Last week, Crown Castle CFO Jay Brown attended the Bank of America Merrill Lynch 2015 Media, Communications & Entertainment Conference in Beverly Hills, CA. Brown was initially asked about the company’s five-year plan, which was said to be a little more specific than the company’s peers.
“We did map out a five-year plan of what we thought AFFO growth would be, and we think dividends are going to match that same growth rate. So our expectations would be over time to raise the dividend,” Brown explained. While there’s a plan, the industry can often experience some slight changes. The CFO noted that history tells us there’s always going to be some ebb and flow in the industry as you’re going to have some carriers working on this year’s activates while others focus on next year’s plan.
“Our assumption was that would net out from time to time, and we would see a similar level of leasing activity to what we had seen in 2014 and what we expected in 2015 over the next five years,” Brown said. When it comes to the 2016 catalysts, AT&T and Sprint, Brown seemed rather optimistic. It’s a well-known fact that AT&T pulled back their spending in the first half of the year. Brown actually noted that the carrier pulled back in the mid-to-back half of 2014, after they finished building out their LTE network. Industry analysts are pretty confident that spending will pick up in the first part of 2016 when they begin deploying their 2.3 GHz WCS spectrum..
“That’s really consistent with what we’ve seen,” Brown said. “We would expect, probably going into some part of 2016 that we would start to see the benefit of additional revenues as a result of their deployment plan.” Brown did explain that even if AT&T started to spend money today, Crown Castle would not start seeing revenue for perhaps six months. Many have questioned whether or not the company will give 2016 guidance when they report third quarter earnings at the end of October.
“I think we will give outlet for 2016 in October when we do third quarter earnings as been our habit,” Brown said. “We tend to be more likely to put things into the guidance based on actual activity than trying to guess. And from the time we start to work on something until it turns into revenue is about a six-month timeline. So depending on the facts, I wouldn’t say it’s unreasonable for us to put some of that AT&T activity in the forecast if there were certain fact sets that looked like they were signing leases and the applications were coming in the system.”
When it comes to Sprint, Brown was a little quieter on immediate plans. Sprint Chairman Masayoshi Son said they’ll have their new network up and running in 2016, but brown reiterated that 6-month time frame of when they’d see revenue. “If you pushed ‘go’ and went as fast as you could, it would be about 6-9 months, best case scenario, before we’d start to see rent benefit from Sprint activity,” Brown explained. “Obviously the number they’ve articulated about the number of small cells they want publicly and macro sites that they’re going to do is great for the tower industry.” The vagueness suggests Sprint isn’t as far along in their network plans as they’d like the industry to believe.
However, despite any one carrier’s specific plans. Brown is optimistic that the future of the tower industry will remain as strong as ever.
“Generally speaking, across the whole industry, there’s a relatively similar amount of capital investment that’s been made on an annual basis that’s resulted in a relatively similar amount of incremental growth and revenues,” Brown explained. “That’s been the case for a decade in our business, if you looked at it in a ‘per tower’ investment and what’s the impact in rent. So a lot of the public comments that are made by the carriers are really specific to what type of technology they’re going to use, what equipment they need to purchase. But the way it flows out the bottom of a model and flows up in our case of how much rent they’re going to pay and how many more sites they’re going to go one, there’s not near as much variability in that as there is in the public conversation.”
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