Elliott Management Crown Castle Seeks Change

Crown Castle is a leading provider of wireless infrastructure in the United States.

Elliott Management, a hedge fund, has taken a significant stake in Crown Castle, reportedly worth over $1 billion.

Elliott Management is known for its activist investing approach, which involves pushing companies to make changes to increase their value.

The hedge fund has a reputation for being relentless in its pursuit of value creation, often leading to significant changes within the companies it invests in.

Elliott Investment Management has taken a close interest in Crown Castle, disclosing a $2 billion stake in the company and pushing for a change of leadership.

The investment firm claims Crown Castle's strategy has been value-destructive, leading to underperformance and a significant loss of shareholder value, nearly $26 billion to be exact.

Elliott is highly critical of Crown Castle's stock price, which is near a six-year low, and the company's operational underperformance, which has forced the investment community to question the stability of the company's dividend.

The firm also claims that Crown Castle's board lacks oversight, leading to irresponsible stewardship and flawed financial policy.

Elliott has previously pushed for changes at Crown Castle, following its initial investment in 2020, and is now calling for new executive and board leadership.

The investment firm wants a comprehensive review of Crown Castle's fiber business, including whether the company should divest itself of this entirely, as well as improved corporate governance and a management incentive program based on return on invested capital.

Crown Castle has responded to Elliott's letter, saying it is open to discussions with the investment company.

Elliott made plain in its letter that while it prefers to pursue a constructive course of action, it is prepared to make its case directly to shareholders at the company's 2024 annual meeting.

Here are some key statistics highlighting Crown Castle's underperformance:

Crown Castle's market value has halved, dropping from almost $209 in December 2021 to $104.

Elliott Investment Management has acquired a significant stake in the company, valued at over $2 billion, signaling its intent to advocate for transformative changes.

Crown Castle is a leading REIT with extensive infrastructure, including long-term contracts with major wireless carriers, ensuring stable revenue.

The company has strong fundamentals, with low-interest debt and free cash flow growth, making its undervalued stock a potentially lucrative investment opportunity.

Crown Castle's adjusted Ebitda for 2023 was projected to be $4.4 billion, resulting in a net leverage ratio of 5 times.

Here are the key financial metrics for Crown Castle:

Crown Castle has capitalized on low interest rates and extended durations to boost growth through its current operations and strategic acquisitions.

The company's weighted average coupon rate of 3.8% and 86% fixed-rate loans enhance financial stability, while 93% of its total debt is unsecured, offering greater flexibility.

Historically, Crown Castle has maintained a net debt/Ebitda ratio between 5.4 and 7.5 over the past decade, indicating a gradual deleveraging, primarily driven by growth in cash flow.

Crown Castle's Ebitda has shown an average compounded annual growth rate of 10.3% over the past 11 years, from $1.49 billion in 2012 to $4.4 billion in 2023.

Crown Castle is currently undervalued, with its stock market multiples showing significant fluctuations over the years.

The company's Ebitda multiples have ranged from 11.23 to 35.7 since 2006, averaging around 22.3 times enterprise value/Ebitda over 17 years.

Crown Castle's adjusted Ebitda is anticipated to fall by 6% to $4.16 billion in 2024, mainly due to nonrecurring Sprint cancellations.

The company's valuation could reach approximately $83.2 billion, based on an expected Ebitda of $4.16 billion in 2024 and a 20 times multiple.

With net debt of $23 billion, Crown Castle's intrinsic value is estimated at around $60 billion.

A total of 433.7 million shares outstanding translates to a share price of about $138, 33% higher than the current price.

As a REIT, the company typically pays out roughly 80% of its cash flow in the form of dividends.

The company plans to continue its annual dividend of $6.26 per share, which at the current share price of $103.6, yields an attractive 6% dividend.

Crown Castle's business model is built on long-term relationships with its tenants. The company has contracts with three big tenants, T-Mobile, AT&T, and Verizon, which together contribute to about 73% of its total revenue.

These tenants lease towers from Crown Castle for network deployment, and most of their contracts are long-term in nature. As of 2022, the average remaining contract life for land under the company's towers is 36 years.

Most of Crown Castle's contracts have initial terms spanning from five to 15 years, which can be renewed for multiple periods of five to 10 years each. This extended contractual relationship contributes to a high tenant retention rate at around 98% to 99%.

Crown Castle's long-term contracts provide a steady and recurring revenue and cash flow stream. The company's ability to retain tenants is a key factor in its success.