Hasn’t Verizon Sold Towers Before?

Yes, Verizon or related entities previously sold portfolios of towers to public tower companies. These include:

Why is Verizon Considering Selling Its Cell Towers Now?

Wireless carriers sell portfolios of towers for a few reasons. First, a wireless carrier may sell their towers to fund future development. Towers are considered non-core assets for wireless carriers. Second, in this case, Verizon is aware of the high valuations on cell tower assets and has decided that this is a good time to sell these non-core assets. Interestingly, 2023 would have been a better year, as towers valuations peaked in the middle of the year.

How Much Are Verizon’s Towers Worth?

Various analysts have offered estimates of the value of Verizon’s tower assets, ranging from $500,000 per tower to $1,400,000 per tower. The truth is that only Verizon and the advisor really know. When a large portfolio of carrier-owned towers like this is sold, the advisor puts together a confidential information memorandum (CIM) that includes the specific details of the towers. Of these, some details are more critical than others. For a extensive view of how towers are valued, please see our page on Cell Tower Valuation.

Long story short, there are a few key factors that will influence the value of Verizon’s remaining tower assets. These include:

1. Number of tenants. The more subtenants there are on a tower, the higher the revenue and tower cash flow. The higher the tower’s cash flow, the higher the tower’s valuation.
2. Location of Competing Towers. Are these towers built to accommodate multiple wireless providers, and are they in locations where other wireless carriers are likely to sublease?
3. The Sale/Leaseback Terms. Most carrier tower portfolio sales include a sale and leaseback agreement. The sale/leaseback defines how much Verizon will pay to remain as a tenant on the towers in the future and under what terms. The sale/leaseback lease rate and terms have a significant impact on tower valuation, especially in a carrier sale transaction like this. Will Verizon pay a higher lease rate, which would also generate a higher per tower price? Will Verizon expect to pay for future equipment modifications, or will they look to never have to sign another amendment?

How Much Do You Think the Towers Are Worth?

Without the specific confidential information above, it is hard to reliably place a value on the Verizon tower portfolio. But offhand, we would anticipate that the towers are worth somewhere between $1,000,000 and $1,200,000 per tower. At our estimate of 5,600 towers, that would equate to a market value of $5.6 Billion to $6.7 Billion.

Who is the Likely Buyer?

The Big 3 tower companies have historically almost always purchased these portfolios.  (American Tower, Crown Castle, and SBA Communications.) Right now, though, it may be hard for those companies to be competitive on offers for this specific portfolio. The public tower companies may be limited in how much they can offer as their stocks are trading at or near their 5-year lows. In contrast, infrastructure funds and private tower companies have completed more tower portfolio acquisitions over the past year. These buyers have consistently bid higher amounts in our competitive bidding offerings. The issue for these sets of buyers is that few of the private buyers have the team and infrastructure in place to acquire and manage a portfolio this large.  Vertical Bridge may be a potential buyer and several infrastructure funds have looked to make larger investments in the sector, although they may need a management team to acquire a portfolio this large.

I Have a Ground Lease Under a Verizon Tower. How Will the Sale Impact Me?

As this is a sale of towers from a wireless carrier to a tower company, it is unlikely that there will be much impact on landowners who have Verizon tower ground leases. The checks may continue to come from Verizon, or the tower company may take over the payments. Your existing lease will remain in place, and the terms and conditions will be the same. Verizon will continue to use these towers and may even commit to remaining on the towers for a long time under the sale/leaseback.  A tower company may do a slightly better job of marketing the towers for use by other wireless providers, which may increase your rent if you have a revenue share.

The only negative side of a potential sale is that you may have to deal with a tower company in the future regarding lease issues instead of Verizon. Tower companies tend to be more aggressive when dealing with landowners than carriers and can be harder to contact and resolve issues with. Additionally, tower companies tend to be more assertive when trying to renegotiate cell tower leases or extend cell tower leases with landowners.  Ultimately, though, Verizon selling its cell towers is generally advantageous to landowners.

What Should I Do Next?

