01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported a transformative 2017 as it completed roughly $9.3 billiona of fiber acquisitions (FiberNet, Wilcon and Lightower), which pushed total assets to $32.2 billion from $22.7 billion and total debt and other obligations to $16.2 billion from $12.2 billion.
Net revenues grew 11% to $4.36 billionb, Adjusted EBITDA rose 11% to $2.48 billion, and net income attributable to common stockholders was $386 million, or $1.01 per diluted share, versus $0.95 in 2016. Growth was concentrated in the Fiber segment, where site rental revenue nearly doubled (up 91% to $770 million), while the Towers segment grew only 2% to $2.9 billion. Towers still generate the bulk of the cash flow and margin.
Cash generation remained solid, with operating cash flow of $2.04 billionc. The company paid $1.5 billion in common dividends and raised the quarterly dividend 11% to $1.05 per share, or $4.20 annualized. The acquisitions were funded with a mix of common equity (about $4.2 billion net), mandatory convertible preferred (about $1.6 billion), and new debt.
Leverage and coverage remained within covenant levels, with a net leverage ratio of 5.5xd against a 6.50x limit as of year-end. Management also flagged the extra integration spending, the rising debt load, and the reliance on carrier demand, with AT&T, T-Mobile, Verizon and Sprint accounting for 83% of site rental revenue.
Key risks for investors include the heavier debt burden and refinancing needs, the REIT distribution requirements that limit flexibility, the long-term lease obligations (about $11 billion) and purchase options tied to the carrier tower portfolios, and the execution risk of integrating a much larger and less mature fiber business. Contractual site rental revenue backlog of roughly $22 billion, with a weighted-average remaining term of about five years, provides meaningful visibility into future cash flows.
02—Key points
Key Highlights
- Total net revenues rose 11% to $4.36 billion in 2017, driven by a 13% increase in site rental revenues to $3.67 billion, with Fiber site rental revenue up 91% to $770 million.
- Adjusted EBITDA grew 11% to $2.48 billion, and operating income increased 10% to $1.04 billion.
- Roughly $9.3 billion was spent on 2017 fiber acquisitions (FiberNet, Wilcon and Lightower), which expanded the fiber route footprint to about 60,000 route miles and total assets to $32.2 billion.
- Net income attributable to common stockholders was $386 million, or $1.01 per diluted share, compared with $0.95 in 2016.
- Operating cash flow was $2.04 billion, and the quarterly common dividend was raised 11% to $1.05 per share ($4.20 annualized), with at least $1.7 billion expected to be paid over the next 12 months.
- Total debt and other obligations reached $16.2 billion (weighted average interest rate of about 3.8%), with net leverage of 5.5x against a 6.50x covenant, and $3.0 billion of undrawn revolver availability as of February 2018.
- Site rental contracts carry about $22 billion of expected future cash inflows, with a weighted-average remaining term of about five years, and four carriers representing 83% of site rental revenue.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Crown Castle Inc. kept $0.09.
- Revenue$4.25B100.0%
- Cost of revenue−$399.0M9.4%
- Gross profit$3.86B90.6%
- Operating costs−$2.89B67.9%
- Operating income$967.0M22.7%
- Interest, other & tax−$601.0M14.1%
- Net income$366.0M8.6%
Where FY2017 revenue went
$4.25B- Other operating costs: $2.46B, 58% of revenue
- Interest, other & tax: $601.0M, 14% of revenue
- Net income: $366.0M, 8.6% of revenue
- Cost of revenue: $399.0M, 9.4% of revenue
- SG&A: $426.0M, 10% of revenue
Kept 8.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.25B$3.92B | +8.5% |
| Cost of Revenue | $399.00M$417.00M | −4.3% |
| Gross Profit | $3.86B$3.50B | +10.0% |
| SG&A Expenses | $426.00M$371.00M | +14.8% |
| Operating Expenses | $3.29B$2.97B | +10.6% |
| Operating Income | $967.00M$949.00M | +1.9% |
| Interest Expense | $591.00M$501.00M | +18.0% |
| Net Income | $366.00M$356.97M | +2.5% |
| EPS (Basic) | $0.80$0.95 | −15.8% |
| EPS (Diluted) | $0.80$0.95 | −15.8% |
| Shares Outstanding (Basic) | 382.00M340.00M | +12.4% |
| Shares Outstanding (Diluted) | 383.00M341.00M | +12.3% |
05—Questions
Frequently Asked Questions
How did the 2017 fiber acquisitions change Crown Castle's business mix?
Fiber site rental revenue rose 91% to $769.6 million and now represents 21% of site rental revenue, up from 12% in 2016. The Towers segment still generates about 79% of site rental revenue and the large majority of segment gross margin, so the company's cash flow base remains predominantly towers. The fiber business is less mature and carries different operational risks, which management acknowledges.
Is the dividend safe, and how much cash does it consume?
Dividends are subject to board approval and are constrained by REIT distribution rules, debt covenants, and the 6.875% preferred dividend requirement. Management expects at least $1.7 billion of common dividend payments over the next 12 months, against operating cash flow of $2.0 billion in 2017. Liquidity uses over the next year are expected to exceed operating cash flow, so the company will rely on its revolver and equity issuance under its ATM program to cover the gap.
How much debt does Crown Castle carry, and when does it mature?
Total debt and other long-term obligations were $16.2 billion at year-end 2017 (adjusted for the January 2018 notes), up from $12.2 billion a year earlier. Scheduled principal payments are modest in the next few years ($116 million in 2018), but the tower revenue notes have anticipated repayment dates in 2020, 2022 and 2025 that will require refinancing. About 82% of debt carries fixed rates, and floating-rate exposure is about $3.0 billion.
What are the main concentration and tenant risks?
AT&T, T-Mobile, Verizon Wireless and Sprint together account for 83% of 2017 site rental revenue. Consolidation among carriers could lead to duplicate networks and tenant contract terminations, though any such losses would be spread over several years given the long-term contracts. Roughly 90% of Towers site rental gross margin comes from a recurring base of contracts typically more than 90% contracted in advance.
What long-term obligations sit behind the tower portfolio?
About 53% of towers are leased, subleased or managed under master agreements with AT&T, Sprint and T-Mobile. The company holds purchase options on these towers for approximately $8.6 billion in aggregate, but it is not obligated to exercise them. Total contractual obligations, including lease payments of about $11 billion and interest payments, were about $35.9 billion as of December 31, 2017.
06—Continue