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Introducing Crown Castle: A Wireless REIT amid Telecom Headwinds

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The recent events in the wireless telecom industry are enough to make investors jittery about wireless tower real estate. Amid the surge in merger and acquisitions in the industry, we’ve now seen the possible merger of T-Mobile (TMUS) and Sprint (S), which has triggered fear of a spike in churn rates for wireless carriers.

There has also been increased demand for fibers and small cells in order to support the upcoming 5G (fifth-generation) era. To support this transition, wireless tower carriers will have to evolve along with changing demands.

Crown Castle International (CCI) hasn’t apparently been deterred, however, with its strong business momentum backed by strategic acquisitions, a long pipeline of projects, master lease agreements, and investments into new and evolving technology.

CCI expected to ride high on AFFO

CCI has raised its fiscal 2017 outlook for AFFO (adjusted funds from operations) by $4 million. This enhanced guidance reflects an increase in tower leasing activity to $95 million, up from the $90 million expected previously. Crown also expects an increase in its network services’ gross margin in 2017.

Although CCI is expected to report a flat AFFO per share in 2Q17, it’s expected to achieve a growth rate of 9.3%, 11.1%, and 14.6% in 3Q17, 4Q17, and 1Q18, respectively.

Strong business momentum

Although Crown missed estimates by 6.3% and 8.4% in 4Q16 and 3Q16, respectively, it has reported higher-than-expected funds from operations for the last five quarters prior to 3Q16. It reported AFFO growth of 3.6%, 15%, 12.6%, and 2.6% YoY (year-over-year) in the trailing four quarters, respectively (excluding 1Q17).

Strong start to 2017

For 1Q17, Crown reported AFFO of $450 million, which was 14% higher than in 1Q16, and exceeded management’s expectation by $7 million. Its AFFO per share came in at $1.11, or 6% lower YoY, mainly due to higher share buybacks in the previous year, but it still exceeded analysts’ expectations by 0.6%. The stock opened ~1% higher on April 26, 2017, one day after its 1Q17 results were released.

For fiscal 2016, Crown reported FFO of $4.72 per share, as compared to American Tower’s (AMT) and SBA Communications’ (SBAC) $5.80 and $6.09, respectively.

Notably, American Tower and Crown Castle make up 11.5% of the PowerShares Active US Real Estate ETF (PSR).

Continue reading this series (below) for a closer look into CCI’s growth outlook, the effect of the technological evolution, merger and acquisitions, CCI’s debt leverage capability, shareholder returns, and valuations.

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