Our guidance is to wait until a sale is announced and consummated. At that time, the buyer may send out estoppels or other requests. We would recommend not signing anything until you have had your attorney review the request. In the past, some tower companies have tried to send out estoppels that amend the terms of the lease or change its interpretation after buying a carrier portfolio. (An estoppel is intended to confirm existing lease terms, not add new ones.) If you have questions regarding your situation or lease, please contact us.

Questions About Verizon’s Potential Sale of Its Towers – CONTACT US.

Back in the late 1990s, Nape was helping a larger tower company “buy out” their cell tower ground leases from landowners. At that time, the tower company was offering 4-6 years’ worth of rent to buy a 15-year term. It’s hard to believe these days that the average purchase offer is in the 18–19 year’s worth of rent range. 

Why do I bring this up now? In going through old files, I came across a spreadsheet that had the first 500 leases that one of the early lease buyout companies purchased in the 2002–2007 range. Back then, there wasn’t much competition, and there wasn’t as much “expert” content available on the web (SITA didn’t exist until 2004). So, landowners really didn’t know much about the value of their leases. It was easier and cheaper to purchase leases in those days. 

In analyzing those early lease buyout deals, a couple of things caught my eye. First, the average lease buyout purchase price at the time was just over $120,000, and the average lease rate being purchased sat at just under $1500/mo. That meant the company was buying leases at approximately 7.5 years’ worth of rent. Notably, the purchase term for those leases was much shorter, at under 19 years.

Contrast this to today’s cell tower lease buyout market:

Looking back, I can’t help feeling like I did about the tower industry—if only I knew then what I know now. I probably would have purchased a bunch of leases and towers and waited for them to grow in value—and purchased AMT and CCI stocks in October 2002, when they were both under $2 per share!

If you are considering a cell tower lease buyout, please see our helpful content about cell tower lease buyouts here. 

Zoning Protection and No Competing Structures Are Still Essential.

The lesson we learned is that even with some scarcity of available portfolios, tower company buyers discount the value or outright pass on opportunities that they consider to distressed due to the perceived lack of lease-up potential. While, in general, it is still a seller’s market, the sale of these portfolios demonstrates that buyers are not willing to pay blindly for any tower assets.  However, they continue to overpay for well-located desirable towers as evidenced by some market-setting transactions in early 2020 already. To assist future tower developers in evaluating potential build-to-suit tower opportunities, especially those considering a build-to-relocate tenants off existing towers strategy, we felt that it would be helpful to share some observations about questions intelligent buyers are asking in today’s “new world” environment.

Tower Location

⚬ Do any local zoning regulations (or other barriers to entry) prevent new towers from being built near the subject towers?
More than at any other time, buyers focus on whether the local zoning regulations would prohibit the placement of another tower near the subject towers.

⚬ Do the subject towers have significant competition from other existing towers?
Due to the willingness of large wireless service providers like AT&T and Verizon to consider relocation to other existing towers, buyers like to know that there are no existing towers near the subject towers that do or will serve a similar purpose. Lack of competing structures combined with difficult zoning regulations improves the odds for future co-location without undue interference from relocation tower providers.

⚬ Why did the developer build the individual towers or the portfolio?
Because some developers are intentionally building towers near other existing towers, buyers try to determine why the towers were built. Were they built for coverage or capacity purposes (or both)?

⚬ Is the portfolio regionalized?
Buyers like to see purpose-built concentrations of towers due to more efficient maintenance, marketing, and operation.

Tower Tenants

⚬ Who is the anchor tenant?
Especially for more rural locations, buyers are looking closely at who the anchor (first) tenant is on the tower.

⚬ What is the ratio of broadband to narrowband tenants?
Buyers prefer broadband equivalent tenants, i.e., cellular, government, utilities, and FM and TV broadcasters. Narrowband tenants, such as paging, mobile radio, and WISPs, are not valued as highly primarily because of lower expectations of longevity related to those leases.

⚬ How creditworthy are the tenants on the tower?
Buyers also assess the creditworthiness of the tenant roster to determine longevity and churn risk.

⚬ What is the exposure to possible terminations from proposed or previous mergers?
With the possible Sprint/T-Mobile merger, buyers will examine the exposure to possible terminations due to the merger. Buyers will also look closely at MetroPCS, Cricket, and Clearwire leases for possible termination.

