See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
CC HOLDINGS GS V LLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S EQUITY (Unaudited)
(In thousands of dollars)
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, July 1, 2019 | | $ | 2,377,756 |
| | $ | — |
| | $ | 2,377,756 |
|
Distributions to member (note 4) | | (34,549 | ) | | (47,272 | ) | | (81,821 | ) |
Net income (loss) | | — |
| | 47,272 |
| | 47,272 |
|
Balance, September 30, 2019 | | $ | 2,343,207 |
| | $ | — |
| | $ | 2,343,207 |
|
| | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, July 1, 2018 | | $ | 2,498,784 |
| | $ | — |
| | $ | 2,498,784 |
|
Distributions to member (note 4) | | (36,276 | ) | | (42,817 | ) | | (79,093 | ) |
Net income (loss) | | — |
| | 42,817 |
| | 42,817 |
|
Balance, September 30, 2018 | | $ | 2,462,508 |
| | $ | — |
| | $ | 2,462,508 |
|
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, July 1, 2017 | | $ | 2,660,691 |
| | $ | — |
| | $ | 2,660,691 |
|
Distributions to member (note 4) | | (49,034 | ) | | (31,724 | ) | | (80,758 | ) |
Net income (loss) | | — |
| | 31,724 |
| | 31,724 |
|
Balance, September 30, 2017 | | $ | 2,611,657 |
| | $ | — |
| | $ | 2,611,657 |
|
| | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, July 1, 2016 | | $ | 2,327,938 |
| | $ | 6,033 |
| | $ | 2,333,971 |
|
Equity contribution related to debt repayment (note 4)
| | 508,472 |
| | — |
| | 508,472 |
|
Distributions to member (note 4) | | (42,215 | ) | | (22,953 | ) | | (65,168 | ) |
Net income (loss) | | — |
| | 16,920 |
| | 16,920 |
|
Balance, September 30, 2016 | | $ | 2,794,195 |
| | $ | — |
| | $ | 2,794,195 |
|
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, January 1, 2019 | | $ | 2,432,991 |
| | $ | — |
| | $ | 2,432,991 |
|
Distributions to member (note 4) | | (89,784 | ) | | (136,017 | ) | | (225,801 | ) |
Net income (loss) | | — |
| | 136,017 |
| | 136,017 |
|
Balance, September 30, 2019 | | $ | 2,343,207 |
| | $ | — |
| | $ | 2,343,207 |
|
| | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, January 1, 2018 | | $ | 2,576,471 |
| | $ | — |
| | $ | 2,576,471 |
|
Distributions to member (note 4) | | (113,963 | ) | | (124,753 | ) | | (238,716 | ) |
Net income (loss) | | — |
| | 124,753 |
| | 124,753 |
|
Balance, September 30, 2018 | | $ | 2,462,508 |
| | $ | — |
| | $ | 2,462,508 |
|
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance at January 1, 2017 | | $ | 2,739,245 |
| | $ | — |
| | $ | 2,739,245 |
|
Distributions to member (note 4) | | (127,588 | ) | | (96,572 | ) | | (224,160 | ) |
Net income (loss) | | — |
| | 96,572 |
| | 96,572 |
|
Balance at September 30, 2017 | | $ | 2,611,657 |
| | $ | — |
| | $ | 2,611,657 |
|
| | | | | |
|
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance at January 1, 2016 | | $ | 2,327,938 |
| | $ | 76,410 |
| | $ | 2,404,348 |
|
Equity contribution related to debt repayment (note 4)
| | 508,472 |
| | — |
| | 508,472 |
|
Distributions to member (note 4) | | (42,215 | ) | | (152,463 | ) | | (194,678 | ) |
Net income (loss) | | — |
| | 76,053 |
| | 76,053 |
|
Balance at September 30, 2016 | | $ | 2,794,195 |
| | $ | — |
| | $ | 2,794,195 |
|
See notes to condensed consolidated financial statements.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
The accompanying consolidated financial statements reflect the consolidated financial position, results of operations and cash flows of CC Holdings GS V LLC ("CCL") and its consolidated wholly-owned subsidiaries (collectively, "Company"). The Company is a wholly-owned subsidiary of Global Signal Operating Partnership, L.P. ("GSOP"), which is an indirect subsidiary of Crown Castle International Corp., a Delaware corporation ("CCIC" or "Crown Castle"). CCL is a Delaware limited liability company that is a holding company and an issuer of the Company's debt. Intercompany accounts, transactions and profits have been eliminated. As used herein, the term "including," and any variation thereof means "including without limitation." The use of the word "or" herein is not exclusive.
