September 18, 2014 — Only a year after saying its towers would not be on the block anytime soon, Verizon is hinting that it is open to monetizing those coveted assets. Crown Castle International, known for acquiring ample carrier assets over the years, would be quite willing to take those towers off of Verizon’s hands, according to Jay Brown, CFO of the tower company.
“We have told them that we are interested in owning and operating their towers. We like carrier-owned assets and think they offer great, attractive growth opportunities,” Brown said at the 2014 Media, Communications and Entertainment Conference, Sept. 16, in Beverly Hills, California.
A potential tower asset purchase is analyzed based on the price relative to the growth rate. For example, Brown discussed Crown’s first carrier portfolio purchase in 1999 from Bell South and Bell Atlantic and the transaction a year later when it bought towers from GTE –– towers that had a 4 percent yield. Those assets are now yielding between 15 percent and 17 percent, which is a measure of run rate and annual cash flow versus the cash invested (initial purchase price and capex).
“We have done phenomenally well, adding 1 percent yield annually over a long period of time,” he said. “The more recent transactions with T-Mobile (two years ago) and AT&T (one year ago) we bought at a 5 percent yield.”
The T-Mobile and AT&T deals were underwritten with a similar yield growth expectation of 1 percent annually, which equates to adding one tenant per tower over a 10-year period. “The activity in terms of lease up and growth in cash flow has been right at what we underwrote,” Brown said.
If Verizon decides to sell its assets, Brown said Crown would go through a similar process of due diligence. “This is an analysis of the lease up opportunities of the assets against the price that has to be paid. If that results in the long-term dividend of the firm being enhanced by the transaction, we would be very interested in buying the towers,” he said.
Verizon owns 12,000 towers or 25 percent of its portfolio, according to estimates.
If CCI bought 12,000 towers from Verizon at $500,000 per tower (AT&T tower purchase valuation), the result would be a $6 billion deal. How could Crown fund such a deal only one year after purchasing AT&T’s towers? Financing the deal is not beyond Crown’s current means, Brown said.
“If we took leverage to the high end of our stated target range of 6 times, that would provide $2 billion in debt funding on the base,” Brown said. “Assuming a 20 multiple cash flow [of the towers to be purchased], if we financed six times that EBITDA, that would give us another $1.8 billion. We might take leverage above the target level for a short period of time and de-lever within a year [to make up the difference].”