WHY VERIZON’S TOWER SALE WILL SET THE MARKET
Verizon has hired an investment bank to assist it with the possible sale of its tower assets. Macquarie Securities analyst Kevin Smithen estimates that there are 12,500 towers that might be part of the offering. We suspect that the actual number will be smaller than that but still above 10,000. Previous sales of communication towers for AT&T and T-Mobile yielded sizeable funds for each company and Verizon has suggested that the AT&T tower transaction opened their eyes. We suspect that the answer is actually that Verizon wisely waited to be the last major carrier to sell their portfolio of towers and we believe that Verizon should see a better price per tower than either T-Mobile or AT&T did. Verizon has suggested they want the deal done by the end of the year.
The AT&T tower transaction yielded approximately $4.85 billion and approximately $485,000 per tower. Meanwhile, the T-Mobile portfolio of 7,202 towers yielded significantly less at $2.4 billion and $333,241 per tower. So why do we believe that Verizon will set the market both in terms of the amount per tower and the total size of the transaction?
- AT&T and T-Mobile even more so have offered build to suit opportunities to small and mid-size tower companies for the last 5-10 years. A build to suit is a transaction where the wireless service provider tells a tower company where they need to be, the tower company builds the tower and funds it, and the wireless service provider leases space back on the tower. T-Mobile has done build-to-suit transactions with multiple tower companies. AT&T has also but to a lesser extent until recent years. Verizon on the other hand, hasn’t entered into sizeable build to suit agreements since the Crown/Bell Atlantic/GTE transaction. The curse of a build to suit is that the towers that the tower companies choose to build are those that have the best opportunity for future collocation. Thus, the towers that are left to sell are those that are designed as single tenant towers or that are built near other existing towers. Verizon has retained most of its towers over the last few years- both good and bad ones. To us, the Verizon portfolio of towers is the best of the AT&T, T-Mobile, and Verizon tower portfolios.
- Verizon doesn’t have the density of towers that other wireless service providers do because they have always had a great spectrum position in lower frequency spectrum. Lower frequency spectrum penetrates cars and buildings better and travels further, thereby allowing the carrier to build towers farther apart. Verizon owns a sizeable number of towers in areas where the other wireless service providers will eventually need coverage. Potential buyers will like knowing that the towers are in growth areas.
- We anticipate that the Verizon portfolio will have a higher number of tenants per tower than either the AT&T or T-Mobile portfolio. As a result, Verizon will also likely have a greater tower cash flow per tower and as a portfolio. This should increase the price paid per tower.
- Lastly, and most importantly, Verizon is the last sizeable tower portfolio available in the United States. Tower valuations this year have been higher than we have ever seen. Verizon’s careful selection of when and how to sell their towers should yield market setting pricing.
We anticipate that Crown Castle will end up victorious in the acquisition of the Verizon tower portfolio. They have an existing long term relationship with Verizon. They purchased both the AT&T and T-Mobile portfolios. They are focused more on the United States than American Tower. The uphill battle for Verizon’s advisors is how to get other companies to provide competitive bids to push Crown up to full value.
What does this mean to landowners with leases under Verizon towers? Pretty simply- it means that they should do nothing through the end of this year. Do not extend your lease and definitely do not sell your lease to a third party. Then contact us after the winner of the portfolio has been announced and we can help you determine your best options after the smoke has cleared.