The information contained in the following notes to the condensed consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2016,2018, and related notes thereto, included in the 20162018 Form 10-K filed by the Company with the SEC.
The Company is organized specifically to own, lease and manage sitestowers and other structures (collectively, "towers"), and to a lesser extent, interests in land under third party and related party towers in various forms ("land interests") (collectively, "communications infrastructure" or "sites") that are geographically dispersed across the United States ("U.S."). The Company's core business is providing access, including space or capacity, to its sites via long-term contracts in various forms, including licenses, subleaseslease, license and lease agreements.sublease agreements (collectively, "contracts"). The Company's customers on its communications infrastructure are referred to herein as "tenants." Management services related to the Company's sites are performed by Crown Castle USA Inc. ("CCUSA"), an affiliate of the Company, under the Management Agreement, as the Company has no employees.
Approximately 68% of the Company's sites are leased or subleased or operated and managed for an initial period of 32 years (through May 2037) under master leaseleases or other agreements with Sprint ("Sprint Sites"). CCIC, through its subsidiaries (including the Company) has the option to purchase in 2037 all (but not less than all) of the Sprint Sites from Sprint for approximately $2.3 billion. CCIC has no obligation to exercise the purchase option.
For U.S federal income tax purposes, CCIC operates as a real estate investment trust ("REIT") for U.S. federal income tax purposes. For U.S. federal income tax purposes,, and as its indirect subsidiary, the Company's assets and operations are part ofincluded in the CCIC REIT. See note 5.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly state the consolidated financial position of the Company as of at September 30, 20172019, and the condensed consolidated results of operations for both the three and nine months ended September 30, 2019 and 2018 and the condensed consolidated cash flows for the nine months ended September 30, 20172019 and 2016.2018. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the U.S. ("GAAP"). The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entirefull year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and the disclosure forof contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thesethose estimates.
| |
2. | Summary of Significant Accounting Policies |
The significant accounting policies used in the preparation of the Company's condensed consolidated financial statements are disclosed in the 2016 Form 10-K.
Recently Adopted Accounting Pronouncements
No new accounting pronouncements adopted during the nine months ended September 30, 2017 had a material impact on the Company's condensed consolidated financial statements.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
| |
2. | Summary of Significant Accounting Policies |
RecentRecently Adopted Accounting Pronouncements Not Yet Adopted
In February 2016,Lease Accounting — Summary of Adoption Impact. Effective January 1, 2019, the FASB issuedCompany adopted new guidance on the recognition, measurement, presentation and disclosure of leases. leases (commonly referred to as "ASC 842" or the "new lease standard").
The new guidancelease standard requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases, withand a term greater than 12 months.corresponding right-of-use ("ROU") asset. The accounting for lessors remainsremained largely unchanged from existingprevious guidance. This
Due to the recognition of the lease liability and a corresponding ROU asset, the new lease standard had a material impact on the Company's condensed consolidated balance sheet. Additionally, certain amounts related to our lessee arrangements that were previously reported separately have been de-recognized and reclassified into "Operating lease right-of-use assets" on the Company's condensed consolidated balance sheet. These amounts include (1) the Company's liability related to straight-line expense formerly referred to as "Deferred ground lease payable" and previously included in "Other accrued liabilities" and "Other liabilities," (2) prepaid rent expense previously included in "Prepaid expenses" and "Long-term prepaid rent and other assets, net," (3) below market leases previously included in "Other intangible assets, net," and (4) above market leases previously included in "Other liabilities."
Notwithstanding the material impact to the Company's condensed consolidated balance sheet, the Company's adoption of the new lease standard did not have a material impact on the Company's condensed consolidated statement of operations or statement of cash flows. Additionally, the adoption of this guidance is effective forhad no impact on the Company's operating practices, cash flows, contractual arrangements, or debt agreements (including compliance with any applicable covenants).
