Lease Buy Outs...

Discussion in 'Design, Development and Standards Discussions' started by Douglas Kramer, Feb 24, 2008.

  1. Douglas Kramer

    Douglas Kramer Friend of the Community

    I realize that this subject is not what this site is all about, however it is related to towers, and therefore may be helpful to the tower owner who has been approached by companies wanting to buy out an existing owner`s leases for "cash up front" instead of monthly payments. Offers from large tower companies have promised from 100 to 120 times monthly payments in exchange for ownership of leases in perpetuity...any thoughts on whether or not this would be the way to go...are your typical 180-220 ft cell towers going to be around for the foreseeable future? I realize each site is different and there are many factors to consider...but overall....??? Thanks in advance for your kind reply!
  2. Bob Hardee1

    Bob Hardee1 Guest

    Doug,

    I was a site ac manager for a large tower company as well as a site ac rep earlier in my career. We were offering around the amounts you state for purchase of the sites outright, or a perpetual easement.

    If a company has the cash, it does make sense for the company to buy out a lease. There are several reasons it makes sense, especially for shorter term leases. It prevents a new owner from holding the tower company hostage for renewal at the end of the lease.

    At the expiration of the lease, if provisions for extensions are not agreed upon, the tower owner is then at the mercy of the lessor as to value of the site. The company may then have only two choices. Pay a much higher than market price to stay, or try to find another site and go through the expense of dismantling and moving a tower.

    Due to highly restrictive zoning codes, it is usually impossible to find a suitable replacement site in the geographic area necessary to service the system.

    Another reason is the presence of acceleration clauses in the lease price and diminishing revenue due to increased competition in rates. A purchase of the site for present value eliminates this problem.

    Most leases I've seen also have a termination clause unilaterally by the tower owner should technology change as your question suggests; but in my opinion, it is far enough into the future, it probably has little effect.

    It is a complicated issue, but another factor to consider is the difference between capital investment and operating cost which is indirectly affected by tax rates.

    Hope this helps,
    Bob Hardee
  3. Douglas Kramer

    Douglas Kramer Friend of the Community

    Bob,
    Thanks for your insightful and kind reply to my post. It gave me some additional information which I had not considered. Thanks Again,
    Doug
  4. Gary Matheson

    Gary Matheson Friend of the Community

    I have done some consulting work for a company doing similar to your description.

    This is involved with the property owner who has a land lease with the tower owner. It can be very favorable for the property owner for three reasons.

    First, the monthly rent collected by the property owner from the tower owner is subject to income tax usually around 30%. By taking a lump sum payout it is a capital gain which is currently 15%. That represents about a years worth of rental payments that go into the property owners pocket instead of the IRS's.

    Second, it removes the volatility associated with the consolidation which has already begun within the industry with Sprint buying AT&T. Nextel is next and Verizon is hungry.

    Third by performing a Starker 1051 like-kind-exchange a property owner can purchase another piece of property and defer the payment of the capital gain tax until the disposition of the new property at some point in the future. This allows the property owner to trade a temporary lease for a permanent deed.

    All this is happening because of the historically low interest rates we currently have. Once the Fed raises the discount rate another 1.5 points it will all be over.
  5. Douglas Kramer

    Douglas Kramer Friend of the Community

    I thank you , Gary, for another insightful post that sheds added light to my lease buyout proposals. You are right about the limited window of "low interest rates". I guess what I`m thinking is that it all comes down to control... If I sell the leases, they have total control...forever! Also at some point I may sell my entire property (which currently holds 2 tower leases), and I`m thinking that no one wants to buy a 55 acre property with two cell towers on it with no compensation...at that point they are a liability...and so the beat goes on...I realize there is no easy answer, but I`m leaning toward taking my chances that my towers will continue to give me my monthly checks for a long time( by the way one is an ATT tower &the other Nextel...both of which face an uncertain future due to mergers)
  6. Gary Matheson

    Gary Matheson Friend of the Community

    You are exactly right, the towers face uncertain futures. I would cash out and buy Google stock. Which do you think will be more valuable five years from now, the steel in the ground or the paper in the safe deposit box.
  7. Boris Timotijevic

    Boris Timotijevic Friend of the Community

    Douglas,

    I have worked for different tower companies doing this.

    If you are going to sell your property, don't sell the tower leases.

    My recommendation would be to make your own easement and keep on collecting the rent.

    If you have any questions just e-mail me back at bubamara99@sbcglobal.net.

    Bo
  8. Douglas Kramer

    Douglas Kramer Friend of the Community

    Thanks Bo for your reply to my post. I think your advice makes alot of sense. Take care, and thanks again, Doug
  9. David Lehrer

    David Lehrer Industry Observer

    Pennichuck, a water utility and real estate holding company in New Hampshire, recently reported a $1.1 million in a pre-tax gain for 7 tower leases. Does anybody know who bought them? Earlier this year they also sold 8 leases for $1.2 million. Any knowledge on who got those? Do you think this was beneficial to Pennichuck or did they just want to pop their quarterly earnings?
  10. Ken Schmidt

    Ken Schmidt Friend of the Community

    I would suggest to you that some of the posts in this thread are made by someone with a vested interest in your selling the lease. I deal with these questions daily for clients- and the responses sound like the ones I get from the lease buyout companies. (I have assisted over 40 clients on buyout issues this year.)

    As Bob Hardee pointed out- every situation is different- but as a general rule of thumb- unless you are selling the property or can exceed the discount rate the buyer is using in your own investment, it may not make sense to sell.

    More importantly, make sure you understand the reason that they are interested in buying. The companies that are offering 120x may have more interest in the site than just discounting future rent.

    Thanks,
  11. Blake Bowers

    Blake Bowers Industry Observer

    There are many reasons why it is a good idea to sell a tower lease, and many why it is good to hold onto it. If you do decide to sell, we are buying....

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