Crown Castle Inc. (CCI) Earnings Call Transcript & Summary

And disclosures are available at the registration desk. For those of you joining the webcast, I'm Mike Rollins. I cover the communications services and infrastructure categories here at Citi Research. I'd like to welcome back Dan Schlanger, CFO of Crown Castle. Thanks for joining us today.

Thanks for having me. Appreciate it. Always a good conference.

Yes. So from a housekeeping perspective, we have microphones around the table. So if you like to ask a question, push the button, it will turn red, and we'll get you involved in the conversation. As I mentioned, there are disclosures over at the registration desk. And with that all out of the way, Dan, as I think is customary at this time, if you could talk about the strategic and operating priorities for Crown for the coming year.

Sure. They don't really change year-to-year for us. What we're trying to do is to lease up as much of our existing assets as we possibly can. Our business really is predicated on providing a lower total cost of operation for infrastructure assets than any single customer can provide for themselves by sharing that asset across multiple customers. So just like any other shared infrastructure, you don't charge the same for an entire building as you do for one floor of the building. That's basically what we do, and lower that cost. So our goal is, as we've invested in those assets, to try to get as many tenants as possible across our entire asset base. On the tower side, that has been true for the last 15 or 20 years, and we're seeing the benefits of that now, where we're getting significant incremental returns and driving significant shareholder value. On the small cell side of our business, we're in the investment phase of that, where we're building and buying assets, mostly building at this point. That have not yet returned our cost of capital because we can't charge over and above our cost of capital for the first tenant. But we have built in a significant amount of growth because we're basically in a place where we're building single tenant towers or equivalent of single-tenant towers in our fiber and small cell business that we think will drive significant returns over the next 15, 20 years. So our goal is to be investing in the right assets in the small cell business that will allow for us to take advantage of that shared infrastructure model much as what -- like is what is happening in the tower business. And so our goals -- our strategic goals are to lease up our assets, build the right assets and have those drive significant value over time. And what we're trying to do at the very -- the end of it is to pay a dividend back to our investors and grow that dividend at 7% to 8% a year. The reason we find that to be so important is it is our belief that our job is to give our investors their money back and to make sure that they get a return as well. And we think that instills a tremendous amount of capital discipline on us to promise that dividend, grow our cash flows at 7% to 8% so that we continue to grow that dividend at 7% to 8% while still investing in the future of our business.

Is there a simple way to frame the 5- to 10-year opportunity for your domestic tower growth? Get out of the noise of all the short term and just think about what that portfolio grows at over the long term. How would you frame that?

Yes. I think I won't give specifics on how I'd frame the tower growth itself, but it is part of the growth that we think drives 7% to 8% dividend growth for us. But generally speaking, to get a little more detail on the towers. The driver of growth in our business and towers included is the amount of data demand growth that happens in the U.S. Data demand is growing at 30% to 40% per year. And our carrier customers are spending significant amounts of capital and operating expense to meet that demand. That 30% to 40% demand growth drives growth in the number of towers that they need and the number of antennas they need on each tower. And as we continue to have those both go up, network densification and new spectrum being deployed in order to meet the demand of 30% to 40% that drives significant growth on our towers. In addition to that, we have built into our contracts in the neighborhood of 3% escalators per year on our tower rent and we have churn that's in the neighborhood of 1% to 2% per year. So we're able to generate growth just from escalators being in excess of churn and then to which we add the increment that I was talking about earlier to meet the demand growth. And what that sets up as is, as we look at it, is a really great business model for us is that we have underlying secular demand in a very stable business. It has an extremely good cost or a contractual structure, where we have 10-year contracts with our customers with the escalators in them, which really leads towers as being one of the best businesses around.

For 2020, you've already given guidance. And one of the elements of the guidance was the expectation that the Sprint T-Mobile merger closes. How do you feel about that expectation today? And what's the sensitivity to numbers if the deal doesn't close?

