Earnings Call Transcript - CCI Q3 2021

Operator, Operator

Please standby. Good day, everyone and welcome to the Crown Castle, Third Quarter 2021 earnings call. Today's call is being recorded. And now at this time, I would like to turn the call over to Ben Lowe. Please go ahead.

Ben Lowe, Investor Relations

Great. Thank you. April, and good morning, everyone. Thank you for joining us today as we discuss our Third Quarter 2021 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer; and Dan Schlanger, Crown Castle's Chief Financial Officer. To aid the discussion we have posted supplemental materials in the investors section of our website at crowncastle.com, that will be referenced throughout the call this morning. This conference call will contain forward-looking statements which are subject to certain risks, uncertainties, and assumptions, and actual results may vary materially from those expected. Information about potential factors which could affect our results is available in the press release and the risk factors sections of the Company's SEC filings. Our statements are made as of today, October 21, 2021, and we assume no obligations to update any forward-looking statements. In addition, today's call includes discussions of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investor section on the Company's website at crowncastle.com. Before I turn the call over to Jay, I just want to mention that we will take as many questions as possible following our prepared remarks, but we will limit the call to 60 minutes this morning. So with that, let me turn the call over to Jay.

Jay Brown, Chief Executive Officer

Thanks, Ben. Good morning, everyone. Thanks for joining us on the call this morning. As you saw from our results yesterday, we remain on track to generate an anticipated 12% growth in AFFO per share this year. We expect to be at the high end of our long-term growth target in 2022 with 8% AFFO per share growth, being driven in large part by our expectation that Tower core leasing activity will be approximately 50% higher in 2022 than our trailing 5-year average. And we increased our annualized common stock dividend by approximately 11% to $5.88 per share, marking the second consecutive year of dividend growth that meaningfully exceeds our long-term target. Given that our dividend payout ratio has remained largely unchanged since 2014, our dividend remains the best indicator of how we are performing both financially and operationally. Our significant outperformance in 2021 combined with our forecast for 2022 enabled us to raise our dividend 11%, well above our stated goal for the second year in a row. In essence, we've achieved 3 years of targeted dividend growth in just 2 years. Since we established our common stock dividend in 2014, we have grown dividends per share at a compounded annual growth rate of 9% with growth ranging from 7% to 11% in each year. Before adding a little more detail to my summary points from the earnings release, I wanted to comment on the other press release we issued yesterday where we announced our goal to be carbon neutral by 2025. We aim to provide profitable solutions to connect communities and people, and our carbon neutral goal builds on our commitment to deploy our strategy sustainably. Our business model is inherently sustainable as shared solutions limit infrastructure in the communities in which we operate and minimize the use of natural resources. Further to the point, our core value proposition since we began operating more than 25 years ago has centered around our ability to provide our customers with access to mission critical infrastructure at a lower cost because we can share that infrastructure across multiple operators. In addition, our solutions help address societal challenges like the digital divide in underserved communities by advancing access to education and technology. To date, we have invested nearly $10 billion in towers, small cells, and fiber assets located in low-income areas. As a way of quantifying how our business model minimizes the use of natural resources, our business emits just 1 ton of CO2 per $1 billion of enterprise value, which is 90 times more efficient than the average Company in the S&P 500 based on industry estimates. Although we are proud of our limited environmental impact, we are focused on making even more strides by reducing our energy consumption and sourcing renewable energy to help us achieve our goal of carbon neutrality by 2025. We are excited about this announcement and look forward to continuing to find ways to help our communities and planet while driving significant returns to our shareholders. Turning back to our 2022 outlook, we are benefiting from record levels of activity in our Tower business with our customers, upgrading thousands of existing cell sites as a part of their first phase of 5G build-out. Adding to the opportunity, we are seeing the highest level of tower co-location activity in our history with DISH building a nationwide 5G network from scratch. I believe our strategy and unmatched portfolio of more than 40,000 towers and approximately 80,000 route miles of fiber concentrated in the top U.S. market have positioned Crown Castle to capitalize both on the current environment and to grow our cash flows and dividends per share in the near-term and for years to come. We are focused on generating this growth while delivering the highest risk-adjusted returns for our shareholders by investing in shared infrastructure assets that lower the implementation and operating costs for our customers while generating solid returns for our shareholders. To execute on this strategy, we are providing our customers with access to our 40,000 towers, and 80,000 route miles of fiber, help them build out their 5G wireless networks. We are investing in new small cell and fiber assets that meet our disciplined and rigorous underwriting standards to expand our long-term addressable market, and we are identifying where wireless networks are going and investing early to position the Company to capitalize on future opportunities as we have done with small cells, edge computing, and CBRS. One of the core principles underpinning our strategy is to focus on the U.S. market because we believe it represents the best market in the world for wireless infrastructure ownership since it has the most attractive growth profile and the lowest risk, and we believe this dynamic of higher growth and lower risk will continue into the future, which is why we expect our U.S. based strategy will drive significant returns for shareholders. With that in mind, we have invested nearly $40 billion in towers, small cells, and fiber assets in the top markets that are all foundational for the development of future 5G networks. We believe our unique strategy, portfolio of infrastructure assets, and proactive identification of future opportunities provide a platform for sustained, long-term dividend growth as wireless network architecture evolves and our customers' priorities shift over time. Today, our customers are primarily focusing their investment on macro sites as towers remain the most cost-effective way to deploy spectrum at scale and establish broad network coverage. With our high-quality towers concentrated in the top markets, we are clearly benefiting from this focus with an expected 6% organic growth for our Towers segment in 2021 and an expected 20% increase in Tower core leasing activity next year when compared to these 2021 levels. With history as a guide, we believe the deployment of additional spectrum on existing cell sites will not be enough to keep pace with the persistent 30% plus annual growth in mobile data traffic. As a result, we expect cell site densification to remain a critical tool for carriers to respond to the continued growth in mobile data demand as it enables our customers to get the most out of their spectrum assets by reusing the spectrum over shorter and shorter distances. When the current cell site upgrade phase shifts to densification phase, we believe the comprehensive offering of towers, small cells, and fiber will be critical for our customers and provide us with an opportunity to further extend the runway of growth in our business. While we expect the densification phase of buildout will drive additional leasing on our tower assets for years to come, we believe small cells will play an even greater role as the coverage area of cell sites will continue to shrink due to the density of people, and therefore, the density of wireless data demand. With more than 80,000 small cells on air or committed in our backlog, high-capacity fiber assets in the vast majority of the top 30 markets in the U.S. and industry-leading capabilities, we believe we are well-positioned to deliver value to our customers as their priorities evolve, driving meaningful growth in our small cell business. Bigger picture, when I consider the durability of the underlying demand trends we see in the U.S., how well we are positioned to consistently deliver growth through all phases of the 5G build-out with significant potential upside in our comprehensive asset base as wireless networks continue to evolve. Our proven ability to proactively identify where wireless network architecture is heading and to be an early investor in solutions to help future networks, the deliberate decisions we have made to reduce risks associated with our strategy and our history of steady execution. I believe that Crown Castle stands out as a unique investment that will generate compelling returns over time. In the near term, as I mentioned before, we expect to deliver outsized AFFO per share growth of 12% in 2021. We expect to generate 8% growth in AFFO per share in 2022 at the high end of our long-term growth target, and supported by an expected 20% increase in tower core leasing activity. And we increased our common stock dividend by 11% for the second consecutive year. Longer term, we believe Crown Castle provides an exciting opportunity for shareholders to invest in the development of 5G in the U.S., which we believe is the best market for communications infrastructure ownership. Importantly, we provide access to such attractive industry dynamics while providing a compelling total return opportunity comprised of a high-quality dividend that currently yields 3.5% with expected growth in that dividend of 7% to 8% annually. And with that, I'll turn the call over to Dan.

