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Better Buy: Crown Castle International vs. SBA Communications

Jun 19, 2020 by Matthew DiLallo

Crown Castle International (NYSE: CCI) and SBA Communications (NASDAQ: SBAC) are among the ten largest real estate investment trusts (REITs). They also share a common focus on owning telecommunication-related infrastructure. Because of that, they offer investors direct exposure to this fast-growing subsector of the REIT industry.

However, investors will likely only want to hold one of these infrastructure REITs in their portfolio. Here's a look at which one is the better buy right now.

Financial snapshot

One of the first things REIT investors should do when comparing similar investment opportunities is to analyze their financial profiles. Here's how these two REITs stack up against each other:

REIT Dividend Yield Dividend Payout Ratio Credit Rating Debt-to-Adjusted EBITDA
Crown Castle International 2.9% 78% Baa3/BBB 5.6 times
SBA Communications 0.6% 20% Ba3/BB/BBB 7.0 times

Data source: Crown Castle International and SBA Communications.

REIT investors can learn a lot from this side-by-side comparison. First, Crown Castle offers a much higher-yielding dividend, primarily because it has a much higher payout ratio. It also has a higher credit rating from most rating agencies, mainly due to its relatively low leverage ratio. However, that's not the only factor they consider. For example, Moody's (NYSE: MCO) noted that it took SBA's substantial tenant concentration into account as a reason for its sub-investment-grade rating.

Portfolio focus and growth prospects

While Crown Castle and SBA Communications both own telecommunications infrastructure, their portfolios have slightly different makeups. Crown Castle owns 40,000 cell towers in the U.S. as well as 80,000 miles of fiber optic cable and 70,000 small cell sites crucial for 5G technology. Meanwhile, SBA Communications owns 30,000 communications sites, though its operations span 14 countries across North and South America as well as South Africa.

Given their distinct portfolio focuses, these infrastructure REITs have differentiated growth profiles. On the one hand, Crown Castle's focus on the mature U.S. market somewhat limits the expansion potential of its core tower business. On the other, its 5G platform has lots of room for growth as U.S. mobile carriers roll out this new technology. In Crown Castle's view, it can continue expanding its portfolio and FFO to support 7% to 8% annual dividend growth over the long term.

Meanwhile, SBA Communications focuses on several higher-growth international markets. Because of that, it could expand its portfolio at a faster clip through both acquisitions and organic growth. In its view, this growth upside will allow it to pay out "one of the fastest-growing dividends anywhere," according to comments by CEO Jeffrey Stoops on the company's first-quarter conference call. However, this international exposure does increase its risk profile since foreign exchange rates fluctuate, for example.


Another important factor that REIT investors should consider when evaluating similar opportunities is valuation. One common metric used to compare values across the sector is the price-to-funds from operations (FFO) ratio. Here's how these two REITs compare:

REIT Recent Price FFO P/FFO
Crown Castle $164 $6.12 27 times
SBA Communications $291 $9.09 33 times

Data sources: Google (NASDAQ: GOOG) Finance, company press releases, and author's calculation.

As that table shows, SBA Communications is a bit more expensive compared to Crown Castle.

Verdict: Crown Castle International is a better buy

Both Crown Castle and SBA Communications could generate above-average total returns in the coming years due to their focus on owning and acquiring infrastructure in the fast-growing communications sector.

However, Crown Castle combines that enticing return upside with a lower risk profile since it has a better credit profile, a cheaper valuation, and no foreign exchange exposure. Because of that, and its much higher-yielding dividend, it's a more appealing buy for REIT investors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matthew DiLallo owns shares of Alphabet (C shares) and Moody's. The Motley Fool owns shares of and recommends Alphabet (C shares), Crown Castle International, and Moody's. The Motley Fool has a disclosure policy.

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