01—Abstract
Summary
Summary of the 10-K filed February 12, 2013. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported a transformative 2012, driven primarily by the T-Mobile, NextG and WCP acquisitions, which pushed total assets to $16.1 billiona (up from $10.5 billion) and total debt and other obligations to $11.6 billion.
Consolidated net revenues grew 20% to $2.43 billionb, with site rental revenues up 15% to $2.12 billion, and Adjusted EBITDA rose 19% to $1.55 billion. Site rental represented 87% of revenues, and the four largest U.S. carriers (Sprint, AT&T, Verizon Wireless and T-Mobile) accounted for 72% of consolidated revenues, a meaningful customer concentration risk. Profitability improved on a GAAP basis: net income attributable to CCIC stockholders was $188.6 million in 2012 versus $171.1 million in 2011, helped by a $60.1 million income tax benefit from valuation allowance reversals.
Debt-related charges were significant, however, with a $132.0 millionc loss on debt retirement and interest expense rising to $601.0 million. Management reports that the company lowered its average cost of debt from 6.2% to 4.5% through 2012 refinancings, while the consolidated leverage ratio rose to about 6.5x against a 7.0x covenant. Operating cash flow was $772.6 million, and capital expenditures were $441.4 million.
Management's outlook emphasizes stable, long-dated contracted cash flows (weighted-average remaining contract life of about eight years, representing roughly $20 billiond of expected future cash inflows) and a stated absence of capital market needs until at least 2015. Key risks include carrier consolidation (T-Mobile/MetroPCS and Sprint/Clearwire), the expiration of Sprint's iDEN leases in 2014-2015, the reliance on land leases and purchase options for the Sprint and T-Mobile towers, and a 78% secured debt profile. The company has never paid common dividends and has not ruled out a future REIT conversion.
02—Key points
Key Highlights
- Revenue growth: Net revenues rose 20% to $2.43 billion in 2012, with site rental revenues up 15% to $2.12 billion, largely from acquisitions and tenant additions.
- Scale expansion: Portfolio grew to about 31,500 towers (approximately 29,800 U.S. and 1,700 Australia) after acquiring about 7,100 T-Mobile towers, NextG's small cell/DAS network, and WCP ground-lease assets for roughly $3.7 billion in total cash acquisition spend.
- Profitability: Operating income rose 21% to $834.7 million and Adjusted EBITDA rose 19% to $1.55 billion; GAAP net income attributable to CCIC stockholders was $188.6 million, aided by a $100.1 million total tax benefit.
- Leverage and cost of debt: Total debt and obligations reached $11.6 billion; the consolidated leverage ratio rose to about 6.5x (covenant 7.0x), while the average cost of debt fell from 6.2% to 4.5%.
- Cash flow: Net cash from operating activities was $772.6 million, up from $643.5 million, against capital expenditures of $441.4 million; management expects 2013 capex of $400-450 million.
- Customer concentration: Sprint, AT&T, Verizon Wireless and T-Mobile contributed 72% of consolidated revenues, with Sprint alone at 24%; pending carrier consolidation (T-Mobile/MetroPCS, Sprint/Clearwire) is a flagged risk.
- Capital allocation: The company repurchased only 0.7 million shares ($36.0 million) in 2012, refinanced and retired the 9% senior notes and 7.75% secured notes in January 2013, and has never paid common dividends.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 12, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $2.43B$2.03B | +19.7% |
| SG&A Expenses | $212.57M$173.49M | +22.5% |
| Operating Expenses | $1.60B$1.34B | +19.2% |
| Operating Income | $834.68M$692.30M | +20.6% |
| Interest Expense | $491.69M$404.64M | +21.5% |
| Net Income | $188.58M$171.08M | +10.2% |
| EPS (Basic) | $0.64$0.52 | +23.1% |
| EPS (Diluted) | $0.64$0.52 | +23.1% |
| Shares Outstanding (Basic) | 289.29M283.82M | +1.9% |
| Shares Outstanding (Diluted) | 291.27M285.95M | +1.9% |
05—Questions
Frequently Asked Questions
What drove the large increase in total assets and debt in 2012?
The increase was driven mainly by three acquisitions: the T-Mobile tower rights (about $2.5 billion, closed November 30, 2012), NextG Networks (about $1.0 billion cash, closed April 2012), and certain WCP subsidiaries ($214.7 million cash plus $336.3 million of assumed debt, closed January 2012). Funding came from a new $1.5 billion revolver, $2.1 billion of term loans, $1.65 billion of 5.25% senior notes due 2023, and $1.5 billion of 2012 secured notes.
How concentrated is CCI's revenue base, and what happens if a major customer leaves?
Concentration is high: the four largest U.S. carriers represented 72% of consolidated revenues in 2012. Management notes that the loss of any large customer, through bankruptcy, consolidation or non-renewal, could materially reduce revenues, impair receivables and intangible assets, and affect the deferred tax asset. Contracts typically run five to 15 years with renewal options, and the weighted-average remaining term is about eight years, which provides some visibility.
Are there near-term refinancing or liquidity risks?
Management states it has no debt maturities other than amortizing principal (about $88 million in 2013) and does not expect to access capital markets to refinance until at least 2015. Liquidity is supported by $441 million of cash, $247 million of undrawn revolver availability as of February 5, 2013, and operating cash flow. However, about 78% of debt is secured, around $3.3 billion is floating rate (29% of debt), and the tower revenue notes and WCP securitized notes face anticipated repayment dates in 2015 through 2020 that would increase interest costs if not refinanced.
Does the company's tax position still matter, and could it convert to a REIT?
The company holds about $2.7 billion of federal net operating loss carryforwards, expected to be used by about 2017, so it pays minimal cash income taxes. In 2012 it reversed valuation allowances, producing a $100.1 million total tax benefit. Management is evaluating options that could include a REIT conversion, which would require dividend payments on common stock, though some subsidiaries would remain taxable.
What are the main long-term risks to the tower business model?
Key risks include reduced carrier network investment and cyclicality; consolidation among carriers creating overlapping networks (T-Mobile/MetroPCS and Sprint/Clearwire, with Sprint and Clearwire co-located on about 2,700 towers); the expiration of Sprint's iDEN leases around 2014 and 2015; new technologies such as signal combining and femtocells that could reduce tenancy; and land-tenure risk, with about 9% of site rental gross margin tied to land leases expiring within ten years and about 13,200 towers operated under master leases with purchase options that CCI may not exercise.
06—Continue