Crown Castle Reports Hitting Projections Despite “Headwinds”

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Crown Castle Inc. (NYSE: CCI) reported results for the third quarter ended September 30, 2023 and issued its full year 2024 outlook. According to Jay Brown, Crown Castle’s Chief Executive Officer, the company kept up with its yearly outlook projections delivering five percent tower organic revenue growth and delivering on 10,000 small cell nodes. Brown said their customers showed increasing data demands despite the impact of Sprint cancellations of 4.5 percent from towers, 13 percent from small cells and three percent from fiber solutions.

“To generate consolidated organic revenue growth of five percent,” Brown said, “we plan to deploy discretionary capital, net of prepaid rent additions of $430 million, totaling approximately $1.2 billion which we expect to fund without issuing equity in 2024. As we work through discrete headwinds in 2024 and 2025, the strong underlying growth across our business gives us confidence in our ability to grow our dividend beyond 2025 and maintain our current annualized dividend of $6.26 per share.”

Highlights included:

  • Site rental revenues. Site rental revenues grew one percent, or $9 million, from third quarter 2022 to third quarter 2023, inclusive of approximately $53 million in Organic Contribution to Site Rental Billings, a $31 million decrease in straight-lined revenues, and a $14 million decrease in amortization of prepaid rent. The $53 million in Organic Contribution to Site Rental Billings represents 3.9 percent growth and was not materially impacted by the Sprint Cancellations.
  • Net income. Net income for the third quarter 2023 was $265 million compared to $419 million for the third quarter 2022, and included $72 million of charges incurred in the quarter related to CCI’s restructuring plan announced in July 2023.
  • Adjusted EBITDA. Third quarter 2023 Adjusted EBITDA was $1.05 billion compared to $1.08 billion for the third quarter 2022. The decrease in the quarter was primarily a result of $35 million of lower services contribution, partially offset by lower expenses.
  • AFFO and AFFO per share. Third quarter 2023 AFFO was $767 million, or $1.77 per share, representing a decrease from the third quarter 2022 of 5 percent and 4 percent, respectively. The decrease in the quarter was primarily a result of the lower contribution from Adjusted EBITDA and higher interest expense compared to third quarter 2022.
  • Capital expenditures. Capital expenditures during the quarter were $347 million, comprising $22 million of sustaining capital expenditures and $325 million of discretionary capital expenditures. Discretionary capital expenditures during the quarter included approximately $273 million attributable to Fiber and approximately $47 million attributable to Towers.
  • Financing activity. In July, Crown Castle repaid in full the previously outstanding 3.150 percent senior unsecured notes upon scheduled maturity. The aggregate principal repayment of $750 million was funded with its revolving credit facility.

According to Eric Luebchow of Wells Fargo Equity Research, “the guide was worse than we expected, with an eight percent decline in AFFO/sh (despite +4.5 percent towers growth and improving small cell installs) and the announced departure of its CFO. We think these issues are largely unique to CCI vs. peers.”

“We expect the low-point of AFFO to occur during the first half of 2024, with growth expected in the second half of the year and beyond,”  Brown said. “We continue to focus on our strategy to deliver the highest risk-adjusted returns for our shareholders and have established a comprehensive portfolio of towers, small cells and fiber, providing unique exposure to growth throughout the entire wireless upgrade cycle. We believe our ability to capture the rising growth in small cell demand while continuing to generate solid tower growth results from the portfolio of assets and core capabilities we have established as the largest operator of shared communications infrastructure in the United States.”

Luebchow said accelerating small cell node installs (+14K in 2024 vs. +10K in 2023) is a positive sign, but also led to a ~20 percent increase in capex that “will need to be financed at higher interest rates.” 

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