The tower industry continues to offer excellent returns to companies that own and operate cell towers, but the tower construction business may be under some pressure.
Crown Castle merges into REIT
Tower giant Crown Castle is moving forward with its plan to merge the entire company into its real estate investment trust, Crown Castle REIT. Shareholders approved the deal this week and the company expects it to be completed this year.
REITs can avoid taxes by distributing 90% of its earnings to shareholders, and Crown Castle has been operating as a REIT since the beginning of this year. Unlike its biggest competitors in the tower industry, Crown Castle has not invested in foreign markets, so almost all of its operations are subject to U.S. tax laws. The decision to merge the entire company into the REIT is an indication that Crown Castle is content to invest primarily in the U.S. market going forward. CEO Ben Moreland has said repeatedly that he believes the U.S. offers the best risk-adjusted returns.
Vertical Bridge Holdings raises second round
Another REIT that is focused on the tower industry has raised three quarters of a billion dollars to invest in cell towers. Vertical Bridge Holdings, which was started by key executives from Global Tower Partners after American Tower bought that company, said it has secured $470 million of new equity, bringing its total to $750 million.
Goldman Sachs Infrastructure Partners and Stonepeak Infrastructure Partners are the new investors; they join existing investors The Jordan Group and Digital Bridge Holdings, which is headed by Marc Ganzi, the founder of Global Tower Partners.
Vertical Bridge has closed 23 cell site acquisitions so far this year. Deal size varies, as the company does many smaller deals that are not of interest to the larger tower companies.
Dycom under pressure?
Telecom construction giant Dycom Industries has been a big beneficiary of carrier spending on LTE rollouts, and now investors are keeping a close eye on the stock as AT&T Mobility and Verizon Wireless near completion of those builds.
“AT&T, Dycom’s top customer at 20% of sales last quarter, represents the largest headwind,” said analyst Simon Leopold of Raymond James in a research note. Leopold actually expects Dycom to beat estimates when it reports quarterly earnings next week, but he is less sanguine about next year.
“In addition to its recently lowered capex guidance, AT&T’s CEO responded to President Obama’s comments on network neutrality by implying it would pause investments in fiber upgrades to 100 U.S. cities until the regulatory issues were settled. Additionally, we also think it could squeeze maintenance spending, where Dycom has high exposure,” said Leopold.
