Pinnacle Holdings, Inc. (NasdaqNM: BIGT)
301 North Cattlemen Road
Sarasota, Florida 34232
Phone: (941) 364-8761
Corporate Web Site: http://www.pinnacletowers.com/
Shares Outstanding: 48.4 million
Public Float: 47.5 million
Insider Ownership: 2%
Institutional Ownership: (209) 54%
Market Capitalization: $ 16 million
Closing Price Friday 12/04/01: 33 cents

We have all seen them, the ugly galvanized steel spires with cell phone antennae and other microwave apparatus sprouting from them. They are ubiquitous… and they are also evidence of the growing prospects of the wireless industry. Our profile pick, Pinnacle Holdings, through its subsidiary, Pinnacle Tower, Inc. leases their site space on nearly 4000 strategically clustered towers and rooftop sites throughout the U.S. to a broad base of wireless communication service providers, operators of private networks, government agencies and other customers, which need the infrastructure to hang their cellular, PCS, radio, TV and other equipment. Pinnacle Tower holds a portfolio of wireless communications site clusters in high growth markets such as Atlanta, Birmingham, Boston, Chicago, Dallas, Houston, Los Angeles, New Orleans, New York, Orlando, and Tampa.
Pinnacle is one of five public U.S. companies that only five years ago did not even exist, but that today control the vast majority of the nation's communications towers. A typical tower can hold between 5 and 12 tenants. As it stands now, the average number of tenants signed up per tower is only 1.8… but experts say that number will increase significantly in the very near future. Indeed, analysts are expecting wireless penetration rates in the U.S. to jump from 40 percent presently to 70 percent by 2005. And the number of minutes each subscriber uses is also increasing. In addition, most wireless networks are already overburdened, creating a huge need for additional cell sites along with increasing demand for lease space on existing towers.
Peter Perkuhn, an engineer from the wireless consulting firm of Carnegie Engineering, Inc. in Princeton New Jersey, believes the impact of the attacks of September 11 and the “exploitation of an inadequate at best” telecommunications network will lead the wireless industry to a prolific build up of towers all over the country. Mr. Perkuhn stated, “Plain and simple, you can't have nationwide coverage without nationwide infrastructure.” Other industry experts foresee the need to triple cellular network capacity just to handle all the wireless traffic expected in the next 5 years.
A typical tower customer pays nearly $1500 a month to lease site space for its antenna, plus a 4 percent yearly escalator clause. Most users sign a 5 year lease. Pinnacle Towers, Inc. raked in $175 million from leases in FY2000 resulting in $100 million EBITDA (earnings before interest, taxes, depreciation and amortization). The annualized run rate for 2001 is projected at $193 million and the company expects 2002 total revenues to again be in the range between $190 million and $200 million. Pinnacle expects EBITDA for 2002 to range between $82 and $90 million. Total CAPEX is expected to range between $20 million and $27 million. The outlook for 2002 reflects the loss of the company's World Trade Center site, rationalization of under-performing sites during 2001 and 2002, and assumed sale of Pinnacle Tower’s St. Louis co-location facilities during 2001.
Despite a slowing economy, Pinnacle Towers managed to add 214 new tenants to its portfolio of 3,684 revenue-producing tower and rooftop sites during the 3rd quarter. Pinnacle CEO Steven Day stated, “While this was a difficult quarter, we are very optimistic about the prospects for the company… Our core business of leasing space on communication sites remains a fundamentally sound business with high levels of recurring cash flow.” Day also added, “You know you never lose a nickel on those properties, the best sites that ever are going to exist in the U.S. already do (exist). You cannot replicate them, and they grow in value year by year because of their unique franchise.”
