Morning. Good morning to everyone again. Before we begin, disclosures are available at the registration desk. For those of you that I haven't met, I'm Mike Rollins, and I cover communication services and infrastructure for Citi. We're pleased to welcome Kris Hinson, Chief Commercial Officer of Crown Castle. Kris, thank you so much for joining us, and congratulations on your new role. It's, I think, the first time that we're sitting down together since you took the new responsibilities.
It is. Yeah, it's great to be here. Thanks a lot for having us.
Kris, maybe just to get us started, I'd love to learn a little more about your new responsibilities and just to set the stage for our conversation, what you're focused on for Crown Castle.
Sure. I think that both me going into this role and where I am focused is well-aligned with where Crown Castle has been focused since we announced the sale of our fiber and small cell business. We are the only large publicly traded TowerCo that's focused exclusively on the U.S., and I think that focus has played out well. You've seen the efficiencies that we've already been able to take with the business. I think on the commercial side, my focus has been very closely related to that, which, as we have made this transition to a tower-only company, we need to make sure that the commercial org is set up in a way to meet customers most effectively and efficiently as well. It's little things on the margin. I think we accomplished a lot with the restructuring that we announced in the first quarter.
Making sure that we make things as easy as we can for the customers, having fewer points of contact, making that process easier. Also just ensuring that we are out building and maintaining great relationships, not just with our large customers, but that we're set up in a way to capture new opportunities that come up as well.
As you think about this transformation for Crown Castle becoming a U.S. tower pure-play, how is the management team looking at the business, the strategy, capital allocation, maybe differently than the starting point a few years ago?
Yeah. I think the starting point probably matters there. I think that there has not been a change in any significant way from what we laid out when we announced the fiber and small cell sale. The capital allocation priorities have remained unchanged, and I think the approach and the focus has remained unchanged. If you go back farther, obviously there have been some shifts. The thing that I would say that we have continued to refine, even as we have gone farther along in this journey, is making sure that we clearly define what we do and what we don't do. I think of that on the commercial side as going a little farther into what is our business ultimately. I look at it very much, and this applies even to the edge opportunities that we've talked about a little bit.
We are a real estate company that has 40,000 units of distributed real estate with power and fiber availability. What we do and what we are set up to do well is use those assets and manage those assets to lease out space, and whether that's vertical space or horizontal space, we are doing effectively the same thing. We want to make sure that we do those things well, that we manage those assets well, and that we stay focused in a place where we think that we are going to be very competitive and well set up to win.
When you then look going forward at the things that you get excited about, the team gets excited about at Crown Castle, what are you finding is underappreciated by the market?
I do think that we continue to find ways to do things better on the margin as we continue through the journey as a U.S.-only TowerCo. I think we've seen good progress, as I said, but I think there are still more opportunities out there. I think that being particularly clear, both internally and with customers about what we can do and being able to execute that well is going to be really helpful. I also think as we look at applying that, like I said, to some of these areas where it is exactly the same business but a slightly new application, a new customer set, and really being set up to go out and pursue that business vigorously is something that I'm excited about, certainly in my role.
We drill down on the U.S. market, because of course, that's where you're focused, but in terms of Crown versus your competitors, how does Crown differentiate its tower business?
I think location is extremely important in our business, and we have a great asset base. A little bit more than 70% of our towers are located in the 100 largest Basic Trading Areas in the U.S., and being where people are is a good thing, all else equal. I think that that is something that has been very helpful historically. It also, as we look at some of these new opportunities, I think is a good place to be. The things that we are working on, particularly on the commercial side, is being able to make things a little bit easier and a little bit better for the customers in places where we can, and finding ways to create a little bit of value, and then hopefully keep a little bit of it as well for our shareholders.
I am keenly focused on, at the end of the day, organic growth. I think it's not lost on anyone at Crown Castle how important that is. And one of the reasons that I'm in this role is to be able to focus on that exclusively and find new ways to extract as much as we can out of the assets that we have.
With your mix of sites, where they're located, how they're structured, do you view Crown within the tower business as like tip of the spear? You're going to see things first before your competitors?
I think it depends on what part of the cycle you're in. But I think if you look back historically, we have tended to see, and if you just look at organic growth as the metric, we have seen relatively faster growth at the beginning of deployment cycles. As new spectrum is made available and that is first deployed, I think all else equal, being closer to more people is marginally helpful. All of the TowerCos have good assets. As you go through the cycle, you'll see this. At any point in time, one of the TowerCos may be sort of in the lead over the other, but the idea from my standpoint is to set up Crown Castle so that over the course of a full deployment cycle that we are getting at least our fair share.