Tower Tenant Lease Terms

⚬ What are the rent and escalations?
Older leases tend to have higher escalations. Presently, some developers are accepting lower than normal escalation rates in their leases, which can damage the value of a portfolio.

⚬ Is AT&T on the tower and are they paying above market rent?
On a recent portfolio with a high percentage of rent coming from AT&T high dollar collocation leases, the range of offers was broader than normal as some buyers discounted the multiple applied to AT&T rent to adjust for added risk of having to renegotiate. Because this specific portfolio saw significant zoning protection, some buyers didn’t care.

⚬ Is there a claw back to the anchor tenant if additional tenants co-locate on the tower?
Many newer built-to-suit leases include reductions in rent to the anchor tenant when subsequent co-locators come on the tower. Buyers prefer that there is no claw back clause in the tenant lease.

⚬ Do the tenant leases allow for additional revenue when modifications by the tenant are requested?
Buyers scrutinize the tenant agreements, especially newer leases, with the major carriers and look to avoid the cumbersome terms some developers are conceding to these days.

⚬ What are the general termination rights?
Buyers like to see leases without termination rights vested in the tenant during each term. They do not like to see liberal termination rights. This is especially true if there is no zoning in the area or there are competing structures.

⚬ Are any expenses passed through to the tenant?
While it isn’t that common, buyers prefer that the tenants be responsible for reimbursing the tower owner for some expenses, such as insurance, compound or road maintenance, and taxes.

Ground Lease Terms

⚬ Who pays real property taxes on the property?
Some leases require the landowner to pay all taxes, while others do not. Tower buyers prefer that the landowner pay all taxes.
Is there a revenue share clause within the lease agreement?
For obvious reasons, buyers prefer not to share revenue with the landowner. A revenue share provision will devalue the tower.

⚬ Are there prohibitions/restrictions on the sale of the lease to third parties?
This may include a right of first refusal or an outright prohibition on the sale of the lease to third parties. Buyers prefer that the lease contains right of first refusal language.

⚬ Does the landowner need to consent to assignment or subleasing?
Tower companies prefer not to have to go to the landowner for consent to assignment or subleases because landowners generally take time to review requests.

⚬ How much time remains on the lease until final term expiration?
The shorter the remaining term, the more likely the tower owner will incur an increased lease rate at expiration and resultant higher expenses for operating the tower.

Tower Specifications

⚬ Do the assets have additional structural capacity?
If the assets do not have sufficient structural capacity for additional co-location or modifications, the buyers will reduce their offers. Buyers like to see recent structural analyses and manufacturer drawings to confirm structural capacity and determine what is needed structurally if further modification work on the tower is required.

⚬ How old are the towers?
Towers with less lease-up over time are more likely to continue to suffer from below-average lease-up in the future.

⚬ How many towers have FAA required lighting?
This isn’t a material issue for buyers, but it does result in slightly lower offers for towers due to the additional expense from monitoring and powering FAA notification lights.

Intangibles

⚬ Who is the developer?
Buyers like to work with established developers who have refined their business processes. They also like to work with developers with a known track record for developing good towers.

⚬ How does this portfolio fit into the tower buyer’s general or specific acquisition strategy?
Some buyers look to buy assets that mirror their existing portfolio’s location or growth profile. Others look to fill in their portfolio with more or less mature towers than those in their portfolio so that they have a more rounded portfolio.

Collectively, these factors account for most what tower buyers are looking for in today’s market. Make no mistake, it is a seller’s market and buyers are paying high premiums for good towers. However, the first portfolios of towers built with a relocation strategy are coming to market, and the reception hasn’t been as good as some developers might have hoped. Direct experience leads us to believe that valuations for such assets may not yield much of a profit when compared to more traditional inventory and, therefore, may not be a sustainable business model.
Curious how your portfolio fits into today’s market? We will be attending Connectivity Expo 2020 in Miami this coming May and would welcome the opportunity to meet and talk about your towers. If you aren’t attending, but still want to talk, we are available anytime. Reach out to us here to request a meeting or discussion.

