01—Abstract
Summary
Summary of the 10-K filed February 22, 2016. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) closed 2015 as a U.S.-focused wireless infrastructure REIT following the May 2015 sale of its Australian subsidiary CCAL for about $1.1 billiona in net cash proceeds, which produced a $979 million after-tax gain and pushed 2015 net income attributable to CCIC stockholders to $1.52 billion (versus $390.5 million in 2014).
Excluding discontinued operations, the core business was steady: net revenues rose 4% to $3.66 billionb, site rental revenues grew 5% to $3.02 billion (82% of revenue), and Adjusted EBITDA increased 3% to $2.12 billion. Operating cash flow reached $1.79 billion, up roughly 12% year over year, supporting a 8% dividend increase to $0.885 per quarter ($3.54 annualized) and about $1.2 billion of expected common dividends over the next 12 months. Investors should weigh several watch items.
Management expects 2016 non-renewals of $70c-80 million as Sprint, T-Mobile and AT&T decommission the Leap, MetroPCS and Clearwire networks, with potential non-renewals of about 60% of those networks' run-rate revenue concentrated in 2016-2018. Leverage is substantial: total debt and other obligations were $12.2 billion at year-end, and the company reported roughly $12.1 billion outstanding as of February 15, 2016. Roughly 90% of site rental revenue comes from four carriers (AT&T, T-Mobile, Verizon and Sprint), and about 54% of towers sit on master leases where purchase options are at CCI's discretion.
The company also began 2016 with small cells included in the REIT (effective January 2016) and completed a $5.5 billiond credit facility and $1.5 billion of new senior notes to refinance near-term maturities. Overall, the filing presents a company with recurring, long-dated contracted cash flows and a growing dividend, offset by carrier consolidation risk, a heavy debt load, and REIT distribution constraints that limit how much cash can be retained for growth.
02—Key points
Key Highlights
- Net income attributable to CCIC stockholders rose to $1.52 billion in 2015 from $390.5 million, driven mainly by a $979.4 million after-tax gain on the CCAL sale; continuing operations net income was $525.3 million.
- Site rental revenue grew 5% to $3.02 billion and net revenues grew 4% to $3.66 billion; Adjusted EBITDA reached $2.12 billion, up 3% year over year.
- Operating cash flow was $1.79 billion in 2015 (vs. $1.60 billion in 2014), funding $1.1 billion of common dividends paid during the year.
- Quarterly common dividend raised 8% to $0.885 per share in Q4 2015 (annualized $3.54), with roughly $1.2 billion of expected cash dividends over the next 12 months.
- Expected 2016 site rental revenue impact from non-renewals of $70-80 million tied to Acquired Networks decommissioning, with potential non-renewals of about 60% of those networks' run-rate revenue mostly in 2016-2018.
- Customer concentration remains high: AT&T, T-Mobile, Verizon Wireless and Sprint accounted for 90% of 2015 site rental revenue.
- Total debt and other obligations of $12.2 billion at year-end 2015; 2016 refinancing included a $5.5 billion credit facility and $1.5 billion of senior unsecured notes, with a target leverage of four to five times Adjusted EBITDA.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 22, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $3.66B$3.54B | +3.5% |
| SG&A Expenses | $310.92M$257.30M | +20.8% |
| Operating Expenses | $2.72B$2.60B | +4.6% |
| Operating Income | $946.18M$940.68M | +0.6% |
| Interest Expense | $490.00M$492.44M | −0.5% |
| Net Income | $1.52B$390.51M | +289.5% |
| EPS (Basic) | $4.44$1.04 | +326.9% |
| EPS (Diluted) | $4.42$1.04 | +325.0% |
| Shares Outstanding (Basic) | 333.00M332.30M | +0.2% |
| Shares Outstanding (Diluted) | 334.06M333.26M | +0.2% |
05—Questions
Frequently Asked Questions
Why did net income jump so sharply in 2015?
The jump was primarily due to the one-time gain on the May 2015 sale of the Australian subsidiary CCAL, which contributed about $979 million of after-tax gain within discontinued operations. Excluding discontinued operations, income from continuing operations rose to $525 million from $346 million, helped by a $51.5 million tax benefit that included a $33.8 million non-cash benefit from moving small cells into the REIT.
How secure is the company's revenue base?
Revenue is largely recurring: site rental revenues typically come from long-term leases with initial terms of five to 15 years and contractual escalators, and more than 90% of site rental revenue is typically contracted in advance. Weighted-average remaining lease life is about six years (excluding tenant renewal options), representing roughly $20 billion of expected future cash inflows. However, about 90% of site rental revenue comes from four carriers, so consolidation or decommissioning by any one of them is a material risk.
Is the dividend sustainable given the debt load and REIT rules?
The dividend is supported by operating cash flow of $1.79 billion against expected dividend payments of about $1.2 billion over the next year, and management expects to grow the dividend with cash flow growth. However, REIT rules require distributing at least 90% of REIT taxable income, which limits retained cash for growth and debt reduction. Management also noted that dividends could increase financing needs, and that dividend limits in debt covenants could affect REIT status if payments are restricted.
What are the main risks to tower demand over the next few years?
Key risks include carrier consolidation (AT&T/Leap, T-Mobile/MetroPCS, Sprint/Clearwire) that can cause duplicate networks and non-renewals, potential slowdowns in carrier capital spending, technology changes such as network sharing and small cells or satellite that could reduce tower need, and the possibility that carriers do not exercise or the company does not fund purchase options on about 54% of towers. The company's management expects non-renewals to increase in 2016 and be concentrated from 2016 through 2018.
How is the balance sheet positioned after the 2016 refinancing?
The company reported $12.2 billion of debt at year-end 2015 with about 81% fixed-rate debt after the 2016 refinancings, and about 48% of debt is secured. Near-term maturities are modest, with about $107 million scheduled in 2016 and $603 million in 2017, though tower revenue notes have anticipated repayment dates in 2017 and 2020 that could require refinancing. The company had about $2.1 billion of undrawn revolver availability as of February 15, 2016, and reported compliance with its financial maintenance covenants (total net leverage of 5.4x versus a 6.5x limit).
06—Continue