The wireless-tower industry provides access to fantastic cash flow. Long-term contracts and, more critically, high switching costs, provide a solid base of future business. We don't believe wireless carriers can escape the need to build denser cell site grids to add data capacity, and Crown Castle has, in our view, built the premier set of assets to help the carriers meet this need. Crown has focused all of its energy on the U.S. market, making acquisitions to broaden its small-cell and backhaul capabilities, two critical elements necessary to augment the coverage traditional wireless networks provide. While Crown lacks the international growth potential of its two tower peers and is more heavily exposed to consolidation in the U.S. wireless market, we believe it will prove an especially indispensable partner for U.S. carriers.
Crown earns the vast majority of its revenue by leasing out space on communications towers it owns or otherwise controls. Contracts with wireless carriers typically run 10 years or longer and include annual rent escalators. The majority of these wireless towers were acquired in chunks, primarily from the carriers themselves. Tower firms can manage towers more efficiently than the carriers, as independent ownership allows multiple carriers to locate on each structure without competitive concern. The tower companies also possess deep tower-management expertise that can be effectively leveraged across far more sites than a carrier could accomplish on its own.
Crown's nearly exclusive focus on the U.S. market has led it to types of assets its rivals have largely or entirely ignored. The acquisition of NextG in 2012 pushed the firm heavily into the DAS and small-cell markets, and the purchase of Sunesys brought deep fiber assets in several markets. While the returns on these assets probably won't match the traditional tower business, we believe Crown is assembling a collection of assets that will collectively allow the firm to offer unique solutions to the carriers as they fill network gaps and add coverage in high-traffic areas.
Crown Castle's narrow moat is based on the attractive locations of its towers, which we reflect as an efficient scale advantage, and the high switching costs its customers would face in moving equipment en masse from one tower vendor to others. These advantages are typically codified in long-term contracts with customers (typically 10 years or longer) that call for 2%-4% annual rent escalators. At the end of 2015, about 72% of our site leasing revenue forecast for 2016-20 was already under contract. The tower business model enables the wireless telecom industry to operate more efficiently as multiple carriers collocate on the same physical structure rather than build single-use tower sites. Carriers looking to expand or improve coverage are likely to first look for adequate existing structures in a particular area before investing the time and money needed to permit, build, and equip a new tower. Adding a tenant to an existing tower produces very high-margin incremental revenue with no or modest up-front capital needed.
Equipment is rarely removed from a tower once it has been placed into service. Moving equipment to another tower is an expensive endeavor and risks service disruption or changes in coverage that could anger customers. Thus, decisions to remove equipment are heavily deliberated and typically only made in conjunction with major network overhauls. Churn typically totals 1%-2% of rental revenue, with carrier acquisitions accounting for a large portion of lost business. Crown Castle's churn has spiked beyond this range recently (to 3%-4%) as a result of its relatively large exposure to recent U.S. carrier acquisitions (Leap, MetroPCS, and Clearwire). Offsetting churn, carriers frequently seek to add additional equipment to existing sites to upgrade technologies or add antennas to utilize additional spectrum bands. With the expansion of LTE networks in recent years, this amendment activity has driven strong revenue growth.
Land ownership represents a key risk to Crown Castle's competitive position. Historically, towers have been built on third-party sites, with ground rent representing the largest operating expense for the tower owner. Crown has spent more than $1 billion over the past decade in an attempt to better control the land beneath its towers. Today, the firm owns or otherwise controls the land under about 22% of its U.S. towers, representing about 27% of site rental revenue and 36% of rental gross profit. Where land can't be purchased, Crown has worked to extend ground leases far into the future. In the U.S., the average lease term now extends about 30 years. Ground leases under only about 14% of Crown's tower sites expire during the next decade.
Heavy customer concentration and the risk of technological change limit our moat rating. Crown Castle's domestic focus leaves it the most heavily exposed of the three public U.S. tower companies to U.S. wireless carriers. The four nationwide U.S. carriers now account for more than 90% of leasing revenue, with AT&T and T-Mobile accounting for 30% and 22%, respectively. We estimate that payments to the three publicly traded tower companies now represent about a fifth of Verizon's total recurring cost of serving wireless customers, making tower rent a major expense to manage.