Ric Prentiss, Managing Director for Raymond James & Associates and speaker at the Tower Summit this past October, said he believes U.S. wireless business is the bright spot on the telecom/technology landscape. “The wireless industry has experienced continued growth.” Prentiss added, “There is significant growth in the minutes of use and the carriers are starting to get ready for the migration to 2.5G.” Another analyst for a high-profile Wall Street firm stated, “We reiterate our positive long term outlook for the tower sector based on what we consider to be very strong fundamentals in the industry. We continue to believe the tower sector offers investors the upside of strong underlying wireless growth with limited downside based on recurring revenues under long term contract with blue chip customers.”
So, why is Pinnacle Holdings, Inc. (NasdaqNM: BIGT) trading at 33 cents a share when other companies in the same tower sector are trading at vastly higher stock prices? Examples: American Tower (NYSE: AMT) - $9.35/share, Crown Castle (NYSE: CCI) - $10.71, and SBA Communications (NasdaqNM: SBAC) - $13.10… The answer is clear. Though all the companies in the tower sector have accumulated massive debt while expanding their holdings, Pinnacle Towers is in the most tenuous situation. Pinnacle Holdings Inc. announced on December 13 that its lenders extended the deadline on repayment of its credit facility, but said it had “substantial indebtedness” and could still default on the debt. Pinnacle Holdings, Inc. said it would likely have to sell assets to raise more capital and also renegotiate its existing credit facility or risk defaulting on the required principal payment on its credit facility. The company said it is presently in violation of certain covenants on its senior credit facility as of Sept. 30, and it received an extension of its forbearance agreement until Feb. 6, 2002. Does this sound like déjà vu… have we seen this before? Anyone remember COVD? Shares ofCOVD closed in trading on Friday at $2.93…
On August 26, 2001 Stockprowler.com had Covad Communications, Inc. (COVD) high on its Watch List and reported this about the company:
“Covad Communications (OTCBB: COVD), in second place on our Watch List this week, said Tuesday that bondholders agreed to erase $1.4 billion in debt as part of a move to reorganize under bankruptcy protection. Shares of COVD, which once traded as high as $66 a share, were delisted from the Nasdaq last month after the stock fell well below $1. The company said a majority of bondholders have agreed to accept cash and preferred stock, which would pay 19 cents on each dollar invested in Covad high-yield and convertible bonds. In addition, Covad would return $26.5 million in cash reserves to the holders of its 12.5 percent bonds. The transaction would also require Covad to pay bondholders $283.3 million in cash. Afterward, the company said it expects to have about $250 million in cash left.Current stockholders would be unaffected, excluding the dilutive effects if the preferred stock is actually converted into common shares. The preferred stock conversion likely would only happen if the company managed to substantially improve its business... reflected by a higher stock price. Covad Communications is the largest DSL (digital-subscriber-line) provider apart from the “Baby Bells”. “Covad will be in a much stronger financial position going forward, with no debt and a much smaller cash requirement, if this transaction is successful,” said Charles E. Hoffman, Covad's president and CEO. “With the growth in our revenue and continued reduction of costs -- all which put us on a faster track to profitability”... COVD closed Friday at 62 cents. Looks like a helluva speculative opportunity to us.”
So while Pinnacle continues to tackle its problems, including its high-debt load, Pinnacle CEO Steve Day is certain the rising value of those towers will overcome all. Interestingly, John Hancock Financial Services, Inc. filed a SEC 13G on September 10, 2001 indicating that and its affiliates are the beneficial owner of 4,896,000 shares (percent of class: 10.1%) of Pinnacle Holdings, Inc. (BIGT) common stock…
It looks lide the bear market has bottomed and economic recovery is already underway. Don’t believe it? Watch the small cap market mid to late January… better still you may want to get in early like the players on the Street are likely doing right now. Rest assured the big boys are never behind the curve… fortunes in the market are made not by being long at market tops, but by being in at the bottom and catching the next big wave. Will Pinnacle Holdings follow in the footsteps of COVD? Time will tell… but in my book it looks like an even bet that the company will re-negotiate/ re-structure its debt. And if that happens $3 - $7 in the next 12 months looks like a real possibility. Readers are encouraged to visit the Pinnacle Towers, Inc. company web site for further information…