Crown Castle International (CCI) Jay A. Brown on Q2 2016 Results - Earnings Call Transcript

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Crown Castle International Corp. (NYSE:CCI)

Q2 2016 Earnings Call

July 22, 2016 10:30 am ET

Executives

Son Nguyen - Vice President, Corporate Finance

Jay A. Brown - President & Chief Executive Officer

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

Analysts

David William Barden - Bank of America Merrill Lynch International Ltd.

Simon Flannery - Morgan Stanley & Co. LLC

Philip A. Cusick - JPMorgan Securities LLC

Amir Rozwadowski - Barclays Capital, Inc.

Ric H. Prentiss - Raymond James & Associates, Inc.

Nick Del Deo - MoffettNathanson

Jonathan Atkin - RBC Capital Markets LLC

Colby Synesael - Cowen & Co. LLC

Batya Levi - UBS Securities LLC

Mike L. McCormack - Jefferies LLC

Jonathan Schildkraut - Evercore ISI

Spencer H. Kurn - New Street Research LLP (US)

Michael Bowen - Pacific Crest Securities

Timothy Horan - Oppenheimer & Co., Inc. (Broker)

Walter Piecyk - BTIG LLC

Matthew Niknam - Deutsche Bank Securities, Inc.

Operator

Good day and welcome to the Crown Castle International Second Quarter 2016 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Son Nguyen. Please go ahead, sir.

Son Nguyen - Vice President, Corporate Finance

Thank you, Vickie, and good morning, everyone. Thank you for joining us today as we review our second quarter 2016 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer; and Dan Schlanger, Crown Castle's Chief Financial Officer.

To aid the discussion, we have posted supplemental materials in the Investors section of our website at crowncastle.com, which we will refer to throughout the call this morning. This call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions, and actual the results may vary materially from those expected.

Information about potential factors, which could affect our results is available in the press release and the Risk Factors section of the company's SEC filings. Our statements are made as of today, July 22, 2016, and we assume no obligations to update any forward-looking statements.

In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the Supplemental Information Package in the Investors section of the company's website. In response to recent public comments and guidance by the SEC regarding the use of certain non-financial measures, we have adjusted the presentation of our quarterly earnings information including information in our Supplemental Information Package.

We have not changed the definition of our continuing non-GAAP financial measures discussed on this call or in the quarterly earnings information.

With that, I'll turn the call over to Jay.

Jay A. Brown - President & Chief Executive Officer

Thanks, Son, and good morning, everyone. As you saw from our earnings release last night, we had another quarter of great performance, meeting or exceeding the midpoint of our previously provided second quarter outlook and allowing us to increase our full year 2016 outlook. The results reflect our continued focus on creating shareholder value through solid execution, disciplined capital allocation and strong balance sheet management, all of which positions us to achieve our goal of delivering long-term annual dividend growth of 6% to 7%.

What I'd like to do this morning in my prepared remarks is spend just a few minutes providing a bit more detail on each of the key focused areas that underpin our ability to drive our 6% to 7% per year dividend growth and then hand the call over to Dan to talk about our financial results for the quarter.

The first point I'll touch on is our long-term track record of execution. We have a highly motivated very talented team of people who are dedicated to delivering strong results. They have developed the systems and processes necessary to operate and manage our business to generate strong cash flows through a variety of business cycle.

Additionally, we've been able to grow through both organically and acquisitions, including integrating those acquisitions effectively. This solid execution has resulted in very good financial performance. Since 2007, we have grown AFFO per share from $1.33 to our current expectation of $4.71 for the full year 2016, representing 15% compounded annual growth per share. Additionally, since 2014, we have returned approximately $7 per share in dividends, further enhancing the return for our shareholders.

The combination of our track record of execution, the quality of the portfolio of assets that we have accumulated, the secular tailwinds of an increasing demand for wireless connectivity and the strength of our business model position us well to capitalize on the positive industry trends we are seeing coming our way, which is the second topic I want to highlight.

As we look to the future, we believe wireless carriers will continue to invest in their network infrastructure, as they take advantage of what many expect to be a multi-fold increase in mobile data usage between now and 2020.

Specifically, we believe our runway of growth is supported by the amount of spectrum that is expected to be deployed over the next several year, including spectrum from last year's AWS-3 auction to spectrum currently held by the carriers and others such as DISH and FirstNet that is yet to be deployed and spectrum from future expected auctions.

Further out on the horizon, we expect the deployment of 5G will drive growth on both our tower and small cell assets, as the carriers look to densify their networks to provide the coverage, capacity and speed needed to support mobile video, the Internet of Things, fixed wireless broadband, and other developing use cases. Given these expected developments and consistent with carrier commentary, we expect the carriers to continue to invest over the long-term to maintain and improve network quality.

As the leading U.S. provider of towers and small cells, we have the opportunity to lease our assets and capture significant organic growth by providing the wireless carriers with a comprehensive offering of wireless infrastructure solutions. In addition to the organic growth we see in our business, we have also had a tremendous opportunity to invest capital to drive attractive returns, which is the third key area I would like to focus on.

From a capital allocation standpoint, we are particularly excited about the small cell opportunities that we see ahead of us. Because small cells are deployed closer to the end user and in more dense array, such as on traffic lights or telephone poles, they represent the natural progression of network densification required to provide continuous consistent high capacity and low latency connectivity.

This is important as consumers are increasingly looking to utilize their wireless devices for high usage applications, including on-demand video, virtual reality and the Internet of Things. As these demands continue to increase, wireless carriers are increasingly turning to small cells to provide wireless connectivity across urban and suburban geographies where towers are not available or cannot solve the network needs alone.

To get a better understanding of how we think about small cell investments, we would encourage you to think of fiber as a tower. Fiber is the critical shareable element in small cells. Much of the tower structure is the shareable element in macro sites. Similar to towers, the majority of the capital per small cell is invested initially with the first wireless carrier deployment.

This initial investment relates primarily to the build-out of fiber. And again, similar to towers, we expect to increase the yields on our investments over time by colocating additional carrier customers on the fiber we constructed for the first carrier. We are seeing this increase in yields in small cells play out at the pace we expected.

Importantly, in both our tower and small cell businesses, this model of constructing an asset that can be utilized by multiple carriers and other customers reduces the cost for our customers compared to what they would otherwise have to spend to build the assets for themselves. We believe our fiber footprint of 17,000 miles in top mature markets combined with the capabilities that we have acquired and developed over time give us time to market and economic advantages that should allow us to capture a significant share of this large opportunity.

