Third Quarter 2013 Earnings Conference Call October 21, 2013

Transcription

1 Third Quarter 2013 Earnings Conference Call October 21, 2013

2 Cautionary Information This presentation contains forward-looking statements and information that are based on management s current expectations. Such statements may include projections, Outlook and estimates regarding (i) the impact of the contemplated AT&T tower transaction ( Contemplated Transaction ) on our financial and operating results, including revenues, adjusted funds from operations ( AFFO ) (including on a per share basis) and leasing, (ii) our future growth prospects, including the growth opportunity of the AT&T towers, (iii) the anticipated benefits of the Contemplated Transaction, (iv) timing of the Contemplated Transaction, (v) integration of the Contemplated Transaction, (vi) funding and financing of the Contemplated Transaction, including with respect to our mix of financing, timing and target leverage, (vii) our pro forma tower count, (viii) leasing and leasing demand, including geographic distribution and weighted average remaining term thereof, (ix) U.S. mobile internet and data demand, traffic, usage and growth, (x) average revenue per user ( ARPU ), (xi) wireless carrier capital expenditures, (xii) our revenue mix by customer, (xiii) yield on the Contemplated Transaction, (xiv) dividends, including our dividend plans, timing and the amount and growth of any dividends, (xv) our potential election of REIT status, including the timing thereof, (xvi) our investments, including the types of such investments and the potential benefits which may be derived therefrom, (xvii) cash flows, including from the AT&T towers, (xviii) currency exchange rates, (xix) reimbursements for wireless infrastructure expenditures, (xx) organic cash revenue growth and its components, including new tenant activity and cash escalators, (xxi) tenant churn, (xxii) impact of the iden network decommissioning, (xxiii) capital expenditures, including sustaining capital expenditures, (xxiv) site rental revenues, (xxv) site rental cost of operations, (xxvi) site rental gross margin and services gross margin, (xxvii) Adjusted EBITDA, (xxviii) interest expense and amortization of deferred financing costs, (xxix) Funds from Operations ( FFO ), (xxx) AFFO, including on a per share basis, (xxxi) net income (loss), including on a per share basis, (xxxii) prepaid rents, (xxxiii) our common shares outstanding, including on a diluted basis, (xxxiv) our strategic and competitive position and (xxxv) the utility of certain financial measures in analyzing our results. The term including, and any variation thereof, means including, without limitation. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions and other factors. Should one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those expected. More information about potential risk factors, which could affect our results, is included in our filings with the Securities and Exchange Commission. The Company assumes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation includes forward-looking estimates of certain non-gaap financial measures, including Adjusted EBITDA, FFO and AFFO. Tables reconciling such non-gaap financial measures are available at the end of this presentation. 2

3 Key Announcements Announced definitive agreement to acquire approximately 9,700 sites from AT&T, increasing U.S. tower count to nearly 40,000 Reported Q results which exceeded our previous guidance, with 38% growth in AFFO per share year over year Increased guidance for full year 2013 Announced expectation to initiate $1.40 per share annual dividend 3

4 AT&T Transaction Overview

5 Well Located Portfolio Enhances Growth Opportunities Pro forma, Crown s U.S. portfolio will consist of nearly 40,000 sites AT&T Portfolio consists of 9,708 sites Nearly half of AT&T Portfolio sites are located in the Top 50 basic trading areas ( BTAs ) Pro forma, 56% and 71% of Crown s U.S. sites will be located in the Top 50 and Top 100 BTAs, respectively 2014E AFFO contribution of $245 to $255 million before financing costs Attractive site locations combined with Crown s existing customer relationships provide an opportunity to significantly increase tenancy Average existing tenancy of 1.7 tenants per AT&T Portfolio site, including AT&T Crown s portfolio average tenancy for sites operated for more than 5 years is 2.8 tenants per site AT&T Crown 5

6 Strategic Rationale Attractive Portfolio High concentration in urban and suburban locations Nearly half of sites are located in the Top 50 BTAs Extends leadership position in the highly attractive U.S. market High quality tenant profile with approximately 94% of revenues coming from Big 4 wireless carriers Compelling Valuation While the AT&T Portfolio s transaction price represents approximately 15% of Crown s enterprise value, the AT&T Portfolio increases Crown s tower count by approximately 33% Transaction is expected to be accretive to AFFO per share in 2014 Growth Enhancing Low existing tenancy and high operating leverage expected to enhance growth profile and drive strong returns Long-term AFFO per share accretion from the transaction expected to be approximately 5% Acquired cash flow and anticipated higher growth from the AT&T Portfolio expected to enhance Crown s long-term ability to grow dividends Leverages Crown s Strengths Successful integrations of T-Mobile and NextG acquisitions illustrate Crown s ability to assess, acquire and integrate transactions Crown expects to benefit from our existing customer relationships, solutions and services offerings across a larger asset base 6

