The last month has been a tumultuous time in the cell tower lease industry, primarily on the side of lease buyouts. With the plummet of the stock market, rising concerns about the availability of credit, and consumer confidence very low, the industry is starting to see the impact. Through our consultations, we have already started to see tangible evidence of a declining market especially in the lease buyout side.
From our vantage, there is a distinct shrinking of the lease buyout market. Of the numerous players who purchase long term easements under cell towers and rooftop sites in exchange for a lump sum, there has definitely been a slide in the purchase prices and an increase in the due diligence requirements for purchases. Companies that buy the leases are looking to pay less and to be more selective in their choice of leases – preferring to purchase only “investment grade” leases. (i.e. those that are from AT&T, T-Mobile, Verizon). While they still purchase non-investment grade leases, the multiples paid for all leases has definitely gone down.
One primary reason for this is that Wireless Capital Partners shut its doors about a month ago. With one major competitor out of the way, the remaining firms recognized the advantage they now have and have started to lower their prices and increase their due diligence requirements. Prices are lower than they were just two months ago. There are rumors that a new entity may be formed to fill WCP’s shoes, but SITA has not seen any evidence of such yet.
Even the tower companies have started to pull back from previous offers. Crown Castle’s agents have been representing to landowners that today (Oct 16, 2008) is the last day that they will be honoring most if not all of the lump sum buyouts they previously made. Unlike virtually every other time that lease buyout firms give “hard deadlines”, SITA believes that this one is for real. Crown’s stock price has plummeted from a 52 week high of $43 to their current price of $19. One specific reason for this is that Crown may have to pay back a $160MM credit facility. SITA does not believe that Crown or their landowners are in any jeaopardy- but this does put Crown in a situation where they need to retain their capital for more immediate needs than purchasing long term easements under their leases. Crown’s representatives have stated that they will still continue to push the extensions of the leases but won’t be making lease buyout offers until they can resolve their credit facility issues. This could take quite a while.
WHERE DOES THIS LEAVE ME AS A LANDOWNER?
Recognize that the value of your tower or rooftop lease is still the same. Nothing has changed that would reduce the value to the owner of the tower. What has changed is availability of capital to those companies that purchase tower and rooftop leases. Unfortunately for many landowners, the recent turmoil comes during a time when many landowners are going to need capital to keep their houses or run their businesses. So as the average landowner’s need for the capital increases, the number of competing companies that want to buy the lease decreases and the rates that the remaining companies are willing to pay decreases as well. We are getting an increased number of inquiries from landowners who need to sell their tower lease(s).
Our advice: if you don’t need to sell at this time- DON’T. We started in this industry in 1997, weathered the downturn in 2001-2002 and have seen the cycles. As with previous downturns, this too shall pass. The vacumn filled by WCP and by the reduction of offers from towers companies will either be filled again by the tower companies or opportunistic companies that see value in the lease buyout market.
If you do need to sell, recognize that you don’t have the same negotiating position that you had just one month ago. However, don’t believe that you have to accept the offer that you are given. Even now, we rarely see situations where the first offer is the best. At SITA, we can assist you in making sure that you get the best offer available. We know the players and we have assembled substantial comparable data to assist us in recognizing trends in pricing- both short term and long term. Please see our cell tower lease buyout page for more information.
If you don’t know whether you should sell, please contact us. We can help you determine whether there is any probility that your lease might be terminated. We can also help guide you on what the pros/cons of selling now are and discuss what the future holds for this industry and lease buyout firms.