01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) closed 2013 as a larger, more leveraged tower REIT in transition.
Net revenues rose 24% to $3.02 billiona, driven by the 2012 acquisitions (WCP, NextG, T-Mobile) and the $4.8 billion AT&T tower transaction closed in December 2013. Site rental revenues grew 18% to $2.50 billion and represented 83% of consolidated revenue. Adjusted EBITDA reached $1.79 billion, up roughly 16% for the year.
GAAP net income attributable to CCIC stockholders fell to $90.1 millionb from $188.6 million, mainly because of a $191 million tax provision, which includes a $67.4 million non-cash charge from de-recognizing deferred tax assets in connection with the REIT election, and because of higher interest and depreciation costs. The balance sheet expanded sharply. Total assets grew to $20.6 billion and total debt was about $11.6 billion, roughly flat year over year, while equity rose to $6.9 billion after $3.0 billion of common stock and $951 million of mandatory convertible preferred stock were issued in October 2013 to fund the AT&T acquisition.
Management reports that about 82% of debt is secured, 66% carries fixed rates, and no financial maintenance covenant violations exist. The company expects to refinance its debt before 2015 and has no maturities requiring capital markets access until at least 2015. The most important change for investors is the start of REIT status on January 1, 2014, and the first quarterly common dividend of $0.35c per share (about $470 million annually).
Dividend capacity depends on roughly $2.2 billiond of federal NOLs, which reduce REIT taxable income, and on the company's ability to meet its 90% distribution requirement. Key risks include customer concentration (Sprint, T-Mobile, AT&T and Verizon represent 88% of revenue), the expected loss of Sprint iDEN-related tenancy, leverage, and the taxable REIT subsidiary structure covering small cells and Australia.
02—Key points
Key Highlights
- Revenue growth: Net revenues rose 24% to $3.02 billion in 2013; site rental revenues grew 18% to $2.50 billion and make up 83% of total revenue.
- Adjusted EBITDA of about $1.79 billion (up ~16%), with CCUSA contributing roughly 96% of segment Adjusted EBITDA.
- REIT conversion effective January 1, 2014, with a $67.4 million non-cash deferred tax de-recognition charge in 2013 and about $2.2 billion of federal NOLs available to shelter REIT taxable income.
- Net income attributable to CCIC stockholders fell to $90.1 million (EPS $0.26) from $188.6 million in 2012, mainly due to the tax charge and higher interest and depreciation expense.
- AT&T Acquisition closed December 16, 2013 for $4.827 billion, adding exclusive rights to towers comprising about 24% of the portfolio, financed by $3.0 billion of common equity and $951 million of preferred equity.
- Balance sheet: total assets of $20.6 billion, total debt of $11.6 billion, about 82% secured debt, and 66% fixed-rate debt; the company reports covenant compliance and a $1.1 billion undrawn revolver.
- Dividend initiation: first quarterly common dividend of $0.35 per share declared in February 2014, implying about $470 million annually, plus about $45 million annual preferred dividends.
- Customer concentration and churn risk: four customers account for 88% of revenue, and Sprint's iDEN decommissioning is expected to reduce site rental revenue by about 1% in 2014 and about 2% thereafter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $2.87B$2.43B | +17.8% |
| SG&A Expenses | $213.52M$212.57M | +0.4% |
| Operating Expenses | $1.99B$1.60B | +24.2% |
| Operating Income | $880.70M$834.68M | +5.5% |
| Interest Expense | $490.38M$491.69M | −0.3% |
| Net Income | $90.11M$188.58M | −52.2% |
| EPS (Basic) | $0.26$0.64 | −59.4% |
| EPS (Diluted) | $0.26$0.64 | −59.4% |
| Shares Outstanding (Basic) | 298.08M289.29M | +3.0% |
| Shares Outstanding (Diluted) | 299.29M291.27M | +2.8% |
05—Questions
Frequently Asked Questions
Why did GAAP net income fall in 2013 even though revenue and EBITDA grew?
Net income attributable to CCIC stockholders dropped to $90.1 million from $188.6 million. The main drivers were a $191 million tax provision in 2013 versus a $100 million tax benefit in 2012. The tax provision includes a $67.4 million non-cash charge from de-recognizing deferred tax assets and liabilities as the company qualified as a REIT. Higher depreciation and amortization from the 2012 and AT&T acquisitions also weighed on earnings, partly offset by lower interest expense and smaller debt-retirement losses.
Will the $0.35 quarterly dividend be sustainable?
The dividend is expected to total about $470 million per year, and the company says operating cash flow (about $1.24 billion in 2013) covers dividends, preferred dividends, principal amortization and capital expenditures. REIT rules require distributing at least 90% of REIT taxable income, and federal NOLs of about $2.2 billion can reduce that taxable income. Dividend levels remain subject to board discretion, debt covenant limits on payouts, and the company's capital allocation priorities, so future increases are not assured.
How concentrated is the revenue base, and what happens if a major customer leaves?
Sprint, T-Mobile, AT&T and Verizon Wireless together accounted for 88% of consolidated 2013 revenue, with Sprint at 27% and T-Mobile at 23%. Losing a major customer through consolidation, bankruptcy or non-renewal could materially reduce revenue and cash flow. Management expects Sprint's iDEN decommissioning to reduce site rental revenue by about 1% in 2014 and about 2% afterward, and it does not expect recent customer consolidations to have a material adverse effect on 2014 operations.
How much debt does Crown Castle carry, and when does it need to be refinanced?
Total debt and other long-term obligations were $11.6 billion at December 31, 2013, with about $3.9 billion of floating-rate bank debt and $7.7 billion of fixed-rate debt. Management reports no scheduled debt maturities beyond amortizing principal (about $100 million in 2014) and does not expect to access capital markets for refinancing until at least 2015. Tower revenue notes and WCP securitized notes have anticipated repayment dates in 2015 through 2020, after which interest rates step up about 5% and excess cash flow may be used for principal payments. The company says it expects to refinance these notes before those dates.
What do the AT&T tower lease terms mean for long-term cash flow?
The AT&T Acquisition gives Crown Castle exclusive rights to towers, comprising about 24% of its portfolio, for a weighted-average term of about 28 years under a prepaid lease, with some towers acquired outright. The company paid $4.827 billion in cash and has purchase options on leased sites at the end of their lease terms, with estimated aggregate option payments of about $4.2 billion, due between 2032 and 2048. Management expects a substantial contribution from this transaction to 2014 site rental revenue growth. Integration risk remains, including tower audits and lease verification.
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