7 Key Transaction Terms Purchase Price $4.85 billion AT&T Lease of Sites to Crown Crown Sublease of Tower Space to AT&T Crown acquires exclusive right to lease and operate the AT&T Portfolio sites for a weighted average term of approximately 28 years with expirations ranging from 2032 to 2048 At the end of the term, Crown has options to purchase the sites outright for a total of approximately $4.2 billion AT&T commits to an initial lease term of 10 years across all sites with multiple renewal options Monthly rent of $1,900 per site with annual escalator of 2% Subject to certain limitations, AT&T s rent includes rights to limited pre-defined space on the transaction sites, similar to certain existing customer agreements Financing Transaction expected to be funded with cash on hand and equity and debt financing (including borrowings under Crown s existing revolving credit facility) Crown remains committed to leverage target of 4.0x 6.0x Adjusted EBITDA Closing Expected to close in Q

8 Greater Exposure to Compelling U.S. Market 2013E Monthly ARPU (1) Forecasted U.S. Mobile Data Usage (2) $51.81 (petabyte per month) 1,933 $11.32 $ % CAGR Emerging Markets Developed Markets U.S E Projected U.S. Wireless Carrier Capital Expenditures ($ in billions) (3) $29.6 $34.1 $33.3 $31.5 Each of the Big 4 wireless carriers has communicated multi-year network deployment plans Potential new entrants (e.g. Dish and FirstNet) and currently undeployed spectrum create further growth opportunities E 2014E 2015E (1) Source: Wall Street research; weightings based on average wireless service revenues per country (2) Source: Cisco VNI, 2013 (3) Source: Wall Street Research ; includes AT&T, Clearwire, Leap, Metro PCS, Sprint, T-Mobile, U.S. Cellular, and Verizon 8

9 Attractive, U.S. Focused Portfolio Domestic vs. International Site Mix U.S. Site Count by BTA U.S. Ground Profile by Margin 4% 24% 40k 30k 72% 57% 96% 76% 43% PF CCI AMT SBAC (1) (2) Domestic International 20k 10k 0k PF CCI AMT SBAC (1) (2) Top 50 BTA Top 100 BTA Other 11% Leased < 10 Years 17% Leased Between Years Owned or Leased > 20 Years Transaction reflects Crown s continued belief that the U.S. market represents a compelling risk-adjusted environment for capital investments Crown s U.S. tower footprint increases to nearly 40,000 towers with the transaction 56% and 71% of U.S. sites located in the top 50 and 100 markets, respectively, where leasing is expected to be the highest Pro forma for the transaction, Crown will own or control the land underneath towers generating 72% of site rental margin for greater than 20 years Approximately one-third of site rental margin generated on towers where Crown owns the land Remaining two-thirds have an approximate lease term of 28 years (1) Based on latest publically available company data; where applicable, pro forma for the acquisitions of certain towers of NII Holdings and Global Tower Partners (2) Based on latest publically available company data; where applicable, pro forma for the acquisition of Oi s tower portfolio in Brazil 9

10 High Quality, Long Term Revenue Stream Pro forma for the transaction, approximately 84% of Crown s site rental revenue will be generated from the Big 4 wireless carriers 96% of site rental revenues generated in the U.S., with remainder coming from Australian wireless market Pro forma for the transaction, Crown estimates that remaining contracted cash rent receipts from customer leases total $21.4 billion (4) Typical customer lease term of years with multiple renewal options Pro forma for the transaction, Crown s leases will have a weighted average remaining term of approximately 8 years (5), excluding renewals at the customers option Tenants by Pro Forma Site Rental Revenue (1) Australia 4% Verizon 14% Other 12% Sprint 23% AT&T 25% T-Mobile 22% Total: $2.9 billion Big 4 as % of Total Site Rental Revenue PF CCI 84% AMT (2) 52% SBAC (3) 70% Pro Forma Site Rental Revenues and Remaining Contracted Cash Rent Receipts from Customer Leases ($ in billions) $21.4 (1) Based on Q reported site rental revenues for Crown plus annualization of run-rate cash revenues as of July 2013 for the AT&T portfolio (2) Based on latest publically available company data; pro forma for the acquisitions of certain towers of NII Holdings and Global Tower Partners (3) Based on latest publically available company data; pro forma for the acquisition of Oi s tower portfolio in Brazil (4) Excludes renewals at the customers option (5) Weighted by revenue $2.9 PF Site Rental Revenues Remaining Contracted Receipts (1) (4) 10

