Guide to Tower Industry KPIs
This guide highlights the key performance indicators for the tower industry and where investors should look to find an investment edge.
Industry Overview
Tower companies build and operate cell towers that house electronic communication equipment and antennas to support cellular communications of their tenants. Tenants for the tower industry are mainly telecom providers but can also include cable television providers and radio broadcasters, depending on the type of tower. Towers are crucial to the digital economy and infrastructure. Technological advancements in the space of cellular technology, rising smartphone penetration, and the Internet of Things (IoT), among others have driven the demand for cell towers.
As earlier discussed, tower companies own and invest in networks of vertical tower structures and lease vertical spaces on the towers to tenants, generally entering long-term lease contracts. Tenants also lease a portion of land under the tower for placing their equipment. Towers generally can hold multiple tenants and often lease their towers to multiple telecommunication providers to leverage the capital investment in the tower. The leases usually have a fixed annual price escalator.
Key Tower Industry Metrics
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for the tower industry, whether at a company or industry level, some industry KPIs to consider are:
Pure-play Towers – By Users/Tenants
- Average Tower Tenants (#)
- Monthly/Annualized Revenue Per Tenant
- Average DAS Tenant (#)
Pure-Play Towers – By Infrastructure/Sites
- Average Sites (#)
- Monthly/Annualized Revenue Per Site
Qualified Tower REITs
- Average Total Sites/Towers (#)
- Monthly Site Leasing Revenue Per Site/Tower
- Beginning Towers (#)
Tower Industry Business Model
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Expenses
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Revenue
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Other Key Operational and Business Metrics
Expenses for pure-play and tower REITs include utility costs, rental expenses, real estate taxes, electricity, site maintenance, and insurance, among others. Some major expenses include:
- Selling, general, and administrative expenses – Major expenses under this category are:
- Property maintenance and repair expenses – Expenses related to repairs and maintenance of the tower property, management fees, utilities, and insurance costs
- Rent, electricity, and other expenses – Expenses related to rental costs, electricity charges, professional fees, and other general operational expenses.
- Capital expenditures (Capex) – The tower industry is a capital-intensive industry that requires a substantial amount of capex for the development and overall maintenance and upkeep of towers. This makes capex a major expense for the tower industry.
Tower company’s revenue growth is significantly driven by the growth in data usage as a result of rising smartphone penetration across different markets. This guide divides the tower industry into two main categories based on their business models. These categories include:
- Pure-play towers
- Qualified tower REITs
Analysts model pure-play towers based on users/tenants or infrastructure/sites. For simplicity, we explain the business model of the tower industry by diving into three business models; Pure-play Towers – Users/Tenants, Pure-play Towers – Infrastructure/Sites, and Qualified Tower REITs.
Pure-play Towers – Users/Tenants
Pure-play towers generate revenue by leasing vertical spaces on the towers to tenants, who pay rent either monthly or annually. The rent is based on multiple factors including the location, square foot area of the tower leased, and the weight of the equipment placed on the tower. Revenue generated by tower companies can be bifurcated into tower revenue and non-tower revenue. Tower revenue is the sum of tower rental revenue, distributed antenna system (DAS) revenue, other rental revenue, and other revenue. Tower rental revenue is the product of the average number of tower tenants and the monthly or annualized revenue per tenant. DAS revenue is computed as the product of the average number of DAS tenants and the monthly or annualized revenue per DAS tenant. DAS systems are essentially signal boosters, much smaller than traditional cell towers, making them better alternatives for congested, high-volume locations.
Alternatively, tower revenue is also computed as the product of the average number of points of presence (PoPs) and the monthly or annualized revenue per PoPs. The point of presence (PoP) is the point at which two or more different networks or communication devices build a connection with each other. POP mainly refers to an access point, location, or facility that connects to and helps other devices establish a connection with the internet.
Pure-play Towers – Infrastructure/Sites
Similar to the tenant-based business model, revenue generated by pure-play tower companies modeled based on infrastructure, can also be bifurcated into tower revenue and non-tower revenue. Tower revenue is the sum of tower rental revenue, other rental revenue, and other revenue. Unlike the tenant-based business model, here, tower rental revenue is computed as the product of the average number of sites and the monthly or annualized revenue per site.
Qualified Tower REITs
Qualified tower REITs, where REIT stands for real estate investment trusts, generate revenue through long-term tenant leases. Here, revenue is the sum of total tower revenue and network services and other revenues. Further, total tower revenue is the product of the average number of towers and the monthly site leasing revenue per site or tower. The average number of towers is computed as the sum of starting and ending towers over a set period of time (generally monthly, quarterly, or annually), divided by two. Ending towers is an important metric in the computation of tower revenue and is calculated as the sum of beginning towers and net tower additions.
Qualified Tower REITs
Some key metrics applicable to qualified tower REITs include:
- Funds from operations (FFO) is a measure of operating and financial performance and profitability of tower companies. It is calculated as net income applicable to common stockholders excluding non-cash adjustments.
- FFO payout ratio helps investors understand dividend payment as a percentage of earnings and is calculated as total dividends paid divided by funds from operations.
- Adjusted funds from operations (AFFO) is a financial measure used to estimate the value of a real estate investment trust (REIT) and is calculated as FFO excluding capital expenditures and maintenance capex.
- AFFO payout ratio helps investors understand dividend payment as a percentage of earnings and is calculated as total dividends paid divided by adjusted funds from operations over the same period.
Available Comp Tables - Consensus Estimates
Visible Alpha offers two tower industry-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global tower companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
Global Financial and Operating KPIs Company Examples:
PURE-PLAY TOWER
- China Tower Corporation Limited (788_HK)
- Sarana Menara Nusantara Tbk PT (TOWR_IJ)
- PT TOWER BERSAMA INFRASTRUCTURE Tbk (TBIG_IJ)
- Telesites, SAB. de CV. (SITESB1_MX)
- Infrastrutture Wireless Italiane SpA (INW_IT)
QUALIFIED TOWER REITs
- AMERICAN TOWER CORPORATION (AMT)
- CROWN CASTLE INTERNATIONAL CORP (CCI)
- SBA COMMUNICATIONS CORPORATION (SBAC)
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This guide highlights the key performance indicators for the tower industry and where investors should look to find an investment edge, including:
- Tower Industry Business Model & Diagram
- Key Tower Industry Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions