at the option of the tenant of five to ten years each, (3) limited termination rights for our tenants, and (4) contractual escalations of the rental price. Exclusive of renewals at the tenants' option, the company's tenant leases have a weighted-average remaining life of approximately six years and represent $20 billion of future cash inflows.
The Company
Following the sale of CCAL in May 2015, virtually all of the company's operations are located in the US, and substantially all of the company's operations are conducted through subsidiaries of Crown Castle Operating Company.
Site Rental. The company's core business is providing access, including space or capacity, to their shared wireless infrastructure in the US. This predominately consists of towers and small cells. They provide access to wireless carriers under long-term leases for their antennas which transmit a variety of signals related to wireless connectivity. To a lesser extent, they offer fiber solutions including dark fiber and lit fiber. Crown Castle believes their wireless infrastructure is integral to their customers' networks and to serve their customers.
The company acquired ownership interests or exclusive rights to the majority of their towers from the four largest wireless carriers through transactions consummated after 1999, including transactions with (1) AT&T in 2013, (2) T-Mobile in 2012, (3) Global Signal Inc. in 2007 which had originally acquired the majority of its towers from Sprint, (4) companies now part of Verizon Wireless during 1999 and 2000, and (5) companies now part of AT&T during 1999 and 2000. The small cell assets include those acquired from NextG Networks, Inc. in 2012 and the Sunesys Acquisition in 2015.
Crown Castle generally receives monthly rental payments from tenants, payable under long-term leases. The company has existing master lease agreements with most wireless carriers, including AT&T, T-Mobile, Verizon Wireless and Sprint; such agreements provide certain terms (including economic terms) that govern leases on their wireless infrastructure entered into by such carriers during the term of their master lease agreements. The company generally negotiates initial contract terms of five to 15 years, with multiple renewal periods at the option of the tenant of five to ten years each, and the leases include fixed escalations.
Tenant leases have historically had a high renewal rate and, with limited exceptions, tenant leases may not be terminated prior to the end of their current term, and non-renewals have averaged approximately 2% of site rental revenues over the last five years. In general, each tenant lease which is renewable will automatically renew at the end of its term unless the tenant provides prior notice of its intent not to renew.
In excess of two-thirds of the company's direct site operating expenses consist of lease expenses and the remainder includes property taxes, repairs and maintenance, employee compensation or related benefit costs, or utilities. Cash operating expenses tend to escalate at approximately the rate of inflation. As a result of the relatively fixed nature of these expenditures, the addition of new tenants is achieved at a low incremental operating cost, resulting in high incremental operating cash flows. The company's wireless infrastructure portfolio requires minimal sustaining capital expenditures, including maintenance or other non-discretionary capital expenditures, and are typically approximately 2% of net revenues.
Network Services. As part of the company's effort to provide comprehensive solutions they offer certain network services consisting of (1) site development services and (2) installation services. For 2015, 65% of network services related to site development services. The company has grown their network service revenues over the last several years as a result of increased volumes from carrier network upgrades, promoting site development services, expanding the scope of our services, and our focus on customer service and deployment speed. The company has the capability and expertise to install, with the assistance of a network of subcontractors, equipment or antenna systems for our customers. They don't always provide the installation services or site development services for their customers because third parties can also provide these services.
Customers. Crown Castle works extensively with large national wireless carriers. The four largest customers (AT&T, T-Mobile, Verizon Wireless and Sprint) collectively accounted for 90% of the company's 2015 site rental revenues.
Sales and Marketing. The company's sales organization markets their wireless infrastructure within the wireless industry with the objective of providing access to existing wireless infrastructure or to new wireless infrastructure prior to construction. Crown Castle seeks to become the critical partner and preferred independent wireless infrastructure provider for their customers and increase customer satisfaction relative to their peers.
Competition. Competition for site rental tenants comes from various sources, including (1) other independent wireless infrastructure owners or operators, including towers, rooftops, broadcast towers, utility poles, fiber providers, distributed antenna systems or other small cells, or (2) new alternative deployment methods in the wireless industry.
Some of the larger independent tower companies with which we compete include American Tower Corporation and SBA Communications Corporation. The company believes that tower location, deployment speed, quality of service, capacity and price have been and will continue to be the most significant competitive factors affecting the leasing of wireless infrastructure.
Competitors in the network services offering include site acquisition consultants, zoning consultants, real estate firms, right-of-way consulting firms, construction companies, tower owners or managers, radio frequency engineering consultants, telecommunications equipment vendors who can provide turnkey site development services through multiple subcontractors, or the company's customers' internal staff.
Sale of CCAL. On May 28, 2015, Crown Castle completed the sale of their 77.6% owned Australian subsidiary, CCAL, to a consortium of investors led by Macquarie Infrastructure and Real Assets. CCAL had historically been a separate operating segment.
Wireless Industry Update.
During 2015, consumer demand for wireless connectivity continued to grow. This growth in wireless consumption is driven by the increased usage of wireless applications, including (1) mobile entertainment (such as mobile video, mobile applications, and social networking), (2) mobile internet usage (such as email and web browsing) and (3) machine-to-machine applications (also known as "the Internet of Things"). As a result, consumer wireless devices are trending toward bandwidth-intensive devices such as smartphones, laptops, tablets and other emerging devices.
The major wireless carriers continue to upgrade and enhance their networks, which has translated into additional demand for Crown Castle's wireless infrastructure. The company expects that consumers' growing wireless consumption will likely result in wireless carriers continuing to invest in their networks and focus on improving network quality and capacity by adding additional antennas or other equipment in an effort to improve customer retention or satisfaction. Additionally, spectrum licensed by the FCC has enabled continued wireless carrier network development.
The company expects this development and the potential availability of additional spectrum through government auctions to enable continued future carrier network development and potential demand for their wireless infrastructure.
During 2015, consumer demand for wireless connectivity continued to grow. This growth in wireless consumption is driven by the increased usage of wireless applications, including (1) mobile entertainment (such as mobile video, mobile applications, and social networking), (2) mobile internet usage (such as email and web browsing) and (3) machine-to-machine applications (also known as "the Internet of Things"). As a result, consumer wireless devices are trending toward bandwidth-intensive devices such as smartphones, laptops, tablets and other emerging devices.
The major wireless carriers continue to upgrade and enhance their networks, which has translated into additional demand for Crown Castle's wireless infrastructure. The company expects that consumers' growing wireless consumption will likely result in wireless carriers continuing to invest in their networks and focus on improving network quality and capacity by adding additional antennas or other equipment in an effort to improve customer retention or satisfaction. Additionally, spectrum licensed by the FCC has enabled continued wireless carrier network development.
The company expects this development and the potential availability of additional spectrum through government auctions to enable continued future carrier network development and potential demand for their wireless infrastructure.
My Perspective
This is a very interesting company in a somewhat unique business. There's also very limited competition and a high entry for anyone else wanting to enter this business. I will be looking at American Tower Corporation and SBA Communications in the near future and at that point I'll be able to compare their fundamentals and technicals.
At that point I'll be able to determine which company is the best to invest in but already I'm sure that this business is one I believe I'd like to be part of. I love companies the are absolutely necessary for modern life, produce products that are in high demand, and whose products are around us and yet we never notice them. They're the things that we all demand yet never really think about. And as a result produce continuous and reliable revenues, earnings and dividends.
Print 
PDF
RSS Feed
