Crown Castle International (CCI)

Q4 2011 Earnings Call

January 26, 2012 11:00 am ET

Executives

W. Benjamin Moreland - Chief Executive Officer, President and Director

Jay A. Brown - Chief Financial Officer, Senior Vice President and Treasurer

Fiona McKone - Vice President of Finance

Analysts

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Michael Rollins - Citigroup Inc, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Kevin Smithen - Macquarie Research

Clayton F. Moran - The Benchmark Company, LLC, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Batya Levi - UBS Investment Bank, Research Division

Presentation

Operator

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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International Q4 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, January 26, 2012. I would now like to turn the conference over to Fiona McKone, Vice President of Finance. Please go ahead.

Fiona McKone

Thank you.Good morning, everyone, and thank you, all, for joining us as we review our fourth quarter and full year 2011 results.

With me on the call this morning are Ben Moreland, Crown Castle's Chief Executive Officer; and Jay Brown, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the Investors section of our website at crowncastle.com, which we will discuss throughout the call this morning.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about the potential factors that could affect the company's financial results is available in the press release and in the Risk Factors section of the company's filings with the SEC. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. Our statements are made as of today, January 26, 2011, and we assume no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, recurring cash flow, recurring cash flow per share, funds from operations, funds from operations per share, adjusted funds from operations and adjusted funds from operations per share. Tables reconciling such non-GAAP financial measures are available under the Investors section of the company's website at crowncastle.com.

With that, I'll turn the call over to Jay.

Jay A. Brown

Thank you, Fiona and good morning, everyone. We had a great 2011 and we are excited about the leasing activity we are seeing in our portfolio.

Let me quickly summarize some of our accomplishments during the year, and then I'll take you through some greater detail.

Throughout 2011, we consistently delivered results above our original expectation. And we ended 2011, delivering another very strong quarter of results.

For the full year, as shown on Slide 3, we posted growth in site rental revenue of 9%, site rental gross margin of 11%, adjusted EBITDA of 12% and adjusted funds from operations per share of 17%, compared to 2010.

These results were considerably above our expectations at the beginning of 2011. Further, our Services business continues to outperform our expectations, delivering strong growth in 2011 as we continue to work very hard to meet customer deployment objectives and facilitate customers' installations on our sites.

In addition to our strong organic leasing results, we announced several important acquisitions. In December 2011, we announced an agreement to acquire NextG Networks for $1 billion, which we expect to close in the second quarter of 2012.

NextG is the leading provider of distributed antenna systems or DAS. This acquisition puts us in the leadership position in providing small-cell solutions to our customers in addition to our existing leadership position in U.S. towers. We believe that DAS will make a meaningful contribution to site rental revenue growth in the next several years as these and other small-cell solutions become an increasingly important part of the wireless infrastructure, complementing our existing macro towers. Then we'll talk more about why we are excited about this investment later in the call.

Further, earlier this month, we announced the agreement to acquire 23,000 Ground Lease Related Assets from Wireless Capital Partners or WCP, an immediately accretive acquisition. We expect to close WCP in the first quarter of 2012.

Relative to other potential investments, we believe that both of these acquisitions will be accretive to our long-term growth rate and enhancing the shareholder value.

Further, we recently announced that we are seeking to refinance our credit facility with a new $3.1 billion credit facility. The proceeds of the new facility are expected to be used to finance the NextG and WCP acquisition and to finance our existing -- refinance our existing credit facility. We expect to close the transaction later this month with approximately $1 billion of undrawn revolver availability after the aforementioned acquisition and refinancing.

I would also highlight as you saw from our press release yesterday, we began providing funds from operations or FFO and adjusted funds from operations or AFFO metrics, which I'll walk you through shortly.

With that, let me turn to Slide 4 as I highlight some of the results for the fourth quarter. During the fourth quarter, we generated site rental revenue of $471 million, up 5% from the fourth quarter of 2010. Site rental gross margin, defined as site rental revenues less cost of operations was $351 million, up 8% from the fourth quarter of 2010.

Adjusted EBITDA for the fourth quarter of 2011 was $335 million, up 8% from the fourth quarter of 2010.

It is important to note that these growth rates were achieved almost entirely through organic growth on assets that we owned as of January 1, 2011 as revenue growth from acquisitions was negligible. AFFO, which I will describe in more detail later, was $193 million, up 15% from the fourth quarter of 2010 or $0.68 per share, up 17% from the fourth quarter of 2010, as shown on Slide 5.

There were no significant non-recurring items in the fourth quarter of 2011.

Turning to the balance sheet, we ended 2011 pro forma for the acquisitions on our new credit facility with total net debt to last quarter annualized adjusted EBITDA of approximately 6x and adjusted EBITDA to cash interest expense of approximately 3x. Pro forma, those are adjusted EBITDA leverage ratio and cash interest expense coverage ratio, are comfortably within their respective debt covenants requirements.

Moving on to investments and liquidity. We expect to close on our new credit facilities on January 31 with the blended coupon based on current LIBOR of approximately 3.7% on the $2.1 billion of funded term loan.

In addition, we expect to have $1 billion of undrawn revolver capacity. This gives us tremendous flexibility for investing activities that we expect will enhance long-term AFFO per share which we expect -- which we believe is the best long-term measure of shareholder value creation.

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