Daniel Schlanger, Chief Financial Officer

Thanks, Jay. Good morning, everyone. As Jay discussed, we delivered another great quarter of results in the Third Quarter. We remain on track to grow AFFO per share by an anticipated 12% this year. We expect to be at the high-end of our growth target in 2022 with 8% AFFO per share growth. And we increased our quarterly common stock dividend by 11% for the second consecutive year, meaningfully above our long-term target growth rate, while maintaining a consistent payout ratio. We are excited about the outsized growth we are experiencing in the early stages of 5G. And we continue to believe our portfolio of towers, small cells, and fiber provide unmatched exposure to what we believe will be a decade long build-out by our customers. Turning to Slide 4 of the presentation, our third quarter results were highlighted by 8% growth in site rental revenues, 11% growth in adjusted EBITDA, and 13% growth in AFFO per share when compared to the same period last year. Record Tower activity levels supported this strong growth, generating organic Tower growth of 6.3% and higher services contribution when compared to the same period in 2020. Looking at our full-year outlook for 2021 and 2022 on slide 5, we are maintaining our 2021 outlook with site rental revenues, adjusted EBITDA, and AFFO growing 7%, 11%, and 14%, respectively. For full-year 2022, we expect continuing investments in 5G to drive another very good year for us, with 5% site rental revenue growth, 6% growth in adjusted EBITDA, and 8% AFFO growth. Turning now to slide 6, the full-year 2022 outlook includes an expected organic contribution to site rental revenues of $245 to $285 million or 5% consisting of approximately 5.5% growth from towers, 5% growth from small cells, and 3% growth from fiber solutions. As you likely saw in our press release, when we refer to new leasing activity, we include the change in amortization of prepaid rent consistent with how we have discussed activity in the past. To address feedback we've received, to provide more detail around our expectations for leasing activity, we have introduced a new concept of core leasing activity, which excludes the impact of changes in prepaid rent amortization. Core leasing activity is more indicative of current period activity, whereas changes in prepaid rent amortization also include activity from prior periods as prepaid rent received in those prior periods eventually amortizes to 0 over the life of the associated contract. Although we have consistently provided disclosure on prepaid rent amortization by segment in our supplemental earnings materials, we hope this new presentation format provides a cleaner way for investors to analyze our performance. With that definition in mind, we expect 2022 core leasing activity of $340 million at the midpoint, or $350 million inclusive of the year-over-year change in prepaid rent amortization. The 2022 expected core leasing activity includes $160 million in towers representing a 20% increase when compared to our 2021 outlook and an approximately 50% increase when compared to our 5-year trailing average, $30 million in small cells compared to $45 million in 2021, and $150 million in fiber solutions, compared to a $165 million expected this year. Turning to Slide 7, you can see we expect approximately 90% of the organic site rental revenue growth to flow through to AFFO growth, highlighting the strong operating leverage in our business. As we discussed in July, we expect to deploy an additional 5,000 small cells in 2022, which is the same number we expect to build in 2021. We expect discretionary Capex to be approximately $1.1 billion to $1.2 billion in 2022, including approximately $300 million for towers and $800 to $900 million for fiber, similar to what we expect in 2021. This translates to $700 to $800 million of net Capex when factoring in the $400 million of prepaid rent contribution we expect to receive in 2022. The full-year 2022 outlook for Capex represents an expected 30% reduction in discretionary Capex for our fiber segment relative to full-year 2022 when we deployed approximately 10,000 small cells. Based on the expected growth in cash flows for full-year 2022 and consistent with our investment-grade credit profile, we expect to fund our discretionary Capex with free cash flow and incremental debt capacity without the need for new equity for the 4th consecutive year. In addition, we believe our business and balance sheet are well positioned to support consistent AFFO growth through various economic cycles, including during periods of higher inflation and interest rates. Our cost structure is largely fixed in nature as you can see, with nearly 90% of the full-year 2022 expected organic contribution of revenue growth to flow through to AFFO growth as I referenced earlier. And we've taken steps to further strengthen our investment-grade balance sheet that now has more than 90% fixed rate debt, a weighted average maturity of more than 9 years, and a weighted average interest rate of 3.1%. In conclusion, we're excited about the outsized growth we are generating as a result of the initial 5G build up by our customers, which is translating into back-to-back years of 11% growth in our quarterly common stock dividend. This dividend currently equates to an approximate 3.5% yield, which we believe is a compelling valuation given our expectation of growing the dividend 7% to 8% per year, combined with our high-quality, predictable, and stable cash flows. Looking further out, we believe our unique ability to offer towers, small cells, and fiber solutions, which are all integral components of communications networks, provide significant optionality to capitalize on the long-term positive industry trends of network improvements and densification, and gives us the best opportunity to consistently deliver growth as wireless network architecture continues to evolve and our customers' priorities shift over time. With that, April, I'd like to open the call to questions.

