01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
Crown Castle Inc. (CCI) reported a strong 2022 with net revenues of $6.99 billiona (up 10% from $6.34 billion) and site rental revenues of $6.29 billion, which account for 90% of net revenues.
Growth was led by the Towers segment, where site rental revenues rose 14% to $4.3 billionb, while Fiber site rental revenues grew a more modest 3% to $2.0 billion. Net income attributable to CCI stockholders increased 53% to $1.675 billion, and Adjusted EBITDA rose 14% to $4.34 billion. Operating cash flow was $2.9 billion, against $1.3 billion of capital expenditures, of which $1.2 billion was discretionary, mostly for small cell and fiber construction.
Shareholder distributions were a major use of cash, with approximately $2.6 billionc of common dividends paid in 2022 and a quarterly dividend raised 6.5% to $1.565 per share. The filing also flags headwinds that investors should weigh. T-Mobile and Sprint network consolidation is expected to reduce site rental revenues by roughly $200 million from Towers non-renewals in 2025 and by about $45 million from small cell non-renewals spread across 2023 to 2025.
Management now expects annual dividend per share growth through 2025 to fall below its long-term target. Total debt was about $21.7 billiond at year end, with 87% fixed-rate after the January 2023 $1.0 billion notes offering. Roughly 12% of debt is floating rate at a weighted average rate of 5.6%, which exposes the company to the Federal Reserve's rate increases.
Leverage was 4.9x against a covenant ceiling of 6.5x. Three tenants (T-Mobile, AT&T and Verizon) account for about three-fourths of site rental revenues, and about 53% of towers sit on leased land under master leases with AT&T and T-Mobile that carry purchase options. Overall, the filing shows a business with long-dated, recurring cash flows, a growing dividend and a mature tower portfolio, balanced against rising interest costs, a shift toward fiber and small cells that carries execution risk, and concentration in a few large wireless carriers.
02—Key points
Key Highlights
- Net revenues rose 10% to $6.99 billion in 2022, and site rental revenues reached $6.29 billion, representing 90% of total revenue, mostly from long-term contracts averaging about six years of remaining term and roughly $40 billion of expected future cash inflows.
- Towers site rental revenues grew 14% to $4.3 billion, while Fiber site rental revenues grew 3% to $2.0 billion, reflecting strong tenant additions on towers and slower growth in fiber.
- Net income attributable to CCI stockholders rose 53% to $1.675 billion, and Adjusted EBITDA increased 14% to $4.34 billion.
- Operating cash flow was $2.9 billion, and the company paid about $2.6 billion in common dividends in 2022. The quarterly dividend was raised 6.5% to $1.565 per share, with at least $6.26 per share expected over the next 12 months.
- T-Mobile and Sprint network consolidation is expected to cut site rental revenues by about $200 million from tower non-renewals in 2025 and about $45 million from small cell non-renewals through 2025, and management now expects dividend growth through 2025 to fall below its long-term target.
- Total debt was about $21.7 billion, with 87% at fixed rates and a 4.9x total net leverage ratio versus a 6.5x covenant. Floating-rate exposure of about 12% at a 5.6% weighted average rate increases sensitivity to Federal Reserve tightening.
- Three tenants (T-Mobile, AT&T and Verizon Wireless) produced about three-fourths of site rental revenues, and about 53% of towers are under master leases with AT&T and T-Mobile subject to purchase options, creating customer and land-rights concentration risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Crown Castle Inc. kept $0.24.
- Revenue$6.99B100.0%
- Cost of revenue−$466.0M6.7%
- Gross profit$6.52B93.3%
- Operating costs−$4.09B58.6%
- Operating income$2.42B34.7%
- Interest, other & tax−$750.0M10.7%
- Net income$1.68B24.0%
Where FY2022 revenue went
$6.99B- Other operating costs: $3.35B, 48% of revenue
- Net income: $1.68B, 24% of revenue
- Cost of revenue: $466.0M, 6.7% of revenue
- SG&A: $750.0M, 11% of revenue
- Interest, other & tax: $750.0M, 11% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $6.99B$6.34B | +10.2% |
| Cost of Revenue | $466.00M$439.00M | +6.2% |
| Gross Profit | $6.52B$5.90B | +10.5% |
| SG&A Expenses | $750.00M$680.00M | +10.3% |
| Operating Expenses | $4.56B$4.34B | +5.1% |
| Operating Income | $2.42B$2.00B | +21.2% |
| Interest Expense | -$699.00M$657.00M | −206.4% |
| Net Income | $1.68B$1.10B | +52.8% |
| EPS (Basic) | $3.87$2.54 | +52.4% |
| EPS (Diluted) | $3.86$2.53 | +52.6% |
| Shares Outstanding (Basic) | 433.00M432.00M | +0.2% |
| Shares Outstanding (Diluted) | 434.00M434.00M | 0.0% |
05—Questions
Frequently Asked Questions
How much of Crown Castle's revenue is recurring, and how long are its tenant contracts?
Site rental revenues made up 90% of 2022 net revenues, and the vast majority of these are recurring under long-term tenant contracts. As of December 31, 2022, the weighted-average remaining term of tenant contracts was about six years, excluding tenant renewal options, representing about $40 billion of expected future cash inflows. Wireless tenant contracts typically have initial terms of five to 15 years, and fiber solutions contracts generally run three to 20 years.
Is the dividend safe, and how fast is it expected to grow?
The dividend is supported by operating cash flow of $2.9 billion, against roughly $2.6 billion paid in common dividends in 2022. The board raised the quarterly dividend 6.5% to $1.565 per share. Management expects at least $6.26 per share over the next 12 months, about $2.7 billion in aggregate, and plans to grow the dividend in line with cash flow growth. However, the filing says that dividend per share growth through 2025 is expected to fall below the long-term target because of the T-Mobile and Sprint consolidation and higher interest rates. All future dividends remain subject to board declaration.
What are the main risks from rising interest rates?
About 12% of debt, or roughly $2.7 billion, is floating rate with a weighted average rate of 5.6%. A 0.25 percentage point increase would add about $7 million of annual interest expense. Most debt is fixed, and the weighted average rate on fixed debt is 3.7%. The larger risk is refinancing: about 51% of fixed-rate debt, at an average coupon of 3.4%, matures within five years, so refinancing could occur at materially higher rates. Interest expense rose 6% in 2022 to $699 million.
How concentrated is the customer base, and what is the T-Mobile and Sprint consolidation impact?
T-Mobile, AT&T and Verizon Wireless together account for about three-fourths of site rental revenues, with T-Mobile alone at 38% of consolidated revenues. The T-Mobile and Sprint network consolidation is expected to reduce Towers site rental revenues by about $200 million from non-renewals in 2025, and small cell non-renewals are expected to reduce revenues by about $45 million, with about half in 2023. Excluding these items, annual non-renewals are expected to stay within the historical range of 1% to 2% of site rental revenues.
What is the outlook for capital spending and growth?
Discretionary capital expenditures were $1.2 billion in 2022, mainly for small cell and fiber construction, and management expects discretionary spending to increase in 2023 as small cell deployments accelerate. Sustaining capital expenditures are expected to be about 2% of net revenues in 2023, consistent with past levels. The company expects site rental revenue growth in 2023 to be supported by tenant additions. The Fiber segment is less mature than Towers, and the filing notes risks around construction delays, supply chain issues and the timing of 5G small cell demand.
06—Continue