Cautionary Information

Transcription

1 June 2014

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) leasing demand and demand for our wireless infrastructure, including small cells and distributed antenna systems ( DAS ), (ii) our growth, growth prospects and opportunities, including drivers of demand, (iii) shareholder returns, (iv) adoption of smartphones and cloud-based applications and consumption of mobile video, (v) U.S. mobile data demand, traffic, usage and growth,(vi) carrier capital expenditures and network investments, (vii) capital expenditures, (viii) U.S. wireless market, including the potential benefits, opportunities and returns therefrom, (ix) customer service, (x) capital allocation and capital structure, (xi) our investments, including investments in the land under our wireless infrastructure, (xii) our cost structure, including ground lease expense, (xiii) network density, (xiv) adjusted funds from operations ( AFFO ), including on a per share basis, (xv) margins, including site rental gross margin and incremental margin, (xvi) revenues, including site rental revenues, and (xvii) cash flows. 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 update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation may include certain non-gaap financial measures, including AFFO. Tables reconciling such non-gaap financial measures are set forth in the appendix hereto and the Supplemental Information Package posted in the Investors section of Crown Castle s website at 2

3 Company Overview

4 4 Real Estate Provider to the Wireless Industry

5 Largest U.S. Provider of Wireless Infrastructure Well-positioned for continued stability and growth with key presence in top 100 and top 50 U.S. Basic Trading Areas (BTAs) Top 100 BTAs represent approximately 74% of U.S. population 71% of towers in top 100 BTAs 56% of towers in top 50 BTAs Crown Castle currently owns approximately 12,000 small cell nodes and rights to use 6,200 miles of fiber 5

6 Company History Towers (in thousands) T-Mobile Transaction and WCP Acquisitions AT&T Transaction Initial Public Offering Acquired Powertel towers Acquired BellSouth, Bell Atlantic and GTE towers Disposition of UK Business Mountain Union Acquisition Global Signal Acquisition Note: Chart area represents approximate quantity of assets at fiscal year end 6

7 Growth through Execution and Disciplined Capital Allocation Maximize Long-Term Total Shareholder Returns Leverage existing assets to drive organic growth Maintain and improve upon industry-leading customer service to maximize opportunity Effectively allocate capital by making accretive investments Continue to extend and secure the land underneath our towers Manage our capital structure and optimize our cost of capital $2.09 $2.43 AFFO per Share $2.77 $3.67 $4.04 to $ AFFO Outlook (1) (1) Outlook issued on April 23,

8 Proven Track Record of Stability and Growth ($ in millions) Global Signal Merger NextG, WCP and T-Mobile Transactions AT&T Transaction CAGR Site Rental Revenue: 10% Site Rental Gross Margin: 13% Incremental Margin: 93% $2,504 $2, CAGR Site Rental Revenue: 13% Site Rental Gross Margin: 17% Incremental Margin: 84% $1,286 $1,854 $2,124 $2,057 $697 $1,779 $1,585 $1,372 $377 $843 $484 $ E (1) (1) Midpoint of guidance issued April 23, 2014 Site Rental Gross Margin Site Rental Revenue 8

9 Significant Opportunity to Create Shareholder Returns by Leasing Up Less Mature Towers % of Towers by Years of Operation by Crown Yield (1) Last Quarter Annualized ( LQA ) Site Rental Revenue and Tenancy per Tower ($ in thousands) 15% $94 Less than 10 years 72% Greater than 10 years 28% 7% 2.8 $ ~4% - 5% Initial Yield (2) Greater than 10 years Less than 10 years Greater than 10 years Less than 10 years (1) Yield is calculated as LQA site rental gross margin divided by invested capital. (2) Represents approximate yield at time of acquisition. 9