Finally, the last aspect I wanted to address is how we think about financing our business. Our revenues are primarily derived from long-term leases that deliver a stable, growing and high quality cash flow strength, which is the underpinning of our dividends to shareholders. And our investment in small cells represents a significant growth opportunity to further enhance our long-term dividend growth.

Against this backdrop, our goal is to match the quality of our business with a strong balance sheet. We believe that maintaining an investment grade balance sheet provides us with access to a deep, stable and low cost of capital, reducing risk to our cash flows and providing us with increased flexibility to pursue potential investment opportunities that we believe will increase our dividend in the future.

In summary, how we operate, manage and finance our business is focused around growing the dividend. I believe that increasing our dividend consistently over time is the best way to create value for our shareholders. Given the leasing potential of our portfolio of assets, the long runway of expected network activity and our opportunities to invest capital at attractive returns, I believe we are well-positioned to do just that by delivering upon our stated goal of growing dividends per share 6% to 7% annually over the next several years.

With that, I'll turn the call over to Dan to discuss our financial results for the quarter.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

Thanks, Jay, and good morning, everyone. Before I get to our results, I wanted to talk briefly about my first few months at Crown. When I joined the company, I was enthusiastic and optimistic about the business, the company and the people. As I've spent time meeting with employees, learning about the industry and developing an appreciation for how the company operates, all of my expectations have been exceeded. As I have learned more, I'm starting to really understand how the combination of steady, high quality cash flows, secular growth trends and Crown's solid execution is a hard one to beat.

What I did not realize is how talented and genuinely nice the people are who work here. So I want to thank everyone who's made my transition so smooth. It truly is a great place and I appreciate the opportunity to be a part of it.

With that, I'll now turn to discussing our second quarter. As Jay mentioned, we delivered another strong quarter of financial results, meeting or exceeding the midpoint of our previously provided quarterly outlook. In addition, due to the solid first half results we have generated, combined with what we believe will continue to be a steady leasing environment, we have raised our full year 2016 outlook.

Turning to second quarter results on slide four, site rental revenues grew 9% year-over-year from $737 million to $805 million, inclusive of approximately 7% growth derived from organic contribution to site rental revenues. The 7% or $49 million growth from organic contribution to site rental revenues consisted of approximately 9.5% growth from new leasing activity and cash escalations, net of approximately 2.5% from tenant non-renewals.

Moving to slide five, our second quarter results for site rental gross margin, adjusted EBITDA, AFFO and AFFO per share, each met or exceeded the midpoint of our previously provided second quarter 2016 outlook, reflecting the overall healthy leasing environment.

Moving on to investment activities, during the second quarter, we invested approximately $200 million in capital expenditures, of which $19 million were sustaining capital expenditures and $180 million were discretionary investments. Included in these discretionary investments is approximately $19 million of land purchases we completed to further strengthen our control of the ground beneath our towers.

Today, nearly 80% of our site rental gross margin generated from towers is on land we own or control for more than 20 years. Additionally, the average term remaining on our ground leases is over 30 years. The proactive approach we take to managing the ground beneath our towers is core to our focus of producing stable, growing, high quality cash flows.

The balance of our discretionary investments was in revenue generating capital expenditures that we believe strengthened our portfolio of assets, extended our leadership position in shared wireless infrastructure and enhanced our ability to deliver strong long-term growth and dividend per share.

Moving on to financing activities. During the quarter, we continue to proactively manage our balance sheet, while returning significant capital to our shareholders through our quarterly common stock dividend of $0.885 per share, which was 8% higher than in the same period of 2015.

As part of our balance sheet management, in April, we issued $1 billion of unsecured notes to refinance debt maturities coming due in 2017 to borrowings under our credit facilities. This offering represented the culmination of our long-standing goal of reaching an investment grade credit rating at each of three major rating agencies.

We believe this credit profile underscores the stability and quality of our long-term cash flows, and it lowers our overall cost to capital, which we believe is an advantage in our business of providing shared wireless infrastructure. Following this offering, the only debt maturity we have prior to 2020 is a $500 million tranche of notes due at the end of 2017.

Shifting to full year 2016 outlook on slide six, we've increased the midpoint of our guidance by $3 million for site rental revenues, $3 million for site rental gross margin, $9 million for adjusted EBITDA and $7 million for AFFO.

On an AFFO per share basis compared to 2015, our updated midpoint for full year 2016 outlook of $4.71 represents an increase of approximately 10%. The increase in our full year outlook reflects the strong results from the first half of the year, our expectations that the level of leasing activity from our carrier customers will remain steady, an increase in expected contribution from network services gross margin for the remainder of the year, and the timing benefit related to tenant non-renewals occurring later than previously expected.

It is important to note that our expectations for tenant non-renewals associated with the decommissioning of portions of the Clearwire, MetroPCS and LEAP networks remained unchanged in the aggregate.

Looking beyond 2016, we believe we are in a multi-year cycle of network upgrades and enhancements, as carriers focused on meeting significantly increasing demand for wireless connectivity, which we believe will benefit both our tower and small cell businesses.

Given this backdrop and combined with our leading portfolio of wireless infrastructure across both towers and small cells, we believe that we are well-positioned to achieve our stated long-term goal of delivering compound annual growth of 6% to 7% in AFFO and dividends per share.

With that, Vickie, I'd like to open up the call to questions.

Question-and-Answer Session

Operator

Thank you. And we'll take our first question from David Barden with Bank of America.

David William Barden - Bank of America Merrill Lynch International Ltd.

Hey, guys. Thanks for taking the questions. I guess, two questions, if I could, maybe for you, Dan. If we look at the organic year-over-year revenue growth as you define it in 1Q, it was $7.8 million, in 2Q, it's $6.9 million, and for the full year, it's going to be $6.3 million, as you've been guiding, could you kind of waterfall the contributing factors to that deceleration? I'm assuming it has mostly to do with your inclusion of the small cell revenues in the organic growth number, but if you could kind of map that out for us, it'll be helpful.

And then, second, Jay, I'm sure you know that there's a big conversation out there about the AT&T tower RFP comments from T-Mobile about trying to find quote/unquote competitors for towers that are getting too expensive. Could you kind of opine a little bit about that RFP and talk a little bit about your portfolio in terms of what you might sense as the percentage of towers that have a combination of expiring leases and very expensive leases coming up for renewal where there might be substitutes near you. It's a topic we're addressing and I'd be great to hear your thoughts on it. Thanks.

