Ground lease aggregators exploit a gap in many towerco’s business models – few of the US towercos own more than a third of the land under their towers.
Often targeting the highest value sites, which boast the most tenants, ground lease aggregators painstakingly canvass site owners with a proposition to transfer or buyout expiring leases. As such, lease aggregators are felt by some to do be a threat to the towerco business model as they transfer margin from towerco’s to land owners’ balance sheets.
As lease aggregators start to attract big-ticket PE-investment, TowerXchange thought it was time we looked at the model and examined whether this layer of the tower industry could take root in emerging markets.
Ground lease aggregation is an increasingly crowded market in the US, with upwards of a dozen active players, including TriStar and TowerPoint Capital, who are interviewed in the following pages, Unison, Landmark Dividend, Wireless Capital Partners and AP Wireless. An ecosystem of proven brokers and advisors has also developed to support owners of real estate under cell towers as they consider their options in terms of buyouts and renewals.
Telecoms real estate is a highly fragmented market, with many landlords only owning the land under a single site. With the lease aggregation model dependent on expiration of the existing lease, aggregating the land under cell towers is a long-term, labour-intensive process. With exit strategies often consisting of selling substantial portfolios of sites to towercos, the challenge of reaching scale represents a barrier to entry.
Meanwhile, the ‘Big Three’ US towercos, Crown Castle, American Tower and SBA Communications, are all investing to acquire more land under their towers, both through their own lease aggregation initiatives, and through the acquisition of portfolios from lease aggregators – for example Unison sold 1,800 sites to American Tower in September 2011 for US$500mn and Wireless Capital sold 2,300 towers to Crown Castle in January 2012, also for US$500mn.
Transferability to emerging markets
To date, ground lease aggregators have concentrated on the North American tower market, but certain aggregators and advisors are believed to have an appetite for international markets.
Ground lease aggregators are sensitive to the potential of emerging market towers, particularly in Brazil, Mexico and South Africa. Ground lease aggregators are also attracted by many of the same macro economic factors as towercos (multiple credit-worthy operators, spectrum for LTE, favourable legal and regulatory environment, low country risk), which suggests they may prioritise many of the same countries as towercos.
However, the opacity of land ownership in many emerging markets, combined with relatively weak zoning laws that make it more possible to simply relocate towers, doesn’t make the lease aggregation model readily transferrable everywhere.
Meanwhile, international towercos are increasingly inserting right of first refusal and/or the right to buyout leases clauses into their ground leases to protect their portfolios against third party ground lease aggregation.
US ground lease market overview
Data traffic growth: 50% CAGR to 2018
Average tenancy ratio: approaching 3.0
Estimated tower count: 135,000
Estimated count of rooftops and other PoPs: 100,000
Towerco tower ownership: >75%
Towerco land and rooftop ownership: <25%
Source: TriStar Investors
