01—Abstract
Summary
Summary of the 10-K filed February 22, 2022. Cited figures are marked; the original filing is the authoritative source.
Crown Castle (CCI) closed 2021 with a stable, contract-driven business: site rental revenues rose 8% to $5.72 billiona, and total net revenues reached $6.34 billion.
Towers site rental gross margin grew 11% to $2.9 billionb, while Fiber site rental gross margin grew 7% to $1.28 billion. Net income attributable to stockholders rose 4% to $1.10 billion, and Adjusted EBITDA increased 3% to $3.82 billion. Operating cash flow was $2.8 billion, slightly below 2020 because 2020 included a one-time $308 million Sprint Cancellation payment.
Capital expenditures fell to $1.23 billionc from $1.62 billion as large fiber projects were completed. The key investor considerations are dividends and the T-Mobile relationship. Dividends paid in 2021 totaled about $2.4 billion, and the quarterly dividend was raised 11% to $1.47 per share, with at least $5.88 per share expected over the next 12 months.
Management noted that the new 12-year T-Mobile Agreement signed in January 2022 will drive roughly $250 milliond of incremental straight-lined revenue in 2022. However, the T-Mobile/Sprint network consolidation is expected to cut site rental revenue by about $200 million in 2025 (towers) and $45 million (small cells), mostly in 2023. Three tenants (T-Mobile, AT&T and Verizon) still generate about three-fourths of site rental revenue, so tenant concentration is a central risk.
Balance-sheet risk is moderate. Total debt was $20.6 billion at year end, with a weighted average interest rate of 3.1%, about 90% fixed-rate, and a weighted average maturity of about nine years. Management reports the total net leverage ratio at 5.4x against a covenant of 6.5x, and the company targets roughly 5x Adjusted EBITDA.
The company is a REIT with about $1.5 billion of federal NOLs, which keep cash taxes minimal, though dividend obligations limit the NOL benefit and use of the NOLs will be partly deferred. Investors should weigh strong, inflation-linked contracted cash flows against high leverage, reliance on a few large carriers, and the upcoming 2023 to 2025 non-renewal cycle.
02—Key points
Key Highlights
- Revenue growth: Site rental revenues rose 8% to $5.72B in 2021, and total net revenues reached $6.34B, up from $5.84B in 2020.
- Contracted cash flow base: Tenant contracts represent about $31B of expected future cash inflows, with a weighted-average remaining term of about five years, and site rentals are 90% of revenue.
- Dividend growth: Quarterly dividend increased 11% to $1.47/share; at least $5.88/share (~$2.5B) is expected over the next 12 months.
- Tenant concentration: T-Mobile (35%), AT&T (20%) and Verizon (20%) account for 75% of consolidated revenues, with T-Mobile's share up from 22% in 2019 after the Sprint merger.
- T-Mobile Agreement: A 12-year deal signed in January 2022 adds about $250M in 2022 straight-lined revenue, but the T-Mobile/Sprint consolidation is expected to reduce site rental revenue by about $200M (towers, 2025) and $45M (small cells, mostly 2023).
- Leverage and liquidity: Total debt of $20.6B, 90% fixed-rate, 3.1% weighted average interest rate, ~9-year weighted maturity, net leverage of 5.4x versus a 6.5x covenant, and $4.3B undrawn revolver availability.
- Capex normalization: Capital expenditures fell to $1.23B from $1.62B, with sustaining capex about 2% of net revenues and 2022 discretionary capex expected to rise as small cell deployment accelerates.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Crown Castle Inc. kept $0.17.
- Revenue$6.34B100.0%
- Cost of revenue−$439.0M6.9%
- Gross profit$5.90B93.1%
- Operating costs−$3.90B61.5%
- Operating income$2.00B31.6%
- Interest, other & tax−$905.0M14.3%
- Net income$1.10B17.3%
Where FY2021 revenue went
$6.34B- Other operating costs: $3.22B, 51% of revenue
- Net income: $1.10B, 17% of revenue
- Interest, other & tax: $905.0M, 14% of revenue
- Cost of revenue: $439.0M, 6.9% of revenue
- SG&A: $680.0M, 11% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 22, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $6.34B$5.84B | +8.6% |
| Cost of Revenue | $439.00M$448.00M | −2.0% |
| Gross Profit | $5.90B$5.39B | +9.4% |
| SG&A Expenses | $680.00M$678.00M | +0.3% |
| Operating Expenses | $4.34B$4.34B | 0.0% |
| Operating Income | $2.00B$1.86B | +7.4% |
| Interest Expense | $657.00M$689.00M | −4.6% |
| Net Income | $1.10B$1.06B | +3.8% |
| EPS (Basic) | $2.54$2.36 | +7.6% |
| EPS (Diluted) | $2.53$2.35 | +7.7% |
| Shares Outstanding (Basic) | 432.00M423.00M | +2.1% |
| Shares Outstanding (Diluted) | 434.00M425.00M | +2.1% |
05—Questions
Frequently Asked Questions
Is Crown Castle's dividend secure, and how much growth should investors expect?
The dividend is supported by roughly $2.8B of operating cash flow against about $2.4B of 2021 dividends paid, and management expects at least $5.88/share (~$2.5B) over the next 12 months. The quarterly dividend rose 11% in late 2021, and management expects future increases to track cash flow growth. Dividends are declared by the board and limited by debt covenants, so the payout leaves limited room for discretionary investment funded internally.
How exposed is Crown Castle to the T-Mobile and Sprint network consolidation?
Substantially. T-Mobile is the largest tenant at 35% of revenue. The company expects higher non-renewals of about $200M of towers site rental revenue in 2025 and about $45M of small cell revenue, mostly in 2023. Management says other annual non-renewals should stay within a historical 1% to 2% range, and the new 12-year T-Mobile Agreement adds about $250M of 2022 straight-lined revenue, which partly offsets the risk.
What is the company's debt profile and refinancing risk?
Total debt was about $20.6B at year end 2021, with 90% at fixed rates and a 3.1% weighted average interest rate. Near-term maturities are modest (about $338M in 2022 and $1.84B in 2023, including the $1.0B 3.849% Secured Notes being redeemed in March 2022). The Tower Revenue Notes have anticipated repayment dates in 2023, 2025 and 2028, and management expects to refinance them. Leverage is 5.4x against a 6.5x covenant, so the cushion is moderate.
Why did operating cash flow decline in 2021, and is the business growing?
Operating cash flow fell $266M to $2.8B, mainly because 2020 included a one-time $308M Sprint Cancellation payment from T-Mobile and because of working capital changes. Underlying core growth is positive: Towers site rental gross margin rose 11%, and Adjusted EBITDA grew 3%. Fiber operating profit fell 20% year over year only because of the absence of the 2020 Sprint-related income.
What are the main risks related to REIT status and tax treatment?
Crown Castle must distribute at least 90% of REIT taxable income, which limits retained cash for growth and may push the company to borrow or issue equity. Federal NOLs of about $1.5B reduce cash taxes but may expire unused because dividends delay their use. The company also faces risks from potential loss of its REIT status and from a 20% limit on TRS asset value, and the 20% qualified REIT dividend deduction for individual shareholders is set to expire in 2026 without legislative action.
06—Continue