CROWN CASTLE INC. The following discussion should be read in conjunction with the response to Part I, Item 1 of this report and the consolidated financial statements of the Company including the related notes and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") included in the 2019 Form 10-K. As discussed in the "Explanatory Note" to this Form 10-Q and in further detail in the 2019 Form 10-K, amounts reflected for the first quarter of 2019 have been restated to reflect the impact of the Historical Adjustments.
General Overview Overview We own, operate and lease shared communications infrastructure that is geographically dispersed throughout theU.S. , including approximately (1) 40,000 towers and (2) 80,000 route miles of fiber primarily supporting small cells and fiber solutions. Our towers have a significant presence in the top 100 basic trading areas ("BTAs"), and the majority of our small cells and fiber is located in major metropolitan areas. Site rental revenues represented 92% of our first quarter 2020 consolidated net revenues. Our Towers segment and Fiber segment accounted for 66% and 34%, respectively, of our first quarter 2020 site rental revenues. See note 11 to our condensed consolidated financial statements. The vast majority of our site rental revenues is of a recurring nature and is subject to long-term tenant contracts with our tenants. Strategy As a leading provider of shared communications infrastructure in theU.S. , our strategy is to create long-term stockholder value via a combination of (1) growing cash flows generated from our existing portfolio of communications infrastructure, (2) returning a meaningful portion of our cash generated by operating activities to our common stockholders in the form of dividends and (3) investing capital efficiently to grow cash flows and long-term dividends per share. Our strategy is based, in part, on our belief that theU.S. is the most attractive market for shared communications infrastructure investment with the greatest long-term growth potential. We measure our efforts to create "long-term stockholder value" by the combined payment of dividends to stockholders and growth in our per-share results. The key elements of our strategy are to: • Grow cash flows from our existing communications infrastructure. We are focused on maximizing the recurring site rental cash flows generated from providing our tenants with long-term access to our shared infrastructure assets, which we believe is the core driver of value for our stockholders. Tenant additions or modifications of existing tenant equipment (collectively, "tenant additions") enable our tenants to expand coverage and capacity in order to meet increasing demand for data while generating high incremental returns for our business. We believe our product offerings of towers and small cells provide a comprehensive solution to our wireless tenants' growing network needs through our shared communications infrastructure model, which is an efficient and cost-effective way to serve our tenants. Additionally, we believe our ability to share our fiber assets across multiple tenants to deploy both small cells and offer fiber solutions allows us to generate cash flows and increase stockholder return. • Return cash generated by operating activities to common stockholders in the form of dividends. We believe that distributing a meaningful portion of our cash generated by operating activities appropriately provides common stockholders with increased certainty for a portion of expected long-term stockholder value while still allowing us to retain sufficient flexibility to invest in our business and deliver growth. We believe this decision reflects the translation of the high-quality, long-term contractual cash flows of our business into stable capital returns to common stockholders. • Invest capital efficiently to grow cash flows and long-term dividends per share. In addition to adding tenants to existing communications infrastructure, we seek to invest our available capital, including the net cash generated by our operating activities and external financing sources, in a manner that will increase long-term stockholder value on a risk-adjusted basis. These investments include constructing and acquiring new communications infrastructure that we expect will generate future cash flow growth and attractive long-term returns by adding tenants to those assets over time. Our historical investments have included the following (in no particular order):
• construction of towers, fiber and small cells;
• acquisitions of towers, fiber and small cells;
• acquisitions of land interests (which primarily relate to land
assets under towers);
• improvements and structural enhancements to our existing
communications infrastructure;
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• purchases of shares of our common stock from time to time; and
• purchases, repayments or redemptions of our debt.
Our strategy to create long-term stockholder value is based on our belief that there will be considerable future demand for our communications infrastructure based on the location of our assets and the rapid growth in the demand for data. We believe that such demand for our communications infrastructure will continue, will result in growth of our cash flows due to tenant additions on our existing communications infrastructure, and will create other growth opportunities for us, such as demand for newly constructed or acquired communications infrastructure, as described above. Further, we seek to augment the long-term value creation associated with growing our recurring site rental cash flows by offering certain ancillary site development and installation services within our Towers segment. Business Fundamentals and Results The following are certain highlights of our business fundamentals and results as of the three months endedMarch 31, 2020 . • We operate as a REIT forU.S. federal income tax purposes • As a REIT, we are generally entitled to a deduction for dividends that we pay and therefore are not subject toU.S. federal corporate income tax on our taxable income that is distributed to our stockholders. • To remain qualified and taxed as a REIT, we will generally be required to annually distribute to our stockholders at least 90% of our REIT taxable income, after the utilization of our NOLs (determined without regard to the dividends paid deduction and excluding net capital gain). • See note 7 to our condensed consolidated financial statements for further discussion of our REIT status.
