Tower Sales
Question for Ken Schmidt (internal link):
Q. It's rumored Sprint will sell the 6,500 towers they own and then lease them back. Why? I thought it was better to own than lease.
A. "The sale of Sprint's towers at this point makes a lot of sense to me. (But then I am a lawyer -- not an MBA). The market for communication towers is red hot right now -- many players chasing few portfolios. Towers are sold on the basis of a multiple of annual net cash flow. The multiples when I was in the business 1998-2000 were great -- up to 14x. Rumor is that the current multiples are up to 16x in some cases. I'm not sure if Sprint will get that but they were not hurt by the recent values being exchanged for towers."
"The multiples being paid are not tied to reality -- people thought the tower companies were crazy then as even the MBA's could not figure out how the market would reward companies that bought towers at such a rate. And look what happened to Pinnacle, Spectrasite -- both went bankrupt. Crown and ATC were rumored to be close as well."
"So, Global Signal (Pinnacle in different clothing) is back again looking to buy some towers. They are willing to pay because they believe the upside over the next two years from the various wireless technologies will be great. And the carriers are backing that up. BBE (broadband equivalent) lease rates are up and they are loving it. Sprint on the other hand has significant debt with the Nextel purchase and significant expenses coming up with network expansion and 3G overlays, so they need the cash. Selling now at or near to what may be the peak of the market was smart."