Crown Castle International Corp., the largest provider of shared wireless infrastructure in the US, is considering the sale of its share in Australian subsidiary CCAL. Crown Castle currently owns a 77.6% stake in CCAL which is the largest wireless tower operator in Australia. The CCAL portfolio includes 1,772 towers with an average tenancy believed to be around 2.4, generating roughly US$107bn EBITDA on an LQA basis. According to the Australian Financial Review, the towers are expected to sell for ~US$1.25bn, representing 17x-18x earnings. Crown Castle Australia has been responsible for the vast majority of tower deals in Australia since it was founded in 2000; it built its portfolio with towers acquired from Optus, Hutchison and Vodafone between 2000 and 2008.
In a recent news released, Crown Castle’s President and Chief Executive Officer Ben Moreland stated “In light of recent unsolicited offers we have received for our interest in CCAL, we have determined that fully exploring the options available to us will ensure the best long-term results for our shareholders. Similar to our US business, CCAL has developed into a leading wireless infrastructure provider in the attractive Australian market with a unique portfolio of assets and platform for future growth and expansion.”
In light of recent unsolicited offers we have received for our interest in CCAL, we have determined that fully exploring the options available to us will ensure the best long-term results for our shareholders
The Australian telecoms infrastructure market is highly consolidated; 74% of the estimated 9,000 towers are owned by the top three network operators, Telstra, Singtel and Vodafone Hutchison Australia. Telstra owns the lions-share of operator captive sites, but has finite appetite for sharing, and no apparent interest or incentive to divest the assets. According to Buddecom, Telstra remains the market leader with more than 16mn subscribers, while Optus has around 9.4mn and Vodafone now has fewer than five million, compared to about 7.6mn in 2010.
The remaining 26% of the tower market is controlled by Crown Castle Australia, Broadcast Australia and other smaller players and government agencies. The continued rollout of LTE after the 700MHz spectrum auctions in 2013, and NBN (National Broadband Network) investment in fixed and wireless infrastructure, suggests that there may be some potential growth in the Australian telecoms infrastructure market. However, Telstra views its superior network coverage as a major competitive advantage and is unlikely to sell its infrastructure or engage in active network sharing anytime soon.
It seems that an initial process initiated by a minority shareholder attracted unsolicited offers for 100% of the equity in CCAL. The Australian states that Morgan Stanley and Credit Suisse have been appointed to lead an auction process, with Brookfield, Macquarie Infrastructure and Real Assets (MIRA) and AMP Capital mentioned as prospective bidders. Crown Castle’s Australian business has been a highly profitable portfolio and is likely to continue being profitable for the foreseeable future. This could ultimately play out similar to Crown Castle’s successful entry into and exit from the UK market.
Given CCI’s status as an REIT in the US as of January 2014 they can’t fully take advantage of registering as a REIT in Australia. The tax regime in Australia would seem to facilitate a mutually beneficial transaction, enabling a local infrastructure, superannuation or pension fund to benefit from a more favorable tax status by putting the CCAL assets into a REIT, and the relatively slow growth and stable revenues seem better suited to this rather than another international towerco pursuing aggressive growth.
Australia is receiving growing recognition as having the world’s largest REITs market outside the United States. More than 12 percent of global listed property trusts can be found on the ASX.
The prospective divestiture of Crown Castle’s assets in Australia would seem to align with the company’s increasing focus on the performance and expansion of their portfolio of 40,000 macro and 14,000 small cell nodes in their US domestic market.