You mentioned the important focus on organic growth. How is U.S. leasing pacing year- to- date? And maybe you can give us an update on how the second half is trending. I think originally you guided to a back-half loaded year for leasing.
Yeah, that's right. Our organic growth forecast ex-Sprint attrition is 3.6% for the year. When we initially released our guide early in the year, we said that we expected that to be back-end loaded. We still expect that to be the case. We did reaffirm our guide in the second quarter. If you look at organic growth, I think it's 135 at the midpoint, new leasing activity $60 million-$70 million, as you look at what that means in order to get there. It would take back-end loading. We still expect that to be the case.
When you look at that, what are the things that drive timing for Crown Castle in a year? Are there specific carrier activities or MLA structures? For you guys, what's influencing that? Does every year now look similar where it's just back-half loaded, or did this cadence change year- to- year?
It doesn't necessarily have to look the same year to year, but it has historically tended to be back-end loaded. There are several things that impact it, but the two big buckets are going to be what we have contracted. I think of it in terms of contracted and uncontracted activity. We'd mentioned as we just look at 2026 being the low point going forward, one of the reasons why we think that things will be better in 2027 and beyond is in large part due to the visibility that our contracts give us. When you look at what we see coming, obviously the contracted piece is always going to be a big element of it. Just to give you a rough framework, at the beginning of 2026, we had 80% of organic growth contracted.
The other piece where you're going to see fluctuations, which I would say are less easy to see, or the timing of that is going to be less easy to see at any point in time, is going to be the uncontracted piece.
If you go through the year, we have seen this year what we expected to see, where the level of contracted activity as we sign up business has increased from, it was 80% at the beginning, 90% at the midpoint. That is what we expected to see. That will always have an impact on where things land. We see a lot of things longer term, and even, I would say nearer term at this point, that give us a pretty good confidence that we will be able to show higher growth coming out of 2026.
When you think about from a definition perspective, if 2026 is the trough, is that leasing dollars, or is that the year-over-year growth rate? The 3.6% gets better in 2027.
Yes. It should be both. Let me walk through a little bit about how I would think about it. So 2026 specifically, 3.6% organic growth, we really have four components.
Three, sort of four. The big ones are going to be new leasing activity.
That is contributing about 180 basis points to the 3.6%.
We have escalators, which right now are at 2.7%.
That is offset by about 80 basis points of churn.
We also have this other billings category, which is basically just customer credits or back billing. It is stuff that does not happen in the current period, but ultimately is cash revenue, and we end up making an adjustment for it as we find these things. If you look at those components, we would expect over time to see a little bit of improvement in the escalator. We have talked about the tale of Sprint churn that we have, so about $20 million a year through 2034. That amount does not escalate. It is a flat amount. As that rolls off, we would expect to see a little bit of improvement there. I think it is safe to assume that the majority of the improvement that we would expect to see going forward is going to be from that new leasing activity piece.
Great. One of the questions that we've talked about before, and I know has come up before, is this question around leasing dollars. You have a similar size portfolio to your largest competitor. Your leasing dollars on that portfolio is less. Whats causing that variance?
Sure. There are a lot of things that go into that.
Yep.
I think vintage of towers, specific locations, agreements struck over time. There are a lot of things that go into where you land. But at the end of the day, I really do believe this market is like any other, and supply and demand set the price.
Really on a site-by-site basis. There are a bunch of things over shorter periods of time that impact that. To the extent that you have a business that is characterized by very long-term agreements, obviously wherever you are at a point in time and what you structured at that point in time is going to matter. But over long periods, it is ultimately supply and demand that sets that. I don't think that there's really any difference between this market and others. It's just, we have these very long-term contracts, and you'll see this play out. But I think absolutely, over time, you would expect supply and demand to play out.
Mm-hmm. As I think about the conversation around Crown Castle as a real estate company and as a REIT, one of the things that we've learned about real estate over the years is this whole construct of mark to market. Is it fair to say that just based on the deals that were structured at the time you did these acquisitions, is it fair to conclude that there might be a significant amount of your leases that are below market? If that's the case, what are the potential catalysts to, as you mentioned, supply and demand work their way out. Supply really hasn't changed that much, right? Maybe walk us through what are the opportunities to maybe benefit from that mark to market opportunity?