10 Attractive, U.S. Focused Portfolio Domestic vs. International Site Mix U.S. Site Count by BTA Ground Profile by Margin (1) International 4% Domestic 96% Other 29% Top 100 BTA 15% Top 50 BTA 56% 12% 17% 72% Leased < 10 Years Leased Between Years Owned or Leased > 20 Years The recent T-Mobile and AT&T transactions reflect Crown s continued belief that the U.S. market represents a compelling risk-adjusted environment for capital investments Crown s U.S. site footprint is approximately 40,000 sites 56% and 71% of U.S. sites located in the top 50 and 100 markets, respectively, where leasing is expected to be the highest Crown owns or controls the land underneath sites generating 72% of site rental gross margin for greater than 20 years Approximately one-third of site rental gross margin generated on sites where Crown owns the land Remaining two-thirds have an approximate lease term of 30 years Note: Components may not sum due to rounding (1) Based on LQA Q reported site rental gross margin 10

11 Compelling U.S. Market Provides Greatest Risk-Adjusted Returns Q Monthly ARPU (1) Forecasted U.S. Mobile Data Usage (2) $50.08 (petabyte per month) 2,700 $11.12 $ % CAGR Emerging Markets Developed Markets U.S E Projected U.S. Wireless Carrier Capital Expenditures ($ in billions) (3) $29.6 $32.4 $34.3 $32.7 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 2015E (1) Source: Wall Street research; weightings based on average wireless service revenues per country (2) Source: Cisco VNI, 2014 (3) Source: Wall Street Research; includes AT&T, Sprint, T-Mobile, Leap, U.S. Cellular, and Verizon 11

12 Attractive Business Fundamentals Stable and Long-Term Contracted Revenues Long-Term Control of Assets (2) ~ 7 Years weighted average remaining current term, typically with annual escalators $3 LQA Q Site Rental Revenues Site Rental Revenue ($bn) 7x $22 Remaining Contracted Payments (1) ~88% of site rental gross margins generated on sites that reside on owned land (3) or have 10+ year ground leases <10 yr Leases ~12% >10 yr Leases or Owned ~88% Attractive Tower Footprint Significant Network Demand Driven by Data Usage ~40k towers largest shared wireless infrastructure provider in the U.S., with attractive portfolio footprint International Domestic (Australia) 96% 4% ~ 8x expected growth in U.S. mobile data traffic from 2013 to 2018 Forecasted U.S. Mobile Data Usage (4) (PB per month) 2,700 8x E (1) Excludes renewals at the customers option (2) Based on LQA Q site rental gross margin (3) Includes perpetual and long-term easements (4) Cisco VNI

13 Business Model

14 Carrier Build vs Lease Decision: Quantitative Aspects Significant economic incentives exist for carriers to choose a shared infrastructure model over building their own site Lower costs: Over a 10- and 20-year period, tower leasing results in cost savings of approximately $200,000 and $130,000, respectively Better capital allocation: Yield on a carrier s tower build is well below a carrier s cost of capital Carrier Build vs. Tower Leasing Present Value of Costs Yield on Investment vs. Cost of Capital (1) (1) Term Carrier Build Tower Lease Savings 10 years $433,541 $232,929 $200, Years $541,598 $407,967 $133,631 Construction Costs [A] $300,000 Annual Rent Savings $26,400 Annual Operating Expenses $18,000 Gross Margin [B] $8,400 Yield on Investment ([B] / [A]) 2.8% 6.5% Carrier Build Scenario $300,000 construction cost $1,500 monthly operating expenses with 3% annual escalator 6.5% Weighted Average Cost of Capital (WACC) Tower Lease Scenario $2,200 monthly lease with 3.5% annual escalator 6.5% WACC 2.8% Yield on Carrier Build Cost of Capital (1) For illustrative purposes only 14

15 Carrier Build vs Lease Decision: Qualitative Aspects Factors Impacting Build vs. Lease Decision Build Lease Comments COST Cost Tower leasing results in lower cost to carriers and allows carriers to better allocate capital CONTROL SPEED TO Speed to Market Independent tower operators have extensive tower portfolios and operational expertise necessary to help carriers quickly deploy their networks MARKET Execution Tower leasing allows carriers to focus on their core business EXECUTION Control Building a tower allows a carrier to retain control of critical infrastructure 15