Operator, Operator

Thank you. Operator Instructions: We'll pause for a moment. And we'll first hear from Michael Rollins of Citi.

Michael Rollins, Analyst (Citi)

Thanks and good morning.

Jay Brown, Chief Executive Officer

Good morning, Mike

Michael Rollins, Analyst (Citi)

Hi. I was curious if you could unpack the leasing commentary in terms of the activity levels relative to what's coming through the income statement and revenue in 2022, and included in that would be are you seeing an elevated backlog if some of the leasing from companies like DISH just have a longer lead time? The other part of it I noticed was it seemed like other customer revenues bounced up a couple of hundred basis points in 3Q from 2Q, and I'm curious if that's also signifying some contribution from DISH. Thank you.

Jay Brown, Chief Executive Officer

I'll take the big-picture question and Dan can walk through how it’s flowing through the income statement. I said this in the prepared remarks and it was in the press release: the amount of leasing activity we're seeing is unprecedented. Core activity is about 50% above our historical five-year average. For a business that rarely has inflection points, seeing that kind of uplift is remarkable — we haven't seen this level of activity in about 20 years. Largely, this is driven by the wireless carriers. Verizon, AT&T and T‑Mobile are deploying network at scale, both adding new sites and upgrading existing sites to 5G. Having all of the major carriers spending at a healthy rate is a very positive dynamic. Based on their commentary and the CapEx they've allocated, this is going to be a multiyear activity — it’s not something that will wind down in calendar 2022 — so we feel the backdrop for those three carriers is strong and likely to persist. On top of that, with DISH as a new entrant deploying a network from scratch, that activity begins in earnest in 2022. We signed an agreement with them last year — a large commitment for about 20,000 sites — and it’s been impressive to watch them stand up the organization and get to a point where they can deploy at scale and speed. Our employees are very busy supporting the buildout of this new nationwide network for DISH, and that is causing some of the other revenues in the mix to tick up. In addition to the traditional wireless carriers, there are a number of new business models that, individually, might not drive meaningful tower-leasing activity but, as a combined group, are contributing to growth. Many businesses are finding ways to deploy wireless networks using spectrum bands outside those owned by the major carriers, and that is adding to our revenue growth. We expect that trend to continue over time.

Daniel Schlanger, Chief Financial Officer

Yeah, Mike, I'll try to address the other part of your question about activity levels versus what flows through into the income statement going into 2022. As you pointed out, there's always a bit of a lag between activity and when we can see the revenue. We don't start recognizing revenue until a lease has begun, which means the site is up and running and able to produce and deploy the spectrum. That can, at times, delink activity from when we see improvement in our income statement. What I'll say is that when we look at 2022, we are really excited by how that's going, because as Jay mentioned, the increase in activity is flowing through. In 2021 we saw a 30% increase in core tower leasing activity over 2020, and in 2022 we're increasing again by 20%. Those are huge numbers for our business, so it is flowing through our income statement even with the delays from activity to when we actually turn on a lease. Finally, with DISH, even though we signed a long-term contract, we won't recognize revenue until we have a lease, which means a site capable of propagating spectrum. So there will be time between the activity levels and when that leasing activity hits our income statement as well, but that's reflected in our 2022 outlook.

Michael Rollins, Analyst (Citi)

Thanks.

Operator, Operator

And next we'll hear from Simon Flannery of Morgan Stanley.

Simon Flannery, Analyst (Morgan Stanley)

Great. Thank you. Good morning. I noticed in the guidance you have non-renewals stepping up a little year-over-year. I wondered if you could just go through some of the assumptions there by business units. And in particular on the T-Mobile, Sprint churn, is this sort of a worst-case scenario? Do you expect these to be turned down? Any updates on how you're addressing some of the future churn? Is there any more clarity on perhaps some sort of master lease agreement around that?

Daniel Schlanger, Chief Financial Officer

Yes, Simon. I'll take the first part of that and I will hand it over to Jay for the longer-term question. With respect to the churn in 2022, as you pointed out, it is up a bit. Part of that increase is we expect to be on the low end of our churn in 2021, which is around 1% or around $40 million or so in 2021 in our Tower business, going to about $60 million or 1.5% in 2022. The majority of that incremental $20 million of churn is related to Sprint sites. And it would be consistent with what our disclosure has been in our supplemental earnings materials over time of what those sites look like and what could be at risk for 2022. We do think that's going to happen, which is why we have it in the outlook. I wouldn't say it's conservative or aggressive. It's just our belief of how that's going to play out. And with respect to the rest of the churn, you can see that we're going to have churn on our fiber solutions business a bit down year-over-year from 2021 to 2022, but we also have a corresponding reduction in a new leasing activity on our fiber solutions business. So we think that business will continue to grow around 3%. That's how we're thinking about churn going into 2022.