11 Proven Track Record of Growth and Stability Strong Execution + Focused Capital Deployment = Significant Growth Site Rental Revenue ($mm) Discretionary Cash Spend Since 2003 AFFO per Share $2,483 Land Purchases 9% Tower Builds & Improvements 14% $4.36 $485 Site Rental Revenue 18% CAGR Acquisitions & Investments (1) 53% Share purchases 41% (2) Share Purchases (2) 23% $1.54 AFFO per Share 20% CAGR Total: $10.0 billion '07 '08 '09 '10 '11 '12 LQA Q3'13 Note: Components may not sum due to rounding (1) Acquisitions and investments presented on a net cash basis (i.e., excludes assumed debt and shares issued to sellers) (2) Includes repurchases of shares or potential shares of common stock 11

12 Extensive Experience Integrating and Delivering on Acquisitions Yields on Precedent Crown Carrier Portfolio Transactions (1) T-Mobile Portfolio Transaction 15% 16% 18% In November 2012, Crown completed its transaction to acquire exclusive rights to approximately 7,100 T-Mobile USA towers Currently ahead by approximately 8% of midpoint of estimated 2013 AFFO contribution announced at time of acquisition Based on current application volume, leasing has been accelerating ahead of our initial expectations Year Acquired Bell Atlantic / GTE Wireless ~4%-5% PowerTel Bell South 1999/ /2000 # of Towers 4, ,600 NextG Transaction In April 2012, Crown completed its acquisition of NextG Networks, Inc., the largest provider of outdoor distributed antenna systems Adjusted EBITDA contribution has more than doubled since closing of acquisition Currently on pace to exceed long-term goal of growing Adjusted EBITDA by 5x-6x from time of acquisition Yield Currently Initial Yield (2) For 2013, leasing is ahead by approximately 20% compared to initial expectations (1) Yield calculated as tower cash flow over reported gross asset value (2) Represents approximate yield at time of acquisition 12

13 Q Overview

14 Q Highlights ($ in millions) Site Rental Revenues Site Rental Gross Margin $539 $621 $403 $439 Increasing site densification leading to new leasing activity and shifting mix away from pre-sold and/or amendment activity $354 $238 15% 9% ~20% of leasing activity during Q consisted of pre-sold vs. ~70% in Q % CAGR 13% CAGR Q3'08 Q3'09 Q3'10 Q3'11 Q3'12 Q3'13 Q3'08 Q3'09 Q3'10 Q3'11 Q3'12 Q3'13 Activity on small cell networks also seeing strong activity as carriers continue to focus on improving their networks 14

15 Q Highlights (cont d) ($ in millions, except per share amounts) Adjusted EBITDA AFFO AFFO per Share $400 $441 $1.09 $318 $0.79 $218 $230 10% 38% $ % $132 15% CAGR 19% CAGR 18% CAGR Q3'08 Q3'09 Q3'10 Q3'11 Q3'12 Q3'13 Q3'08 Q3'09 Q3'10 Q3'11 Q3'12 Q3'13 Q3'08 Q3'09 Q3'10 Q3'11 Q3'12 Q3'13 15

16 Investment and Liquidity Summary Sustaining Capex Q Capital Deployment ($ in millions) Share Purchases Acquisitions Land Purchases $0.4 $27.9 $10.3 $17.6 Capex of $131 million consisted of: $17.6 million in land purchases $10.3 million of sustaining capex $102.8 million of revenue generating capex, consisting of $73.6 million on existing sites and $29.2 million on the construction of new sites, primarily small cell networks Revenue Generating Capex $102.8 Borrowed $800mm of incremental Term Loan B with substantially identical terms to existing Term Loan B Proceeds used to repay a portion of outstanding revolver borrowings As of September 30, 2013, availability under revolver stood at $1.2bn Total: $158.9 million Total net debt to last quarter annualized Adjusted EBITDA of 6.0x as of September 30, 2013 Note: Components may not sum due to rounding 16