We will -- we still feel like that the assumption we've made is an appropriate assumption. To the extent we get information that might change that assumption, we would do so. And then when we announced earnings and would update guidance at that point. With respect to the sensitivity around particularly our tower business or the new leasing activity on our towers, there are really 3 buckets that lead to what new leasing is in our business in any year, including 2020. There are contracts that have been signed and put on air in 2019 that were only on air for a portion of the year that lead to new leasing growth year-over-year because we get 12 months in '20 and we only got a partial year in '19. That's one bucket of growth for us. The second is contracts that we've signed in 2019 that we will put on air in 2020 that obviously is growth for us. Those 2 we already know because those were signed in 2019. The third and smallest bucket is contracts we signed in 2020, that go on air in 2020 and generate revenue of any substantial nature in 2020. And because it takes us 6 to 9 months to put something on air from the time we get the contract, even if we were to sign something, say, in February, it might not go on air until November. Meaning, it's only a couple of months of revenue. So that last bucket is actually the smallest bucket, and that's what would be significantly impacted by any change in our assumptions. So we don't -- on the new leasing activity on the tower side, we think it might have an impact. We don't know what it would be necessarily. But it couldn't -- it wouldn't be that substantial, given just the nature of the business and how long term our business is.

There's been talk coming out of the third quarter earnings season and during the fourth quarter that because there's been no conclusion to the proposed merger of Sprint T-Mobile, that bookings activity may have been lighter towards the end of 2019. Is that an observation that's been encapsulated? Well, a, do you agree with that observation? And two, is that something, if you agree with it, that was encapsulated into the outlook for 2020?

So first, we won't get into specifics about customers, so talking about T-Mobile or Sprint and what their activity is. I think they're much better positioned to talk about what they're doing and why they're doing it. But clearly, as I just mentioned, when we gave guidance, we had a pretty good sense for what was going on in '19. The only real question for us is what's the activity level going to be throughout '20 because we wouldn't have had substantial viewpoint into that specifically, although we're always in conversations with our customers and have a pretty good sense of what's going on. And as I just mentioned, we have a very long-term business. It doesn't change significantly year-to-year. So we would have taken all of that into account as we would at any point given guidance in October for the following year. The difference here was there was a specific event that we thought we would call out and say, "Here is our assumption around it. And then if that changes, we'll update." But having said all that, the real driver, like I said, of our business is the demand growth, the underlying data demand growth. And our customers have to spend money to meet that demand growth. And the amount of money they spend is in the neighborhood of $30 billion to $35 billion a year. That can change and $30 billion to $35 billion is a difference, but it's not the difference between $5 billion 1 year and $50 billion the next year. So our growth does not move around substantially from year-to-year regardless of what the overall industry looks like. So one of the great parts about our business is when we talk about 7% to 8% growth, we don't really anticipate that happening 0% 1 year and 20% the next year and then negative the next year. What we see is a pretty stable growth pattern that is really driven by the fact that our customers have to continue to invest in their networks to keep up the quality that we've all come to expect as consumers. And if they don't, and their relative network quality suffers, and some churn can occur. So one network looks better than the other, and customers go from one to the next. And that's an expensive proposition for our customers. So they need to keep up the spending. Even in the down years, our growth may be impacted a little bit, but that's within that 7% to 8% band. It's really not going to be 0% to 20%. So one of the great things about our business really is the stability of that business driven by the underlying demand trends for data and the growth that -- in the U.S.

One of the things that you've been processing over the last couple of years, like the rest of the industry, has been the churn from prior consolidation activity that's happened. Where are you in terms of getting through that elevated of what we'll call regional consolidation or smaller carrier consolidation impacts?