Jay A. Brown - President & Chief Executive Officer

Sure. Maybe I'll take the second question first, and then, Dan can go through the first question there. We're not going to get into, obviously, specific conversations that we're having with each of the carriers. But as we look at the business, we haven't seen the dynamic change from what it's been like in the long period of time. The towers that we provide to the wireless operators provide them with a very cost effective solution and over time, obviously, tower rents have escalated.

But the main cause of that escalation is the underlying cost of that asset. And we've done a good job, over a long period of time, of extending ground leases, as Dan mentioned in his comments, and investing capital there, in order to own the ground underneath those assets. And like any real estate asset over time, there's appreciation in that overall cost. And so, we feel comfortable about where we are positioned relative to all of the carriers and the provision of where rent is relative to the space that they're using and the underlying cost of the asset.

And while this topic I think over the last six months to nine months has maybe gotten more conversation than what it has over the last couple of years, it's not really a new conversation and we've had this conversation all the way dating back to kind of the 1999 period and it comes up from time to time. And the value equation and the provision of that value to the carriers today is about a 2.5% to 3% cost of lease against the overall cost of the asset and we believe that the very attractive cost provision, as we share the asset across multiple carriers, and in essence provides them with a really low cost alternative, and frankly, we don't see that the pricing dynamic in the business or the overall structure or arrangements that we have with the carriers, we just don't see that changing.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

And Dave, to your first question on the organic year-over-year revenue growth, a lot of the leasing activity last year was back-end loaded which, because of the offset of when it comes into play comes into the first half of the year. And so, the early part of the year here – in this year, looks like there's more growth. And as the activity is again a little back-end loaded this year, we won't see that until 2017.

And we really think of it as a year-over-year basis as opposed to quarter-over-quarter. So the way, I would say it depends on when the timing of the activity comes in, but it's really more of a quarter to quarter anomaly more than anything else. And so, I think the year-over-year is what I would generally focus on.

David William Barden - Bank of America Merrill Lynch International Ltd.

Got it. All right. Thanks, guys.

Operator

We'll go next to Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley & Co. LLC

Great. Thanks very much. Jay, in your remarks in the press release, you talked about a healthy leasing environment, perhaps you could just characterize a little bit more around that. I think that Dan was just talking about second half loaded. So what is the level of activity that you're seeing right now versus say last quarter and versus your expectations? And I think you've said before maybe 60% of the activity in the second half of the year.

And then, there's been a number of press reports just about the challenges of sighting small cells with municipalities, et cetera, particularly for some of the carriers who are not going your route. But can you just talk about where you are in terms of getting what you need from the municipalities been able to deliver on time and on budget for your carrier customers? Thanks.

Jay A. Brown - President & Chief Executive Officer

Sure Simon, thanks for the questions. On the first question around the leasing environment, we're expecting, as we have been through the course of the whole year, about $170 million of revenue growth, organic revenue growth, comprised of about $115 million on the tower side, and then, about $55 million of growth on the small cell side.

That was really our expectation going into the calendar year 2016, and it's held throughout the year, and we see that holding through the balance of the year, which is why our expectation is unchanged. That is very similar to the long-term expectation that we have in the business that underwrites or underpins our 6% to 7% dividend growth in the comments that I made. So we view that as a very healthy environment. We're seeing activity across the spectrum from the carriers on both small cells and towers and feel good about what that's going to look like for the balance of the year.

On your second question, this has certainly gotten some play, I think, in the news recently around some of the difficulties of sighting small cells as you referenced. And our experience has been that they are difficult to sight and to locate, and I think that underpins a big component of what we think about the business. One would say the same thing about towers, about how difficult they are to get sighted and to get put into municipalities. So it's a great barrier to entry.

And as we look at small cells, we would say the same thing about small cells that they are operationally difficult in terms of moving through municipalities and local restrictions around planning and zoning. They take a long time to do. Generally, our experience has been that it's an 18-month to 24-month process in order to work through that. And on top of that, it's very challenging from an RF design standpoint. So it takes an enormous amount of skill and expertise in order to deploy these.

And both the combination of the high barrier to entry that's created by the local municipalities, as well as the operational expertise required in order to navigate both the RF site as well as the municipalities, we think it's core strength for us, and it's supportive of the business long-term.

And frankly, the more difficult it is, we think it really separates us from our competitors and shows how skillful the team really is. So we are seeing it, but I wouldn't necessarily describe it as worse than what it's been in the past. And frankly, I think it's supportive of the value of the business.

Simon Flannery - Morgan Stanley & Co. LLC

Great. Thank you.

Operator

We'll go next to Phil Cusick with JPMorgan.

Philip A. Cusick - JPMorgan Securities LLC

Hey, guys. Thanks. Two, if I may. First, can you talk about competition on the small cell space you referenced a little bit earlier, but are you seeing more bidders for RFPs and is that impacting pricing at all?

Jay A. Brown - President & Chief Executive Officer

I don't know that I would characterize it as we're seeing more competitors than what we've seen in the past, Phil. We do see competitors in the space. It hasn't changed our expectations around returns. We haven't seen the returns that we're experiencing when we're bidding on new small cells. We haven't seen those come down from what we've seen previously. So there are competitors in this space. I wouldn't describe it as a changing landscape. And in terms of returns, we've seen those hold in there where they've been over the last couple of years.

Philip A. Cusick - JPMorgan Securities LLC

Okay. And second, can you talk about network services trends both in the macro and the small cell business?

Jay A. Brown - President & Chief Executive Officer

Yeah. In the macro business, which is really the more relevant component, given how small small cell is in services, we have seen an – as reflected in our expectation for the balance of the year, we're assuming a bit higher capture rate on activity in the back half of the year than what we had previously expected. So we think activity is about the same and we're assuming we capture a few more things. I would point out, I know there's been a number of questions over the last couple of years around items that have been things such as pay and walk fees and other things that we have benefited our services business.

Our expectation of growth here is, really, what we would describe as core services related to installing tenants on the towers or doing amendments, and that's what's driving our increased expectations on the back half of the year.

Philip A. Cusick - JPMorgan Securities LLC

Good. Thanks, Jay.

Operator

We'll go next to Amir Rozwadowski with Barclays.

Amir Rozwadowski - Barclays Capital, Inc.

