Crown Castle Australia to be sold for US$1.6bn

By Ian Ferguson, Head of Asia, TowerXchange: Crown Castle International Corp. announced on 14 May that they would sell their Australian unit to a group of investors led by Macquarie Infrastructure and Real Assets (MIRA) for US$1.6bn in cash. Other bidders are believed to have included U.S. based Providence Equity Partners, New Zealand infrastructure asset manager Morrison & Co, and Canada’s Brookfield Asset Management.

"The CCA business has the qualities that infrastructure investors around the world seek: stable revenues backed by long-term customer contracts, predictable cash flows, strong operating margins and growing customer demand," said Frank Kwok,  co-head of MIRA Asia Pacific in a statement. MIRA’s consortium includes UniSuper, a leading Australian pension fund, and UBS Global Asset Management.

Crown Castle owned 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. 85% of CCAL’s revenue reportedly comes from Australia’s top three MNOs, Telstra, Optus (SingTel) and Vodafone.

Crown Castle stated that after accounting for expenses it estimates net proceeds of about $1.3 billion from the sale. Crown Castle Australia had not grown inorganically in Australia since its 2008 acquisition of 140 towers from Vodafone.

74% of the estimated 9,000 towers in Australia are owned by the top three network operators, Telstra, Singtel and Vodafone Hutchison Australia. 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. It’s not clear what will be next for the Australian market; the continued development of 4G services are likely to see some new infrastructure deployed, but Telstra remains protective of its tower assets and unwilling to engage in active network sharing.

Crown Castle International has been divesting international assets recently and consolidating its domestic business. This deal will free resources to support the acquisition of Sunesys, a wholly owned subsidiary of Quanta Services, Inc., for US$1bn, a move that will further enhance CCI’s footprint in their domestic market. Sunesys owns, operates or has rights to approximately 10,000 miles (16,093 km) of fibre across the U.S. with particular concentration in metropolitan areas such as Los Angeles, Philadelphia, Chicago and Atlanta. This deal is expected to close in Q2 2015.

"The sale of (the Australian subsidiary) allows us to redeploy capital toward our growing small cell networks, which we expect will be accretive to our long-term AFFO and dividend per share growth rates," Ben Moreland, Crown Castle’s President and CEO, said in a statement. "We believe we are in the early stages of small cells deployment and are excited by the opportunities that we see ahead of us.”

Macquarie Infrastructure and Real Assets (MIRA) creates and manages funds focussed on infrastructure, real estate and adjacent industries. Macquarie was recently ranked the #1 infrastructure fund in the world by Infrastructure Investor with US$23.7bn in capital formed over the last five years.

Crown Castle’s Australian business generated great cash flow, but was limited by finite growth opportunities. With CCI unable to exploit the tax benefits of their REIT status in this particular market, and Macquarie able to exploit Australia’s mature REIT market, these assets were simply a better fit for Macquarie’s balance sheet than CCI’s.

In the last month, CCI has effectively traded 1,772 Australian towers for 10,000 miles of US fibre plus cash considerations of around US$300mn. To use a baseball analogy, CCI just traded a hot prospect for a dependable utility role player on a sensible contract, and secured some payroll wiggle room in the process. That’s a great deal.

So what next? Should Crown Castle International drop the last word from their company name? I don’t think so. Crown Castle had a very profitable foray into European towers between 1997 and 2003, acquiring a £75mn revenue tower business from the BBC and transforming it into a £233mn revenue tower business with a tenancy ratio of 2.9 by 2003, selling it to National Grid Wireless for £1.1bn (just over US$2bn).

I’d be surprised if Crown Castle remained a domestic-only player for long, although their investments in small cells will doubtless continue. I think they’ll make an international acquisition of significant scale before the end of 2016, and my guess is it will be in Europe or CALA.