• Potential growth resulting from the increasing demand for data
• We expect existing and potential new tenant demand for our
communications infrastructure will result from (1) new
technologies, (2) increased usage of mobile entertainment, mobile
internet, and machine-to-machine applications, (3) adoption of
other emerging and embedded wireless devices (including
smartphones, laptops, tablets, wearables and other devices), (4)
increasing smartphone penetration, (5) wireless carrier focus on
expanding both network quality and capacity, including the use of
both towers and small cells, (6) the adoption of other
bandwidth-intensive applications (such as cloud services and video
communications) and (7) the availability of additional spectrum.
• We expect U.S. wireless carriers will continue to focus on
improving network quality and expanding capacity (including through
5G initiatives) by utilizing a combination of towers and small
cells. We believe our product offerings of towers and small cells
provide a comprehensive solution to our wireless tenants' growing
communications infrastructure needs.
• We expect organizations will continue to increase the usage of
high-bandwidth applications that will require the utilization of
more fiber infrastructure and fiber solutions, such as those we
provide.
• Within our Fiber segment, we are able to generate growth and
returns for our stockholders by deploying our fiber for both small
cells and fiber solutions tenants.
• Tenant additions on our existing communications infrastructure are
achieved at a low incremental operating cost, delivering high
incremental returns.
• Substantially all of our communications infrastructure can
accommodate additional tenancy, either as currently
constructed or with appropriate modifications.
• Investing capital efficiently to grow long-term dividends per share
(see also "Item 2. MD&A-General Overview-Strategy")
• Discretionary capital expenditures of $426 million for the three
months ended March 31, 2020 , predominately resulting from the
construction of new communications infrastructure and improvements
to existing communications infrastructure in order to support
additional tenants.
• We expect to continue to construct and acquire new communications
infrastructure based on our tenants' needs and generate attractive
long-term returns by adding additional tenants over time.
• Site rental revenues under long-term tenant contracts
• Initial terms of five to 15 years for site rental revenues derived
from wireless tenants, with contractual escalations and multiple
renewal periods, at the option of the tenant, of five to 10 years
each.
• Initial terms that generally vary between three to 20 years for
site rental revenues derived from our fiber solutions tenants
(including from organizations with high-bandwidth and
multi-location demands).
• Weighted-average remaining term of approximately five years,
exclusive of renewals exercisable at the tenants' option, currently
representing approximately $24 billion of expected future cash
inflows.
• Majority of our revenues from large wireless carriers
• 74% of our site rental revenues were derived from T-Mobile, AT&T,
Verizon Wireless and Sprint for the three months ended March 31,
2020 .
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? OnApril 1, 2020 , T-Mobile and Sprint announced the completion of their previously disclosed merger. For additional information, see "Item 1A. Risk Factors" in the 2019 Form 10-K.
• Majority of land interests under our towers under long-term control
• Approximately 90% of our Towers site rental gross margin and
approximately 80% of our Towers site rental gross margin is derived
from towers that reside on land that we own or control for greater
than 10 and 20 years, respectively. The aforementioned percentages
include towers that reside on land interests that are owned,
including through fee interests and perpetual easements, which
represent approximately 40% of our Towers site rental gross margin.
• Majority of our fiber assets are located in major metropolitan areas
and are on public rights-of-way.
• Minimal sustaining capital expenditure requirements
• Sustaining capital expenditures represented approximately 1% of net revenues.
• Debt portfolio with long-dated maturities extended over multiple years,
with the vast majority of such debt having a fixed rate (see "Item 3.
Quantitative and Qualitative Disclosures About Market Risk" for a
further discussion of our debt)
• As of March 31, 2020 , after giving effect to our April 2020 Senior
Notes issuance and the application of the net proceeds therefrom,
our outstanding debt has a weighted-average interest rate of 3.7%
and weighted-average maturity of approximately seven years
(assuming anticipated repayment dates on our Tower Revenue Notes).
See note 13 to our condensed consolidated financial statements.
• 88% of our debt has fixed rate coupons, after giving effect to our
April 2020 Senior Notes issuance (see note 13 to our condensed
consolidated financial statements).
• Our debt service coverage and leverage ratios are within their
respective financial maintenance covenants.
• During 2020, we have completed the following financing transactions
(see note 13 to our condensed consolidated financial statements)
• In April 2020 , we issued $1.25 billion aggregate principal amount
of senior unsecured notes ("April 2020 Senior Notes"), which
consisted of (1) $750 million aggregate principal amount of 3.300%
senior unsecured notes due July 2030 and (2) $500 million aggregate
principal amount of 4.150% senior unsecured notes due July 2050 . We
used the net proceeds of the April 2020 Senior Notes offering to
repay outstanding borrowings under the 2016 Revolver.
• Significant cash flows from operations
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