Thank you very much for taking the question, folks.

Jay A. Brown - President & Chief Executive Officer

Okay.

Amir Rozwadowski - Barclays Capital, Inc.

One of the leading equipment manufacturers, Ericsson, made some comments earlier this week on their surprise on the pace of 5G initiatives, particularly in the U.S. There seems to be a lot of debate going on right now on how this technology could impact macro site investments versus the need for increased densification by small cells. You folks seemed to be in an interesting place given your key positioning in both parts of the market.

And so, we'd welcome any thoughts you have on how you think about the potential opportunities or even headwinds as that technology rolls out.

Jay A. Brown - President & Chief Executive Officer

Yeah. I think I would say, similar to what I made in my prepared remarks, that we're going to – we believe we'll see, in a 5G environment, carriers make investments across both towers and small cells. We don't believe that either one of them could deliver the kind of speed and low latency and ubiquitous coverage that they're describing whether that's regardless of the application that they're trying to ultimately drive towards by the deployment of 5G.

So I wouldn't – at this point, I wouldn't try to put much more of a finer point on it than that. We think it will benefit both towers and small cells. And as you've referenced, we're pretty excited about our position, because we think we'll benefit from the combination of both.

Amir Rozwadowski - Barclays Capital, Inc.

And then, if I may, a quick follow-up to that prior question on the small cell side. I mean it seems like you haven't seen any change in some of the initial returns expected on some of the small cell deployments. Do you think that there's a potential risk of that going forward depending on what happens with certain fiber providers? And the reason I asked the question is that we are hearing that select carriers, outside of the Sprint commentary that's been pretty notable, are looking to densify their small cell footprint by going direct to metro fiber providers. So we'd love your thoughts on that topic.

Jay A. Brown - President & Chief Executive Officer

Yeah. I think if you were to think about this as kind of a long-term business model, we make investments based on the returns as we see them today and there's – we're not undertaking any obligation or we're not signing up for capital investment in an environment that, in later years, may have lower returns on it than what they do today.

By way of example, if you go back to business and looked at what we did in kind of the 1999-2000 era, we were building a 1,000 towers to 2,000 towers a year back then, because the returns were attracted to the business relative to the cost of capital and what we thought we could drive in terms of shareholder value.

Today, we build less than 50 towers on an annual basis. And the reason for that is because we just don't see the incremental returns as high enough. So if you roll this forward, I would certainly hold out the possibility that there would be competitors in the space and that there would be a change in the pricing environment. And if the returns weren't attractive to us, then we would stop making the investments as we're making now.

We haven't seen that to be clear though. Today, what we're seeing is very attractive returns and an opportunity to invest capital that we think will further our growth rate over time. And similar to the comments that I make about building towers or building new fiber, the assets that we already have today, we would expect, over the long period of time, to continue to see lease-up which would drive those incremental yields and incremental returns.

So I think if it's really as we're choosing today to invest in and build immature assets because we believe there will be an environment over time that will fill those assets up and increase the yield over time. And then, as we get into future periods, frankly, we'll just have to make the right capital allocation decision and ensure all along the way that every time we make the investment, we're doing so because we believe that will increase our dividend growth over the long-term.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

And Amir...

Amir Rozwadowski - Barclays Capital, Inc.

Thank you very much for the incremental color.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

Amir, it's Dan, just to follow up on that a bit, you can see in our second quarter results for the small cells that the investments that we've made today are actually coming in at returns that we find very attractive and I think you'd find very attractive for those new assets that Jay is talking about. So I think that even the financials we're showing today can kind of bear out what Jay was talking about.

Amir Rozwadowski - Barclays Capital, Inc.

Thanks very much, Dan.

Operator

We'll go next to Ric Prentiss with Raymond James.

Ric H. Prentiss - Raymond James & Associates, Inc.

Thanks. Good morning, guys.

Jay A. Brown - President & Chief Executive Officer

Hi Ric.

Ric H. Prentiss - Raymond James & Associates, Inc.

Hey. Continue the small cell theme. Jay, you mentioned that small cells are hard to do, takes a lot of skills that you guys have, could be 18 months to 24 months to kind of build them out. Have you thought about being able to provide us maybe some of the pipeline or backlog that you have? You mentioned $55 million of organic revenue from small cell building construction in 2016. But how should we think about what you're looking at, at 2017 and even 2018 to get a little more comfort on kind of filling Amir's questions?

Jay A. Brown - President & Chief Executive Officer

Yeah. I think, Ric, the best way probably to describe it is, at this point, we think the buildup that we'll see in 2017 is similar to the levels that we've assumed in 2016. We'll give you more guidance on that as we get towards October and giving you a full outlook in 2017.

But at this point, I think where I would guide you towards is, as we talked about in the past, the $170 million of revenue growth in the business is about $115 million from towers and the $55 million from small cells. That's what we've baked into our longer term forecast, driving towards that 6% to 7% dividend growth. And so, as you're thinking about the model, at least the way we're thinking about the model is a level of growth that's similar to what we've seen in the last couple of years.

Ric H. Prentiss - Raymond James & Associates, Inc.

And I think you also mentioned, think of the fiber as kind of the tower asset. And I noticed this time the fiber miles are listed at just 17,000. I think last time might have been 16,500. Was there an increase in the fiber or was it just you guys are going to a rounded point there?

Jay A. Brown - President & Chief Executive Officer

There's increase in the fibers. We're making investment in building up small cells. Our mix of colocation and new is similar to what we've seen this year of about 30% colocation and about 70% of what we're doing is building new anchor build systems.

Ric H. Prentiss - Raymond James & Associates, Inc.

Great. And the last question, churn continues to kind of slip out each quarter the expectation, it looks like this quarter, the expected churn from acquired networks shifted about $5 million out of 2016 into 2017 based on the supplement. What are you seeing there, and is it possible that that churn might not ever manifest itself?

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

Yeah. I think what we're seeing is exactly what it looks like, which is we thought the churn was going to come in 2016. We pushed out to 2017, because we now believe that it will be in 2017. It would be great if it never manifested itself. It will be something we'd be really happy about, but as you can tell from what we put in the supplement, right now, we think the aggregate level of churn is going to stay what we thought it has been over time.

Ric H. Prentiss - Raymond James & Associates, Inc.

Great. Thanks, guys.

Operator

We'll go next to Nick Del Deo with MoffettNathanson.

