Over the past 20+ years, the market has seen a sustained rise in investment interest for cell site leases (e.g. towers, rooftops and land), evidenced by the vast number of cell sites acquired by portfolio companies driving a dramatic increase in the value of these assets.
So, what is behind this trend? Simply put, cell sites are worth more to portfolio companies that acquire many sites than they are to a single site owner as a result of the “Portfolio Effect”.
The Portfolio Effect
The Portfolio Effect is the combination of three market forces that create a robust, valuable asset class:
- Cell site portfolio companies (PortCos) enjoy several ownership advantages compared to individual site owners, which feeds their strong demand.
- Decades of acquiring thousands of sites has established comparable pricing (aka “comps”), and the persistent demand gradually promotes those prices.
- By pooling and then structuring portfolios of uniform leases backed by strong credit, PortCos have effectively created an asset class that’s accessible and highly attractive to global institutional investors.
Together, these forces have catalyzed a robust cycle whereby cell sites are worth increasingly more to PortCos, and the pooling of these assets enables institutional investments, which drives yet higher valuations.
Here are a few key advantages to owning an entire portfolio of cell sites vs. an individual site.
|
|
Portfolio Owners |
Individual Site Owners |
 Improve Lease Terms |
PortCos view and negotiate thousands of leases, which provides them with the expertise to secure more favorable terms from carriers and tower companies (e.g., higher rents, reduced liability, etc.) |
Even the savviest of individual owners lack the sheer volume of learnings to achieve a truly balanced lease with multi-billion dollar telcos. |
 Manage Asset and Risks |
Long-term cell site holders and PortCos have the scale to devote specialized resources to the vast and diverse telco requirements. |
While most cell sites do not present a frequent burden to the owner, when issues arise, individuals lack the specialized experience to proactively mitigate risk of damage to the physical property. |
 Borrow Against the Asset |
Due to the size, diversity, and credit quality of their portfolios, PortCos can obtain financing with large institutions that specialize in this asset class. The option to leverage the asset creates an implicit value that is passed along to the Property Owner in the property valuation. |
Typically, banks will not provide financing for an individual lease due to language that allow the tenant to terminate with as little as 30 days notice. |
 Add New Revenue Streams |
Where possible, Portfolio Managers can leverage their network to add additional lessors at the most favorable terms. Leading PortCos share that incremental revenue with the Property Owners. |
Site Owners are able to retain 100% of new revenue. However, when compared to a PortCo, individuals will have more difficulty marketing the site and negotiating a favorable agreement with telcos that typically have other options. |
 Tax Advantages |
Portfolio Owners benefit from highly-efficient tax strategies that allow for accelerated depreciation and tax liability deferral at scale. |
Lease payments are often taxable as ordinary income. |
