Introducing Crown Castle
06 August, 2015
We have recently added Crown Castle to our Property & Infrastructure portfolios. Portfolio Manager Zoie Regan explains why this business appeals to us.
Crown Castle ticks all the boxes as a business because it provides essential assets that people rely on to stay in touch, conduct their business and basically live their lives every day. It also makes the grade from an investment point of view, possessing all the qualities that infrastructure investors want — stable revenues backed by long-term contracts, predictable cash flows, strong margins and growing customer demand.
Crown Castle owns and leases towers and other infrastructure used by telecommunications companies to provide data services for wireless devices such as mobile phones and tablets. With consumer demand for data, video, email and other activities on mobile devices growing, the need increases for the phone companies and other wireless carriers to access additional tower space. While telecommunication companies historically owned their own infrastructure, they have increasingly moved to a model where they become tenants of infrastructure companies such as Crown, leasing more space as consumer demand for data expands.
Crown owns more than 40,000 towers and is one of the largest providers of wireless infrastructure in the US, leasing space to the likes of AT&T and Verizon, who in turn operate and maintain all the communication network equipment on the property and tower. The top three tower operators now have 76% share of the US tower market (with Crown having the largest-equal market share of 32%).
Towers can accommodate multiple tenants (typically four to five tenants per tower), meaning tower operators can offer leases to carriers significantly cheaper (savings range from 30-65%) than if the carriers were to build or operate their own towers.
The 'moats' around tower operators such as Crown, which in our view make them attractive long-term investments, include location scarcity, zoning restrictions and capital requirements associated with towers, as well as the typically long-term, non-cancellable leases which give certainty and predictability of cash flows. Crown has a $21b pipeline in contractual lease payments, equivalent to seven times its FY2014 site rental revenue!
Since listing in 1998, Crown has successfully acquired six carrier portfolios, with two of these occurring relatively recently in 2012 and late 2013. As a result of acquiring towers from carriers which have historically been single-tenanted, Crown has a significant opportunity to improve occupancy on its portfolio. As there are minimal costs associated with adding additional tenants to existing infrastructure, Crown enjoys good profit margins, strong cash flows and attractive returns on invested capital.
We believe Crown has an exceptional business model uniquely combining the attractive qualities of infrastructure assets and the simplicity and strengths of a property landlord.