Jay Brown, Chief Executive Officer

Simon, on the second part of your question, longer term we certainly intend to work with T-Mobile. I don't have anything to report on this front. Obviously, they've been clear about the need to achieve some synergies in their network as they go through the process of combining with Sprint and rationalizing some sites. We think those are most likely to come on the sites that we refer to as dual residency, meaning sites where both T-Mobile and Sprint are co-located. We'll work with them as they go through that process of achieving those synergies. At the same time, they need to port the spectrum onto other sites and onto the legacy T-Mobile assets, so there's a large amount of coordination with them both in terms of achieving the synergies and standing up their network and getting it ready for 5G. We're actively engaged in that. I think we still believe that over the long term the growth opportunities there will exceed any churn that we'll realize. To help investors understand the bookends, we've provided details in the supplements so you can see both the amounts of future leases as they come up for renewal and the dates of those renewals. But at the moment, nothing to report other than that we want to be a good partner with them and we'll certainly help facilitate the goals they have around their network.

Simon Flannery, Analyst (Morgan Stanley)

Great. Thanks a lot.

Operator, Operator

Next we'll hear from Brett Feldman of Goldman Sachs.

Brett Feldman, Analyst (Goldman Sachs)

Thanks Ed. Two questions; you've made the point that there tends to be a lag between when you sign business and when it shows up on your P&L. And I think that's also pretty true with regards to your Capex, particularly in the small cell business, there can be a pretty big lag between when you're deploying that fiber, when you're actually getting the leasing activity. So with this being the second consecutive year where your discretionary Capex is at a lower run rate, I believe predominantly because of what's going on with the node deployments. Is this deployment run-rate of about 5,000 you're seeing this year, probably what you're going to get next year until we get visibility into Capex moving higher. So that will be the first question. And then the second is, why did you decide to go ahead and once again raise dividend by more than the rate of growth in AFFO per share? It certainly seems like you could also consider doing buybacks in years where you think you have a little excess capacity. And I was hoping you can maybe give some insight in terms of how you're thinking about outsized dividend growth versus other forms of capital returns?

Daniel Schlanger, Chief Financial Officer

Absolutely. On your first question, I think you correctly characterize the nature of the Capex. As it's coming down, we're putting fewer small cell nodes on air in 2021. There will be a similar level in 2022, so naturally the amount of Capex would come down. There is Capex in those numbers related to nodes going into future periods. We've had a lot of bookings in 2021. On the small cell side, we'll be well north of 15,000 new bookings in calendar year 2021, and we've already started building those nodes. While they likely won't come on until 2023 and beyond, we've already begun work, so there is a bit of a lag. In terms of Capex per node and unit economics, all of that has basically stayed in line with what we've seen historically. As we work through the soft costs of permitting, we'll have a better sense of when they'll come on air. The bulk of the Capex is incurred in the last few months before installation, while in earlier months we incur Capex related to soft costs like zoning and planning. We expect to see some uplift in Capex in 2023 as the total number of nodes we deploy increases above the levels we'll see in this calendar year and in 2022. On the dividend question, the reason we raised it 11% this year is a combination of the outsized growth we saw in calendar year 2021 and our expectations for 2022. Our philosophy around the dividend is to maintain the payout ratio at roughly 75% to 80% of AFFO per share and pay that out as a dividend. The raise this year reflects 2021 outperformance and aligning the dividend with that outperformance, together with what we expect the operating performance to be in 2022. We size the dividend by looking at projected AFFO per share for the next year and setting the dividend accordingly. With regard to share purchases, as we grow we'll be close to our targeted leverage of about 5 times debt to EBITDA. As we have done historically, we want to put capital to its highest and best use, which for us is a risk-adjusted return measured by the long-term dividend per share. Recently, that analysis has favored investing in small cells because we believe they will drive long-term dividend growth and maximize dividend per share. As we reach our target leverage and create additional capacity, we will continue to rigorously analyze what maximizes return and deploy available capital accordingly. Historically we've used excess capital and leverage capacity to buy back shares, and we always test buybacks against other investment opportunities. In future years we'll evaluate small cell opportunities to see if they meet our criteria for highest and best use and compare that to the option to repurchase shares. You should expect that at times we will be buyers of our shares when that represents the highest and best use of our capital, using some of our available capacity to do so.

Brett Feldman, Analyst (Goldman Sachs)

Thank you.

Operator, Operator

Phil Cusick of JP Morgan. We'll hear from Phil. (Note: caller identified himself as Omair for Phil.)

Amir (Omair for Phil), Analyst (JP Morgan)

Hi, this is Omair for Phil. In your current outlook for 2022, are you expecting any carriers to be more active or less active than they are currently, or do you assume they will continue at the current level of activity? And I assume these expectations are baked into those estimates? Another question: how should macro tower activity be weighted in 2022 — is it somewhat back-end loaded? Thank you.

Jay Brown, Chief Executive Officer

On your first question about activity by carrier, I don't want to speak to the specific deployment plans of our customers. As I mentioned in the question I think Mike asked, activity across all of the carriers is elevated. We think we'll see about a 20% increase in activity in 2022 compared with 2021, and that's really coming across the board. We're seeing elevated levels of activity from all of the carriers. Regarding whether the year is back-end loaded, we're going into this year with a lot of activity already underway. Given the nature of the business, where many leases signed in the current year provide the benefit of all 12 months of leasing in the next year, we're ramping up as we go through 2021. I think you'll see a similar ramp through calendar year 2022, but maybe not as back-end loaded as in past years, because much of the uplift in applications that will drive leasing activity and impact the income statement is actually occurring in 2021. We either have signed leases or good visibility to them, which indicates it's not a back-end loaded year; we're not counting on a big uplift in the second half of next year.