In addition, new network architectures like small cells and distributed antenna systems may reduce demand for traditional tower sites in the future. Crown Castle made an aggressive move into the DAS market with the 2012 acquisition of NextG Networks and subsequent heavy investment in new DAS sites. The economics of the DAS business are likely less favorable than the traditional macro site market. This business also represents only about 10% of Crown's leasing revenue, though it is growing rapidly. In addition, with the move to deploy small cells, individual traditional sites may decline in importance. This dynamic could enable the carriers to more easily play tower vendors off each other, threatening to withhold new business or selectively move equipment to other towers to negotiate better rates over time.
Our fair value estimate for Crown Castle is $95 per share, after accounting for the acquisition of Lightower, which is likely to close by the end of 2017. We expect reported site rental revenue growth (non-cash and excluding Lightower) to accelerate to between 7% and 10% in 2017 through 2021, as the carriers begin to ramp up network construction. In addition, we expect Lightower to contribute $860 million in revenue in 2018. Crown hasn't been aggressively building new traditional towers recently, focusing instead on small cells, a trend we expect to continue. Therefore, we anticipate more growth comes from the small-cell business over the next few years as traditional site leasing matures.
We expect Crown's adjusted EBITDA margins to steadily expand over the next five years as the firm leverages its land position. Ground lease expense represents, by far, the largest cost of doing business. Adding tenants or increasing the space leased to an existing tenant generally has no impact on land costs, allowing most of this incremental revenue to fall to the bottom line. We also expect capital spending will decline over the next few years as Crown wraps up its land purchase program and the construction of new small-cell sites slows.
Crown Castle faces the same risks as its tower rivals, with major carrier consolidation the biggest potential threat. Recent mergers in the U.S. have involved relatively small carriers like MetroPCS and Leap, limiting the impact on the demand for tower space overall. A more significant deal, like a Sprint merger with T-Mobile, would likely have far deeper implications for tower demand while also concentrating negotiating power in the hands of fewer customers. Crown Castle's lack of geographic diversity leaves it particularly heavily exposed to U.S. consolidation.
Changes in consumer demand for wireless services and next-generation technology deployments could also affect demand for wireless data services and, thus, space on wireless towers. For example, small cells, including WiFi networks, could significantly alter the wireless network landscape. Crown Castle has taken several steps to build out assets that will benefit the company as more small cells are deployed, but the firm's ability to efficiently monetize these assets is less certain. Small-cell and DAS deployments require extensive work with landlords, and often they can't accommodate as many tenants as a traditional wireless tower.
Land is, by far, the most critical input into the tower business model. Crown owns the land under less than one fourth of its tower sites. Unfavorable negotiations with landlords could sharply cut into margins or force the firm to remove a tower. Fortunately, ground leases typically run for 20 years or more--Crown's average remaining lease term is 30 years.
Rising interest rates could also present a problem for Crown. While its debt maturity schedule is well spaced over the next decade, refinancing at higher rates would likely pressure cash flow growth. Higher interest rates could also cause investors to demand a higher yield for holding Crown shares, pushing its stock price lower.
CEO Jay Brown has been with Crown since 1999, rising to treasurer in 2004 and CFO in 2008, before replacing W. Benjamin Moreland in June 2016. A corporate banking veteran, Moreland joined Crown in 1999 and was named CEO in 2008 after spending eight years as CFO. He is currently executive vice chairman of the board.
Crown's 11-member board includes what appears to be a closely knit core made up of Moreland and three other individuals who have served on the board for over 20 years (including another former CEO). Three additional members were appointed in 2002 or earlier, including two former FCC staffers. Previous CEO John Kelly stopped serving on the board in 2016.
Bonuses are primarily based on EBITDA and adjusted funds from operations, two measures that can be managed to the detriment of long-term performance. Executive compensation, however, is weighted far more heavily toward equity than cash.
Crown has taken the most conservative approach to capital allocation of the three publicly traded tower companies. The firm sharply increased its dividend in late 2014 and plans to hold its payout to around 75% of adjusted FFO going forward. This policy will likely limit future acquisition activity as Crown seeks to reduce leverage and invest in its small cell/DAS business. With the U.S. tower market largely rolled up at this point and Crown choosing to focus exclusively on this market, a high dividend payout makes sense.
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