We believe that we're through most of that. But in terms of the impact to the P&L in '20, it's going to be very similar '20 over '19. So we believe we'll be on the higher end of our 1% to 2% churn because some of that acquired network churn, the last bit of it happened late in '19. So the majority of the P&L impact still happens in '20. But we think that by the time '20 runs out and we move forward, we'll be at the lower end of that 1% to 2% churn at that point because we will have worked through most of that acquired network churn that was a result of, like you talked about, regional consolidation or smaller carrier consolidation 8 to 10 years ago, which I think is somewhat informative of what might happen when you're talking about acquired net return now with Sprint and T-Mobile talking about the synergies they may get to. It takes a while to get to these things. It is not an overnight type of thing. And we think that the data demand growth over the next 5 to 10 years, much like has been in the case historically, will allow us to continue to grow even in the face of what could be synergies and acquired network churn. We just think that the incremental spend that the overall industry will have will overwhelm that type of synergy just like it has over the last 10 years for us. We've grown very nicely through all of that consolidation from 8 carriers down to 4. We would anticipate a very similar growth profile going forward.

And maybe switching gears, just in terms of broad spectrum deployments. You have the ability to see spectrum deployments, not just on the macros, but on the small cells. So what are you seeing in terms of carrier behavior of what's going on the macro versus the volume and demand that you're seeing on the small cells? And then where do you see things like mid-band spectrum or millimeter wave within that context?

We -- one of the good parts about our business is we're relatively spectrum agnostic. As long as spectrum is being deployed in order to meet the demand trends, we don't really care what that spectrum is. It can be low, mid, millimeter wave, all of that is good for us. I think the biggest change or the biggest dynamic that may come into play is that millimeter wave propagation is relatively short. And being on the tower, a lot of that propagation will be taking up from getting from the height of the tower down. So most of that will likely be on small cells. To the extent that becomes a significant portion of the network architecture you spend from our customers, I think, we'll benefit because we have the biggest small cell footprint in the U.S. But it's okay if that's not the case because low-band spectrum can also be deployed on small cells and has been. So there's no rule of thumb that says some amount of spectrum goes here, some amount of spectrum goes there in terms of small cells versus towers. But we're -- like I said, we're relatively agnostic because as long as the spectrum is being deployed, we think we have a very good position because we own the small cells and the fiber and the towers. And wherever that spectrum needs to be -- we have -- we get the benefit of it. And it's one of the things we've been very focused on, like I said earlier, what we're trying to do is, in the near term, grow our dividend, 7% to 8%. But we want to, while doing that, invest heavily in small cells and fiber because we believe it is a very similar business as towers, where similar dynamics are at play, shared infrastructure that initially doesn't return the cost of capital. But as you add tenancy does, we think that addition of tenancy will happen over the next 5, 10, 15 years. So we're building in a huge amount of optionality into our business and into our share price because we don't think we're getting value on that. We think we're getting value in the near term, 7% to 8% growth, and that's not really being augmented by the small cells yet because they're not yet at a place where they're returning over and above our cost of capital. So we think we're kind of providing the best of both worlds of short-term growth with stability with investment that over the next 5, 10, 15, 20 years things -- to think we can generate significant returns. And we think that's a pretty unique profile, especially given the level of demand that we see for new spectrum to be deployed, new data to be demanded. And we think that most of what's going on now is really focused on 4G, where it's people using their phones more, that 5G has not yet really taken hold in a way that would generate a significant amount of investment. And as that use case for 5G materializes, we will see significant investment for that. And that would be an augmentation, either of the length of time that we can grow 7% to 8%, or we would have an inflection in that growth rate to the extent that more capital would be spent. And we think, again, that the positioning of our company makes it to where however that plays out, it will be good for Crown Castle because whether that plays out on towers, which we think it will, or whether that plays out on small cells, which we think it will, we're the beneficiary of that. And we're really the only company around that has that ability to have access to all of it at scale across the U.S. and across the customer set.

You referenced that you're the largest small cell company out there. In the past, you've talked about having roughly 50% share. Do you still see that as the market share? Or has it changed?

From what we know, it's about the market share. I think we don't anticipate that being the case forever. So that -- we believe that competition will come into the market. Right now, the majority of our competition is coming in the form of the carriers performing their own small cells. So there's not a tremendous amount of third-party competition that we see. But we still think that we're in that neighborhood of 50% of the small cells. But like I said, in our longer-term modeling, we anticipate our market share to come down because competition will come in. And where we see that really is, right now, we're focused in the top 25 markets in the U.S., that's where we own most of the fiber and that's where most of our small cells are being deployed. And the reason for that is we don't really build speculatively. We build when we get a contract from a customer. And they are, for the most part, building in the top 25 markets. That's where they're dedicating the majority of their capital for small cells. And -- go ahead.

