Understanding Tower Sale and Leaseback Transactions with SteelTree Partners
In the United States, most communication towers were initially constructed by broadcasters and wireless service providers for the placement of their antennas. Initially, wireless carriers treated the tower as an integral part of their core network infrastructure and were unwilling to cede control to third parties. However, in the late 1990’s and early 2000s, public and private tower companies started showing interest in owning cell towers. Simultaneously, the wireless carriers needed capital to rapidly expand their networks, free up capital and improve their balance sheets. So, they sold their towers to the tower companies while retaining the right to operate their equipment on the tower. This led to a significant number of tower sale and leaseback transactions.
What is a Tower Sale and Leaseback Transaction?
Let’s delve into what this transaction entails. A tower sale and leaseback is exactly what it sounds like. The operator (broadcaster or wireless provider) sells the rights to the tower to a third party like a tower aggregator. As part of the sale, the tower company leases space on the tower back to the operator.
What are some Examples of Tower Sale and Leaseback Transactions?
Pinnacle Tower’s (now part of Crown Castle) acquisition of Sprint cell towers, Spectrasite (now part of American Tower) acquisition of Nextel cell towers, American Tower acquisition of Verizon and Alltel Towers, and the Crown Castle acquisition of Bell South and AT&T Towers
How Does the Leaseback Work?
In this arrangement, the operator signs a long-term lease with the tower buyer that allows the operator to continue to non-exclusively operate their equipment on the tower. Additional operators then pay a pre-determined rent to the tower company for each subsequent collocation lease. In essence, the operator goes from being the owner of the tower to being a collocation tenant on the tower. The typical lease is 25 years and includes automatic renewals.
How Much Rent is Paid in a Sale/Leaseback?
Rent amounts are negotiable and directly influence the tower’s sale price. The more rent the leaseback tenant is willing to pay, the higher the purchase price for the tower(s). For cellular tower sale and leasebacks, the rent is generally around $24,000/year. For broadcast tower leasebacks, the rent varies significantly. In essence, a seller trades a future operating expenditure obligation for an upfront capital payment. The tower company acquires the tower, gets a long-term tenant, and the rights to sublease the rest of the tower to third parties.
It’s important to note that the leaseback arrangement doesn’t necessarily have to include rent. For example, a municipality may own a tower upon which it has public safety antennas. The municipality can sell the tower and retain a no-rent lease for its equipment on the tower. By doing so, the municipality can sell the tower and use the proceeds while still maintaining its public safety system whereby the tower company is free to lease the tower to additional users.
What are the Advantages to a Tower Sale and Leaseback?
The primary advantage to the wireless carrier or broadcaster is the lump sum payment they receive up front for the tower. A secondary advantage is that the seller will no longer incur the operation, maintenance, or liability of owning the tower.
What are the Disadvantages to a Tower Sale and Leaseback?
The primary disadvantage is that the wireless carrier or broadcaster now must pay rent to operate their equipment. A secondary disadvantage is that the wireless carrier or broadcaster is now limited by the lease agreement. For example, the lease may restrict the amount of equipment that the tenant may install on the tower which could result in higher rent in the future. A third disadvantage is that the seller in most cases loses any future upside from future collocation on the tower(s).
How Do I Know if a Tower Sale and Leaseback is Right for me?
At SteelTree Partners, we specialize in assisting structure owners with understanding the intricacies of tower sales and leasebacks before they commit to our services. Call us and we will review your portfolio and walk you through the various options available to you. We will give you a back an informed estimate of the value of your tower or portfolio and discuss various options including the viability of a sale/leaseback.