17 Full Year 2013 and 2014 Outlook ($ in millions) Site Rental Revenues 2013 to 2014 revenue growth $1,701 $1,854 $2,124 $2,478 to $,2,483 $2,967 to $2,982 Approximately $175 to $185 million of organic cash revenue growth, comprised equally of new tenant activity and cash escalators Increase in new tenant activity is based on expectations of 25% to 30% more revenue from new leases in 2014 as compared to 2013 Approximately $50 million impact from churn, approximately half from typical churn activity and half from Sprint s decommissioning of its iden network 15% CAGR iden leases have effective term-end dates spread evenly throughout 2014 and E 2014E Reported Results Outlook Issued on October 21, 2013 Impact to site rental revenues from iden decommissioning is expected to be 3%, with 1% coming in 2014 and the remaining 2% coming after 2014 Note: Full year 2013 Outlook does not include any impact from the AT&T tower transaction. Full year 2014 Outlook includes the benefit from the AT&T tower transaction. 17

18 Full Year 2013 and 2014 Outlook (cont d) ($ in millions) $1,172 $1,307 Adjusted EBITDA $1,553 $1,766 to $1,771 $2,020 to $2, to 2014 Adjusted EBITDA growth Site rental direct expenses and G&A on existing portfolio expected to grow 1% from % CAGR Contribution from services gross margin is expected to be approximately $25 million lower compared to E 2014E $631 $737 AFFO $886 $1,230 to $1,235 $1,546 to $1, to 2014 Adjusted AFFO growth Contribution from prepaid rent (net of amortization) expected to be approximately $20 million higher compared to 2013, reflecting the expected increase in leasing activity and larger asset as a result of the AT&T transaction 25% CAGR E 2014E Reported Results Outlook Issued on October 21, 2013 Sustaining capex negatively impacted by approximately $17 million due to remodeling and expansion of certain office facilities Note: Full year 2013 Outlook does not include any impact from the AT&T tower transaction and related expected financing. Full year 2014 Outlook includes the benefit from the AT&T tower transaction but excludes the impact of the related expected financing. 18

19 Well Positioned for 2014 and Beyond Announced expectation to initiate $1.40 per share annual dividend Expect to grow dividend over the next five years by at least 15% annually Significant cash flow generation allows for continued investments that can enhance long-term AFFO per share Strengthened U.S. focused portfolio with the announced AT&T transaction and completion of the T-Mobile portfolio integration U.S. market provides compelling risk-adjusted returns for capital investment in wireless infrastructure Expect to benefit from the continuing growth in consumer demand for mobile Internet and data services 19