In just the last week, we have received five separate inquiries from past and potential clients who had recently received a cell tower lease buyout offer that was noticeably better than ones they had received from the tower company previously. Those who reached out felt that there must be something going on in the industry. They are asking the question, “Is this related to 5G?”

Yes – Offers Are Related to 5G

There is so much hype about 5G out there now – it is hard to pick up a newspaper or browse the web without seeing multiple articles on what 5G is and what it can be. The investment community has definitely taken notice. We are seeing more new entrants with serious funding ready to purchase leases than we have since 2012-2013. We have been contacted by multiple financial groups who desperately want to “get in” on 5G and are seeking our consultation on how to do so. These groups sometimes have more conservative Return On Investment criteria and are willing to make higher offers as a result.

Tower Company Valuations Are Up.

It doesn’t hurt that tower company stock prices are up as well. Both American Tower Corporation ($AMT) and SBA Communications ($SBAC) are at all-time highs as of the end of May 2019, and Crown Castle ($CCI) is near its all-time high. When tower company stocks are up, they have more capital to purchase leases. Coupled with the low cost of capital and their recent conversions to REITs, tower companies have every incentive to convert leases (long-term operating expense) to easements (upfront capital expenditure).

Make No Mistake – It Is A Seller’s Market.

As new buyers come into the industry looking to acquire assets (leases or towers), the tower companies are forced to be more aggressive in their offers to purchase or extend their own leases lest they lose the lease to a third party that looks to capitalize on the lease in the future. Tower companies do not want to have to deal with a third-party owner, who is better informed than the landowner in most cases. The net result is that landowners are receiving escalated offers from the tower companies for lease buyouts and for lease extensions. One downside, though, is that the efforts by some of the outside agents who are trying to close these deals are getting more egregious, with some outright lying and suggesting to landowners that towers are going away due to 5G and small cells. (HINT: they wouldn’t be buying or extending if the towers were going away!)

Landowners now have more options than ever to sell their lease or to extend their lease. Tower companies and third-party lease buyout companies are becoming more creative in their offers. One of the techniques that they use to inflate their offers is to use payments over time. By showing you the overall amount they will pay, they hope that you aren’t smart enough to understand the time value of money and the additional risk you take on by doing a lease buyout under an installment payment plan. Either way, the offers are getting better, which is encouraging landowners to consider selling or extending. Clients we advised years ago are getting offers that are at or above what we recommended they ask for.

But It May Not Be The Perfect Storm.

We previously thought that the market couldn’t get much better given that interest rates are so low and tower company stocks were high at the time. Candidly, we don’t know. It remains to be seen whether the new entrants to the market are capable and serious. In Steel in the Air’s 15 years, we have seen multiple investors look to enter the sector but bow out when they realize how hard it is to scale the acquisition of leases or towers.

There are other factors that could influence offers positively or negatively. Will interest rates climb and cost of capital increase, thereby making it more expensive to buy leases? Will the tower companies continue to be the darling of the stock market as investors chase anything related to 5G? Will Sprint/T-Mobile be able to pull off a merger? If they do, will a fourth wireless carrier enter the market?

Need Help Deciphering Your Options?

We can help. We have advised 3,000 clients over the last 15 years with over 4,000 assessments. We track data from thousands of lease buyout and lease extension offers. Our breadth of data allows us to identify trends in the market when they start, not follow them after they have already changed direction.

We can provide consulting services on lease buyouts, andlease extensions/expirations. We can broker your lease(s) or tower(s) to maximize your sale price. We can help you determine whether you should consider selling, consider extending, or simply keep the lease as is for now. Our clients run the gamut from individual landowners to large multi-national corporations to large cities.

We welcome the opportunity to discuss your situation with you further. There is no cost for the initial call, and we do not pitch you services that you do not need. You may be worried about getting added to a mailing list or being called repeatedly if you take us up on our offer of a free initial consultation. Don’t worry! Just let us know up front and we will make sure you never hear from us unless you want to.

Call us for a free initial consultation.

