Crown Castle today announced its Q2 2021 earnings, updated its full-year 2021 outlook, and provided its latest return on invested capital (ROIC) yields for its towers and fiber segments.

Full-Year 2021 Outlook

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

  • Site Rental Revenues: $5.70bn, which is in-line with prior guidance
  • Adjusted EBITDA: $3.79bn up from $3.76bn, an increase of 0.8%
  • Net Income: $1.11bn up from $1.08bn, an increase of 2.8%
  • Earnings per Share: $2.57 up from $2.50, an increase of 2.8%
  • Adjusted Funds From Operations (AFFO): $2.97bn up from $2.95bn, an increase of 0.7%
  • Adjusted Funds From Operations (AFFO) per Share: $6.83 up from $6.79, an increase of 0.6%

Crown Castle’s increase to the mid-point of its full-year 2021 outlook is primarily the result of increased tower revenues and services contribution. However, this was offset by declines related to near-term reductions in small cell deployments.

Towers Accelerate

Crown Castle is experiencing the highest level of tower activity in its history. Indeed, its customers (i.e., wireless carriers) are focusing on utilizing towers in the first phase of deploying their 5G networks across the United States.

To this end, quarter-over-quarter, Crown Castle added $6bn+ in long-term contracted tenant receivables to its towers segment. Notably, this increase was in-part driven by Crown Castle’s tower leasing agreement with Verizon, which extended the company’s average contracted lease term for its existing Verizon tower sites to ~10 years.

Additionally, the company increased the tenancy ratio on its 40.1k towers from 2.1x to 2.2x. Finally, the weighted average remaining tenant contract term grew from 5 years to 6 years.

Small Cells Slow-Down

Conversely, the initial focus by wireless carriers on towers has led to delays in Crown Castle’s small cell deployments. In turn, this is pushing back the timing for the completion of the ~30k small cells currently in the company’s backlog.

Presently, Crown Castle expects to deploy only ~5k small cells in 2021, which is down from its prior expectations of ~10k small cells for the year. Specifically, the decrease in small cell activity is attributable to:

  • Customer Priorities: wireless carrier’s focus on utilizing towers in the first phase of their 5G deployments
  • Zoning and Permitting: processes taking longer, leading to delays in deployment timelines
  • Sprint Cancellation: previously disclosed in Crown Castle’s Q4 2020 earnings release. T-Mobile is cancelling ~1.0k small cells initially scheduled for deployment during 2021

Notably, Crown Castle states that because of these factors, the company also expects to deploy only ~5.0k small cells in 2022.

Capital Expenditures – Q2 2021

Crown Castle’s capital expenditures during Q2 2021 totaled $308m. Specifically, of this total, $19m were maintenance and $289m were discretionary. Decomposing discretionary capital expenditures further, $223m was attributable to fiber and $60m was attributable to towers.

Return on Invested Capital for Crown Castle – Q2 2021

Crown Castle’s Q2 2021 earnings provided updated disclosures for towers and fiber segment cash yields on invested capital. Indeed, these metrics provide insight into the economic returns on Crown Castle’s towers and fiber (including small cells) segments.

In Q2 2021, return on invested capital was 11.0% for Crown Castle’s towers segment and 7.3% for its fiber segment. As a comparison, in Q1 2021 return on invested capital was 11.1% (10 bps higher) for Crown Castle’s towers segment and 7.5% (20 bps higher) for its fiber segment.

Notably, Crown Castle’s fiber segment return on invested capital for Q2 2021 of 7.3% 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 Q2 2021 of 11.0% represents its second-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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