Daniel Schlanger, Chief Financial Officer

Yeah. And Amir, I will just answer one last question you threw in there which is, is DISH included in our outlook? The answer is yes. We have included the activity that we anticipate for all our customers in 2022.

Amir (Omair for Phil), Analyst (JP Morgan)

Okay, great. And if I may, on the small cells side, how much in 3Q was that activity one-timer, and what do you expect in 4Q? And overall looking at the outlook for small cell in 2022, is similar that lost activity roll over to 2023 or should we be thinking about that differently?

Jay Brown, Chief Executive Officer

Yeah, there was a little bit but not enough to be material to the results in the quarter. Certainly, as we talked about big picture, the number of nodes, we talked about the same last quarter. The reason why we lowered the number of nodes that we're going to put on air in '21 and '22 was the decision that the carriers made around where to put their Capex dollars on equipment and they focused those dollars towards macro sites and pushed to the right the delivery timing on small cells and so we're reflecting that in our outlook. In terms of nodes committed, there's no change in the number of nodes, so all it did was slide those nodes into years '23 and '24. So we've got some work that we've gotten done that are ready to install those nodes once equipment is delivered, and we'll see the benefit of that in '23 and '24, but we didn't lose any of the nodes. We just pushed them out into future periods.

Amir (Omair for Phil), Analyst (JP Morgan)

Thank you.

Operator, Operator

Next we'll hear from Colby Synesael of Cowen.

Colby Synesael, Analyst (Cowen)

Hi, thank you. Two questions. First, your 8% AFFO growth for 2022 implies a sequential step-down in AFFO in the fourth quarter of this year to reach the midpoint of your guidance, which underpins your growth assumptions for next year. I understand sustaining capital expenditures will rise, but even at the high end of the range you maintained, AFFO doesn't appear to fall far enough to get to an effective 8% next year. Are there any other items between the third and fourth quarters that we should be mindful of that would reduce AFFO enough to reach that midpoint for 2021? Second, following up on the earlier question, is it reasonable to expect leasing of around 15,000 small cells again this year, or should we be prepared for leasing to be down as well? Thank you.

Daniel Schlanger, Chief Financial Officer

Colby, I'll take the first part of that, and Jay will handle the leasing question. You're right about everything you said going into Q4. There is a step-down in AFFO, driven largely by an increase in expenses and capital, both operating expenses and sustaining capital. That happens in the fourth quarter and has happened many times in the past as well. Having said that, as you pointed out, it will likely be toward the higher end of the range. As we approach the end of 2021, we will be at the higher end of our range. We don't change the range when we will still be within it; that's why we give a range. We don't want to continually move it, but it will likely be higher than the midpoint.

Colby Synesael, Analyst (Cowen)

That's for sustaining Capex. Are you referring to sustaining Capex being at the higher end?

Daniel Schlanger, Chief Financial Officer

Well, sustaining Capex will be but our AFFO per share will be higher than the midpoint most likely as it plays out in 2021.

Colby Synesael, Analyst (Cowen)

That's for sustaining Capex. You're referring to sustaining Capex being at the higher end?

Jay Brown, Chief Executive Officer

Colby on your second question around small cell nodes, let me just back up and make sure I give the full picture. In terms of what we're going to put on air, meaning, go through the operational process of building them and turning them up, we think we'll do about 5,000 this year, calendar year 2021, and turn another 5,000 on in calendar year 2022. Those will be that we put on air. In terms of bookings, which would refer to a node that a carrier makes a commitment to us, they sign a contract, commit to a node, and then we 'll build it in future periods, our bookings in calendar year 2021 will be well in excess of 15,000 nodes that we do in terms of bookings this calendar year. And those will come on in future years. As we get into calendar year 2022, we'll give you an update on where we think bookings will be at that point. But for calendar year '21, we think the number will be well in excess of 15,000 which is by far the highest bookings year we've ever had in our history on the small cell side, and I think it's interesting. I think it just points to the conversation I was having a few minutes ago around the landscape that we have with the carriers. This is as healthy an environment with the carriers as we've ever seen; long-term commitments on the capital side, committed amounts by each of the legacy carriers, and the build-out of a brand-new network. And at the moment, the mix that they have is heavily weighted towards macro sites. But I think over time, as we have seen in the past, I think there will be some shift of that mix of total capital spend, where a portion of it will go towards small cells and there will be less focused on macro sites. I think you can see that in the commitments that the carriers are making to us by over 15,000 small cell bookings this year that they're thinking about in future periods, that's going to take a significant chunk of their Capex than those future years that we would think would move away from macro sides and towards small cells, and it may look more like what it did 2 or 3 years ago, when we saw a real slowdown on the macro side and were benefiting from an allocation of that capital towards small cells. So I think that's the benefit that we have in terms of our strategy of providing wireless networks to the carriers and we'll benefit if they are focused on small cells or we'll benefit if they're focused on macro sites. And over time, both are just critically important to the way networks are going to be developed.

Colby Synesael, Analyst (Cowen)

Great. Thank you. One real quick. Just follow-up, or actually not follow up, a separate question. Should we still think of the book-to-bill for towers being roughly 6 months? Is that roughly kind of how you think about on average or is that number changed much?