Nick Del Deo - MoffettNathanson

Hi. Thanks for taking my question. Regarding your comments around the focus on growing the dividend and maintaining a solid balance sheet, I was hoping you could talk a bit about how you balance those goals against your level of investment in small cells and whether you think it'd be appropriate to or if you'll have to issue any meaningful amount of equity in the future.

Jay A. Brown - President & Chief Executive Officer

Yeah. I think, Nick, it's a good question around how we're spending the capital and overall cash flow in the business. And at this point, as we're talking about guiding and thinking about our expectation of investment, we really don't see that at the current level. But there may be opportunities in the future that would lead to that. And again, I would point you back to the discipline that we've shown over a long period of time and would expect to show in the future as we look at those investments.

There are obviously opportunities that would make sense to pursue and may include some equity associated with it. But you can be sure if that were the case, we're looking at this on a real cost of capital associated with that and then going back to does it really at the end of the day drive the dividend.

Now, one thing I would point out is don't miss the growth in EBITDA that we've got generating in the business. And the aim here is to run the balance sheet at about five times debt to EBITDA. And so over time, we're creating leverage capacity even as we go towards our target of five times debt to EBITDA. And at this point, we think that's sufficient to cover the investment that we're making in small cells, as well as covering the dividend.

You can see that maybe a real quick look at just look at the cash flow statement. First six months, we got about $900 million of cash flow from operations, $600 million of dividends and we got about $392 million of CapEx. So year-to-date, there's about $92 million or so of CapEx in excess of the cash flow. Obviously, that's well within our ability to handle by drawing under the revolver given the growth in EBITDA.

Nick Del Deo - MoffettNathanson

Okay. That's great. And then, maybe I can slip in one on small cells. What portion of your base is small cells? Would you characterize as being in what we think of as being called classic big city urban locations like New York or Philly as opposed to other areas like the high-end residential example which you gave in last quarter's presentation. And is the pipeline any different than the base of business?

Jay A. Brown - President & Chief Executive Officer

Yeah. About 90% of the revenues in those fiber, et cetera, would be in our top 10 to 15 markets in the U.S. If you were to look at areas that were outside of that, they make up venues and other things that wouldn't be in those top markets, there is about 2% of our revenues in high-end locations that'll be outside of top markets. So the vast majority of the cash flow is being generated in those top markets, and the vast majority of the fiber that we've built from small cells we've constructed are in those top markets.

Nick Del Deo - MoffettNathanson

Okay. That's great. Thanks so much, Jay.

Operator

We'll go next to Jonathan Atkin with RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets LLC

Yes. Good morning. So I had a question about – there's a comment yesterday that one of the operators said that they are going to be doing 35,000 carrier adds this year, approximately double the levels of last year. And I just wondered that kind of activity, how does that manifest itself in terms of generating amendment revenues on the legacy AT&T assets that you now own versus the legacy Crown assets that were not bought from AT&T, what will be some of the differences and how you see revenues from that type of activity?

Jay A. Brown - President & Chief Executive Officer

Yeah. Jonathan, we would see that in the form of increased recurring revenue, site rental revenues of the carriers and I don't want to speak specifically to the example that you raised, but across all of the carriers, as they look to improve their network and increase the capacity or utilize additional spectrum, the results of that is amendments on our site and on our sites which drive increased site rental revenues. I think we've mentioned this the last couple of quarters, but at this point, virtually, every lease that we see on our sites is carrier of that equipment, that's driving additional revenue growth, and we're obviously seeing that reflected in the results.

Jonathan Atkin - RBC Capital Markets LLC

Okay. And then, on the 2016 AFFO outlook, I noticed there's a $10 million increase in expenses, and I apologize if you addressed that earlier, but what's driving that?

Jay A. Brown - President & Chief Executive Officer

A couple of items I would point to. One is on the services side, given the increase in activity, there's a little bit of additional cost that we incur associated with that. Some of it is the – another component of it is our outperformance for full year 2016, our expected outperformance against our original plan drives some increase in our expected employee bonuses.

And then, I would also point out that as we look at the year moving up the bottom end of the guidance, as we did in this quarter and as we did prior quarters, that just migrates the cost structure towards a little higher end. So a lot of that is honestly just narrowing the range.

In terms of expectation which is, frankly, probably more helpful, if you think about modeling the business, from the Q1 level of G&A, we basically think it runs flat for the whole year. So we have previously been assuming, based on the guide, that there was going to be some cost that were going to come out and we're forecasting that to basically be flat for the balance of the year for the reasons that I gave you.

Jonathan Atkin - RBC Capital Markets LLC

Okay. And then, finally, you broke out land purchase CapEx through towers and small cells, I believe, for the first time, it's a solid amount, but I just wondered if that's indicative of more land CapEx activity going forward in the small cell business.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

No, not really. Not indicative of that.

Jonathan Atkin - RBC Capital Markets LLC

Okay. Great. Well, thanks very much.

Operator

We'll go next to Colby Synesael with Cowen & Company.

Colby Synesael - Cowen & Co. LLC

Great. Thank you. You made a comment, Jay, and you've done it before where you compared the small cell business to the macro tower business and referenced fibers being comparable to towers. But when I think of the tower business, I think of that is, at this point, a very well-defined and structured business. There's not much variability from one build to another in terms of getting a required initial yield and you guys talked about with the small cells business getting on average typically 6% to 7% initial yield, when you deploy it for an anchor customer.

And I guess my question is how standardized is that? I mean does that vary quite a bit? I mean are there some small cell deals where you're doing right now and it's actually something below that and there's others that are well above that, and it's really averaging that 6% to 7%? Or are you seeing that pretty consistently deal by deal?

And then, my second question, you guys have talked about 6% to 7% AFFO and dividend growth over the long term, you've mentioned it again on today's call. But when I look at the growth that you're doing right now, the 10% AFFO growth, the 8% dividend growth, I appreciate you have the converts, I appreciate the law of large numbers, but is there anything else there that we should be aware of that would explain why we could see a few hundred basis points reduction in growth perhaps as we go into the next year? Thanks.

Jay A. Brown - President & Chief Executive Officer

Sure. On your first question, there are obviously – and you would expect there would be anytime you're investing the amount of capital that we're investing. I'm sure we could find you a couple of examples that would be outside of that normal range. But the vast majority of the investments that we're making in small cells would come in right around the average that we're giving you in terms of returns. And you're correctly pointing out that's the way we would think about it.