Lease Accounting—General. The Company as of January 1, 2019 and is required to be appliedadopted the new lease standard using a modified retrospective approach for all leases existing at, or entered into after, the beginningas of the earliesteffective date (i.e., January 1, 2019), without adjusting the comparative periods. The Company's adoption of the new lease standard did not result in a cumulative-effect adjustment being recognized to the opening balance of retained earnings. The new lease standard provides a package of practical expedients, whereby companies can elect not to reassess (1) whether existing contracts contain leases under the new definition of a lease, (2) lease classification for expired or existing leases and (3) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. The Company elected the package of practical expedients upon adoption.
The Company evaluates whether a contract meets the definition of a lease whenever a contract grants a party with the right to control the use of an identified asset for a period presented. Early adoptionof time in exchange for consideration. To the extent the identified asset is permitted, however,able to be shared among multiple parties, the Company has determined that one party does not expecthave control of the identified asset and the contract is not considered a lease.
Lease Accounting—Lessee. The Company's lessee arrangements primarily consist of ground leases for land under towers. Ground leases for land are specific to early adopteach site, generally contain an initial term of five to 10 years and are renewable (and cancelable after a notice period) at the new guidance. CCICCompany's option. The Company also enters into term easements and ground leases in which it prepays the entire term.
The majority of the Company's lease agreements have certain termination rights that provide for cancellation after a notice period and multiple renewal options at the Company's option. The Company includes renewal option periods in its calculation of the estimated lease term when it determines that the options are reasonably certain to be exercised. When such renewal options are deemed to be reasonably certain, the estimated lease term determined under ASC 842 will be greater than the non-cancelable term of the contractual arrangement. Although certain renewal periods are included in the estimated lease term, the Company would have the ability to terminate or elect to not renew a particular lease if business conditions warrant such a decision.
The Company classifies its lessee arrangements at inception as either operating leases or finance leases. A lease is classified as a finance lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for finance lease classification is met.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
ROU assets associated with operating leases are included in "Operating lease right-of-use assets" on the Company's condensed consolidated balance sheet. Current and long-term portions of lease liabilities related to operating leases are included in "Current portion of operating lease liabilities—third parties," "Current portion of operating lease liabilities—related parties," "Operating lease liabilities—third parties" and "Operating lease liabilities—related parties" on the Company's condensed consolidated balance sheet. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's present value of its future lease payments. In assessing its leases and determining its lease liability at lease commencement or upon modification, the Company was not able to readily determine the rate implicit for its lessee arrangements, and thus has establishedused CCIC's incremental borrowing rate on a collateralized basis to determine the present value of the lease payments. The Company's ROU assets are measured as the balance of the lease liability plus any prepaid or accrued lease payments and any unamortized initial direct costs. Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. Certain of the Company's ground lease agreements contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI). If the payment terms include fixed escalator provisions, the effect of such increases is progressing throughrecognized on a straight-line basis. The Company calculates the various stepsstraight-line expense over the contract's estimated lease term, including any renewal option periods that the Company deems reasonably certain to be exercised.
Lease agreements may also contain provisions for a contingent payment based on (1) the revenues derived from the communications infrastructure located on the leased asset or (2) the change in CPI. The Company's contingent payments are considered variable lease payments and are (1) not included in the initial measurement of the ROU asset or lease liability due to the uncertainty of the payment amount and (2) recorded as expense in the period such contingencies are resolved.
ROU assets associated with finance leases are included in "Property and equipment, net" on the Company's condensed consolidated balance sheet. If applicable, the Company measures the lease liability for finance leases using the effective interest method. The initial lease liability is increased to reflect interest on the liability and decreased to reflect payments made during the period. Interest on the lease liability is determined each period during the lease term as the amount that results in a constant periodic discount rate on the remaining balance of the liability. The Company measures ROU assets for finance leases on a ratable basis over the applicable lease term.
Lease Accounting—Lessor. The Company's lessor arrangements primarily include contracts for dedicated space on its communications infrastructure. The Company classifies its leases at inception as operating, direct financing or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
Site rental revenues from the Company’s lessor arrangements are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant contract, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a cross functional project plan to assess the impactcontract. Certain of the standard; (2) expects this guidanceCompany's contracts contain fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI). If the payment terms call for fixed elements, such as fixed escalations, upfront payments, or rent-free periods, the rental revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line site rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.