16 Illustrative Tower Economics (1) High Incremental Margins Associated with Lease-Up $79,200 $52,800 96% Incremental Margin $26,400 $8,400 (32%) 96% Incremental Margin $33,800 (64%) $59,200 (75%) One Tenant Two Tenants Three Tenants Site Rental Gross Margin Site Rental Revenue (1) For illustrative purposes only 16

17 Recurring Long-Term Revenue Stream Source of Revenues High Degree of Visibility into Future Revenues Multiple tenants lease space on the tower and portions of the ground for their wireless communications equipment Projected Site Rental Revenues, as Adjusted from Existing Customer Contracts (1) Typical lease terms are non-cancellable with an initial term of 5 to 15 years with multiple 5 to 10 year renewal periods and annual lease escalators of approximately 3.5% $2,773 $2,858 $2,945 $3,019 Factors Affecting Tenant Rent Pricing Leased vertical space on the tower Weight placed on tower from equipment and coax lines Square footage leased on the ground Generally portfolio-based pricing based on previously negotiated agreements, not on a site-by-site basis 2015E 2016E 2017E 2018E (1) Based on existing contracts as of March 31, All contracts, except for Sprint contracts associated with the iden network and contracts where termination notices have been received, are assumed to renew for a new term at current term end date. CPI-linked customer contracts are assumed to escalate at 3% per annum. Assumes a US dollar to Australian dollar exchange rate of 0.89 US dollar to 1.0 Australian dollar. 17

18 High Quality Long-Term Revenue Stream Approximately 87% of Crown s site rental revenue is generated from the Big 4 wireless carriers Crown estimates that remaining contracted cash rent receipts from customer leases total approximately $22 billion (4) Crown s leases have a weighted average remaining term of approximately 7 years (5), excluding renewals at the customers option Tenants by Site Rental Revenue (1) Other Australia 4% 9% AT&T Verizon 14% 29% T-Mobile Sprint 22% 23% Remaining Contracted Cash Rent Receipts from Customer Leases ($ in billions) $22 7x $3 Total: $3 billion LQA Site Rental Revenues Remaining Contracted Receipts (1) (4) (1) Based on Q site rental revenue, annualized (2) Based on latest publically available company data (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 18

19 Stable and Predictable Cost Structure Wireless Infrastructure Operating Costs Operating costs tend to increase at the rate of inflation and are not typically influenced by new tenant additions Approximately two-thirds of direct site operating costs consist of lease expenses, with the remainder including property taxes, repairs and maintenance, employee compensation, and utilities Crown has long-term control of the majority of the land interests under our towers Own or control for more than 20 years the land under towers representing 72% of site rental gross margin Approximately one-third of site rental gross margin is generated from towers on land we own Existing ground leases have an average remaining term of approximately 30 years Projected Ground Lease Expense, as Adjusted from Existing Ground Leases (1) $596 $615 $633 $ E 2016E 2017E 2018E Less than 10 years 10 to 20 years Greater than 20 years Owned Stable and Predictable Ground Costs Long-Term Control of Our Land 33% 12% (2) 17% 39% (1) Based on existing ground leases as of March 31, CPI-linked leases are assumed to escalate at 3% per annum. Assumes a US dollar to Australian dollar exchange rate of 0.89 US dollar to 1.0 Australian dollar. (2) Based on LQA Q site rental gross margin. 19

20 Low Ongoing Capital Intensity Crown s wireless infrastructure portfolio requires minimal sustaining capital expenditures, including maintenance and other non-discretionary capital expenditures Sustaining capital expenditures typically equate to less than 2% of site rental revenues Sustaining Capex as a % of Site Rental Revenues 1.9% 1.8% 1.7% 1.9% 1.4% 1.3% ($ in millions) $48 $27 $37 $85 $201 $222 $24 $28 $25 $109 $120 $95 $23 $196 $128 $134 $270 $436 Discretionary Revenue Generating Capex Land Purchases Sustaining Capex # of towers at period end ,489 22,365 23,845 23,783 31,545 41,322 20