No, please.

And because of that, the investment profile we see will maintain in that top 25 market, and we'll continue to build and add capital to build small cells and fiber within those markets. Where we really see competition potentially coming in is when you expand beyond those 25 markets in the smaller markets, where we don't really have a footprint and a toehold and it's kind of open for anybody to come in. We think that there might be competition that comes in, in those markets. And if those -- if that competition comes in and is willing to take returns that are different than us or lower than us, then we may say, hey, we don't want that. That's okay. That doesn't impair at all the investments we've made to date. The $15 billion that we've invested in small cells and fiber still has the opportunity to generate substantial returns. And it looks a lot like where we are with towers. We own 40,000 towers in the U.S. We are not building significantly more. We are leaving that to other companies that have chosen to take returns that we don't see as being appropriate to allocate capital to. That does not at all change the fact that the 40,000 towers we own are still great investments that generate great returns, which is exactly how we will see fiber and small cells, is that if we were to seed markets outside of the top 25 to other companies, that doesn't mean the markets that we're in are any worse off. So we think that, that's really where we think the competition will come in over time.

On the recent call, you talked about the elongation of the install cycle. Can you give us an update as to where you're seeing the installation time frame? What's been driving some of those delays and what the hopes would be to try to move that back to the historical targets?

Yes. Over the last several years, it's been difficult to build small cells. It's always been difficult to build small cells, and it's gotten a little more difficult recently. Part of that is just because we've increased the number going through any specific municipality and they haven't responded with increased manpower, so it just elongates. But part of it is there are just some municipalities and jurisdictions that have had some serious opposition to having small cells. And we haven't necessarily -- I can't tell you exactly why that is. But we've seen the time frames elongate because it's taking longer to get permitting and zoning in those markets. So there are certain markets that have been very helpful and conducive to putting small cells and they happen relatively quickly. And there are certain markets that really don't want small cells at all, and it's hard to break through in any case. We've just seen that we've gotten through a lot of the ones that are quick and we're in the ones that are hard. In addition, we're seeing some difficulties getting access to utility poles because the utilities own them and we need to figure out ways to negotiate with the utilities and to get power to those small cells because the utilities need to bring that power. So the combination of the municipalities and the zoning and permitting and the utilities have really resulted in elongation of the time frame. We're not really sure what's going to change that substantially other than continuing to work with all of those constituents. And ultimately, I think that the real driver will be as people, citizens start seeing the benefits of small cells and saying that they want better coverage, which is always the case, and 5G starts coming into being and seeing the benefits of that, I think that, that would significantly help us because that would push both the political environment and the utility environment to respond to our needs a little bit quicker. We're doing everything we can. We have this discussion at a very localized level. This is a jurisdiction-by-jurisdiction discussion. We're also having it at a state level. We're trying to put legislation in place at state and at the federal level, where the states and federal level have been very helpful. But it doesn't always impact the on-the-ground response. And we're in that time frame right now, where the on-the-ground response isn't always what we want it to be. And I'm not sure that there's anything that would point to that being relieved anytime soon.

Given that, is there a risk that the carrier customers that are driving the demand to say, "You gave it your best try. We need to just find a different solution for now. Maybe we'll revisit this in the future." And some of these contracts get canceled or suspended just because there's this bottleneck that's difficult to get through.

