Crown Castle today announced its Q1 2021 earnings, updated guidance for its full-year 2021 outlook, and gave refreshed return on invested capital (ROIC) yields for its towers and fiber segments.

Full-Year 2021 Outlook

Crown Castle raised its financial outlook for full-year 2021, as compared to the company’s prior forecast that it provided in January 2021. At the mid-point of Crown Castle’s full-year 2021 guidance the company currently anticipates:

  • Site Rental Revenues: $5.70bn up from $5.56bn, an increase of 2.5%
  • Adjusted EBITDA: $3.76bn up from $3.61bn, an increase of 4.2%
  • Net Income: $1.08bn up from $1.00bn, an increase of 8.7%
  • Earnings per Share: $2.50 up from $2.30, an increase of 8.7%
  • Adjusted Funds From Operations (AFFO): $2.95bn up from $2.91bn, an increase of 1.4%
  • Adjusted Funds From Operations (AFFO) per Share: $6.79 up from $6.69, an increase of 1.5%

Crown Castle’s increase to the mid-point of its full-year 2021 outlook for site rental revenues, adjusted EBITDA, and AFFO is primarily the result of an updated tower leasing agreement with Verizon, increased services contribution, and a decrease in projected interest expense.

Verizon Tower Lease Agreement

Crown Castle expects to recognize $140m of additional straight-lined revenues from a long-term tower leasing agreement with Verizon that it signed in early April 2021. Additionally, the agreement extended Crown Castle’s average contracted lease term for its existing Verizon tower site leases to ~10 years. This agreement pertains to Verizon’s deployment of C-band equipment on Crown Castle’s towers.

Other Contributing Factors

Firstly, Crown Castle projects a $25m increase in its services contribution, which is primarily site development services relating to tenant equipment installations (likely Verizon’s C-band equipment). Secondly, the company anticipates a $30m decrease in its interest expense payments, driven by its refinancing of debt. Thirdly, these positive benefits are offset by $15m of additional labor-related expenses from the increase in towers activity.

Capital Expenditures – Crown Castle Being Selective

Crown Castle continued to reduce its capital expenditures, which during Q1 2021 were $302m. Specifically, of this total, $17m were maintenance and $285m were discretionary. Decomposing discretionary capital expenditures further, $225m was attributable to the fiber segment and $49m was attributable to the towers segment.

Overall, Crown Castle is reducing its discretionary capital expenditures and in particular, those from the fiber segment. To this end, discretionary fiber capital expenditures declined 23% from Q4 2020 and 29% from Q1 2020.

Return on Invested Capital for Crown Castle in Q1 2021

Crown Castle’s Q1 2021 earnings provided updated disclosures for segment cash yields on invested capital. Indeed, investors have been focused on these metrics. Particularly, because these metrics highlight the economic returns on Crown Castle’s towers and fiber (including small cells) segments.

In Q1 2021, return on invested capital was 11.1% for Crown Castle’s towers segment and 7.5% for its fiber segment. As a comparison, in Q4 2020 return on invested capital was 10.8% (30 bps lower) for Crown Castle’s towers segment and 7.7% (20 bps higher) for its fiber segment.

Notably, Crown Castle’s fiber segment return on invested capital for Q1 2021 of 7.5% represents the lowest the metric has been since the company began disclosing its segment cash yields in Q2 2020. Conversely, Crown Castle’s towers segment return on invested capital for Q1 2021 of 11.1% represents its highest on record.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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