Crown Castle International Corp. — 2020 Form 10-K Summary
Business context and reporting period
This filing is an annual report for the fiscal year ended December 31, 2020, rather than a quarterly filing for “2020 Q4.” Crown Castle operates as a U.S. REIT and provides shared communications infrastructure through two segments: Towers and Fiber. The portfolio included approximately 40,000 towers and 80,000 route miles of fiber, primarily supporting small cells and fiber solutions. Approximately 91% of 2020 net revenue was recurring site rental revenue under long-term tenant contracts.
- Largest tenants were T-Mobile, AT&T and Verizon Wireless, which together represented approximately 77% of consolidated revenue, including Sprint revenue previously reported separately.
- Tenant contracts had a weighted-average remaining term of approximately five years, excluding tenant renewal options, and represented approximately $26.9 billion of contracted future tenant payments.
- The T-Mobile-Sprint merger was completed on April 1, 2020.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Site rental revenue | $5.320 billion | $5.093 billion | +4% |
| Services and other revenue | $520 million | $670 million | -22% |
| Total revenue | $5.840 billion | $5.763 billion | +1% |
| Operating income | $1.863 billion | $1.559 billion | +20% |
| Net income attributable to CCIC stockholders | $1.056 billion | $860 million | +23% |
| Net income attributable to common stockholders | $999 million | $747 million | +34% |
| Adjusted EBITDA | $3.706 billion | $3.299 billion | +12% |
| Net cash provided by operating activities | $3.055 billion | $2.698 billion | +13% |
| Capital expenditures | $1.624 billion | $2.057 billion | -21% |
- Calculated margins were approximately 18.1% for net income, 31.9% for operating income and 63.5% for Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Towers site rental revenue increased 3% to $3.497 billion; Fiber site rental revenue increased 7% to $1.823 billion.
- Towers site rental gross margin increased 4% to $2.631 billion, while Fiber site rental gross margin increased 5% to $1.203 billion.
- Towers services and other gross margin declined 52% to $71 million because of lower carrier activity and changes in the volume and mix of work.
- At December 31, 2020, cash and cash equivalents were $232 million and restricted cash was $149 million. Total debt and other obligations were $19.280 billion, including $129 million of current maturities.
- After giving effect to the February 2021 senior notes issuance and related debt repayments, management reported $513 million of cash, cash equivalents and restricted cash, $4.677 billion of undrawn revolver availability and $19.557 billion of debt and other long-term obligations.
- At December 31, 2020, the reported total net leverage ratio was 5.1x against a 6.50x covenant limit; the senior secured leverage ratio was 0.8x against a 3.50x limit.
- Common stock dividends paid were approximately $2.1 billion, including quarterly dividends of $1.20 per share for the first three quarters and $1.33 per share for the fourth quarter.
Material changes versus the prior comparable period
- Revenue growth was concentrated in recurring site rental activities, while lower-margin and more volatile services revenue declined materially.
- Net income and Adjusted EBITDA benefited from $362 million of operating income associated with the Sprint Cancellation.
- During the fourth quarter, T-Mobile cancelled approximately 5,700 small cell nodes originally contracted with Sprint. Crown Castle received approximately $308 million of accelerated contractual payments and recognized approximately $54 million of previously deferred upfront payments as other operating income.
- The company recorded approximately $63 million of property and equipment write-offs related to cancelled small cells and approximately $20 million of employee severance and termination costs related primarily to Fiber staffing reductions.
- Interest expense increased slightly to $689 million, while the company recorded $95 million of losses on retirement of long-term obligations, compared with $2 million in 2019.
- Capital expenditures declined primarily because of lower tenant activity and completion of certain large Fiber expansion projects.
- All approximately 2 million shares of mandatory convertible preferred stock were converted into approximately 14 million common shares during July and August 2020.
- The previously disclosed material weakness in internal control over financial reporting related to tower installation services was remediated as of December 31, 2020. Management and the independent auditor concluded that internal control over financial reporting was effective.
Guidance, outlook, risks and unusual items
- Management expects 2021 site rental revenue growth from tenant additions and continued carrier and fiber customer investment in response to rising data demand, including 5G-related activity.
- 2021 discretionary capital expenditures are expected to decrease from 2020, reflecting completion of Fiber expansion projects and a higher mix of less capital-intensive small cell additions. Sustaining capital expenditures are expected to remain approximately 2% of net revenue.
- Management expects common stock dividends over the following 12 months to total at least $5.32 per share, or approximately $2.3 billion in aggregate, subject to board approval and applicable debt restrictions.
- The February 2021 issuance of $3.25 billion of senior unsecured notes was used partly to repay commercial paper and term-loan borrowings; remaining proceeds were intended to redeem the 5.250% senior notes and repay additional commercial paper.
- Management stated that COVID-19 did not materially affect 2020 results, but future effects remain uncertain and could affect tenant demand, deployment schedules, suppliers, permitting, operating costs and access to capital.
- Key risks include concentration among three major tenants, the effects of tenant consolidation, high leverage, refinancing requirements, interest-rate and LIBOR-transition risk, competition, technology substitution, rights-of-way and ground-lease renewals, Fiber execution risk, construction delays, cybersecurity, environmental and regulatory compliance, and REIT qualification.
- The company faces shareholder securities litigation, derivative litigation and lawsuits related to a 2019 Durham, North Carolina gas-leak explosion. The filing states that the likelihood and potential losses cannot currently be estimated for these matters.
- An SEC investigation related to capitalization and expense policies for tenant upgrades and installations concluded in January 2021; SEC staff stated that it did not intend to recommend an enforcement action based on the information available at that date.
Most important facts for an investor to verify
- Separate recurring site rental growth from the non-recurring $362 million benefit from the Sprint Cancellation when assessing 2020 profitability and EBITDA.
- Reconcile reported debt of $19.280 billion at December 31, 2020 with the pro forma $19.557 billion debt and other long-term obligations after the February 2021 financing.
- Review the sustainability of the planned approximately $2.3 billion annual dividend relative to operating cash flow, capital expenditures and refinancing needs.
- Assess exposure to T-Mobile, AT&T and Verizon Wireless, including the impact of future network consolidation and contract non-renewals.
- Evaluate upcoming debt maturities, Tower Revenue Note anticipated repayment dates and the company’s ability to refinance on acceptable terms.
- Monitor the unresolved shareholder, derivative and Durham lawsuits, as the filing does not provide a reliable loss estimate.
- Confirm that the expected 2021 Fiber and small cell investment returns support management’s outlook after the 2020 project completions and Sprint-related cancellation.