A tower is considered competing when it fulfils the same coverage or capacity goals or both as another nearby tower. Because coverage and capacity goals can vary widely depending upon the terrain, population density and distribution, time of day, difficulty of zoning, and proximity of other existing sites, there is no uniform distance where a tower would be considered as competing with another tower. We regularly assist our tower company clients with evaluating prospective acquisitions to determine how many competing towers are present across the portfolio of target towers. A tower is considered competing if it falls within the same search area or search ring as another tower. It’s not hard to see that the AMT and CCI towers in the photo above are competitive.

However, when looking at large numbers of towers, it isn’t feasible to look at each set of towers and we must make assumptions. As a rule of thumb, we tend to use the following distances for urban, suburban, and rural areas- ¼, ½, and 1 mile. In other words, if a tower is located within ¼ mile of another tower in an urban area, it could compete for the same prospective tenant. Of course, there are situations where that distance could be less or greater. For ease of analysis though, we utilize these distances.

For example, we previously completed an analysis of our proprietary tower data for a large hedge fund. Specifically, we examined each of the public tower companies’ tower datasets and compared to our own tower data. We looked separately at each large public tower company’s exposure to competitive towers in urban, suburban, and rural areas based upon multiple radii. We chose to use urban/suburban/rural designations instead of BTAs. While BTAs are used by the public tower companies as a proxy for urban/suburban/rural, we find that is misleading as BTAs can include urban and suburban and sometimes rural sub-areas in the same BTA.

We also examined each public tower company portfolio individually so that we could see which company was better positioned for rural expansion, urban infill and densification, and suburban expansion and densification. We also looked to see on average how many competing towers each tower company’s urban, suburban and rural towers had within a distance where a wireless carrier could choose one or the other tower.

We found that on average the public tower companies have .2 competing towers for each of their towers within ¼ mile, .4 competing towers within ½ mile, and just over 1 competing tower within 1 mile on a nationwide basis.

Please note that this doesn’t directly contradict Morgan Stanley’s findings as our methodology looks at average number of competing towers per tower while theirs appears to look at the number of towers with any competing towers within a given distance.

Interestingly, the public tower companies have different levels of exposure to competing towers depending upon whether their towers are in urban/suburban/rural areas with some tower companies having more exposure in rural areas and less in urban areas and vice versa. When you examine how each tower company acquired or built their towers, this stands to reason. SBA chose to acquire towers from other tower companies while Crown Castle and American Tower acquired large chunks of their portfolios from wireless carriers and tower companies.

The tower companies have differing exposure to competing towers depending upon where and how they acquired their towers.

Another point of interest is that there are more competing towers within the assumed “competitive” radii than there were 10 years ago across urban, suburban, and rural towers although this is more pronounced in urban areas as should be expected. We examined the number of competing towers in 2007, 2011, and 2017, and found that the number of competing towers had increased between 25% and 50% between 2007 and 2017. This despite more difficult zoning regulations in many areas that would prevent new towers near existing towers.

Our next near-term project will be using this previous analysis to evaluate how many new towers have been proposed or built near existing tower company towers to date- not just by Tillman but by other build-to-relocate (or BTR) developers as well. If you recall from previous articles, some wireless carriers have simply told any tower company that would listen where they would like to move off an existing tower, with the first tower company to have a tower standing being the one they would lease from.

If you are interested in discussing or purchasing any of our findings, please contact us.

In this case, the threat is somewhat comical.  “The sale of your tower to certain parties may result in AT&T sending a non-renewal notice regarding our lease.”  How is that a threat?   If a tower owner has already sold the tower to a third party, why would they care whether AT&T sends a non-renewal notice?  Perhaps AT&T’s thought is that if the seller needs to get an estoppel from AT&T regarding its lease to present to the buyer, that AT&T’s can thwart the sale of the tower by instead sending a notice of non-renewal?

In our experience, most buyers don’t really care whether a notice of non-renewal is sent, provided that there is enough term remaining before they can choose not to renew or if the tower is located in an area with zoning regulations that prohibit construction of new towers near existing towers.

The other comical part is that AT&T (through its’ financial supplier) is asking for lease information about each tower so that the financial supplier can process the information and make an offer.  Of course, AT&T then also has information about other subleases that the tower owner has on your tower which can be used against the tower owner in future lease negotiations.

