Sell Tower Assets to Finance Future Growth

So, you own a group of wireless tower sites, some of which are in great locations while others are a little more speculative and may take a while to lease up. You may have owned towers for several years, or you may have just gotten into the business as wireless build-outs have demanded an increasing amount of sites to provide coverage to subscribers.

Regardless of your experience in the business, you continue to see several opportunities to grow your collection of sites and are determining the most profitable way to expand your business. However, a problem that many tower operators face today is obtaining the necessary capital to expand in a growing market—without giving away a portion of the equity in their current business. A significant gap exists between the current market value of tower assets and the amount a lender will extend on those assets (typically 35%–50% of market value). A sale of a portion of your existing assets may be the most cost-efficient way to finance the expansion of your tower business.

There are several options to consider in determining which sites may be the best candidates to consider selling. One option is to consider divesting "orphans," which are geographically separated from the rest of your assets. Many operators find themselves owning assets that were constructed as part of a larger build-out in areas far removed from the core service area. These sites are typically more difficult to maintain, and they are not a core focus of the operator’s marketplace for leasing opportunities. Divesting this type of asset should not damage the marketability of the other assets retained by the company and may increase the total value by creating a package of towers that contains geographic synergies. Other owners decide to divest their more mature towers to concentrate on erecting newer sites that have greater appreciation potential. This allows an operator to receive a premium value on older sites and still focus on meeting the demand that emerging technologies have created for an increasing number of new tower sites.

The universe of potential buyers for tower assets increases as the total number of towers offered for sale in a single package increases. In today’s marketplace, when a collection of positive cash flow towers exceeds 50, all of the national players will have an interest in the property, and maximum value should be obtained. Although the size of the tower cluster is not as important as location, cash flow and additional lease-up opportunities, it should be a factor in your decision. However, any tower that is in a good location and generates signifcant cash flow can be sold.

Cash flow and financing
Other significant items to consider are the existing cash flow of each tower and which towers with low cash flow may be much more valuable to another area tower operator that has the ability to market them more efficiently.

Banks will typically lend an amount from five to six and one-half times tower earnings before interest, taxes, depreciation and amortization (EBITDA). This means that any speculative towers owned by a tower company that do not have current cash flow will not qualify for debt financing. In other words, the bank has a lien on these assets, but it will not traditionally extend any credit against these assets without a positive cash flow stream. However, these assets may be valuable to another party.

For example, one tower owner recently closed on a transaction that held four towers out of a portfolio of about 20 located in a different geographic region of the country. The buyer compensated the seller an amount equal to about twice the invested capital, and the seller subsequently earned more than a 100% return. More importantly, the company was able to re-deploy all of the capital in its core geographic region. This meant it had greater potential for success in quickly leasing all space on the new towers, which its bank would lend against.

As a company considers the sale of tower assets, there are other items to look at before placing them on the market. Ground leases should be recorded and should be large enough to accommodate expansion and to address the issue of access to the tower. These typically require at least 1,200 square feet. The most difficult environments to zone and to obtain a permit for typically produce the best markets and generate the highest lease amounts. As with real estate, location is important. When planning a tower, always construct more capacity than you think will be needed. Wireless providers continue to emerge and to find new uses for transmission signals across urban and suburban areas, and they all anticipate leasing tower space to launch these new services.

The vertical paper trail
Another key issue is getting and keeping your paperwork in order. This includes construction and building permits, zoning documents, environmental documents (NEPA, Phase 1s), title insurance (for both leased and owned land), tower design documents and a list of service providers to the tower site. The value is not simply in the tenant leases—the other paperwork is necessary for a closing to occur. Having this paperwork in proper order may allow you to command a premium for your sites.

Use an intermediary
Another important matter to consider is the use of consultants on your transaction. A proper selection of both a good intermediary and an attorney can ensure that you maximize the value of your asset and close a transaction in a timely manner. A good intermediary will know which buyers are active in any given marketplace and what events inside these companies may be driving their current appetite for acquisitions. Selecting a seasoned specialist will ensure that any obstacle will be overcome, using prior experience and creative problem solving. The attorney involved in a transaction should be familiar with both real estate issues and with transaction/business law. Additionally, examining a transaction for structure can uncover opportunities to minimize taxes on a sale.

There are many complex issues in financing and selling tower assets. Periodically, all companies should examine their tower portfolios to determine if each still remains best suited as an owned asset, or can be converted to cash and re-deployed in a manner that generates higher returns to the owner. The market for these assets has and will continue to change rapidly. For a company to stay ahead of the curve, it must review these issues at regular intervals.