See note 8 for further information.
Recent Accounting Pronouncements Not Yet Adopted
No new accounting pronouncements issued but not yet adopted are expected to have a material impact on its condensed consolidated balance sheet due to the addition of right-of-use assets and lease liabilities for all lessee arrangements with a term greater than 12 months; and (3) continues to assess additional impacts to itsCompany's condensed consolidated financial statements, including the condensed consolidated statement of operations and the condensed consolidated statement of cash flows.statements.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
The outstanding balance of the 2012 Secured Notes as of both September 30, 2017 and December 31, 2016 was $992 million, comprised of 3.849% secured notes ("3.849% Secured Notes") due April 2023. The 2012 Secured Notes originally consisted of (1) the previously outstanding $500 million aggregate principal amount of 2.381% secured notes ("2.381% Secured Notes") due December 2017 and (2) $1.0 billion aggregate principal amount of 3.849% Secured Notes due April 2023. In September 2016, CCIC issued $700 million aggregate principal amount2023 as of 2.25% senior secured notes ("September 2016 Senior Notes"). CCIC used a portion of the net proceeds from the September 2016 Senior Notes offering to repay in full the previously outstanding 2.381% Secured Notes. The Company recorded an equity contribution related to the repayment of the 2.381% Secured Notes for the nine months ended September 30, 2016 (see note 4).2019 and December 31, 2018 was $995 million and $994 million, respectively.
Interest Expense and Amortization of Deferred Financing Costs
The components of interest expense and amortization of deferred financing costs are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Interest expense on debt obligations | $ | 9,623 |
| | $ | 9,623 |
| | $ | 28,868 |
| | $ | 28,868 |
|
Amortization of deferred financing costs | 346 |
| | 346 |
| | 1,038 |
| | 1,038 |
|
Total | $ | 9,969 |
| | $ | 9,969 |
| | $ | 29,906 |
| | $ | 29,906 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest expense on debt obligations | $ | 9,623 |
| | $ | 12,267 |
| | $ | 28,868 |
| | $ | 37,465 |
|
Amortization of deferred financing costs | 346 |
| | 667 |
| | 1,038 |
| | 2,081 |
|
Total | $ | 9,969 |
| | $ | 12,934 |
| | $ | 29,906 |
| | $ | 39,546 |
|
| |
4. | Related Party Transactions |
Pursuant to the Management Agreement, CCUSA has agreed to employ, supervise and pay at all times a sufficient number of capable employees as may be necessary to perform services in accordance with the operation standards defined in the Management Agreement. CCUSA currently acts as the Manager of the sites held by subsidiaries of CCIC. The management fee is equal to 7.5% of the Company’s Operating Revenues, as defined in the Management Agreement, which is based on the Company’s reported revenues adjusted to exclude certain items including revenues related to the accounting for leases with fixed escalators. The fee is compensation for those functions reasonably necessary to maintain, market, operate, manage and administer the sites, other than the operating expenses (which includes real estate and personal property taxes, ground lease and easement payments, and insurance premiums). Further, in connection with its role as Manager, CCUSA may make certain modifications to the Company's sites.towers.
In addition, CCUSA may perform installation services on the Company's towers, for which the Company is not a party to any agreement and for which no operating results are reflected herein.
