Crown Castle Acquires 9,700 Towers from AT&T

On October 20, 2013, Crown Castle (CCI) announced its acquisition of 9,700 towers from AT&T, bringing its total tower count to just under 40,000, and usurping American Tower as the top (in terms of number of tower owned) cell tower company in the U.S. American Tower’s recent acquisition of Global Tower Partners brought its total tower count to 29K.

Interestingly enough, Crown paid $4.85 billion for the AT&T tower portfolio, slightly more than the $4.8 billion American Tower paid for Global Tower Partners’ 5,400 towers, 9,000 rooftops, and 800 cell sites leases. The purchase prices being paid for towers are at relative highs right now, so AT&T sold at an excellent time. We believe that Crown Castle felt obligated to purchase these towers primarily because they could not afford to lose such a lucrative portfolio to another tower company. Crown Castle has a long-term history with AT&T and Bell South, which might have favorably influenced the purchase price.

The notable parts of the transaction to us:

  1. AT&T has the right to add equipment in the future to the towers as part of their reserved loading. This means that AT&T won’t have to pay Crown Castle additional rent every time they make a change.
  2. The AT&T has a 2% lease escalation – which is lower than the typical lease escalation between tower companies and wireless carriers.
  3. AT&T will agree to lease space on the towers for a minimum of 10 years.
  4. The transaction is technically a sublease between Crown Castle and AT&T for 9,100 of the towers. The other 600 towers are being sold outright. This means that AT&T may need to address anti-sublease provisions in underlying ground leases on their towers before they assign or sublease the tower to Crown Castle.
  5. The average AT&T tower has 1.7 tenants per tower using it (including AT&T). This means that each tower has less than one additional user on the tower.

For landowners with AT&T leases, there is upside to this transaction. First, like above, there is little risk that Crown Castle will terminate AT&T leases due to there being existing Crown Castle towers nearby. In the future, however, Crown Castle may seek to consolidate some of the towers

Second, we suspect that Crown Castle will take over any lease negotiations to extend or buy the ground leases from ground owners. Crown doesn’t report the actual number of ground leases that they own, but we can estimate that after this transaction is completed, approximately 28% of all towers in the Crown Castle portfolio will have less than 20 years remaining on their underlying ground leases. Prior to the AT&T acquisition, Crown reported lower percentages for their portfolio, so this suggests that AT&T has significantly higher numbers of towers that have 20 years or less remaining on their underlying leases.

As you have likely seen elsewhere in our website and newsletters, the shorter the term until lease expiration, the better the chance of negotiating improved terms. Our history with Crown Castle has indicated that they are more aggressive in trying to acquire the long term rights under their towers, so we fully expect that landowners with AT&T tower ground leases will soon start to receive new inquiries from Crown Castle to either enter into a lease buyout or a lease extension.

If you have any questions about this proposed acquisition, please don’t hesitate to contact us.