01—Abstract
Summary
Summary of the 10-K filed February 22, 2021. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported full-year 2020 net income attributable to CCIC stockholders of $1.056 billiona, up 23% from $860 million in 2019, and Adjusted EBITDA of $3.706 billion, up 12%.
Site rental revenues rose 4% to $5.32 billionb, with Towers site rental revenues up 3% to $3.5 billion and Fiber site rental revenues up 7% to $1.8 billion. Site rental revenues make up 91% of net revenues, and the vast majority are recurring under long-term tenant contracts with a weighted-average remaining term of about five years, representing roughly $27 billion of expected future cash inflows. Growth was flattered by one-time items: T-Mobile's cancellation of roughly 5,700 Sprint-contracted small cell nodes generated about $362 million of other operating income in Q4 2020, while services revenue fell sharply (Towers services and other gross margin down 52%) on slower carrier activity.
Cash flow and capital allocation remained central to the equity story. Operating cash flow was $3.06 billionc, up from $2.70 billion, and discretionary capital expenditures fell to about $1.5 billion from $1.9 billion as fiber expansion projects were completed. The company paid $2.1 billion in common dividends in 2020 and raised the quarterly dividend 11% to $1.33 per share, with at least $5.32 per share (about $2.3 billion) expected over the next 12 months.
Management targets roughly 5x leverage and about 3x interest coverage. As of December 31, 2020, total net leverage was 5.1x against a 6.5x covenant. Debt stood at about $19.3 billiond, with a weighted-average interest rate of 3.2%, a weighted-average maturity of about ten years, and roughly 92% fixed-rate after the February 2021 $3.25 billion senior notes issuance.
Investors should weigh several risks. Customer concentration is high: T-Mobile (including Sprint), AT&T and Verizon accounted for about 76% of site rental revenues. Roughly 53% of towers sit under master leases with AT&T and T-Mobile, with purchase options that CCI is not obligated to exercise, and about 10% of Towers site rental gross margin comes from land leases with less than 10 years remaining.
The company also faces a legacy restatement, now remediated, that has led to securities and derivative class actions, and an SEC investigation that was closed on January 26, 2021 without an enforcement recommendation. Its REIT status depends on distributing at least 90% of taxable income, which limits internal funding of growth and makes external financing central to expansion.
02—Key points
Key Highlights
- Net income attributable to CCIC stockholders rose 23% to $1.056 billion in 2020, helped by about $362 million of one-time Sprint Cancellation operating income.
- Site rental revenues grew 4% to $5.32 billion, with Fiber up 7% and Towers up 3%; site rentals are 91% of net revenues and largely recurring.
- Adjusted EBITDA increased 12% to $3.706 billion, though the gain is partly non-recurring.
- Operating cash flow was $3.06 billion, and discretionary capex fell to about $1.5 billion from $1.9 billion as fiber build-outs were completed.
- The quarterly dividend was raised 11% to $1.33 per share, with at least $5.32 per share (about $2.3 billion) expected over the next 12 months.
- Leverage was 5.1x against a 6.5x covenant, with a 3.2% weighted-average cost of debt, a roughly ten-year weighted-average maturity, and about 92% fixed-rate debt after the February 2021 issuance.
- Concentration risk is high: the top three tenants are about 76% of site rental revenues, and about 53% of towers are under master leases with AT&T and T-Mobile.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Crown Castle Inc. kept $0.18.
- Revenue$5.84B100.0%
- Cost of revenue−$448.0M7.7%
- Gross profit$5.39B92.3%
- Operating costs−$3.53B60.4%
- Operating income$1.86B31.9%
- Interest, other & tax−$807.0M13.8%
- Net income$1.06B18.1%
Where FY2020 revenue went
$5.84B- Other operating costs: $2.85B, 49% of revenue
- Net income: $1.06B, 18% of revenue
- Interest, other & tax: $807.0M, 14% of revenue
- Cost of revenue: $448.0M, 7.7% of revenue
- SG&A: $678.0M, 12% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 22, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.84B$5.76B | +1.3% |
| Cost of Revenue | $448.00M$524.00M | −14.5% |
| Gross Profit | $5.39B$5.24B | +2.9% |
| SG&A Expenses | $678.00M$614.00M | +10.4% |
| Operating Expenses | $4.34B$4.20B | +3.2% |
| Operating Income | $1.86B$1.56B | +19.5% |
| Interest Expense | $689.00M$683.00M | +0.9% |
| Net Income | $1.06B$860.00M | +22.8% |
| EPS (Basic) | $2.36$1.80 | +31.1% |
| EPS (Diluted) | $2.35$1.79 | +31.3% |
| Shares Outstanding (Basic) | 423.00M416.00M | +1.7% |
| Shares Outstanding (Diluted) | 425.00M418.00M | +1.7% |
05—Questions
Frequently Asked Questions
How much of CCI's 2020 earnings growth was driven by one-time items?
A meaningful portion. The Sprint Cancellation contributed about $362 million of other operating income, including about $308 million received from T-Mobile and about $54 million of unamortized upfront payments. Excluding this, operating income would have been roughly $1.5 billion, below 2019's $1.56 billion. Investors should look to recurring site rental growth of 4% as the underlying trend.
Is the dividend sustainable given the REIT payout requirement and capex needs?
The dividend is covered by operating cash flow of $3.06 billion, against about $2.3 billion of expected dividends over the next 12 months and roughly $1.5 billion of discretionary capex. Liquidity uses are expected to exceed operating cash flow over the next year, so the company will rely on its $5.0 billion revolver, commercial paper, and ATM program, or on debt issuance. The 90% REIT distribution requirement also limits retained cash for growth.
What are the main risks to tenant revenue?
Concentration is the primary risk. T-Mobile, AT&T and Verizon make up about 76% of site rental revenues, and T-Mobile's Sprint-related cancellation shows that tenants can reduce commitments. Other risks include tenant consolidation after the T-Mobile/Sprint merger, technological changes that could reduce tower demand, and the potential non-exercise of land and tower purchase options. About 10% of Towers gross margin comes from land leases with less than 10 years remaining.
Are there material legal or regulatory overhangs?
There are several. Securities class action and derivative suits relate to the previously restated 2017–2019 financials, and their outcomes cannot currently be estimated. The SEC closed its investigation on January 26, 2021 without recommending enforcement. The Durham, North Carolina explosion lawsuits and a dispute over New York State fees on previously deployed fiber are also unresolved, and no reasonable loss estimate has been made for them.
How is the balance sheet positioned for refinancing?
The balance sheet is well positioned. Total debt is about $19.3 billion, with no significant maturities until 2023 apart from commercial paper and amortization. As of February 17, 2021, there was about $5.0 billion of revolver availability and $150 million of commercial paper outstanding. The February 2021 $3.25 billion notes issuance refinanced near-term maturities and is being used to redeem the 5.25% notes. Tower Revenue Notes with anticipated repayment dates in 2022–2028 are expected to be refinanced on or before those dates.
06—Continue