Yesterday evening after market close, American Tower announced that they had entered into a definitive agreement with Verizon Communications to acquire rights to approximately 11,324 communications towers, and purchase 165 additional towers for $5.056 billion in cash at closing. American Tower will have the exclusive right to lease and operate the towers for approximately 28 years. After the term of the lease, American Tower will have the option to acquire the towers based on their anticipated fair market values.
Before the announcement, American Tower had approximately 28,000 towers. This acquisition will bring their total number of towers in the United States to a little over 40,000. According to the company, “Verizon’s tower portfolio, in combination with American Tower’s legacy footprint, will establish the largest wireless communications real estate portfolio in the United States with over 40,000 tower sites. This transaction expands and strengthens American Tower’s relationships with major U.S. wireless operators, and 85% of pro forma domestic rental and management revenue will be generated by the Big Four U.S. carriers.”
Rob Turner, Partner and Business Attorney at 360 Venture Law, noted, “In addition to the scale of the deal, there will no doubt be a number of questions with property owner/landlords on whether the sale/assignment will have any impact on their lease.”
Spencer Kurn at New Street Research told Inside Towers, “At first blush this appears to be an expensive deal for AMT. We estimate they are paying 24x tower cash flow, which is higher than the 21x multiple that CCI paid for AT&T’s towers. Further, the VZ towers are likely to grow slower than AMT’s overall portfolio due to the fixed 2% escalator and reserved tower space that Verizon is getting. We have liked AMT because they have a strong track record of doing value accretive acquisitions; however, we are surprised that AMT would pay this high of a multiple. We are eager to understand the additional terms of the transaction enticed AMT to pay more for these towers than they were willing to offer for AT&T’s towers.”
Jim Taiclet, American Tower’s Chief Executive Officer stated, “The Verizon tower portfolio is a unique asset. Due to outstanding design and management by the Verizon Wireless network operations team, the portfolio boasts a number of key attributes that we believe will facilitate robust leasing opportunities under our focused management. These attributes include average tower heights approaching 200 feet, ample structural capacity and ground space, very attractive transmission locations with relatively few competing sites, a solid ground lease profile, and excellent documentation and technical information. By acquiring access to this high quality asset base, American Tower will be well positioned to capture incremental leasing activity and extend our ability to drive strong annual organic core growth and solid AFFO per share growth, well into the future.”
“Demand for mobile bandwidth by U.S. consumers is expanding dramatically as the proliferation of advanced devices and applications continues. As evidenced by the just-concluded AWS spectrum auction, the Big Four domestic carriers plan to address this growth with significant ongoing investment in both spectrum and their physical networks. We believe that by aggressively marketing these relatively under-utilized towers to additional tenants, we will enable faster deployment of this spectrum, accelerating the expansion of broadband coverage throughout the U.S.”
Verizon Transaction Highlights Issues by AMT
Verizon has contracted to sublease space on the towers for a minimum of 10 years with monthly rent of $1,900 per site and fixed annual rent escalators of 2%. Verizon will have customary renewal options that could potentially extend the full term of its sublease to 50 years. Verizon will also have access to certain additional space on the towers for its future use, subject to certain restrictions. American Tower will have the right to sublease other available capacity on the towers to additional tenants.
The portfolio of approximately 11,489 towers spans all 50 states with approximately 50% of the sites in the top 100 BTAs. The average height of the tower portfolio is approximately 190 feet, with capacity for incremental colocation. Nearly 85% of the revenue generated by the portfolio is from investment grade tenants.
American Tower estimates that the Verizon tower portfolio will generate approximately $410 million in domestic rental and management revenue, approximately $235 million in gross margin and will be break-even to AFFO per share in its full first year of operation, and accretive thereafter. American Tower expects the transaction will further support its ability to generate strong annual AFFO per share growth over the long-term.
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