As part of the CCIC strategy to obtain long-term control of the land under its towers, affiliates of the Company have acquired rights to land interests under the Company's towers. These affiliates then lease the land to the Company. Under such circumstances, the Company's obligation typically continues with the same or similar economic terms as the lease agreementcontract for the land that existed prior to an affiliate acquiring rights to such land. As of September 30, 2017, there was2019, approximately 28%30% of the Company's sites where thetowers were located on land under the tower iswhich was controlled by an affiliate. Also, the Company receives rentsite rental revenue from affiliates for land controlled by the Company thaton which affiliates have towers on.and pays ground rent expense to affiliates for land owned by affiliates on which the Company has towers.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
For the nine months ended September 30, 2017,2019 and 2018, the Company recorded an equity distributiondistributions of $224.2$225.8 million and $238.7 million, respectively, reflecting distributions to its member and ultimately other subsidiaries of CCIC. For the nine months ended September 30, 2016, the Company recorded a net equity contribution of $313.8 million, which was inclusive of (1) an equity contribution from CCIC of $508.5 million related to the repayment of the previously outstanding 2.381% Secured Notes (see note 3) and (2) an equity distribution of $194.7 million, reflecting distributions to its member and ultimately other subsidiaries of CCIC.member. Cash on hand abovein excess of the amount that is required by the Management Agreement has been, and is expected to continue to be, distributed to the Company's parent company. As of September 30, 20172019 and 2016,2018, other than the amounts of its ROU assets and operating lease liabilities related to land leased from affiliates of the Company reflected in "Operating lease right-of-use assets," "Current portion of operating lease liabilities—related parties" and "Operating lease liabilities—related parties" on the Company's condensed consolidated balance sheet, the Company had no material related party assets or liabilities on its condensed consolidated balance sheet.
CCIC operates as a REIT for U.S. federal income tax purposes. As a REIT, CCIC is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its net taxable income that is currently distributed to its stockholders. For U.S. federal income tax purposes, the Company's assets and operations are part ofincluded in the CCIC REIT.
For the nine months ended September 30, 20172019 and 2016,2018, the Company's effective tax rate differed from the federal statutory rate predominately due to (1) CCIC's REIT status, including the dividends paid deduction and (2) state taxes.
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
The fair value of cash and cash equivalents approximates the carrying value. The Company determines the fair value of its debt securities based on indicative, non-binding quotes (that are non-binding quotes)from brokers. Quotes from brokers that require judgment to interpretand are based on the brokers' interpretation of market information, including implied credit spreads for similar borrowings on recent trades or bid/ask prices or quotes from active markets, if applicable. There were no changes sinceSince December 31, 20162018, there have not been any changes in the Company's valuation techniques used to measure fair values. The estimated fair values of the Company's financial instruments, along with the carrying amounts of the related assets and liabilities, are as follows:
|
| | | | | | | | | | | | | | | | | |
| Level in Fair Value Hierarchy | | September 30, 2019 | | December 31, 2018 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 18,486 |
| | $ | 18,486 |
| | $ | 18,707 |
| | $ | 18,707 |
|
Liabilities: | | | | | | | | | |
Debt | 2 | | 995,085 |
| | 1,047,800 |
| | 994,047 |
| | 990,600 |
|
|
| | | | | | | | | | | | | | | | | |
| Level in Fair Value Hierarchy | | September 30, 2017 | | December 31, 2016 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 24,519 |
| | $ | 24,519 |
| | $ | 19,550 |
| | $ | 19,550 |
|
Liabilities: | | | | | | | | | |
Debt | 2 | | 992,317 |
| | 1,050,230 |
| | 991,279 |
| | 1,013,300 |
|
| |
7. | Commitments and Contingencies |
The Company is involved in various claims, lawsuits or proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters, and it is impossible to presently determine the ultimate costs or losses that may be incurred, if any, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's condensed consolidated financial position or results of operations. In addition, CCIC, through its subsidiaries (including the Company), has the option to purchase in 2037 all (but not less than all) of the Sprint Sites, which represent approximately 68% of the Company's sites. CCIC has no obligation to exercise the purchase option.
