Crown Castle Beats the Street in 4Q

February 4, 2014

With a little help from AT&T’s towers, Crown Castle International beat analysts’ estimates at Wells Fargo and Wall Street in the fourth quarter. Site rental revenue was $651 million, adjusted EBITDA was $468.4 million and adjusted funds from operations were $358.7 million, beating Wells Fargos estimates of $626.5 million, $442.6 million and $317.9 million.

In December, Crown Castle closed on the deal in which AT&T leased the rights to 9,000 of its wireless towers and sold 600 more to the tower company for $4.8 billion.

“We note the AT&T towers reportedly contributed $18 million in site rental revenue and $9 million in site rental gross margin in Q4, which were excluded from prior company guides as well as our Q4 estimates,” Jennifer Fritzsche, senior analyst, Wells Fargo, wrote in an Equity Research Flash Comment.

Site rental revenue was up 14 percent year over year, 3 percent of which could be attributed to AT&T towers, and was reduced 1 percent by churn and 1 percent by currency headwinds, according to Jay Brown, Crown CFO.

“We saw a significant increase in U.S. new leasing activity in the fourth quarter 2013, representing more than a two-fold increase compared with the same period in 2012,” Brown said during the earnings call.

The two-fold increase in new leasing activity includes both new licenses and amendment activity, with new licenses representing 65 percent of new leasing activity.

“We believe this activity reflects the carriers’ focus on deploying their equipment on additional sites to help ease capacity-related issues, commonly referred to as site densification,” Brown said.

Ben Moreland, Crown president and CEO, said carriers’ ability to make profitable network infrastructure investments is leading to unprecedented LTE rollout activity.

“The U.S. market is unique because network quality continues to be a differentiator between carriers,” he said. “The strong correlation between network investment and low consumer churn necessitates the carriers to continue investment in their networks to improve quality, increase capacity and add functionality to remain competitive and grow.”

Only 19 percent of installations were covered by pre-sold leasing agreements in the fourth quarter, compared with more than 70 percent of the installations in the prior year.

Crown Castle spent $182.3 million on capex in the fourth quarter, which exceeded estimates of $123 million. “The company spent $137.8 million on construction and improvements (vs. our $62.5 million estimate), though sustaining capex of $20.5 million was more in line with our $23 million estimate,” Fritzsche wrote.

By the end of the year, Crown Castle owned 41,322 sites, including 39,568 domestic and 1,754 in Australia, as well as 11,000 small cell nodes.