21 Comparison to Other REITs (1) Key Characteristics Tower Industry More Traditional Real Estate Comments Typical lease term 5-10 years 5-10 years Annual rent escalations 3-5% or CPI-based 1-3% or CPI-based Maintenance capex as % of base rent ~2% 5-15% Current occupancy 50-60% 90-95% Tenant concentration High Low Industry concentration High Low Land ownership Low High AFFO per share growth Teens High single digit AFFO multiple 15-20x 15-22x Tower leases typically include multiple renewal periods at the tenant's option of 5-10 years each Towers are typically constructed to support three to five tenants; capacity can be increased with minimal incremental costs Concentration is with the well capitalized Big 4 carriers Crown owns or controls for greater than 20 years the land under sites representing 72% of our site rental gross margin; average remaining term of ~30 years on land leases (1) Wall Street research 21

22 Industry Overview

23 Secular Growth in Mobile Data Drives Demand Key Factors Driving Data Growth Adoption of smart connected devices that, on average, generate significantly more traffic than non-smart devices On average, smartphones generated 48x more mobile (1) data traffic than basic feature phones in 2013 As of March 2014, approximately 69% of U.S. mobile (2) subscribers owned smartphones Adoption of mobile cloud-based applications Mobile cloud traffic is expected to increase 12x (1) between 2013 and 2018 Consumption of mobile video applications Mobile video traffic is expected to grow at a CAGR of 69% between 2013 and 2018, the fastest expected (1) growth rate of any mobile application category. Increasing mobile network speeds, which leads to increased usage Mobile network connection speeds in North America are expected to grow at a CAGR of 21% between 2013 and 2018 (1) United States Mobile Data Traffic (petabyte per month) 57% CAGR ( E) E 2015E 2016E 2017E Consumer video (64% CAGR) Consumer Web (46% CAGR) Business video (60% CAGR) Business Web (48% CAGR) Consumer file sharing (55% CAGR) Business file sharing (49% CAGR) (1) (1) Cisco VNI Mobile, 2014 (2) comscore 23

24 Demand Trends Drive Significant Ongoing Network Investment U.S. Carrier Wireless Capex (billions) (1) $40 $35 $30 $25 $20 $15 $10 $5 $0 4G = mobile apps & video 3G = mobile web 1.0 ( ) 1G/2G = voice & text '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 (1) CTIA and Wall Street research 24

25 Addressing the Rapid Growth in Data Column1 U.S. Monthly Mobile Demand Three Primary Tools for Carriers to Manage Data Growth in Petabytes (1) 3,000 2,500 2,000 1,500 1, x Increase E More cell sites (i.e. cell splitting), including macro and small cell architectures Carriers can increase the density of their networks, and therefore the capacity, by adding new cell sites Verizon and AT&T are increasingly focused on adding capacity/density to their 4G networks, while Sprint and T-Mobile are primarily focused on coverage build-out More spectrum Potential for the amount of deployed spectrum to double over the next several years Technology gains, including increased spectral efficiency, associated with migration to next-generation networks (i.e. 3G to 4G) 4G download speeds can be up to 10x faster than 3G (1) Cisco VNI

26 Increasing Density of Networks Initial Buildout - Coverage Initial networks built for voice were primarily focused on coverage Cell Tower Increased Adoption - Congestion Increased number of subscriber and adoption of smartphone leads to congested networks Continued Investment - Capacity To meet increasing data demand and rising penetration of data-driven devices, carriers have invested in increased infrastructure Cell splitting, or reducing the service radius served by a cell tower, allows a carrier to focus on a smaller customer population and improve quality Coverage weakens further away from the cell tower due to more subscribers served and spectrum limitations 26

27 Asset Overview

28 Wireless Tower Basics Key Components of a Tower 1. Antenna Array and Platform Tenants deploy antennas which transmits the signal between the tower and the mobile device 2. Microwave Antenna Dish A specific type of antenna used for point-topoint communications, including wireless backhaul 3. Coaxial Cabling 4. Shelter Transmission lines that transport the signal between the antennas and the base station Structures at the base of the tower used by tenants to house their wireless communications equipment 5. Ground Space A secure area around the base of the tower where tenants deploy their shelters and backup generators 28