So it really depends on market dynamics and other things around where the exact dollars are. So we're really pricing this to yields. And we're seeing the vast majority of them fall within the range that we're giving you around at initial investments for an anchor carrier.

On your second question on the target, maybe an easy way to think about it is, in this calendar year, the 10% is benefited by about 200 basis points from acquisitions that we made that were immediately accretive. And so, that would take it down to kind of the 8% range. And then, from there, you correctly point out the convert, the preferred that we have coming due at the end of this year.

So maybe a simple item would just be to take that 10%, make it 8% with the acquisition and very well maybe that over time we find opportunities like that that are attractive, accretive acquisitions, but we're not going to bake into our updated forecast.

Colby Synesael - Cowen & Co. LLC

Great. Thank you.

Operator

We'll go next to Batya Levi with UBS.

Batya Levi - UBS Securities LLC

Great. Thank you. Couple of questions. First, on the guidance for the year, you increased it slightly because of the delay in churn, but it looks like the new leasing revenue growth is also expected to be slightly lower. Can you talk about the driver for that?

And then, the second question on small cell margins, looks like it picked up nicely year-over-year. Is this a good level that we can continue to see? Where do you think margins for small cells could get to over time? Thank you.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

Yeah, Batya. So on the first question, on new leasing, you can see that we actually haven't changed our outlook on that. It was $170 million in our prior outlook, and it's $170 million now. I think one of the things that we're noticing is we give ranges of these things, which is the approximations we put in those charts, and it gets to be too precise. And so, I would not extrapolate that to say that our new leasing activity is any different. As Jay pointed out, it's what we thought it was going to be at the beginning of the year. It's held through this year, $115 million from towers and $55 million from small cells.

And then, in terms of the small cells gross margins, those will fluctuate quarter to quarter, but generally, what we see is that we look at this more like Jay was talking about on the returns that we get in these projects and the kind of the overall margins we get may fluctuate depending on how the deal is structured and what happens and when things come on. So it's probably not going to fluctuate terribly from where it is now, but I wouldn't focus on that as the driver of how we would think about the incremental investment in those projects.

Batya Levi - UBS Securities LLC

Okay. Thank you.

Operator

We'll go next to Mike McCormack with Jefferies.

Mike L. McCormack - Jefferies LLC

Hi guys. Thanks. Jay, maybe just a quick comment on the AWS-3 deployments, what you're expecting from a timing perspective? And then, just also second on 5G, just your thoughts around what that means to you, guys, opportunity, threat.

Jay A. Brown - President & Chief Executive Officer

Yeah. On the first one, AWS-3, it's a component of what we're seeing in terms of leasing activity and our expectation would be that, as we go through the balance of this year and into 2017, it's going to continue to be a component that's embedded in our $170 million of increased leasing activity that we would expect.

5G, it's important I think whenever we talk about kind of longer-term, where we think the growth rate in the business, the thing that we like to point out to investors around future opportunities is the level of activity that we've seen from the carriers over a long period of time is inside of a relatively close band of activity. And so, we would look at 5G, for instance, or additional spectrum that we think we'll get auctioned off or FirstNet.

And we would look at all of those opportunities that's likely to extend the runway of growth in the business. And so, at the moment or in the near term, we may see more benefit from an AWS-3 like deployment or additional carriers being added across the towers for various reasons today. And then, over the longer term, we would look at it and say, we will probably see activity from things like the deployment of 5G and FirstNet and other spectrum that's not currently being used by the carriers.

So I would describe that as extending the runway of growth. It's probably the best way to think about it.

Mike L. McCormack - Jefferies LLC

Great. Thanks, Jay.

Operator

We'll go next to Jonathan Schildkraut with Evercore ISI.

Jonathan Schildkraut - Evercore ISI

Thank you for fitting the question in here. So look, I'd like to ask a couple more questions on small cell, if you're not too tired of hearing about it. But it's interesting in terms of you laying out the development and expected yields over time. And I was wondering if you could give us a sense, because in the past, you've talked about most of the capital being for anchor tenant builds, if that's still the case, if you could give us a little color on sort of where the tenancy is.

And then, more specifically, if there're any older systems that you have out there where you could sort of isolate the economics and sort of give us some visibility into how the yields grow over time as the systems mature, I think that'd be really helpful. Thanks.

Jay A. Brown - President & Chief Executive Officer

Yeah, Jonathan, no, we're not tired of talking about small cells. We enjoy the subject. Most of the capital is invested upfront as we build the fiber. That remains to be the case today. And then, over time, you have a couple of things happen. The case studies we talked about last time on the call, I think, are instructive and helpful there.

In both cases, we saw a couple of things happened. One is that over time, we see the initial carrier come back and add additional nodes across a given geography of fiber that, in essence, increases the density. And that looks – if you're making the comparison to the tower model, that looks like amendments to the base business where that first tenant, the yield associated with that first tenant, in essence, increases across the fiber.

The second thing that we see is that as additional carriers come, they colocate on the fiber that we built for the first carrier, and then, they also, at times, want to extend the fiber into new places. We describe that typically as laterals across that base system. And so, as we have colocations over time, it's a combination of extending the plant as well as colocating across the same fiber that's built for that initial tenant.

And generally speaking, we find the yield fits a pure colocation, we'll find the yields as we move into the second tenant into the teens. And then, as we get to the third tenant, as we showed you last quarter, we'll be plus 20% oftentimes by the time we get to the third tenant.

Some of that mix depends on how many colocations go there, the density with which they go across a given geography of fiber and then, how many laterals do we put in, are we extending the fiber mix. So really, the value proposition there, as we think about it to the carriers, is that the shared infrastructure just like we do with towers and it provides a very cost effective way for them to deploy across that fiber.

And then, once the fiber is in the ground, it becomes the speed to market advantage that we have, because we're able to install them on the fiber that we've already deployed for the first carrier.

Jonathan Schildkraut - Evercore ISI

All right. Thank you.

Operator

We'll go next to Spencer Kurn with New Street Research.

Spencer H. Kurn - New Street Research LLP (US)

Hey. Thanks for taking the question. Just back on the small cell deals you've been talking about, could you just help me understand how you factor in prepaid rent into that 6% to 7% initial yield you talked about?