Jay Brown, Chief Executive Officer

I think that's a pretty fair average. To the extent that we're doing amendments to existing sites, that's a really fair average. To the extent that somebody is going on a tower for the first time, that average is probably a little closer to 12 months than it is 6 months. And the zoning and planning process really unchanged, but depends on the type of activity. If it's amendments, we're probably getting close to in that 6 to 9 months range. If it's a brand-new installation on an existing site, we're probably closer to 12 months.

Colby Synesael, Analyst (Cowen)

Thank you.

Operator, Operator

Next we'll hear from David Barden of Bank of America.

David Barden, Analyst (Bank of America)

Thanks, guys. I appreciate the opportunity to take some questions. I have a couple. First, Dan: when looking at the core leasing macro tower revenue increment of 155 to 165, there is a lot of interest in understanding the percentage of that that is locked in within MLA guardrails and the percentage that could conceivably be a little better than your initial expectation depending on what we learn about carrier activity levels as we go into 2022. Second, Jay, I want to make sure I understand some of the comments you're making. At the end of last year we had 50,000 small cells on air and 30,000 in the committed backlog, which is 80,000. In your opening remarks you said you still have 80,000 on air and committed, but then you said there are 15,000 that we've booked this year, which makes me think that that 80,000 should actually be 95,000. Am I wrong about that?

Jay Brown, Chief Executive Officer

Yeah, I'll take the second question and Dan can take the first. The 15,000 I mentioned, obviously in calendar year 2021, are Verizon nodes from the big announcement we made in January. So, Dave, it may just be a timing difference between whether you're looking at the 80,000 nodes as of 12/31/2020 or the number we reported when we did fourth quarter earnings in the first quarter of this year. When I made my comments, I was referring to a total of 80,000 nodes on air or in process.

David Barden, Analyst (Bank of America)

Okay. That's the same number as at the fourth quarter results, which was in February.

Jay Brown, Chief Executive Officer

Correct. And obviously, we're rounding to 5,000 increments, so we're not showing the movements as they move in anything less than 5,000 increments.

David Barden, Analyst (Bank of America)

Okay. Got it. And so then just the follow-up on that is so there really hasn't been any new small cell bookings outside of that very initial part of the year. So is there an expectation on your part that as people pivot from the macro build and start to plan for that '23, '24 time frame that the bookings should kind of come back into next year?

Jay Brown, Chief Executive Officer

Well, there have been bookings, just not to the point we expected. We're increasing the increment by 5,000. There have been bookings this year, and I think there will be more, so we'll be in excess of the Verizon commitment in calendar year 2021. Zooming out a bit, I would affirm that as we get further into this year and into next year, we expect more bookings. The carriers are focused at the moment on macro sites and building those out, but we are also having significant conversations with them about the requirements they will have around cell site density, and we think that will drive a lot of activity toward small cells. In periods beyond 2023, I think we will see an uplift in the total number of nodes that we have in bookings and ultimately are being put on air as they need them in the network after the initial macro overlay.

David Barden, Analyst (Bank of America)

Got it.

Daniel Schlanger, Chief Financial Officer

Dave, I'll take the first question about core leasing on the towers and how much is contracted. When we look into future periods like 2022, we take into account the agreements we have with our customers. As you suggested, we have agreements with several customers, but many of those agreements have upside and are not necessarily capped. We estimate activity from each customer based on what has already been signed, what we have a clear line of sight into for next year, and what we expect will happen next year. When we developed the 155 to 165 estimate, that's our best guess at the activity level and how it will be monetized within our agreements. There is always potential for outcomes to be better or worse if actual activity differs from our expectations. As Jay has mentioned a few times, we're really excited about the level of activity heading into next year; the 155 to 165 range is an increase over a strong 2021. We feel good about that activity level, and we'll see how it plays out as customers come to us to place more equipment on towers.

David Barden, Analyst (Bank of America)

Great. Thanks, guys.

Operator, Operator

Next we'll hear from Nick Del Deo of MoffettNathanson.

Nick Del Deo, Analyst (MoffettNathanson)

Hey. Thanks for taking my question. One on fiber solutions and one on small cells. First, as we think about the leasing for fiber solutions in '22 versus '21, is that decline just a function of lapping some COVID-driven capacity cells in 21? And what's causing that churn to come down a little bit? And then, on the small cell front, as we think about the potential timing for installing what you have in the backlog over the next few years, do all those nodes have firm dates by which the carriers need to start paying you for them, or do they have flexibility to keep deferring installations if they choose? What's the dynamic there?

Jay Brown, Chief Executive Officer

On the first question, we've talked about this for a long time. We think the fiber solutions business is going to operate at around a 3% annual growth rate and that's what we're seeing in calendar year '21. I think we'll see a similar level in '22. There was some impact during COVID, particularly in the early, early months of 2021 and late 2020, associated with offices being closed. But honestly, because of the nature of large enterprises, universities, and government, which make up the bulk of the fiber solutions revenue that we do, we were not impacted nearly to the extent that fiber companies who are more focused on small and medium enterprises saw an impact. So we didn't see a falloff as many of them did. And then conversely, as the economy started to open back up, we just didn't see as much of an uplift. So I would say similar business environment to what we've seen the last couple of years, maybe a little bit better, but I think the growth is basically in line with what we've seen of about 3%. Churn is down, we think it will be down. This is an area that I know our team has focused really hard on. A part of it is making sure that we're being thoughtful about the kind of customers that we pursue on the front end. And then also as we manage the relationship as we get close to a contract renewal, being thoughtful about how we handle those contract renewals. I think the team has done a really nice job and we've seen some benefit from some of their work and we think we'll see more of that in '22 as we go through the process of managing the renewals and the end of term on some of those contracts. On your second question around small cell nodes and firm dates, we talked a little bit about this on the last quarterly call, and it should be viewed this way. We made an affirmative choice to work with our customers on pushing out these nodes into future periods. Our contractual rights, I think, would have given us the ability to really push to turn these these nodes to the point where we could have handed them over and charged rent to the carriers, but we made the affirmative decision, given the volume that was coming our way, and the reallocation of the dollars from the small cells to the macro sites. We made the affirmative decision to work with them and give them an ability to push out those dates. So there may be circumstances that arise in the future where we would not be willing to do that. But this was an affirmative decision that we made based on managing the customer relationship and maximizing what we thought was the return. The volume, as I said before, the volume and the revenues and cash flows all end up at the same place. But if we could maximize early some of the macro site revenues and work with the customers to give them an extension on when we turn the small cells on, we thought that made good business sense and that's why we did it. But contractually, we would have a right to do something a little different.

