Key Takeaways from Crown Castle (CCI) 2015 4th Quarter Earnings Call

We reviewed the transcript and presentation materials for the CCI earnings call for the 4th quarter of 2015 and compared to the same call back in 2014.   Here are the things we found interesting from the call.

1. No new towers and moderate lease-up. From Q4 2014 to Q4 2015, CCI added no new towers.  The number of tenants per tower actually declined slightly from 2.3 to 2.2 over that same time frame.   CCI’s lease up is stuck at .1 or 1 additional tenant per tower every 10 years, which they confirmed has been the growth rate for CCI towers over the last 7 years.
2. Lease up expectations for 2016 are up slightly from where there were for 2015 at the same point rising for both site modifications and for new leases. (6% vs 5.4% projected revenue growth for new leases and 9% vs. 8.6% projected revenue growth for modification work on existing sites.)  There wasn’t any clarity on which carriers this was coming from and interestingly, there weren’t any questions about it either.
3. Lease terminations are falling as is the remaining guaranteed term on the master leases. Lease non-renewals will fall from 4.1% of revenue to 3.4% and the average remaining term on all leases is down to 6 years from 7 years over the last year.   Meaning that no real changes have occurred in the tenant leases.
4. CCI has evaluated the market and found that there are no large portfolios of towers left to be acquired in the US.
5. CCI continues to be the only public tower company excited about small cell initiatives. They expound upon the opportunities related to small cells and point out that they have 12,000 nodes and 5,000 under construction, but continue to fail to provide any clarity as to how many nodes are small cells vs DAS nodes, preferring to group all together.    CCI points out that they are experiencing 30% growth in rental revenues from small cells “exclusive of the benefit from Sunesys” which we assume means that they are excluding the growth from existing Sunesys small cell leases already in place at the time of acquisition.   CCI expects 6-8% yields on the anchor tenant, with higher yields for subsequent tenants.   Jay Brown of CCI indicated that 75% of new leasing comes from deploying new fiber whereas 25% comes from collocation on existing systems and that they are seeing an average of 2 to 2.5 nodes per mile of fiber deployed.   We believe that analysts should be asking for clarity from CCI on the percentage of nodes and percentage of revenue growth that has come or will come from existing DAS systems vs true small cell opportunities.  The primary reason is that historical growth on DAS systems should not be used to infer similar growth on small cells.  DAS deployments typically have higher barriers to entry than small cell deployments for subsequent carriers.
6. No rebuttal regarding Sprint. When asked about Sprint and their upcoming efforts, CCI chose not to provide any substantive response other than a general one about their confidence in macrocells and how three of the four carriers had confirmed their reliance on macrocells.   We assume that CCI must not be modeling much growth from Sprint at this time for new macrocells.