No Hangups Here: Wireless Tower REIT CCI Reports Q2 Results, Bumps FY2015 Guidance

Crown Castle is the first of the "big three" third-party cell tower landlords to report earnings, with American Tower Corp AMT and SBA Communications Corporation SBAC scheduled to report July 29.

SBAC is the only C-Corp of the three, but does report REIT metrics such as FFO and AFFO in addition to GAAP earnings, which makes it easier for investors to compare performance.

Related Link: Blackstone Announces Cell Tower Buy

Tale Of The Tape: Past 5 Years

During the past 12 months, and especially over the front half of 2015, the price appreciation for this REIT sub-sector has decelerated compared with prior years.

Notably, Crown Castle pays a competitive REIT dividend, currently yielding 4 percent. American Tower's dividend yield is just 1.8 percent, while SBA Communications does not pay a regular dividend, but has created value for shareholders through stock buybacks.

Crown Castle's Two Big Q2 Moves

During Q2, Crown Castle closed the sale of its 15-year investment in Australian subsidiary CCAL on May 28 in order to deploy the capital in higher earning alternatives.

To that end, on April 30, CCI announced a definitive agreement to acquire the Quanta Fiber Networks, Inc. "Sunesys" fiber and small-cell network for approximately $1 billion; it expects the transaction to close during 3Q15, stating that it will be immediately accretive to AFFO.

"Sunesys is a fiber services provider that owns or has rights to nearly 10,000 miles of fiber in major metropolitan markets across the United States, including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley and northern New Jersey," the company reported.

Related Link: Wireless REIT Crown Castle Solely Focused On U.S. Markets And Fiber

A Domestic Wireless Strategy

CEO Ben Moreland confirmed, "[Our] focus and continued investment in the U.S. is based on our view that the continuing growth in U.S. consumer demand for mobile data, which is projected to increase seven-fold between 2014 and 2019, will require significant investments by the wireless carriers to increase the density of their networks."

During Q2, Crown Castle "generated organic site rental revenue growth of 10 percent year-over-year from new leasing activity and escalations on tenant leases."

Crown Castle's Q2 Adjustments

Crown Castle presented a pro forma table adjusting for the CCAL discontinued operations during the quarter.

Crown Castle's Q2 Earnings Highlights

• "AFFO increased 3 percent to $342 million in the second quarter of 2015, compared to $332 million in the second quarter of 2014.
• "AFFO per share increased 3 percent to $1.03 in the second quarter of 2015, compared to $1.00 in the second quarter of 2014.
• "Adjusted EBITDA for the second quarter of 2015 increased 2 percent to $521 million from $510 million in the same period in 2014.
• "Adjusted EBITDA and AFFO for the second quarter of 2015 benefited from higher than expected network services gross margin contribution, inclusive of $7 million in equipment decommissioning fees."

Crown Castle's Balance Sheet Highlights

"As of June 30, 2015, Crown Castle's outstanding debt had a weighted average coupon of 4.2 percent per annum and a weighted average maturity of six years," the report stated.

Continuing, the report stated that Crown Castle's "net debt (total debt less cash and cash equivalents) to second quarter annualized Adjusted EBITDA ratio was approximately 5.2x."

Crown Castle's FY 2015 Guidance

"Crown Castle has increased the midpoint of its full year 2015 Outlook for site rental revenues, site rental gross margin, Adjusted EBITDA and AFFO by approximately $21 million, $13 million, $27 million and $14 million, respectively, relative to the Previous Full Year 2015 Outlook adjusted to reflect CCAL as a discontinued operation," the company stated.

Investor Takeaway

Crown Castle is banking on U.S. wireless data growth to drive AFFO increases of 6 to 7 percent over the next five years.

The success of its accelerating investment in its small-cell and fiber strategy will be key to achieving these results.