Crown Castle: The Largest Provider of Shared U.S. Communications Infrastructure

Bill Gates, the second-wealthiest person in the world, has a net worth of around $90.0 billion. Along with his wife, Melinda Gates, the pair are the eponymous names behind the Bill and Melinda Gates Foundation, the largest private foundation in the United States.

Like all philanthropic organizations, its goal is to generate wealth and share it. To do this, Bill and Melinda Gates invest in organizations that they believe will provide them with the greatest long-term gains. They have seen the future, and it is 5G.

The bread and butter of that technological revolution is Crown Castle International Corp (NYSE:CCI), a real estate investment trust (REIT) that is the largest provider of shared communication (cellular) infrastructure in the U.S.

Bill Gates Owns 5.3 Million Shares in Crown Castle

According to the U.S. Securities and Exchange Commission filings of the Bill and Melinda Gates Foundation, the pair owns 5.3 million shares of Crown Castle International Corp. (Source: “Bill and Melinda Gates Foundation Form 13-F,” U.S. Securities and Exchange Commission, last accessed February 11, 2019.)




Why do Melinda and Bill Gates own so many shares of Crown Castle International Corp (valued at $627.5 million at the time of this writing)? It all has to do with Crown Castle’s communication infrastructure and the rollout of 5G technology.

Crown Castle International Corp Financials 52-Week Change 12.6% Market Cap $49.1 billion Annual Dividend Yield 3.8%

(Source: “Crown Castle International Corp. (REIT) (CCI),” Yahoo! Finance, last accessed February 11, 2019.)

Crown Castle International Corp is a real estate investment trust that owns, operates, and leases more than 40,000 cell towers and roughly 65,000 route miles of fiber in every major American market. The company also has approximately 65,000 on-air or under-contract small cell nodes. (Source: “Our Infrastructure,” Crown Castle International Corp, last accessed February 11, 2019.)

Small cell networks are a series of small nodes that are often attached to existing infrastructure, like utility poles, signposts, or streetlights. In some cases, Crown Castle also attaches its small cells to the sides and tops of buildings.

Small cells will play a crucial role in meeting the growing demands of wireless data and increased bandwidth that new technologies like 5G require.

Crown Castle leases its towers to wireless carriers, like Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and T-Mobile Us Inc (NASDAQ:TMUS). This helps provide Crown Castle with substantial recurring revenues and excellent free cash flow.

Because of the high barrier to entry, it also means Crown Castle has little competition. That has allowed the company to provide investors with long-term capital appreciation and a frothy dividend yield of 3.8%.

Chart courtesy of StockCharts.com

Crown Castle’s share price has been on a roll in 2019. The company was actually doing very well in 2018, but then its momentum was upended by the market’s broad-based sell-off in October and the December meltdown.

Since bottoming on December 26 at $103.21, CCI stock has been heading higher. In fact, Crown Castle’s share price has surpassed its pre-December highs, hitting a new 52-week high of $119.43 on February 6.

Since December 26, Crown Castle’s share price has advanced approximately 14.5%. Since the start of 2019, the company’s share price has increased more than 10%. Part of that growth in 2019 can be attributed to the company’s solid year-end results.

Crown Castle Reports Solid Q4 Results, Raises Outlook for 2019

On January 23, Crown Castle International Corp reported results for the quarter and year ended December 31, 2018. (Source: “Crown Castle Reports Fourth Quarter and Full Year 2018 Results, Raises Outlook for Full Year 2019,” Crown Castle International Corp, January 23, 2019.)

CEO Jay Brown stated: “We closed out another year of growth with solid results in the fourth quarter and increased our Outlook for 2019, demonstrating the strong fundamentals across our business.”

Metric Q4 2018 Q4 2017 Year-Over-Year Change Site Rental Revenues $1.2 billion $1.1 billion +15% Net Income $213.0 million $98.0 million +117% Adjusted Earnings Before Interest, Taxes, Depreciation, & Amortization (EBITDA) $816.0 million $707.0 million +15% Adjusted Funds From Operations (AFFO) $591.0 million $512.0 million +15%

(Source: Ibid.)

AFFO is a profitability measure used by REITs to define the cash flow from operations. It is a non-generally accepted accounting principles (GAAP) financial measurement used by Wall Street, but it gives a good snapshot of profitability (minus unrelated items) that comes from rentals.

Metric Fiscal-Year 2018 Fiscal-Year 2017 Year-Over-Year Change Site Rental Revenues $4.7 billion $3.7 billion +29% Net Income $671.0 million $445.0 million +51% Adjusted EBITDA $3.1 billion $2.5 billion +27% AFFO $2.3 billion $1.9 billion +22%

(Source: Ibid.)

CFO Dan Schlanger stated: “Our positive 2018 results and increased full year 2019 outlook reflect the strong underlying demand for our communications infrastructure assets and our team’s continued focus on translating the robust growth in data demand into growth in dividends per share.”

During 2018, Crown Castle made significant investments in new fiber assets in robust markets where the company expects to see the greatest demand for small cells and fiber solutions. It also substantially completed the integration of recent acquisitions and improved its financial flexibility.

Schlanger concluded, “Looking forward, we are excited about the growth trends across our business and the long-term opportunity in front of Crown Castle as we continue to target 7% to 8% annual growth in dividends per share.”

(Source: Ibid.)

2019 Outlook

Metric Fiscal-Year 2019 Outlook Midpoint of Fiscal-Year 2019 Outlook vs. Fiscal-Year 2018 Site Rental Revenues $4.9–$5.0 billion +5.1% Net Income $781.0–$861.0 million +22.3% Adjusted EBITDA $3.3–$3.4 billion +7.0% AFFO $2.4–$2.5 billion +7.0%

(Source: Ibid.)

Why Does 5G Matter?

Each generation of wireless technology introduces new changes. The shift from 1G to 2G introduced us to digital voice and text messaging. 3G gave us the first wave of digital data and 4G’s faster speeds allowed us to use navigation software and accelerated the use of social media.

5G, though, is entirely different. Jumping from 4G to 5G will be like going from the ear-buzzing dial-up to broadband. Thanks to a combination of technologies, which includes small cells, fiber, and millimeter waves, 5G will be capable of delivering data at unprecedented rates as high as one gigabit per second. That’s 20 times faster than current networks.

5G is more than just speed, though. It increases the number of devices that can be managed on a wireless network, opening up the window to new possibilities for wearables and machine-to-machine communications.

It will also finally usher in the much-hyped global connectedness of the Internet of Things (IoT). Some of the exciting applications for the IoT include healthcare, smart homes, autonomous cars, smart cities, agriculture, retail, energy, farming, augmented reality, and virtual reality.

That’s only part of it. 5G will help make life more efficient and safe in ways we haven’t even considered yet—not unlike the birth of the Internet. No one really knew how it would impact us and what we could do with it.

Analyst Take

The fact is, 5G has unlimited potential, and Crown Castle International Corp has been busy installing thousands of small cells in cities across the U.S.

2019 is the year it all begins.

AT&T, Verizon, Alphabet Inc (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Samsung, and Verizon are expected to launch their first 5G phones this year. The second 5G rollout will take place in 2020 or 2021.

This will help boost Crown Castle’s recurring revenue stream and free cash flow generation. It should also help increase its annual dividend yield and share price.

Maybe Bill and Melinda Gates are onto something.