I don't think that's going to be the case because I think even -- there's no other alternative. In order to get a small cell build, you have to go through this process. And small cells are required for the type of network density that we're seeing over the next several years. You can listen to the carriers themselves at this point. They talk about it very publicly about how small cells figure really extensively into their network planning at this point. And if they were just to say, "Okay. No more. We've tried and it's not going to work." That means whenever they pick it up again, it's 3 years. So I don't think there's an outcome that says we're going to slow down now because it's hard and then we'll pick it up later because it's going to be hard later. And getting through this is just part of the process. It's, I think, very similar to what happened with towers as well. I was getting a tower site, it was hard at some point, it got a little easier and then it got really hard because regulatory response was not in my backyard. And so there are a lot of municipal regulations now that dissuade new tower builds. We're in the period right now of trying to figure out with all municipalities, how small cell should best get built, and we're working in conjunction with our customers to do that. It is in all of our interest to get these small cells deployed as quickly and cost effectively as possible. And if we could make it faster and cheaper, that would be better for everybody. I don't think that they're having any more success by themselves than they are with us. And I think that given our experience and the extensive conversations we've had with other municipalities throughout the U.S. over the last 8 to 10 years, we're actually in a really good spot to have these conversations. And we believe it's just yet another example of how hard the small cell business is and the type of competitive advantage we've been able to develop since we've been in the business over the last decade or so. And we just think that, that will continue to be in our benefit. Having said that, though, it would be better off, we think it will be significantly better off if it were easier to get these things done even if that were to bring in more competition. Because it is not our only competitive advantage that we're good at the municipality side, we have others. And I think it would be better for our industry and generally for the communications and connectivity of the U.S. if these types of things were happening faster and less expensively so that we could get small cells deployed better.

And so just to unpack that for one more moment. So when you're going through these processes, when you get the approval, is that really Crown specific so that plays into your competitive advantage? Or right now, are you finding that once you're able to get an approval from a municipality, that's the template for anyone else at that point to kind of -- maybe it takes a little while, but have a much smoother journey than maybe what you guys have endured?

Yes. For the most part, they are universal agreement. So anybody can get the benefit of them. It's not as if we go negotiate an access to the right-of-way with a municipality, and we're the only ones who can have it because access to the right-of-way is theoretically for any utility. There are clearly advantages to being the first one through the process and the first one to have fiber in the ground, the first one to have small cells up because then we can just leverage that footprint very quickly and easily or much more quickly and easily than anybody else could. But it's not an exclusive arrangement, typically. And again, that's perfectly fine with us. We want this to be for -- as an industry, we want it to be cheaper and easier. And anything that we can do to make that happen, we're willing to do. If that benefits other people, great. It will be better for all of us if we can get these things deployed.

And then within the small cell bookings that you had, there have been some press reports and I think case scenarios where you have won business from carriers where they have their own local fiber. And you said that you have competitive advantages beyond zoning. How should investors think about the other advantages that you bring at the table, where wireless firms with an incumbent or built facilities in that region are choosing you for their small cell business?