Sure. I think that with the way that I just characterized supply and demand driving things, like at a very high level, yes, there's always an opportunity to get that into balance when you're renegotiating, whether it's an individual tower or a deal. I don't want to make it seem like the opportunity to, when you say mark to market, to dramatically swing things is so great because, I mean, a couple of things. I wouldn't characterize where we are as somehow dramatically off of market across the board. But we're of course going to be looking for opportunities where, look, if there are towers that are in high demand, of which we have some, and we absolutely want to make sure that we are competitive and maximizing the revenue that we can get.
When you look at the capital now that you're generating, so you have a dividend policy, you have cash flow extra, call it cash AFFO. EBITDA growth can also give you more financial capacity. How do you think about investing that and what the build-to-suit opportunity looks like?
Sure. Just really quick, the capital allocation priorities that we have, which are unchanged, but just to run through them for everybody, is committed to the dividend, pay $4.25 a share annually. We have a target of 75%-80% of AFFO less amortization of prepaid rent. As we've worked through the Dish churn, and we will grow into that sort of 75%-80% range, and then resume dividend growth from there after we get to the range. So committed to the dividend. We also have CapEx this year target and kind of looking out a little ways of around $150 million-$250 million. A lot of that is focused on ground lease buyouts, but some of it on the build-to-suit opportunity, which I'll come back to. The third piece of it is we are committed to maintain investment grade.
We believe 6 x- 6.5x leverage is the range that allows us to do that. We will make sure that we maintain that. Then to the extent that as we grow, we build leverage capacity, we will look at other opportunities and, at the end of the day, buybacks in order to keep that leverage target where it should be. When you look at the CapEx bucket, which in the grand scheme of things is not large for a company of our size. We have the GBOs, we make some investments in systems to make things more efficient, and then we also build a few towers. The opportunity really on any of the CapEx that we spend, but as you look at build-to-suit specifically, it is an economic decision.
We are happy to do it and participate in it, but we have to make sure that we are generating an attractive return in order to do so. Looking back over recent history, this is not some place where we have been particularly active, and it is because we have been disciplined with how we spend our money, and we have, at the end of the day, better opportunities elsewhere. Ground lease buyouts being the primary one at the moment. But if we cannot generate the return, it is not something we are going to do.
Very helpful. When I think about just the opportunities for growth, coming back to that for a moment. We have another spectrum cycle potentially coming up. You and the team have talked about it, upper C-band auction next year. If you look back over time, do you see carriers slow or pause spending in front of an auction because of uncertainty? What are you seeing now in terms of just the general activity level? As you mentioned earlier, the opportunity to push leasing higher.
Yeah. I do not know that I would characterize. First of all, maybe good to distinguish between history and kind of maybe what we are seeing now. It is a little bit different in a couple of ways. But I would say that historically, no, I would not necessarily characterize in advance of spectrum auctions there being necessarily a slowdown because of the spectrum auction. There are a bunch of things that influence that, so I would not necessarily say that you can draw an exact correlation between the two. I think if you look at the market that we are in now, and I think we had made some comments about this, talked about it on our last earnings call. I think that when new spectrum is acquired or made available, it is inevitably going to need to be factored into deployment plans.
Yep.
I think there's a little bit of difference between anticipating a spectrum auction and then, "Oh, I've acquired Spectrum." Our customers are always going to do the reasonable thing, which is as things change, let's work that into plans and make sure that we are deploying not only the new spectrum, but anything that we are going to invest in the network as efficiently as possible.
Mm-hmm. The services business, I feel like has gone through a significant transformation for you guys, and there's been this habit of looking at what happens in services as a leading indicator for leasing activity. What is the status of the services business? What does it basically do today differently than maybe in the last few years, and should we still be looking at this as an indicator for future leasing?
Yeah. In 2023, we made the decision to get out of the construction services piece.
Yep.
We have remained in what we call pre-construction services, which is practically is going to be things like zoning and permitting, structural analysis, design work. What we're not doing is actually going out and physically modifying or hanging equipment on a tower. We made that decision in 2023, as it was at a time it coincided with a dip in activity levels. But at the end of the day, as we look at that business, we want to make sure that whatever we do is a place where we can in fact add value independently for customers.