29 Sample Ownership of Tower Infrastructure Crown Castle Assets Typical Ownership Split The steel tower structure that typically has capacity for at least four tenants The ground space, which Crown either owns or operates pursuant to a long-term lease Customer Assets Antenna equipment Coaxial cabling Shelters at the base of the tower, including all of the equipment housed in the shelters 29

30 How Do Wireless Networks Work? 1. Wireless networks automatically route traffic to a mobile user using a cell site with the strongest signal. The signal then travels between the handset and the tower-mounted antennas. 2. Transceivers, typically referred to as radios send and receive signals at a specific frequency to the mobile device 3. The base station processes the signals and send them to switching elements which then route the traffic both within and to other networks (mobile, IP or wireline) 4. Backhaul (wireline/fiber or wireless) is used to transport traffic to and from the tower to the switching elements 30

31 Non-GAAP Reconciliations

32 Non-GAAP Reconciliations Adjusted Funds From Operations for the years ended December 31, 2010, 2011, 2012, and 2013 are computed as follows: For the Years Ended December 31, (in millions, except per share data) Net income (loss) $ (311.3) $ $ $ 93.9 Real estate related depreciation, amortization and accretion Asset write-down charges Adjustment for noncontrolling interest (1) 0.3 (0.4) (12.3) (3.8) Dividends on preferred stock (19.9) (19.5) (2.5) Funds from Operations $ $ $ $ Funds from Operations (from above) $ $ $ $ Straight-line revenue (161.7) (200.0) (251.3) (218.6) Straight-line expense Stock-based compensation expense Non-cash portion of tax provision (2) (29.0) 5.0 (106.7) Non-real estate related depreciation, amortization and accretion Amortization of non-cash interest expense Other (income) expense Gains (Losses) on retirement of long-term obligations Net gain (loss) on interest rate swaps Acquisition and integration costs Adjustment for noncontrolling interest (1) (0.3) Capital improvement Capex (14.8) (14.0) (21.6) (19.3) Corporate Capex (9.5) (9.4) (15.5) (28.4) Adjusted Funds From Operations $ $ $ $ 1,097.3 Weighted-average common shares outstanding diluted Adjusted Funds From Operations per Share $ 2.09 $ 2.43 $ 2.77 $ 3.67 (1) Inclusive of the noncontrolling interest related to real estate related depreciation, amortization, and accretion and asset write-downs. (2) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately related to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. 32

33 Non-GAAP Reconciliations (continued) Adjusted Funds From Operations for the year ending December 31, 2014 is forecasted as follo (in millions, except share and per share amounts) Full Year 2014 Outlook Net income (loss) $298 to $382 Real estate related depreciation, amortization and accretion $970 to $985 Asset write-down charges $6 to $16 Adjustment for noncontrolling interest (1) $(7) to $1 Dividends on preferred stock $(44) to $(44) Funds from Operations $1,276 to $1,291 Funds from Operations (from above) $1,276 to $1,291 Straight-line revenue $(196) to $(181) Straight-line expense $94 to $109 Stock-based compensation expense $55 to $60 Non-cash portion of tax provision (2) $(10) to $5 Non-real estate related depreciation, amortization and accretion $21 to $26 Amortization of non-cash interest expense $75 to $86 Other (income) expense $3 to $5 Gains (Losses) on retirement of long-term obligations $46 to $46 Acquisition and integration costs $13 to $23 Adjustment for noncontrolling interest (1) $7 to $(1) Capital improvement Capex $(35) to $(33) Corporate Capex $(41) to $(39) Adjusted Funds From Operations $1,346 to $1,361 Weighted-average common shares outstanding diluted Adjusted Funds From Operations per Share $4.04 to $4.08 (1) Inclusive of the noncontrolling interest related to real estate related depreciation, amortization, and accretion and asset write-downs. (2) Adjusts the income tax provision to reflect our estimate of the cash taxes had we been a REIT, which predominately related to foreign taxes paid. As a result, income tax expense (benefit) is lower by the amount of the adjustment. 33