Every radio and television station has a tower. In fact, some AM stations have a bunch of them. But just because your business requires a tower to operate, does that mean that you have to own the tower? And, if not, should you?
Leasing tower space has been around for a long time, of course. Most TV and FM stations lease some space on their tower to someone else, whether another broadcaster or the local taxi company or police department. Some very tall TV towers in prime locations have lots of tenants, with TV and FM antennas in the higher reaches and a series of two-way radio and wireless telephone antennas further down. So, leasing tower space can produce either pin money for the broadcaster, or amount to a significant revenue stream.
In some cases, though, it can be financially advantageous to sell the tower and let someone else deal with the business, regulatory and maintenance issues, while continuing to lease back the space you need for your own station’s transmitting antenna.
Clayton Funk has been brokering tower sales with Media Venture Partners since 2004, after establishing his own tower practice in 1997 following more than seven years with Nations Media Partners, a Kansas City-based investment banking firm specializing in various areas of telecommunications, media, and publishing.
So, to date he has personally closed over 50 tower deals encompassing all kinds of transactions, including sale-leasebacks for various wireless carriers, build-to-suits, and sales involving broadcast tower sites.
Our interest, of course, is that broadcast component. How do you determine whether selling your tower and leasing back space makes sense? Funk says it is first a matter of doing the math. Since you intend to remain as a tenant, you will eventually pay back to the new owner the cash you receive from selling the tower. So, if a tower company will pay you 12 times tower cash flow, which is calculated pretty much the same way as broadcast cash flow, you will be paying back more than you received in absolute dollars around year 12 or 13. But in the meantime you have had the use of that cash, which could be several million dollars, to grow your primary business, broadcasting, or pay down debt. “It’s a way for a company to borrow in some cases that is a cheaper way of borrowing money than going to a lender,” Funk noted.
Another reason to do a sale and lease-back deal is if you are planning to sell your broadcast station. If your tower is in an extremely desirable location—with lots of demand from wireless companies and restrictive zoning—tower cash flow multiples could be in the upper teens. But if you sell the tower as part of a station sale, the broadcaster buyer is likely to value tower cash flow (TCF) the same as broadcast cash flow (BCF), which could result in a lower multiple.
So, if you sell the tower first at the higher TCF multiple, with a reasonable leaseback contract which can be assigned with the station, then sell the station at the lower BCF multiple, you come out ahead. Once again, it is all about doing the math.
Of course, most broadcasters have loans in place that include their tower(s) among the assets, so the lender may have a say in what you do with the proceeds from selling off tower assets.
“I think typically it comes back to what the motivation is of the broadcaster. In some cases tower owners, whether its broadcasters or wireless carriers, sell towers specifically to pay down debt.
In other cases it becomes a negotiation between the borrower, being the broadcaster, and the lender as to how much of the proceeds of the sale can go for paying down debt versus it going into operating capital or acquisitions, or whatever.
I think it all depends on the motivation of the seller themselves and flexibility of the lender,” Funk explained.
Aside from the financial motivations, some broadcasters may be happy to be rid of the distractions of tower ownership. While some large groups, such as Clear Channel, have internal real estate divisions to deal with tower management, most radio and TV station owners may not be able to devote enough attention to the tower side of their business. “For tower companies, they can focus on selling tower space, which increases revenues.
They can more closely monitor a lot of the regulatory issues that go with owning a tower and keeping a tower up to the building and engineering codes, but also any compliance issues surrounding environmental issues, zoning issues, etc,” Funk said.
And as readers of RBR and TVBR well know, quite a few radio and TV stations have been hit with fines in recent months because of increased FCC enforcement of tower regulations. Also, tower companies may be able to operate and maintain a tower more cheaply than the broadcaster because they have their own maintenance crews or outside contractors who work on hundreds or thousands of towers for them, not just one or two.
So far we’ve made it sound like selling your tower and leasing it back is a financial bonanza and a bed of roses going forward. But yes, there are pitfalls. For one thing, not all tower companies are the same.
“I think the issue that concerns broadcasters is that they want to be able to know that that buyer is respectful and knowledgeable of the difference in having a broadcaster as a tenant versus a wireless telephony customer because for the broadcaster, that transmitter is their life, and you want to be able to have a very capable landlord that understands and respects the fact that it’s just not one of just 10,000 towers, it’s the one tower for that broadcaster,” Funk said. “There are over 25 companies at any given point are interested in buying towers and of those 25, I would say that less than 10 have the knowledge and understanding to really work along with the broadcaster and give that broadcaster comfort—but that’s still a pretty deep buyer pool of potential buyers of broadcast assets that have the knowledge to be able to work with the broadcasters,” he added.
In fact, the biggest owner of broadcast towers among the tower companies is the one name that most broadcasters are probably familiar with—American Tower. That’s because Steve Dodge created the company by spinning off tower assets from American Radio Systems before selling the radio group to CBS for $2.6 billion in 1997. Through mergers, acquisitions and internal growth, American Tower today is a $20 billion company and Dodge has retired with a personal fortune in the billions.
And while not every tower company is created equal, the same is true of towers as well. Not every broadcast tower is attractive for tower companies to want to buy. So, we asked, what are they looking for?
“I think I would probably divide up broadcast towers into three different categories. One would be AM towers. Second would be FM towers and the third would be television towers. AM towers are a different animal due to the engineering character of those towers and there is very limited demand for those assets. While it is possible to add tenants to an AM tower, it can be pretty tricky engineering-wise, so there is limited demand for AM towers. For both FM and television towers there is demand, assuming that the towers are structurally sound and have the ability and capacity to add additional tenants. That’s what turns a tower from just a piece of steel sticking in the air holding one transmitter to a real estate business with cash flow by having extra capacity to add tenants to them. There is really no differentiation between FM and television towers other than it comes down to where the tower is located and those towers being attractive,” Funk said.
Is height a plus or a minus? “A lot of where wireless carriers are installing their equipment is a height below 300 feet and as any broadcast tower owner will tell you, as height increases maintenance costs increase, whether that’s in keeping the tower painted, lit, the guy wire tension, all the sorts of things you have to do with taller towers,” the broker noted. So the expenses of maintaining a tall tower may impact the sale price, but then, Funk notes, the broadcaster is offloading those expenses going forward by selling the tower and leasing back space, while the new owner has the maintenance headaches.
Demand is greatest for towers in high density areas, but with people expecting to have wireless phone service everywhere they go from their carrier (or else they may switch to the competition), tower companies aren’t ignoring rural areas. Funk notes that the “not in my backyard” attitude is widespread, so if you have an existing tower in an area where wireless carriers and tower companies are finding it difficult to win approval for new towers, you could have a mini-gold mine in the field behind your studios. And even where it is possible to build new towers, Funk notes that landowners have gotten more sophisticated and are demanding higher payments from tower operators for long-term leases on a few acres of cow pasture. That increases the relative value of an existing tower with a land lease (or outright ownership) in place. Of course, if you are a broadcaster looking to build a new tower yourself, that new market savvy by rural landowners is not good news.
The bottom line is that towers are now a real business, not just a sideline for broadcasters or the guy trying to sell two-way radio equipment to local businesses. Many broadcasters continue to own their own towers and don’t want to turn that over to anyone else. But if you are looking to free up some cash, or really don’t want to deal with tower upkeep, there are alternatives that will allow you to get out of tower ownership and still keep broadcasting.
Clayton Funk may be reached at 816-523-8566
or [email protected]