It also has to be something that makes us money. The construction piece has always been one where margins have been much thinner. It was something where I would say, as we looked at our skill set, it wasn't something that we necessarily did significantly better than anyone else, so we made the decision to exit it. As we move forward, there are a couple of things that I would say that are important to keep in mind. One, we've kept the piece of the business that is high margin, where we do add value. Our margins on the services business that we have today are in the range of 50%. I think they were even as high as 53% in the second quarter.
We're really focused on places where, hey, we can clearly add value and we can make a significant margin. The reason why it is difficult to draw a straight line between the two, I wouldn't even necessarily say it is so much at least exclusively because we changed the mix of the business. It's just, there are a lot of things that go into the services piece that are not necessarily going to be directly related to leasing. The thing that is easiest, I think, to conceptualize is just, look, not all of our customers have to use us for all services. At the end of the day, the win rate or whatever you want to look at is going to have an impact on what that is.
There are also lags and other things that go into it, but it is difficult as we look back at it to draw a straight line between here's what services did or the change in services, and then what you can expect to see from leasing, which is why we sort of de-emphasize it a little bit because it just, we have not found it as we go back and look at it to be a particularly good indicator of where leasing will go.
Maybe switching over to Dish for a moment. A number of filings in the bankruptcy court. Can you share the amount of the financial recovery that you're pursuing, and any details on the process and what it means for the timing and the opportunity for Crown to recover what was previously contractually committed to your company?
Sure. We are still pursuing the $3.5 billion.
The rest of my answer is probably going to be a little less satisfying than you like. I think that there is still a wide range of outcomes here.
But we are absolutely continuing to vigorously pursue what we think Dish owes us. I do think that there is a little bit of a silver lining with this in the bankruptcy process. I think that the timeline for resolution has been pulled forward at this point versus something that was going to be purely litigation.
Yep.
I think that part is a positive. It is also, and we have talked about this, but having the $2.4 billion set aside in escrow by the FCC also very helpful from our perspective.
But that only would be a portion.
Yeah. So certainly there are multiple claimants. But having that money set aside as part of a condition of a close of the spectrum sale, certainly a very positive thing from our standpoint.
And in terms of then, maybe just closing out this topic. So, is the opportunity that the bankruptcy court needs to figure out what the liabilities for towers or for Crown Castle specifically is going to be before anything can get finalized? So that is the opportunity of kind of pulling this forward?
Well, I think in terms of pulling it forward, it really is just compared to the litigation approach.
Yep.
Look, I think how things play out in bankruptcy remains to be seen. But we do think that the resolution will be faster this way than it would have been in the alternative case.
So, maybe going over to some of the adjacencies. We hear about the edge opportunity. We hear about, I know in the past we have talked drones. Help us walk through what the monetization opportunity from some of these adjacencies are, and the timing of when it can become a material contributor to leasing dollars.
Part of that is what we are trying to determine with this trial phase that we are going through. I have been in the role now for about three months, and this has been certainly a focus area. And it is one that we are excited about, but I think we have work to do to determine things like exact size and timing, but that is part of this trial phase that we have talked about. I will say, and maybe it is best to clarify a little bit as you mentioned drones as well. I really do think of these opportunities as needing to fit within the context of the asset base that we have, and the capabilities that we have. And so, we are not looking at something that is going to be requiring CapEx, certainly not in any significant portions at all, nothing material.
It needs to be something that really fits within the leasing space, whether it is vertical or horizontal on our existing sites. Not looking to operate something that we do not operate today or start building data centers as an example. It really is sticking with what we already do well and really trying to maximize the value that we can get out of the assets that we have.
Do the trials themselves present anything meaningful or is it just immaterial at this point?
In terms of results or something that you can see flow through the results, this is not a big contributor at this point.
Hoping to change that. It is not something that is really moving the needle now. I think that part of this though, too, is going through a process where we can learn what is important for some of these different applications, and then sort of further hone like where it is that we should be playing and what opportunities we should pursue. I think for, like I said, my primary focus is driving organic growth and an opportunity to use the assets and skills that we have in place are a great way to do that. So we are trying to make sure that we go out and figure out what are the best applications for our specific asset set, and we are going to pursue those opportunities vigorously.
When you look at the portfolio, I feel like over decades, it has all been about growing the tower portfolio in the U.S. But I recall the pie chart you guys used to produce of tenancy by the slices, right? Like the number of percent of towers for each tenancy and there is the notable less than 2% that was always a piece of the pie, and a significant piece of the pie. As you look at the opportunities to maximize return on capital for shareholders, is there an optimization of the portfolio that you could do in some way to, whether it is enhanced colocation, this was something in Europe that was done for years between other TowerCos.