| |
8. | Supplemental Cash Flow InformationLeases |
Lessor Tenant Leases
The following table is a summary of the rental cash payments owed to the Company, as a lessor, by tenants pursuant to contractual agreements in effect as of September 30, 2019. Generally, the Company's leases with its tenants provide for (1) annual escalations, (2) multiple renewal periods at the tenant's option and (3) only limited termination rights at the applicable tenant's option through the current term. The tenants' rental payments included in the table below are through the current terms with a maximum current term of 20 years and do not assume exercise of tenant renewal options.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ending December 31, | | Years Ending December 31, | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Tenant leases(a) | | $ | 166,906 |
| | $ | 675,608 |
| | $ | 672,744 |
| | $ | 658,638 |
| | $ | 515,992 |
| | $ | 1,810,523 |
| | $ | 4,500,411 |
|
| |
(a) | Inclusive of leases with related parties. See note 4. |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 19,246 |
| | $ | 28,372 |
|
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
Lessee Operating Leases
The components of the Company's lease expense is as follows:
|
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2019 | | September 30, 2019 |
Lease cost(a): | | | |
Operating lease expense(b) | 30,826 |
| | 90,027 |
|
Variable lease expense(c) | 8,458 |
| | 27,080 |
|
Total lease expense | $ | 39,284 |
| | $ | 117,107 |
|
| |
(a) | Inclusive of leases with related parties. See note 4. |
| |
(b) | Represents the Company's operating lease expense related to its ROU assets for both the three and nine months ended September 30, 2019. |
| |
(c) | Represents the Company's contingent payments for operating leases (such as payments based on revenues derived from the communications infrastructure located on the leased asset) for both the three and nine months ended September 30, 2019. Such contingencies are recognized as expense in the period they are resolved. |
Lessee Finance Leases
The Company's finance leases are related to the towers subject to prepaid master lease agreements with Sprint and are recorded as "Property and equipment, net" on the condensed consolidated balance sheet. See note 1 for further discussion of the Company's prepaid master lease agreements and note 2 for further information regarding the Company's adoption method of the new lease standard. Finance leases and associated leasehold improvements related to gross property and equipment and accumulated depreciation were $979 million and $635 million, respectively, as of September 30, 2019. For the three and nine months ended September 30, 2019, the Company recorded $10 million and $31 million to "Depreciation, amortization and accretion" related to finance leases, respectively.
Other Lessee Information
As of September 30, 2019, the Company's weighted-average remaining lease term and weighted-average discount rate for operating leases were 16 years and 4.4%, respectively.
The following table is a summary of the Company's maturities of operating lease liabilities as of September 30, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ending December 31, | | Years ending December 31, | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total undiscounted lease payments | | Less: Imputed interest | | Total operating lease liabilities |
Operating leases(a)(b) | $ | 25,842 |
| | $ | 107,212 |
| | $ | 107,256 |
| | $ | 106,786 |
| | $ | 106,235 |
| | $ | 1,252,978 |
| | $ | 1,706,309 |
| | $ | (505,011 | ) | | $ | 1,201,298 |
|
| |
(a) | Excludes the Company's contingent payments for operating leases (such as payments based on revenues derived from the communications infrastructure located on the leased asset) as such arrangements are excluded from the Company's operating lease liability. Such contingencies are recognized as expense in the period they are resolved. |
| |
(b) | Inclusive of leases with related parties. See note 4. |
Comparative Information from 2018 Form 10-K
The Company adopted ASC 842 using a modified retrospective approach as of the effective date, without adjusting the comparative periods, and therefore, as required by ASC 842, has included the following comparative information from note 10 to the consolidated financial statements in its 2018 Form 10-K.
The operating lease payments included in the table below include payments for certain renewal periods at the Company's option that are deemed reasonably assured to be exercised and an estimate of contingent payments based on revenues and gross margins derived from existing tenant leases.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases(a) | $ | 142,671 |
| | $ | 144,069 |
| | $ | 144,390 |
| | $ | 142,144 |
| | $ | 140,193 |
| | $ | 1,697,442 |
| | $ | 2,410,909 |
|
| |
(a) | Inclusive of leases with related parties. See note 4. |
CC HOLDINGS GS V LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands)
| |
9. | Supplemental Cash Flow Information |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Supplemental disclosure of cash flow information: | | | |
Cash payments related to operating lease liabilities(a)(b) | $ | 79,643 |
| | $ | — |
|
Interest paid | 19,246 |
| | 19,246 |
|
Supplemental disclosure of non-cash operating, investing and financing activities: | | | |
New ROU assets obtained in exchange for operating lease liabilities(b) | 71,578 |
| | — |
|
| |
(a) | Excludes cash payments related to contingent payment pursuant to operating leases, which are recorded as expense in the period such contingencies are resolved. |
| |
(b) | Inclusive of leases with related parties. See note 4. |
| |
10. | Guarantor Subsidiaries |
CCL has no independent assets or operations. The 20123.849% Secured Notes are guaranteed by all subsidiaries of CCL, each of which is a wholly-owned subsidiary of CCL, other than Crown Castle GS III Corp., which is a co-issuer of the 2012 Secured Notes and a wholly-owned finance subsidiary. Such guarantees are full and unconditional and joint and several. Subject to the provisions of the Secured Notes Indenture, a guarantor may be released and relieved of its obligations under its guarantee under certain circumstances including: (1) in the event of any sale or other disposition of all or substantially all of the assets of any guarantor, by way of merger, consolidation or otherwise to a person that is not (either before or after giving effect to such transaction) CCL or a subsidiary of CCL, (2) in the event of any sale or other disposition of all of the capital stock of any guarantor, to a person that is not (either before or after giving effect to such transaction) CCL or a subsidiary of CCL, (3) upon CCL's exercise of legal defeasance in accordance with the relevant provisions of the Secured Notes Indenture, or (4) upon the discharge of the Secured Notes Indenture in accordance with its terms.