Nick Del Deo, Analyst (MoffettNathanson)

Okay. Got it. Thank you, Jay.

Operator, Operator

Next we'll hear from Matt Niknam of Deutsche Bank.

Matt Niknam, Analyst (Deutsche Bank)

Hey, thanks for taking the question. Just 2 if I could. First, maybe going back to a question that was asked earlier on the call. In terms of new entrants or maybe newer contributors, to what extent are you seeing or maybe anticipating contributions from either new CBRS deployments from cable, or via fixed wireless broadband deployments from some newer entrants? And then, secondly, on the topic of supply chain constraints, I'm just wondering, has that, to any extent, impacted customer behavior either today to review embedded anymore conservatism that some of these constraints may have in terms of customer activity next year? Thanks.

Jay Brown, Chief Executive Officer

Now, on your first question, you called out a number of different items. I would put all of those in a bucket and say yes, all of those are helping. CBRS is helping, cable's helping, others broadcast, that is helping. There are a number of areas that we're seeing leasing demand for macro sites, and we think that will continue into the future. I wouldn't call it out as a material impact to our 2021 or 2022 leasing results, but at the margin it does help and does drive the incremental growth that we're talking about in site rental revenues. Given the amount of spectrum that is outside of the hands of the carriers and the capital that is in some of those sectors in order to deploy wireless networks, I think on the longer-term model, if you take a five or ten year view, there will be some meaningful leasing activity happening outside of what you think of as the legacy or traditional wireless carriers that will benefit macro and small macro sites as well as small cells over time. As we start to see that, we'll give you more details around what those impacts are going to be. On your second question around supply chain constraints, obviously the whole world is feeling the impacts of that; much has been written about it. We've worked really closely with our customers on when they expect to receive equipment and the timing of that and then tried to make sure we line up sites to be ready for them based on when the equipment is received. I think they've done a nice job of working with their supply chains and having equipment available to get 5G networks launched in the time frame they expected. So it's a coordination activity and certainly a communication activity that our teams are having with their teams, and thus far that dialogue has proven to be a predictable indicator of when actual activity does happen on our site. We're watching it and paying attention to it, but they feel pretty good about the fact that our outlook does assume the environment of constraints that are out there, and our leasing expectations are a function of the coordination and communication we're having with our carriers on when equipment will be available.

Matt Niknam, Analyst (Deutsche Bank)

Great. Thanks, Jay.

Operator, Operator

Next we'll hear from Rick Prentiss of Raymond James.

Rick Prentiss, Analyst (Raymond James)

Good morning.

Jay Brown, Chief Executive Officer

Morning, Rick.

Rick Prentiss, Analyst (Raymond James)

Hey. Couple of questions. First, really appreciate you guys breaking out the details in the '22 guidance on what's been obviously a big issue for us, that non-cash amortization of prepaid rent. We appreciate your focus on core. When you do the supplement, on page 18 where you give the segment information and it's just towers versus fiber, can we get that information historically and going forward broken out as towers versus small cells versus fiber solutions?

Jay Brown, Chief Executive Officer

Thanks for the suggestion, we'll take a look at that.

Rick Prentiss, Analyst (Raymond James)

Yeah. And since you're focusing regarding that way, really help to break that up because it's an important item, and I'm really glad you guys are focusing on the core side because that really is the ongoing forward cash flow. Second one, you touched on a couple of times, David, and others asking, is there an update to how many small cell nodes are on air right now, or is that also something that comes at in 5,000 increments?

Daniel Schlanger, Chief Financial Officer

Yeah. We're just under 55,000 that are on air today.

Rick Prentiss, Analyst (Raymond James)

Okay.

Daniel Schlanger, Chief Financial Officer

So, there are 25,000 in the backlog.

Rick Prentiss, Analyst (Raymond James)

Right. Makes sense. And then conceptually, augmentation of towers. So you get prepaid rent ads from Verizon doing C-band, T-Mobile integrating Sprint, DISH putting 5G on the network, is there a thought that the Tower augmentation spending needs to go up at some point to handle all this? And then the reimbursements could come up as well in the future?

Daniel Schlanger, Chief Financial Officer

Yeah. I mean, that obviously could happen. It depends on how we're going to work through with our customers and what that prepaid rent looks like. And also it is impacted by what they want to put on which towers. Typically speaking, co-locations come with more augmentation CAPEX than do the amendments. So it really depends on how that all is going to play out and what we have going into 2022 is Tower Capex is coming down slightly from 2021, but nothing all that meaningful so it's all activity-based ultimately, Rick, and where that activity ends up and what we get back from our customers and that does fluctuate up and down over time.

Rick Prentiss, Analyst (Raymond James)

One more quick one then you get someone else squeezed in. Any updated thoughts on in-building systems? There's been a lot of talk about private 5G networks and what the opportunity might be. What are your thoughts as far as capital deployment, and kind of question on what's the opportunity for private 5G in building systems?