Or just say, "Hey, some of these are just never going to get to where they need to be, and there's a better use of capital." Are there some tuning opportunities that maybe are underappreciated from us who have just kind of looked at the portfolio grow over time?
Yeah, things change over time, and I think there are always opportunities on the margin to do some of that. It's something that we're always looking at. We want to make sure, at one extreme, if you were to have a negative margin site, that we're making the right go-forward decisions to optimize around that. Then to the extent that there are opportunities to either cut costs on things that are marginal or lease out additional space, of course, that's something that we're always going to try to optimize. We're always going to find some opportunities in that space, too. Like I said, things change over time, but it is something that we're certainly always going to be focused on and trying to optimize around.
Are you seeing any new tenancy opportunities, whether it's the utilities that are doing their own private networks or whether it's cable or the exploration of Starlink wanting to potentially be a direct mobile competitor? Can you share what you're seeing on that front?
Sure. I think we have customers across the board, and I think that there are opportunities in all of those areas. I think as we look at the size of those opportunities, obviously they're different. On the satellite side, we see satellites as being a great complement to the terrestrial network, and to the extent that that's something that takes off, I certainly see more opportunity there than downside. I think it's something that will either be neutral or positive going forward. But certainly, potential for something I think more significant there, compared to the other two.
What is the opportunity, just thinking about evolution of AI. Is this a significant help to your business? Either the indirect, because it is going to just drive more traffic and capacity needs from your carrier customers, or internally because you could be more efficient or do things differently.
Yeah. The last part of that first. I think the way that we are using AI now, and this is still something that is in the early phases of the journey for Crown Castle, but it really is to increase effectiveness.
Some of the things that you were talking around site optimization and things like that. The goal is to be able to provide people with tools that simplify lower value added work so they can spend more time focusing at the end of the day on, "Hey, how do we make more money with what we have?
I think that there is a lot of opportunity there, but it is stuff that is going to be on the margin. Bigger picture, it is hard for me to imagine that if AI takes off in the way that different parts of the ecosystem suggest they are by valuations and activity and everything that you see, the amount of CapEx that is pouring into it. I do not know how that does not end up on your device.
I don't see how that data does not end up getting consumed mobily the way that so much other data is consumed. I think while it's not something that I would say we are seeing show up in the numbers that we're reporting today, hard for me to imagine that that's not something that will be, at least a significant driver of data demand growth at minimum going forward.
So maybe to bring it all together, I guess it always comes back to the growth algorithm for towers. If you can grow top line organically, improving from this 3.6%, I'd be curious, is it still a mid-single digit viewpoint from Crown Castle and what that can mean for profitability vis-a-vis AFFO per share growth over time?
Sure. We don't have a forecast out beyond 2026, only that 2026 is the low point, which we continue to reiterate and feel good about. But I think there's a big piece of what you mentioned that is very much in our control, and we've done a good job with so far and continue to make improvements on the efficiency side. As we look at where we kind of expect to land in 2026, going out to 2030, we have said that we expect 200 basis points+ of margin expansion, cash EBITDA. We still certainly expect that to be the case, and that's something that we will continue to pursue. I think both have processes in place that have made it easy to replicate capturing those improvements, and it's going to continue to be a focus area for us.
Is there something, just take a step back, market kind of reaction to tower stocks over the past couple of years. What is the market underappreciating that investors should spend more time on as it relates to towers?
I'm a very simple person, and I look at this in a very basic way, which is that if you go out to the end of the value chain, people consume more and more data on their mobile device every year in large amounts. That's not looking to change anytime soon. If you have consumers that are using the end product in the value chain and they are willing to pay for it, and even better, willing to pay more for it over time, at the end of the day, that requires a lot of investment on a regular basis in infrastructure and what we provide in order to deliver that end product.
As long as there is money to be made and an end use that continues to grow, it's hard for me to imagine that this business is one that will not also continue to grow along with it. I think that that opportunity is both large, but also sometimes over short periods of time, a bit underappreciated.
You see durable demand. What about restrained supply? Any change to where towers are getting easier to build or get up there?
I don't think that there has been much change in sort of new tower builds. If you look at new tower builds as a portion of the market, it remains relatively small. But demand does continue to grow.
It's great to spend time with you. Thank you so much.
Good to see you, Mike. Thank you.