Cell tower lease monthly multiples
The method of comparing monthly multiples (rent times multiple = value) to determine values for a cell tower lease is like comparing asking prices for homes for sale. They don’t mean much and they will not give a realistic value for cell tower leases or homes for sale.
There’s more than meets the eye
There are a lot of factors that go into the calculation when valuing a tower or roof top lease.
- Credit worthiness of the tenant
- Current rent
- Escalator, frequency and how soon does next escalation occur
- When does the current lease expire
These are the top financial aspects of a cell tower lease
The credit worthiness of the tenant may not seem like a big deal because virtually all the cell phone carriers are multi-billion dollar companies. This doesn’t necessarily refer to their ability to pay their bills, but if they are small enough to be bought or merged with another carrier. If so, they are a little risky due to the fact a takeover could create a lot of redundant leases that would eventually be terminated.
Depending on the size of the company (small means more likely to be taken over) the credit worthiness is grading as tier one, tier two or tier three. Verizon and At&T are tiers ones, T-Mobile and Spring Nextel are tier twos and the rest tiers threes or lower.
Current rent a determining factor
The current rent is a figure that cell tower lease buyers are concerned with for a reason. If the figure is too low compared to that specific carrier’s average, it could indicate a potentially large increase when the lease comes up for re-negotiations. AT&T averages are between $1,200 to $1,800 monthly. Closer to the higher end may give the potential buyer less of a chance to pick up the big increase.
Escalations: How much?; How often?; When next
An average escalation clause will be either 3% yearly or 15% each five years. When cell tower lease buyers evaluate the future value of their investment they pay heavy attention to the escalators. A lease escalation that is ‘each five years’ and is 6 months away from the next rise is, as measured in monthly multiples, going to be fairly high, because it is based on the current rent (pre-escalation). Revaluing this lease after the escalation would show a more modest monthly multiple.
The carriers lease is about to run out
Most cell tower lease owners get nervous when their tenants lease is starting to get close to the end. That is normally a plus. WHAT? I said, “That is normally a plus”
If a carrier is 10 to 12 years out before their lease is up, they start to get nervous. Most cellular leases have a right for the tenant to sub-lease. When time starts running out their tenants start to get nervous. With a limited time left on the master lease the carrier cannot add additional sub-leases. This is a large income stream for the carriers. Re-negotiations can be lucrative if you use a consultant that knows how to capitalize on this.
You’re not going to like this, but a cell tower lease is worth what a buyer will pay for it. god news is you can find this out without actually selling your lease.