Jay Brown, Chief Executive Officer

The in-building, and I would put venues into this category too. 5 or 6 years ago, we had talked about in-building and venues. And we saw some opportunities, but relatively limited. And that business has really picked up on the small cell side. And we are seeing some really nice opportunities on in-building and venues and seeing some healthy growth there. The returns are good. It's a place where we like to invest. Certainly, it falls into that category of the densification comments that I was making earlier. Any place you see a densification of people, with the growth in traffic that we're seeing, really, the only way to manage the network towards a viable solution is to go in and put in small cells. And that's true in the public right-of-ways, and it's true in venues and in-building. So the growth in traffic that we're talking about and the deployment of these 5G networks, this requires a greater densification and in building and venues are following the same pattern that we're seeing happen in right-of-ways.

Rick Prentiss, Analyst (Raymond James)

Thanks, guys. Stay well.

Jay Brown, Chief Executive Officer

But maybe we can try to squeeze in 2 more callers before we drop off this morning.

Operator, Operator

Next, we'll hear from Sam Badri of Credit Suisse.

Sam Badri, Analyst (Credit Suisse)

Hi. Thank you. I wanted to ask you about your tenancy that moved higher in the quarter and comes along with a solid move in your rental revenue per tower. Is there any opportunity to accelerate the tenancy improvement given the 5G builds and some of the other trends that you mentioned and as you see tenancy go up, what's the impact on free cash flow at this point?

Jay Brown, Chief Executive Officer

Yeah, we are seeing increased tenancy on the towers. Historically, we've added about one tenant every ten years, roughly. I think that's a pretty good forecast for what we'll see over the long term; it's underpinning our 7% to 8% targeted growth in the dividend over time. I think that's the path we're on. As I mentioned earlier regarding carriers' capital spending and the current environment, we have a good tailwind to continue increasing tenancy by about one tenant every ten years. The unit economics of the business remain intact. As Dan noted in his prepared remarks, we keep $0.90 of every dollar at the organic site rental revenue line, all the way down to AFFO. That's a real credit to our team, who have done a tremendous job managing expenses and thoughtfully cutting costs to achieve very high incremental margins on incremental revenue. It's one of the strengths of our business model and one we believe we can continue to sustain and improve.

Sam Badri, Analyst (Credit Suisse)

Got it. One other follow-up is, does your guidance include any type of benefit from the Biden infrastructure bill that may be passed in the near future? And then, if your guidance does not include it, how do you imagine the broadband budgeted spend benefit your business if there is a path for that?

Jay Brown, Chief Executive Officer

We have not anticipated any of that in our current forecast or guidance. I think the most likely path for benefit from that is indirect. I wouldn't necessarily expect that we will be a direct recipient of those federal funds, but the customers that use both our fiber, our small cells, and our towers could absolutely be recipients of federal funds that would then be used to build networks, and as I commented earlier, the most efficient way to deploy spectrum and build network is to share it. Our offering of shared infrastructure lowers their cost and speeds their time to deployment. And so we certainly would expect to benefit indirectly as those federal funds become available and broadband for all becomes built out.

Sam Badri, Analyst (Credit Suisse)

Got it. Thank you.

Jay Brown, Chief Executive Officer

Operator, maybe we can take one more. Sure. Absolutely. April, may we can take one more question.

Operator, Operator

Sure, and that question will come from Walter Piecyk of LightShed.

Walter Piecyk, Analyst (LightShed Research)

Thanks. I can't believe Rick Prentiss took credit for that prepaid after all the times I've annoyed Schlanger with my prepaid questions over the years. I echo his comments, so thanks for including that now. Jay, from 10,000 feet, you've talked a lot about this, and although you haven't used the word, it's basically a near-term pivot toward macro rather than small cells, and at some point it will swing back and you have orders in hand. But when you talk to Verizon or AT&T, it seems the focus is on macro and that C-band plans, including upgrades to massive MIMO, are a two- to three-year process. I'm curious: when do you think there will be a pivot back to small cells so we'll see actual growth there?

Jay Brown, Chief Executive Officer

Yeah. I think some of that you can see in their activity with us. The commitment they made to 15,000 small cell nodes indicates they are thinking about small cells in the near-term planning horizon as they work on macro sites and then begin to infill and densify the network. This is a familiar pattern. We saw it with 3G and with 4G, and now with 5G. The first deployment step is to go to the assets they already occupy and upgrade those sites to the new technology. Once that overlay is done, they come back and focus heavily on densification. Looking at network performance, both at upgraded sites and data usage on those sites, capacity starts to be reached. Historically, they then have to self-split, reusing spectrum over more sites. The market dynamic, and this is reflected in the nodes we are booking now, is that there aren't additional macro sites available to self-split that spectrum. Because they are already on those macro sites, they must find ways to densify the network and reuse spectrum in locations other than traditional macro sites. That's where small cells deliver real benefit. As we move into calendar 2023 and beyond, we'll really see that movement, similar to 4G. With 4G, once we had added 4G to all the towers, there was significant small cell activity as operators upgraded sites to improve and densify the network. We expect to see a similar, and likely greater, trend with 5G given the spectrum bands being used and the growth in data traffic. Macro sites alone simply cannot deliver what's required. Okay. Well, I appreciate everyone joining this morning. Thanks for the time. And I do want to thank our team, our employees who've done a phenomenal job navigating through the challenges of COVID over the last 20 plus months here. And continuing to deliver for our customers, they are incredibly busy and have done a tremendous job for customers. So I want to say thank you to them and more to come on that front. So thanks everyone for joining the quarter to talk to you soon.

Operator, Operator

That does conclude today's conference. Thank you all for your participation. You may now disconnect.