One of the most frequently asked questions I receive is what’s the value of my tower lease? The answer is, it depends on so many factors. These factors are expiration of lease, escalation rate, tenancy on the tower, revenue share and what the current annualized rent is.
The final lease expiration is defined as when all the renewals are exhausted in the contract. These renewals are 97% of the time automatically renewed. Ideally you want to be within 10 years of final lease expiration to get the biggest bang for your buck. Ten years isn’t a lot of time, which allows aggregators and other cell tower operators an inside track to future renegotiations of the base rent and other financial terms, if they shall obtain control of that specific ground lease.
The escalation rate can slightly impact the value of a buyout. A 4% per year escalator will provide for a higher market multiple as it compounds at a greater amount year over year than say a 3% per year escalator. A higher escalator will always be more fruitful to the landlord.
The tenancy of the tower is another huge variable. In the United States we have a big three of AT&T, T-Mobile and Verizon. A tower with one of these majors won’t have the same value over a tower with two or even three majors. A single tenant major tower can be a risky investment if that major was to leave. That’s why having two majors on your tower is ideal.
Revenue share adds value to what companies are willing to pay for tower ground leases. This payment is usually separate from the base rent payment. Anytime a new tenant joins the tower, the landlord benefits from the revenue received by the cell tower operator. Having potential future upside is appealing to anyone buying the ground lease. As discussed in a previous blog, this can be a tenant revenue share or a percentage-based revenue share.
The annualized rent being paid to the landowner is another crucial factor in the value of the lease. If a landowner can renegotiate the underlying lease from a rent perspective, it’s imperative to get as much monthly/annual rent as possible. Don’t ever take a lump sum signing bonus to extend the lease in lieu of a rental increase.
As you can see, there are a lot of factors that go into the value of a cell tower site. Sites that have more than 15 years left on the lease have traditional market multipliers of the current annualized ground rent. If the site expires within that 10-year sweet spot, market multiples are more laxed and it becomes more about the other factors laid out above. In my career, I’ve seen multiples varying from 5x to 150x. There are so many variables that come into play when evaluating what the value of a cell tower lease is worth. If you can wait until your lease is within 5-10 years, you will be in the driver’s seat from a negotiation perspective whatever you decide to do. As always, obtaining a cell tower consultant will be a huge advantage to you in this process. Please feel free to visit my website jptowerconsulting.com or email me at john@jptowerconsulting.com to get in touch with me on the value of your cell tower!
