A number of factors in the business climate may come together to lower the prices (multiples) being paid for cell towers, according to Tom Engel, director, Strategic Tower Advisors. As a result, he believes now is a good time to sell your cell towers.
“This is not wishful thinking on my part to drive sellers into the market,” Engel said. “I would like to convince some of these older folks to sell their towers at the top of the market. They should get out now and take their profit. Values will be much lower in a year or a year and a half.”
Rising Interest Rates
Engel cites upward pressure on interest rates as a big factor. The Fed expects to hike rates three times in 2018 and may raise them more in the coming years if the economy continues apace.
“With record low unemployment and an expanding economy, upward pressure on rates, tower companies are not going to be able to pay current multiples,” Engel said.
Carrier Pricing Pressure
Another factor impacting multiples is the Tillman Infrastructure/Verizon/AT&T joint venture, which is designed to move carriers to nearby sites where rates and escalators are lower. He cites several instances where carriers appear to be determined to move rather than negotiate with its current site owner.
“One thing affecting several of my transactions is AT&T thinking about moving to build-to-suit sites, because they want to put more equipment on their sites, such as FirstNet. They don’t want an increase in rent,” Engel said. “For the last three years, carriers have threatened to move to adjacent towers, these guys are really doing something about it.”
While yet to be blessed by government regulators, the proposed Sprint/T-Mobile merger is already having an impact on tower brokerage, if only psychologically.
In the middle of a tower deal where Sprint, T-Mobile and AT&T were tenants, the price went down $400,000 when the Sprint/T-Mo merger was announced. “There is the belief that the Sprint/T-Mo merger will go through and many of Sprint’s sites will go away,” Engel said. “The same thing happened when Nextel left the market and MediaFlo before them.”
Beyond Sprint, the wireless industry has lost several broadband carriers over the years, including Cingular, Nextel, MediaFlo and Clearwire. Additionally, Engel predicts FirstNet will lead to a consolidation of government tenants, and 5G should diminish a good percentage of wireless internet service providers (WISP) tenants in secondary cities.
“The reduction in tenants has to impinge on the ability to get more money per existing site,” he said.
Engel is already seeing pressure on multiples that is informing his forecast. Multiples two years ago were in the high 20s to low 30s. Now, he is seeing multiples of 22X and below. Value multiple levels currently being paid for cable TV and broadcast stations are in the 6X-11X range, according to Engel.
“Lower multiples are a reality. Non-broadband tenant values have already begun to bottom out,” he said. “I am having trouble trying to get multiples in the range of 18X. I have a 16X offer for a tower I am brokering with 50 percent government and 50 percent broadband. My client is complaining that it is not 32X, but 16X is pretty good for any industry. I believe that we will see significantly depressed values of broadband sites in the next 18 months.”
Clayton Funk, MVP Capital managing director, said he is not seeing a change in tower pricing at this time with six active deals that are not seeing any downward pricing pressure.
“We are still selling towers for multiples in the high teens as well as into the 30s for very immature. newly built assets,” Funk said. “While certainly there is a risk the prices will come down due to the factors listed above, for towers that have tenant leases with amendment possibilities, we have yet to see any change in pricing.”
Alex Gellman, Vertical Bridge co-founder and CEO, agreed that it is a good time to sell, but he believes the tower market is still at its peak.
“I agree with Tom that it is a good time to sell towers if you got them,” Gellman said. “The market is pretty euphoric. People see the 5G shining tower on the hill and are hyped up about it. The public tower stocks are trading strong on Wall Street. The shortage of towers for sale is pushing up multiples, as well.”
While towers have a number of tailwinds, such as densification, unlimited usage plans and future 5G deployments, according to Gellman, there are also headwinds, including rising interest rates, carrier pricing pressure, and so far the lack of a clear revenue model that will drive rapid 5G deployment.
“With everyone positive and discounting the headwinds, there’s never been a better time to sell a tower,” Gellman said. If there is a dip in the tower market, it can rebound when the “new T-Mobile” begins spending $40 billion, as they announced, as well as the impact that a stronger T-Mobile will have on investments by AT&T and Verizon.
J. Sharpe Smith
J. Sharpe Smith joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 29 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: firstname.lastname@example.org.