Jay A. Brown - President & Chief Executive Officer

Sure, Spencer. We call it checkbook math around here. So we would think about it as what's the net received after the amount of – the net capital invested, meaning the growth capital we put in day one against any upfront receipts of prepaid rent that we get from the carriers. So that's a sort of net concept of capital investment against the monthly recurring rent that we would receive and then annualize that. So we're looking that as, on a cash yield basis, net investment against annualized margin from the systems that we deploy.

Spencer H. Kurn - New Street Research LLP (US)

Got it. And just to sort of clarify look at your total portfolio, you've talked about investing $3 billion of capital into your total small cell footprint. About how much of that invested capital base would you sort of net out from your prepaid rent denominator?

Jay A. Brown - President & Chief Executive Officer

Yeah. I would take about $500 million out of that. So net investment is about $2.5 billion.

Spencer H. Kurn - New Street Research LLP (US)

Got it. Thanks. And...

Jay A. Brown - President & Chief Executive Officer

You write back to about your 6% to 7% yield across that whole base. And keep in mind, we initially started with about $1 billion of that, went in about a 3% initial yield. So of the $2.5 billion, about 40% of that went it at about a 3% yield. The rest of it would have gone in, in the ballpark of about a 6% to 7%. So we've driven the entire investment up to 6% to 7% total return there, which sort of speaks to, as Dan mentioned earlier, if you look at the incremental return, if you just take Q1, look at the incremental capital we invested during the quarter, and then, see what the returns on that capital are, you can see why the base of the overall capital and the increase on yield has occurred over time, we're continuing to see that happen in the sequential results.

Spencer H. Kurn - New Street Research LLP (US)

Thanks. And just one housekeeping question. You closed TDC and that added about $8 million of, site leasing revenue to your tower business sequentially. I noticed that revenue only increased $3 million sequentially for towers and I'm sort of curious why it didn't go up by more.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

We actually included the TDC in our prior outlook. So if you look at – we included that and so the site rental revenues were up from – and our – the outlook we had last quarter. And so, this is just in and above what TDC was.

Spencer H. Kurn - New Street Research LLP (US)

Yeah. I was actually talking about reported results from Q1 to Q2.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

No. We have a combination of – we had – did one-time items in the first quarter and then...

Spencer H. Kurn - New Street Research LLP (US)

Got it.

Daniel K. Schlanger - Senior Vice President and Chief Financial Officer

...the net impact of churn I think is probably going to reconcile you the balance of the way, Spencer.

Spencer H. Kurn - New Street Research LLP (US)

Great. Thank you.

Operator

We'll go next to Michael Bowen with Pacific Crest.

Michael Bowen - Pacific Crest Securities

Okay. Thank you very much. Most of my questions have been answered, and I'm sorry if I missed this one, but back with regard to the small cells, can you talk a little bit about whether you think you're seeing or will see a little bit more demand either from a coverage or a capacity standpoint for small cells, as we go forward, or am I not thinking about it the right way?

Jay A. Brown - President & Chief Executive Officer

No. You are. I think we'll see – typically, what I would say is that it's going to be a capacity issue that would be the biggest driver of what we're doing for small cells. There are places where there's virtually no coverage today from macro sites. And so, we're going in and covering an area where there's no coverage. But typically, where these small cells are going is there's a capacity issue where there's a macro site providing, we often think about it as an overlay and an underlay strategy.

So there's a macro site that's providing good coverage, but from a capacity standpoint or a latency standpoint, the carriers utilize small cells to underlay that macro sites and increase the capacity of both the macro sites as well as using of small cells to increase the capacity of their overall network. So they're synergistic in their usage in those cases.

Michael Bowen - Pacific Crest Securities

All right. Thank you.

Operator

We'll go next to Timothy Horan with Oppenheimer.

Timothy Horan - Oppenheimer & Co., Inc. (Broker)

Thanks, guys. Historically, Ben used to talk about kind of charging for space and weight on the towers. If I'm reforming spectrum and I'm using existing equipment, do I have to pay more and I guess same thing if I'm using new spectrum. Maybe just how the pricing model has shifted a little bit and it would seem fairly complicated to kind of do this on every location. So would you expect to see more master lease agreements or new master lease agreements at some point?

Jay A. Brown - President & Chief Executive Officer

Tim, the pricing model hasn't changed. So we continue to charge customers if they pick up space and weight on the towers. And I think your question is, you could say if there's a theoretical answer where the carriers could literally reutilize the space in a different way, there may not be additional rent for that. That's not been our experience over a long period of time. Typically, if they deploy additional spectrum or new spectrum bands on new equipment, they do make modifications to the site in order to improve the coverage or the capacity of the site and that's what results in additional rent to us, and frankly, we haven't seen that behavior change.

Timothy Horan - Oppenheimer & Co., Inc. (Broker)

Great. And do you think that will drive master lease agreements at some point given all the changes occurring?

Jay A. Brown - President & Chief Executive Officer

I wouldn't necessarily dismiss it as never going to happen again. There was a point in time where the conditions were, I think, very favorable for us to strike a transaction like that where the carriers knew they were going to touch – or several of the carriers knew they were going to touch all of their existing sites. And so, they were willing to pay us for an amendment across all of the sites in order to accomplish that.

If those conditions were right, from a financial return standpoint, those transactions worked out very well for us. But we don't have any today and, frankly, I wouldn't necessarily tell you that we would expect for those to occur again.

But I would also say based on the value that we received from the transactions that we did previously, if there was a similar opportunity, we would certainly study it closely and figure out what the best approach was.

Timothy Horan - Oppenheimer & Co., Inc. (Broker)

And then, lastly, just a follow-up to David's first question. With the towers, have you seen any of your competitors willing to lower prices or do more term and volume contracts at lower prices or any new entrants in which clearly seems to be what the carriers want? But have you seen any of that activity?

Jay A. Brown - President & Chief Executive Officer

We haven't seen anything of any material in nature. As I referenced earlier, if you look at where we're building towers which is very few today, there have been people who've been willing to come into the space, because they wanted to start a tower business or expand a tower business. And so, they've been willing to do tower builds at economics that aren't really attractive for us to go build sites.

Those occurred though in places where there is not existing coverage and most likely to occur in places where there's a new neighborhood in the suburban location. And we just choose not to pursue those given the low returns.

Timothy Horan - Oppenheimer & Co., Inc. (Broker)

Very helpful. Thank you.

Operator

We'll go next to Walter Piecyk with BTIG.