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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the response to Part I, Item 1 of this report and the consolidated financial statements of the Company including the related notes and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A")included in our 20162018 Form 10-K. Capitalized terms used but not defined in this Form 10-Q have the same meaning given to them in our 20162018 Form 10-K. Unless this Quarterly Report on Form 10-Q indicates otherwise or the context requires, the terms "we," "our," "our company," "the company," or "us" as used herein refer to CC Holdings GS V LLC and its subsidiaries.
General Overview
We own, lease or manage sites that are geographically dispersed throughout the United States. The vast majority of our site rental revenues is of a recurring nature and has been contracted for in a prior year.is subject to long-term contracts with our tenants.
Business Fundamentals and Results
The following are certain highlights of our business fundamentals and results as of and for the nine months ended September 30, 2017.2019.
Potential growth resulting from wireless network expansion and new entrants caused bythe increasing demand for wireless data and connectivity
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◦ | We expect U.S. wireless carriers will continue their focus on improving network quality and expanding capacity (including through 5G initiatives) by adding additional antennas or other equipment on our wireless infrastructure.towers. |
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◦ | We expect existing and potential new customertenant demand for our towers will result from (1) new technologies, (2) increased usage of wireless applications (including mobile entertainment, mobile internet, usage, and machine-to-machine applications),applications, (3) adoption of other emerging and embedded wireless devices (including smartphones, laptops, tablets, wearables and other devices), (4) increasing smartphone penetration, (5) wireless carrier focus on expanding both network quality and capacity orand (6) the availability of additional spectrum. |
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◦ | Substantially all of our towers can accommodate additional tenancy, either as currently constructed or with appropriate modifications to the structure (which may include extensions or structural reinforcement). |
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◦ | U.S. wireless carriers continue to invest in their networks. |
Organizational structure
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◦ | CCIC operates as a REIT for U.S. federal income tax purposes. For U.S. federal income tax purposes, CCIC operates as a REIT and, as its indirect subsidiary, our assets and operations are part ofincluded in the CCIC REIT. |
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◦ | Our subsidiaries (other than Crown Castle GS III Corp.) were organized specifically to own, lease and manage certain shared wirelesscommunications infrastructure, such as towers or other structures, and have no employees. |
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◦ | Management services, including those functions reasonably necessary to maintain, market, operate, manage or administer our sites, are performed by CCUSA. The management fee is equal to 7.5% of our Operating Revenues as defined in the Management Agreement. |
Site rental revenues under long-term tenant leases with contractual escalationscontracts
| |
◦ | Initial terms of five to 15 years for site rental revenues derived from tenants, with contractual escalations and multiple renewal periods at the option of the tenant of five to ten10 years each. |
| |
◦ | The weighted-average remaining term (calculated by weighting the remaining term for each leasecontract by the related site rental revenue) of approximately fivesix years, exclusive of renewals at the tenants' option, currently representing approximately $3.6$4.5 billion of expected future cash inflows. |
Revenues predominatelyMajority of our revenues from large wireless carriers
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◦ | Approximately 88%90% of our site rental revenues were derived from Sprint, AT&T, T-Mobile and Verizon Wireless. |