20 Non-GAAP Reconciliations and Other Calculations

21 Non-GAAP Reconciliations and Other Calculations This presentation includes presentations or discussions of Adjusted EBITDA, funds from operations ("FFO") and adjusted funds from operations ("AFFO"), which are non-gaap financial measures. These non-gaap financial measures are not intended as alternative measures of operating results or cash flow from operations (as determined in accordance with Generally Accepted Accounting Principles ("GAAP")). Each of the amounts included in the calculation of Adjusted EBITDA, FFO, and AFFO are computed in accordance with GAAP, with the exception of: (1) sustaining capital expenditures, which is not defined under GAAP and (2) our adjustment to the income tax provision in calculations of FFO and AFFO. Our measures of Adjusted EBITDA, FFO and AFFO may not be comparable to similarly titled measures of other companies, including other companies in the tower sector or those reported by REITs. FFO and AFFO presented are not necessarily indicative of the operating results that would have been achieved had we converted to a REIT, nor are they necessarily indicative of future financial position or operating results. Our FFO and AFFO may not be comparable to those reported in accordance with National Association of Real Estate Investment Trusts, including as a result of our adjustment to the income tax provision to reflect our estimate of the cash taxes had we been a REIT. Adjusted EBITDA, FFO and AFFO are presented as additional information because management believes these measures are useful indicators of the financial performance of our core businesses. In addition, Adjusted EBITDA is a measure of current financial performance used in our debt covenant calculations. Adjusted EBITDA. Crown Castle defines Adjusted EBITDA as net income (loss) plus restructuring charges (credits), asset writedown charges, acquisition and integration costs, depreciation, amortization and accretion, amortization of prepaid lease purchase price adjustments, interest expense and amortization of deferred financing costs, gains (losses) on retirement of long-term obligations, net gain (loss) on interest rate swaps, impairment of available-for-sale securities, interest income, other income (expense), benefit (provision) for income taxes, cumulative effect of change in accounting principle, income (loss) from discontinued operations and stock-based compensation expense. Funds from operations. Crown Castle defines funds from operations as net income plus adjusted tax provision plus real estate deprecation, amortization and accretion. Adjusted funds from operations. Crown Castle defines adjusted funds from operations as funds from operations before straightline revenue, straight-line expense, stock-based compensation expense, non-real estate related depreciation, amortization and accretion, amortization of deferred financing costs, debt discounts and interest rate swaps, other (income) expense, gain (loss) on retirement of long-term obligations, net gain (loss) on interest rate swaps, acquisition and integration costs, and asset-write down charges and less capital improvement capital expenditures and corporate capital expenditures. Sustaining capital expenditures. Crown Castle defines sustaining capital expenditures as either (1) corporate related capital improvements, such as information technology equipment and office equipment or (2) capital improvements to tower sites for those that enable our customers' ongoing quiet enjoyment of the tower. The tables on the following pages reconcile these non-gaap financial measures to comparable GAAP financial measures. The components in these tables may not sum to the total due to rounding. Cautionary Language Regarding Forward-Looking Statements The reconciliations set forth herein contain forward-looking information that are based on our management's current expectations as October 21st and 22nd of Such statements include, but are not limited to, plans, projections, Outlook and estimates. Words such as Outlook and Forecast are intended to identify forward-looking statements. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions and other factors. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. More information about potential risk factors which could affect our results is included in our filings with the SEC. Crown Castle assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. AT&T Tower Transaction The Outlook for fourth quarter and full year 2013 does not include any impact from the AT&T tower transaction. The 2014 Outlook includes the expected operating results from the AT&T tower transaction but excludes the impact of the related expected financing costs. 21

22 Non-GAAP Reconciliations (a) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately relates to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. (b) Inclusive of a net benefit of approximately $76 million, comprised of prepaid rents received of $117 million less amortization of prepaid rents received in the current and prior periods of $42 million for the year ended Crown Castle currently amortizes prepaid rent over the term of its leases. (c) Inclusive of $56.0 million and $75.6 million, respectively, related to the impairment of available-for-sale securities during the years ended December 31, 2008 and

23 Non-GAAP Reconciliations (a) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately relates to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. (b) Q includes a net benefit of $47 million, comprised of prepaid rents received during Q of $64 million less amortization of prepaid rents received in Q and prior periods of $17 million. Q includes a net benefit of $21 million, comprised of prepaid rents received during Q of $34 million less amortization of prepaid rents received in Q and prior periods of $13 million. Crown Castle amortizes prepaid rent over the term of its leases. 23

24 24 Non-GAAP Reconciliations

25 Non-GAAP Reconciliations (a) Inclusive of $23.7 million related to the impairment of available-for-sale securities during the months ended September 30,

26 Non-GAAP Reconciliations (a) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately relates to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. (b) Q Outlook includes a net benefit of between approximately $38 million and $43 million, comprised of prepaid rents expected to be received during Q of between approximately $55 million and $60 million less amortization of prepaid rents received in the current and prior periods of between $15 million and $20 million. Full year 2013 Outlook includes a net benefit of between approximately $145 million and $150 million, comprised of prepaid rents expected to be received during full year 2013 of between approximately $209 million and $214 million less amortization of prepaid rents received in the current and prior periods of between $62 million and $67 million. Crown Castle amortizes prepaid rent over the term of its leases. (c) Based on diluted shares outstanding as of September 30,

27 Non-GAAP Reconciliations (a) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately relates to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. (b) Full year 2014 Outlook includes a net benefit of between approximately $161 million and $176 million, comprised of prepaid rents expected to be received during full year 2014 of between approximately $246 million and $261 million less amortization of prepaid rents received in the current and prior periods of between $80 million and $95 million. Crown Castle amortizes prepaid rent over the term of its leases. (c) Excludes the impact of the financing relating to the AT&T tower transaction. Assumes AT&T tower transaction closes on December 31,

28 28 Non-GAAP Reconciliations

29 29 Other Calculations

30 Other Calculations (a) (b) Tower cash flow is calculated as site rental revenues less site rental cost of operations exclusive of indirect costs. Amount not meaningful for purposes of calculation. 30