Walter Piecyk - BTIG LLC

Thanks. Can you just refresh our memory or at least my memory on why you guys stopped reporting nodes for small cells? Because it seems like that would be a pretty interesting metric to look at as far as nodes per mile and see how that business has ramped, or maybe otherwise, could you provide some sense of how many nodes you guys are adding per year?

Jay A. Brown - President & Chief Executive Officer

Yeah, Walter. We talked about this a little bit last quarter. And I think some of it was confusion around the nomenclature of what does a node mean. And so, we tried to focus the conversation much more on revenues and yields to show the return. I wouldn't dismiss the idea that, at some point over time, maybe we do come up with a way to show that in a way that makes sense.

But what we found when we were disclosing it was it actually was not very helpful for people in building their models, and frankly, caused people to draw conclusions that we weren't consistent with the kind of the financial returns. And so, that was the reason why we stopped doing it.

Over time, maybe the nomenclature becomes a little more subtle and maybe there is a way to help with that, but I think in the short term, you'll see us continue to focus on talking about this in terms of financial returns. And then, what you can see, as Dan mentioned in his earlier comments, by looking at the numbers on a sequential basis, you can see with the mix of colocations and anchor builds, you can see those incremental returns being driven.

Walter Piecyk - BTIG LLC

Okay. And then, just kind of more of a 10,000-foot question. Can you give us – I mean I know it's early stage, right, Verizon is probably ramping up and other guys are at their even earlier stages. Can you give us a sense of like what the mix is of those service providers selecting someone like yourselves versus maybe doing a build on their own. And then, as that particular customer or type of customer progresses, I would think there might be some bias to shift more towards building your own, as there are vendors kind of like a (57:17) or whoever get a little bit more expertise which they don't have today, that they might want to shift that direction. Have you seen that with Verizon or again from 10,000 feet, kind of where are we today and where do you think we're going to be in that mix five years from now?

Jay A. Brown - President & Chief Executive Officer

I would probably describe it pretty similar to what we saw in the tower business over a long period of time is that the carriers will self-perform in some cases, and then, you'll have an independent provider of the infrastructure that will do it in other cases.

Haven't really seen the dynamics of that change in the market over the last couple of years. Big picture today, we're probably somewhere in the neighborhood of about half of the activity that gets put out by the carriers. We're winning about half of that business. The pie is growing quickly as multiple providers are now focused on this.

So – but the ballpark, I would tell you, we're about 50% of the market. The other 50% would be a combination of self-performed by the carriers, and then, other providers winning RFPs. And we, obviously, don't have to have a 50% win rate in order for this, the business, to be interesting to us. It's really around where you have the infrastructure and then what's the incremental returns from there.

Again, back to the earlier conversation, which I think is really important, as we think about this business and compare it to towers is, we believe that a shared solution is the lowest cost solution for the carriers. And we provide that solution for the carriers at a cost lower than what they could do themselves. A combination of that is our own low cost of access to capital, which we have the expertise which we have so we can get it done faster and more cost effectively, just in terms of cost of the deployment.

And then, by sharing it with multiple parties, the entire return and justification for that investment doesn't have to be driven by one carrier. And that model has held out very well in towers and we see the same dynamics in small cells and believe it will continue.

Walter Piecyk - BTIG LLC

Understood. And then, on the 50% – the other 50%, you were basically including other people like yourselves. So do you have a sense of, on self-performed, is that like 10%, 20%? And I'm just curious in your five years (59:40) – to pick any timeframe you want five years, 10 years, 15 years too (59:43) even where that self-perform rate, is that go down, up or is it kind of stay where it is now?

Jay A. Brown - President & Chief Executive Officer

I feel like to speculate on that, we'd almost be able to step into what the carriers are going to do and what they're going to invest in sort of the core asset versus maybe non-core infrastructure assets. So I'd probably let them opine on that. We feel good about the value proposition that we provide to them, and then, they'll have start to make their choice over time in terms of how much they want to self-perform.

Walter Piecyk - BTIG LLC

Great. Thank you very much.

Jay A. Brown - President & Chief Executive Officer

You bet. Maybe we have time for one more question, operator.

Operator

Okay. Our last question comes from Matthew Niknam with Deutsche Bank.

Matthew Niknam - Deutsche Bank Securities, Inc.

Hey, guys. Thanks for squeezing me in. So just two if I could. First, on FirstNet, if you could just give us any updates on the latest you're hearing and timing-wise, when you think this may be potential revenue driver?

And then, just one last one small cells, specifically around the cost side, rental expenses were actually down $3 million sequentially. Just trying to figure out what drove that, and then, on the SG&A side, it's fairly stable sequentially. Do you think we can maintain this sort of similar pacing as the business ramps? Thanks.

Jay A. Brown - President & Chief Executive Officer

Matthew, I don't have any insight on FirstNet beyond what you would have. I think best case scenario, this is a late 2017 early 2018, before it starts to affect our revenues, based on all of the public commentary. But I frankly don't have any insight baseball behind what you would read and know.

I think we continue to believe that, over time, there will be a first responder network that's constructed whether that's at the federal level or at the local level. The legacy systems are aging and there's a real need for it and that we believe the deployment of that system, and then, any of the constructs that are currently being talked about and/or possibilities, any of those constructs would be good for the tower industry and for us particularly.

On the second question, costs did pick up a little bit sequentially. They're in small cells. And I think when you get to that level of granularity, I wouldn't necessarily point to anything that's indicative of what's going on in the business. What you're going to find over time is as we build new anchor systems and there's mix of anchor and colocations, you may see a little bit of volatility up and down sort of quarter to quarter, but in total, the economics are hanging there as we expected.

On the G&A comment, I would go back to my prior bigger picture comment. First quarter G&A, it looks to us likely it's going to be the run rate for the balance of the year and we're not seeing really any meaningful movements there. Back to the more bigger picture comments that we're asked around what the opportunity is around small cells, obviously, if we were to find more opportunities or ramp up the investment that we're making in that space, then we would need to increase the G&A, but that G&A would come with returns as we've seen in the past.

So it will be a function of the activity that we see and the opportunity to invest capital.

Jay A. Brown - President & Chief Executive Officer

Well, with that, maybe I'll wrap up the call. Thank you, everyone, for joining this morning. As you heard on the call, the story is the same as it's been for a long period of time. We're focused on growing cash flows in the business and growing the dividend. And we'll get back to work and look forward to talking to you next quarter about the results. Talk to you soon.

Operator

That does conclude today's conference. We thank you for your participation.

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