Majority of land interests under our wireless infrastructure aretowers under long-term control
| |
◦ | More than 80% and more than 50% of our sites are under our control for greater than 10 and 20 years, respectively. The aforementioned amountspercentages include sitestowers that reside on land interests that are owned by us, including fee interests and perpetual easements. |
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◦ | Approximately 19%22% of our site rental cost of operations represents ground lease payments to our affiliates. Such affiliates acquired the rights to such land interests as a result of negotiated transactions with third parties in connection with a program established by CCIC to extend the rights to the land under its portfolio of towers. |
Relatively fixed tower operating costs
| |
◦ | Our operating costs tend to escalate at approximately the rate of inflation and are not typically influenced by tenant additions or non-renewals. |
Minimal sustaining capital expenditure requirements
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◦ | Sustaining capital expenditures represented approximately 1% of site rental revenues. |
Fixed rate debt with no short-term maturities
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◦ | Our debt consists of $1.0 billion aggregate principal amount of 3.849% Secured Notes. See note 3 to our condensed consolidated financial statements. |
Significant cash flows from operations
| |
◦ | Net cash provided by operating activities was $275.1$290.0 million. See "Item 2. MD&A—Liquidity and Capital Resources." |
Outlook Highlights
The following are certain highlights of our outlook that impact our business fundamentals described above.
We expect demand for tenant leasing to continue during 2017 and 2018.
During 2017 and 2018, we also expect that the impact from tenant leasing will be offset by non-renewals of tenant leases, primarily from our customers' decommissioning of the Acquired Networks, at least in part.
Consolidated Results of Operations
The following discussion of our results of operations should be read in conjunction with our condensed consolidated financial statements and our 20162018 Form 10-K. The following discussion of our results of operations is based on our condensed consolidated financial statements prepared in accordance with GAAP which requires us to make estimates and judgments that affect the reported amounts. See "Item 2. MD&A—Accounting and Reporting Matters—Critical Accounting Policies and Estimates" herein and note 2 to our 20162018 Form 10-K.
ComparisonHighlights of Consolidated Results of Operations
The following information is derived from our historical consolidated statementsresults of operations for the periods indicated.three months ended September 30, 2019 and 2018 are depicted below.
| | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Percent Change | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 | | Percent Change |
| (Dollars in thousands) | | | (Dollars in thousands) | | |
Site rental revenues | $ | 153,732 |
| | $ | 152,523 |
| | 1 | % | $ | 171,745 |
| | $ | 165,108 |
| | 4 | % |
|
|
| |
|
| | |
|
| |
|
| | |
Operating expenses: | | | | | | | | | | |
Costs of operations(a)(b) | 46,738 |
| | 47,239 |
| | (1 | )% | 49,286 |
| | 47,779 |
| | 3 | % |
Management fee(b) | 11,779 |
| | 11,425 |
| | 3 | % | 12,611 |
| | 12,207 |
| | 3 | % |
Asset write-down charges | — |
| | 950 |
| | * |
| — |
| | — |
| | * |
|
Depreciation, amortization and accretion | 52,714 |
| | 52,624 |
| | — | % | 52,665 |
| | 52,333 |
| | 1 | % |
Total operating expenses | 111,231 |
| | 112,238 |
| | (1 | )% | 114,562 |
| | 112,319 |
| | 2 | % |
Operating income (loss) | 42,501 |
| | 40,285 |
| | 6 | % | 57,183 |
| | 52,789 |
| | 8 | % |
Interest expense and amortization of deferred financing costs | (9,969 | ) | | (12,934 | ) | | (23 | )% | (9,969 | ) | | (9,969 | ) | | — | % |
Gains (losses) on retirement of long-term obligations | — |
| | (10,273 | ) | | | |
Other income (expense) | (720 | ) | | (74 | ) | | | 160 |
| | 90 |
| | |
Income (loss) before income taxes | 31,812 |
| | 17,004 |
| | | 47,374 |
| | 42,910 |
| | |
Benefit (provision) for income taxes | (88 | ) | | (84 | ) | | | (102 | ) | | (93 | ) | | |
Net income (loss) | $ | 31,724 |
| | $ | 16,920 |
| | | $ | 47,272 |
| | $ | 42,817 |
| | |