I think there are a couple of things there. One is getting back to how I started the conversation around our core economic value that we add, which is the ability to own an infrastructure asset and share that asset among multiple customers so that each customer spends less. And that is very difficult for the carriers to do with each other. That's why we kind of came into existence in the first place was we, as an impartial third party, could share that asset among multiple carriers, whereas Verizon couldn't really share it with AT&T or vice versa. We think the same exact dynamic is at play with small cells. So we think that from an economic perspective, we provide a significant value to our customers that they can't get by owning that asset and then trying to deliver it to the other customers because there's a control issue that if Verizon own that asset, or that system of small cells, it would be very difficult for AT&T or T-Mobile or Sprint to come to them and say, "I'm going to allow you to house a significant portion of my network," because one day, Verizon may ultimately make the decision that they take it away. So there's a control issue there that I think makes it really difficult for them to rely on each other. And I think that really did lead to our existence, and that's one of the things that we think is a significant value that we add. As long as we can keep the total cost of operation below what any one customer could build for, then we're adding significant value to them. The second is the fiber that was built over time, over the last 20 or 30 years by incumbent exchange companies and providers and then cable companies and other competitive companies, has been -- was built for a specific purpose, which was delivering data, Internet and phone service and cable to consumers and their homes and businesses. And the requirement there was not an extensive amount of fiber. It was probably in the single strands number of fiber. And the reason that's important is every small cell deployment requires 2 strands of dark fiber to that small cell. One going from the network hub, the closest network hub to that small cell and then one going from the small cell back to the network hub. And therefore, with, call it, 8 strands of fiber, maybe you could build 4 small cells. Well, that's not enough to matter. That's not enough to make money. And it's certainly not enough for a company that is providing cable to a home to shut off the rest of their business to build 4 small cells because it takes up all of the fiber and the capacity on that fiber. So the existing fiber is not -- was not built for the purpose of housing small cells. What we have bought and built was, we have an average strand count that's in north of 100, and that gives us significant flexibility not to have to go back and put capital in by adding additional fiber. And therefore, we can get colocation economics without having to add more money to it. That's the whole point of the business. Whereas somebody who owns 8 strands of fiber is going to have to dig up the street and bury the fiber, and that's where all the money goes. So it's really -- it's both the economic value and the competitive dynamic among the wireless carriers. And then the existing footprint not being available to utilize for small cells that we think leads to some of those decisions being -- using our small cell and fiber footprint as opposed to what might exist already. And in essence, what we're doing is we're -- by lowering the total cost of operation, we are allowing the same capital to add more capacity. And I think that's really where the benefit comes for our customers because they really are chasing 30% to 40% demand growth. And the least amount of money they can spend on that, the better off they will be. And if one of their competitors is going through us and spending less than what they would spend if they built it themselves, then again, over time, they are at a network quality disadvantage because the same amount of money gets you less sites, which means your network isn't as good. That's a hard place to be when it's a competitive business like the wireless business is.

So the other side, the fiber business has small cells and there's more of the traditional fiber services that you provide. In your guidance, I believe it's been lower single-digit revenue growth. The question I get most often on this is to try to unpack the capital intensity to get to that revenue growth. And I realize small cells are sharing part of this network. But to the best you can, how should investors frame the capital intensity of this ongoing fiber business relative to the specific small cell use case?

Yes. You mentioned it, it's difficult for us to bifurcate the capital because when we build an asset that is fiber, we can utilize it and will utilize it for both small cells and fiber solutions. And there is no difference between the fiber that goes for either. So it's impossible for us to really bifurcate and separate what is what you're going for, what is fiber solutions capital and what is small cells capital. That is why we grouped them together into a single entity or reporting line because it's all one thing. Obviously, we can understand what revenue is being generated for fiber solutions versus small cells, which is why when we talk about the business, we give new leasing activity and churn and escalator profiles for the different businesses. But in terms of trying to get to a specific here's how much it's going to be in terms of the capital, it's really hard because it's the same asset. And I understand that, that doesn't fully answer the question. But even when we think about it internally, we look at what kind of returns can we make overall, not what is specifically going to be for one or the other of the assets or the business lines on the same asset. Having said that, though, we talk about in terms of -- when we talk about our small cell business back again, I go back to fiber solutions if you want to. But on the small cell business, when we talk about the returns of 6% to 7% initial returns for anchor builds, that is just the small cell. That is not taking into consideration what fiber solutions brings onto that asset. So when we talk about that as a small cell, that's to say if we were to build that and all we did was leave that one anchor build on there, we would generate a 6% to 7% yield or a 6% to 7% return cash-on-cash in a year. To that, we then add more small cells and fiber solutions to bring up that value to what would be returns that are very acceptable and actually very attractive to us. On the fiber solutions side, in many cases, when we look at specific examples of the investments we would make, we get paybacks that are in the neighborhood of 3 years. But the hard part again is that, that's just in that one instance for that one investment. That's not how we think about the overall investment. We have to think about it all as one big pot that we're trying to use that asset as many times as possible because that is the core of our business, is sharing infrastructure.

And as you think about just trying to get more revenue out of assets, broadly speaking, whether it's on your towers, your fiber, your small cells, what are the adjacencies that you're most excited about, ranging from backup power at the towers, which has been talked about for a long time, to these edge data centers and the opportunities to get data closer to your customers? Where are you on this adjacency front?

