Last week, Elliott Management disclosed a $1B stake in the Houston-based communications REIT Crown Castle International Corp (CCI). The activist hedge fund believes Crown has significant room to improve, and that its current initiatives detract from shareholder value. Elliott notes CCI has continuously underperformed its two primary peers (AMT and SBA).
Elliott’s main gripe is regarding Crown’s investment in fiber. CCI has spent $16B in recent years building up their fiber assets, under the belief that this strategy was best to develop long term value. Elliott disagrees, and seeks to cut annual fiber expenditures 57% by 2021. To support their claims, the fund argues CCI’s competitors have stayed focused on their core competencies.
Elliott’s plan includes focusing on CCI’s highest return opportunities and also increasing capital return to shareholders via a dividend increase.
In addition to a strategic shakeup, it appears as if Elliott will also target change at the board of Castle. Crown Castle’s board has actually performed well in recent years, with every current director overseeing double-digit annualized TSR. However, Elliott takes issue with the long-tenures of some of their board and attributes the positive returns to strong industry headwinds.
Directors such as James Martin (independent chairman) and Edward C Hutchenson (a founder) have served for over 25 years. Overall, 50% of the board has served for over 15 years and 83% have served for more than 5. Additionally, only 2 members of the board are female, and Elliott believes greater diversity could help steer the boards towards greater returns.
It will be worth keeping an eye on Crown Castle’s board in the following months as Elliott jostles for change.