Mobile carriers are increasingly locking up the infrastructure they need to support the rollout of their 5G networks. That benefitted Crown Castle International (NYSE: CCI) in the second quarter of 2021. The real estate investment trust (REIT) focused on owning, operating, and developing communications infrastructure saw strong demand for space on its cell towers during the period.
While the REIT noted a slight change in the type of infrastructure customers wanted to lease during the period, it remains on track with its long-term growth forecast.
Soaring demand for tower space
Crown Castle reported strong Q2 results. The infrastructure REIT's site rental revenue grew by 8%, driving an 18% increase in adjusted funds from operations (AFFO) per share. The big driver was higher-than-expected demand for space on the company's cell towers.
Crown Castle CEO Jay Brown noted that "we are seeing the highest level of tower activity in our history as our customers are focusing on utilizing towers in the first phase of deploying their 5G networks nationwide."
For example, last December, DISH Network (NASDAQ: DISH) signed a multiyear anchor tenant agreement with Crown Castle to lease space on up to 20,000 communication towers to help launch its nationwide 5G network. The company opted to use cell towers instead of smaller cells to scale its network quickly.
This elevated tower activity allowed the company to boost its full-year AFFO per share forecast, which it now sees growing by 12% this year. That's well above its long-term target of growing AFFO per share and its dividend by 7% to 8% per year.
An initial shift in infrastructure demand
Because mobile carriers have initially focused on leasing space on large towers to launch their 5G networks, some small-cell deployments are being delayed. That will impact Crown Castle's timing regarding when it expects to complete the nearly 30,000 small cells in its backlog.
On the one hand, that's a concern because the company spent heavily to bolster its ability to develop small cells by expanding its fiber-optic-cable offering several years ago. It paid a combined $9.2 billion to acquire Lightower, Wilcon, and FiberNet in 2017. Those deals gave the REIT the confidence to boost its long-term AFFO and dividend growth rate from 6% to 7% annually to the current forecast of 7% to 8%.
However, those deals have paid off over the years. Crown Castle has outperformed its forecast since 2017, growing its dividend per share at a 9% compound annual rate. That's due to outsized growth in its fiber and small-cell businesses in some years -- like 2020 -- and its legacy cell tower businesses' strong performance in others such as 2021.
The company's performance shows the benefit of its strategy to provide a comprehensive set of infrastructure solutions across towers, small cells, and fiber. It's riding the wave of strong demand for towers this year, which is driving stronger-than-expected results.
Meanwhile, small cells and fiber will play vital roles in enabling mobile carriers to improve their network speeds in densely populated areas over the coming years. That's evident in the agreement it signed with Verizon (NYSE: VZ) earlier this year to expand their relationship. That deal will see Verizon lease 15,000 small cells from the REIT over the next four years to deploy its 5G Ultra Wideband and 5G Nationwide networks.
The REIT's strategy continues to pay dividends
Crown Castle has been positioning its business to take full advantage of the rollout of 5G networks across the U.S. -- and that strategy continues to pay off. While the company's legacy-tower business is driving outsized growth this year, its small cells and fiber solutions will play vital roles in the future. Because of that, the REIT appears poised to deliver on its growth forecast, which should enable it to continue creating value for shareholders.