Crown Castle today announced its Q4 2021 earnings, increased its full-year 2022 outlook, disclosed its latest return on invested capital (ROIC) yields for its towers and fiber segments, and detailed the implications of its new tower and small cells agreement with T-Mobile.

Financials in Q4 and Full-Year 2021 – Crown Castle

In Q4 2021, Crown Castle reported total revenue of $1.65bn, a 2.2% increase quarter-over-quarter, and adjusted EBITDA of $984m, a 0.8% increase quarter-over-quarter. Therefore, the company’s EBITDA margin was 59.5% in Q4 2021, a ~80 bps decline quarter-over-quarter.

Principally, in Q4 2021, Crown Castle generated site rental revenues of $1.47bn (89% of total revenue), a 1.6% increase quarter-over-quarter. Bifurcating site rental revenues by segment shows that towers comprise $985m (67%), while fiber and small cells contribute $489m (33%).

Full-Year 2021

For full-year 2021, Crown Castle reported total revenue of $6.34bn, an 8.6% increase year-over-year, site rental revenues of $5.72bn, a 7.5% increase year-over-year, and adjusted EBITDA of $3.82bn, a 3.0% increase year-over-year. Therefore, the company’s EBITDA margin was 60.2% for full-year 2021, a 3.3% decline year-over-year.

Full-Year 2022 Outlook – Crown Castle

Crown Castle raised its full-year 2022 outlook to account for $250m of additional straight-lined site rental revenues for its towers segment resulting from its previously announced master lease agreement (MLA) with T-Mobile.

Full-Year 2022 Outlook – as of January 2022
$ in millionsLowHighMid-Point% Raised
Site Rental Revenues$6,202$6,247$6,2254.2%
Adjusted EBITDA$4,249$4,294$4,2726.2%

For full-year 2022, Crown Castle projects site rental revenues of $6.22bn at the mid-point and adjusted EBITDA of $4.27bn at the mid-point. As compared to Crown Castle’s prior full-year 2022 outlook, the company has raised its expectations for site rental revenues by 4% and adjusted EBITDA by 6%. Additionally, the mid-point of the company’s revised outlook implies a year-over-year increase of 9% and 12% in site rental revenues and adjusted EBITDA, respectively.

In 2022, Crown Castle expects customers to begin upgrading their existing cell sites as part of the first phase of their 5G build-outs in the U.S. While the company also sees customers planning for the next phase of their 5G build-outs which will require small cells at scale.

New Leasing Activity by Segment

In full-year 2022, Crown Castle expects $320m to $350m of core leasing activity. Specifically, this includes contributions of $150m to $160m from towers, $25m to $35m from small cells, and $145m to $155m from fiber.

Return on Invested Capital – Crown Castle – Q4 2021

Below is a historical trending of Crown Castle’s towers and fiber segment cash yields on invested capital up to Q4 2021. These metrics highlight the economic returns on Crown Castle’s towers and fiber (including small cells) segments.

Return on Invested Capital – Towers and Fiber Segments
Crown Castle Return on Invested Capital Towers Fiber Q4 2021

In Q4 2021, return on invested capital was 11.3% for Crown Castle’s towers segment and 7.9% for its fiber segment. As a comparison, in Q3 2021 return on invested capital was 11.2% (10 bps lower) for Crown Castle’s towers segment and 7.3% (60 bps lower) for its fiber segment.

As shown above, Crown Castle’s towers segment return on invested capital has been consistently trending upwards over the past quarters. In contrast, in Q4 2021, Crown Castle’s fiber segment return on invested capital inflected higher to 7.9%. This quarterly improvement was primarily driven by an increase in Crown Castle’s fiber segment site rental gross margin.

Capital Expenditures

Crown Castle’s capital expenditures during Q4 2021 totaled $337m. Specifically, of this total, $30m were maintenance and $307m were discretionary. Decomposing discretionary capital expenditures further, $241m was attributable to fiber and $53m was attributable to towers.

For full-year 2022, Crown Castle expects discretionary capital expenditures to be between $1.1bn to $1.2bn.

Tower and Small Cells Agreement – T-Mobile and Crown Castle

In January 2022, Crown Castle entered into a 12-year master lease agreement (MLA) with T-Mobile US, which includes new tower leasing activity and a contractual commitment to deploy 35k new small cell nodes over multiple years. This agreement was particularly important as T-Mobile is Crown Castle’s single largest tenant, comprising 33% of its site rental revenues as of Q4 2021.

As a result of its agreement with T-Mobile, Crown Castle strengthens both its towers and small cells businesses:

Towers

Crown Castle expects to generate ~$250m of additional tower straight-lined site rental revenues for full-year 2022, which has now been included in its increased full-year 2022 outlook. At the same time, Crown Castle mitigates large lease expirations from T-Mobile in 2023 and pushes out ~$200m of churn to 2025. However, some of T-Mobile’s churn that was scheduled for 2028 gets pulled forward into 2025.

Small Cells

Crown Castle anticipates ~$45m of small cells churn in 2023. Although, this is offset by upfront payments from T-Mobile, as well as T-Mobile’s new 35k small cell deployment commitment.

Over the past 12 months, Crown Castle has secured commitments for 50k+ new small cell nodes. Indeed, this equates to ~70% of the total small cells that Crown Castle has booked historically, prior to 2021. As a result, Crown Castle has ~55k small cell nodes on-air and 60k+ committed or under construction in its backlog.

Overall, Crown Castle anticipates accelerating deployment of small cells from ~5k in 2022 to 10k+ per year, starting in 2023.

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