I would say that really, the first move into that was small cells. So the adjacency was going from towers into small cells, which was and still is a relatively unique value proposition. We don't see a lot of people doing it. So I think the adjacency first that we have been chasing has been small cells. I think the next one that we're really looking into, and I can't say that it's -- how excited we are or not because we don't know exactly where it's going to end up, really would be mobile edge computing. I think that mobile edge computing will be necessary in a 5G environment. And I think storage and computing power close to where people are and will reduce latency and will increase the ability to provide the data back and forth coming from things to the network and from the network to things. You need computing power in order to do that and having that close to the edge will be helpful. And we believe that given our portfolio of assets, we're uniquely positioned for that because we have tower sites that are secured, connected to power, connected to fiber and where data centers could sit, but we also have the fiber and the small cells so that we can connect those all together and have it as one big network and have a solution for customers who want it. And we think that that's a pretty unique proposition. So I think we're excited about that and what that could be. I just think that we're really early on. And it's hard to tell even what the business model would be because it's hard to tell what the use case is going to be. And we'll work that, through that. And the reason that we have invested in a business that owns edge data centers is to learn as much as we can about that and try to see if that business is a really viable place to be. We think it is, or we wouldn't have made the investment, and we really like the business we have, but we're learning a lot through that about what the use cases are, what the customer base looks like and what our potential would be for the type of business that we could generate, whether that's the utilization of the land under our towers is just leasing land or whether that's all the way to owning the data center and leasing out and renting out rack space. But in any case for that, we wouldn't own active electronics. We'd stay in the passive infrastructure side.

And from a leverage perspective, where are you today in terms of where you like to see target leverage? And are there any opportunities to try to get more room from the rating agencies for what's considered investment-grade for -- given the assets you have and the cash flow you have?

Yes. Well, we're in the investment cycle that we're in, especially in the small cell and fiber business, we want to be on the higher end of our target leverage range, which is kind of 4 to 5x. So we've hovered around 5x, a little below, a little above, but around 5x what we think is where we want to be for now. We are very interested and focused on keeping our investment-grade rating. And we are always in conversations with the rating agencies to try to push, if we can, to get above 5x and maintain investment grade. It has not yet worked. I'm not sure that it will. But we will continue to talk to them about how good our business is and why we think it can withstand more leverage than what they have assigned investment-grade to. But to the extent that we're -- that they have kind of put the number at around 5x, we want to stay around 5x because it's important to us. Because not only does it lower the cost of our debt, I think, given how high our dividend yield is, it ultimately gives sanctity to that dividend yield and lowers our cost of equity as well. I think high dividend-paying, noninvestment-grade companies have a harder time than high dividend-paying, investment-grade companies do. So we think that is important all the way around.

Anything else you think that might be, as you had a chance to speak with investors and you are the first out with the 2020 outlook, anything that you think at this point is underappreciated by the market?

I mentioned it earlier, but we've spent a while now trying to build a business through our fiber and small cell business or investments that we think provide a significant upside over time for our company. And what we've seen is that in our valuation that -- I'm not sure that's been reflected appropriately because we think that, that provides a leg of growth in the future that very few companies have. Because it's such a good business, very similar to the tower business, looks similar. Return profile is very good. Even the initial returns are pretty close to our cost of capital. So it's a relatively low-risk to it. And we're getting valued really, I think, on the current cash flow and the growth in the current cash flow in the near term and not in the option value that we're embedding in our stock through all of the investments we're making by spending money and having spent $15 billion recently on fiber and small cell assets that are not yet generating cost of capital returns because we're so early in the investment cycle. And that embedded option of future value, I think, is undervalued in the market at this point. And what we have to do is continue to operate and continue to put assets, like I said, the strategic imperative for us is going to put revenue on those assets and continue to lease up our assets. So we are very focused on making that happen and continuing to deliver for shareholders in the interim.

Dan, thanks for joining us today.

Thanks, Mike. Appreciate it.