If you are inclined to sell your tower, reach out to us and we can give you a free back of the napkin estimate of the value of the tower.  We won’t use your information against you and we won’t threaten you with sending laughable notice’s of non-renewal in order to get you to sell.  If you aren’t interested in selling but feel like you need some help in addressing these threats from AT&T, please call us to discuss your situation further.

One of our clients received a proposal from a tower company that included a revenue share clause. Generally, revenue shares are not proposed by wireless carriers and even less so by tower companies. However, because our client is a governmental entity, I assume the tower company figured it would be better to put a revenue share out for discussion instead of waiting for it to be added. 

However, this particular revenue share being proposed is a bit odd. For tenants added in the first 5 years of the lease, the landowner will get $150/mo. per tenant. For tenants added after year 5, the rate drops to $75/mo. For tenants other than AT&T, Verizon, Sprint, or T-Mobile, the rate is $50/mo. no matter when they are added.

There are a number of issues with this proposed revenue share language. First, we generally advise landowners not to accept fixed-rate revenue shares; instead, they should look for a % of revenue. A revenue share is intended to give the landowner participation in the revenue and often comes with a lower base lease rate to accommodate the future upside. A fixed revenue share though does not tie the landowner’s upside to that of the tower company- instead, it limits it no matter how much the tower company is getting for the lease. Furthermore, the reduction here from $150/mo. to $75/mo. after year 5 is ridiculous and serves no benefit other than to take advantage of lesser informed landowners. Even worse is the $50/mo. for any other tenant – which could include tenants that will pay more than traditional cellular tenants and would exclude future entities that enter the business regardless of how much they pay. From the tower company standpoint, having a fixed rate revenue share is much simpler from an accounting standpoint and much more profitable. 

This particular proposal won’t be accepted by the landowner- who will and can counter with a % based revenue share given the fact that they own pretty much everything around this location. However, in other situations, the landowner may have to accept these types of terms especially if there are other readily available options. The key of course if trying to figure out whether your property is unique or not. If you need help, please contact the experts at Steel in the Air.

For those of you in the industry- have you seen other revenue share proposals that are innovative or outright ridiculous?

The City of Akron has decided to sell its cell tower and water tower leases to Everest Infrastructure Partners. Curious who they are? The founders are previously from Tristar Investors- a company that purchased easements under tower company towers in order to sell them back to the tower companies. I can’t say whether Everest has the same business model. What is interesting though is that Everest paid a pretty penny for these assets.

Why Cities Should Think Hard Before Selling Leases

Typically, we advise cities against selling their leases because the sale limits the ability of future city councils to use the underlying properties as they see fit. For example, in this case, the City of Akron won’t be able to tear down these water towers at the end of their life or redevelop the underlying properties where the towers sit. That may not be an issue in this case depending upon the location and age of the properties/water towers. We also advise against selling of leases because the buyout offers for the leases aren’t nearly as high as what Everest Infrastructure Partners paid here. With this type of multiple of cashflow, this transaction is more like that of a tower acquisition than a traditional lease buyout. That’s because Everest gets the current and future revenue from these structures and properties that were sold and the City gets none.

But Cities May Not Have a Choice

Of course, there are many cases where cities like Akron don’t have another immediately accessible source of funding that doesn’t require raising taxes and must turn to liquidating assets like these cell tower leases. Here the City of Akron was facing a significant cash crunch. We have worked with two other Ohio cities that also ended up selling their leases. In both cases, they evaluated whether the location of the tower or water tower would potentially impact future expansion or development plans. After evaluating the potential sale, they determined that they could live with the future obligations.

The Lease Buyout Market is Back

Another point of interest is that the lease buyout market is getting frothy- we are seeing more entrants and higher offers than at any time in the last few years. For example, we just received a call from a company that had shut its doors and has now found funding to buy leases again. If you are considering selling your lease, it may make sense to look at doing it now. If you need to know more about lease buyouts- we have a very handy and complete website about the subject- www.celltowerleasebuyout.com.

Give us a call and we can help you ascertain the market value of your lease and walk you through the options related to selling.