Mobile site leases differ from “traditional” real estate leases in that your tenants can terminate on short notice!
Mobile (cell) site leases differ from other types of commercial property leases in one important way: unlike a “regular” commercial property leases mobile site leases can be terminated by the tenants (that is, mobile operator or infrastructure company) with very little notice (usually 30-90 days). Try to get such tenant-friendly termination language when you lease an office floor!
Not only can telecom operators and infrastructure companies terminate with very little notice, they can do so for a variety of reasons. You, too, would want this kind of flexibility if you were operating an ever-changing network covering thousands (and in larger countries tens of thousands) of cell sites.
Why have telecom operators and infrastructure companies terminated mobile (cell) sites?
Mobile operators and infrastructure companies have at times terminated hundreds of sites for six reasons:
- Mergers and acquisitions: over the years, various mobile operators and infrastructure companies have merged. Mergers have resulted in overlapping networks, making certain masts, rooftop and structure sites unnecessary.
- Network sharing: in an effort to cut costs, operators have begun to share networks. Like mergers, shared networks can make certain locations redundant.
- Network sales to mast (tower) companies: mobile operators requiring capital often sell their networks to infrastructure companies and then lease them back. Infrastructure companies may already be operating at certain locations so these sale-leasebacks can result in overlapping (redundant) sites as well.
- Mobile operator bankruptcies: not every mobile operator has survived over the years. Weak mobile operators are often acquired by a stronger competitor. But if that doesn’t happen the mobile operator may go out of business. Sites that cannot be sold will then be decommissioned.
- Operating efficiencies: mobile operators and infrastructure companies may call their landlords (property owners like you) to negotiate rent reductions. If they are unsuccessful they may decommission sites.
- Technological obsolescence: as mobile networks have grown, mobile technology has changed even faster. Today, operators are rolling out the fifth generation of mobile technology (“5G”). Although the overall number of cell sites has grown, network requirements, and therefore site locations, have often changed. For example, 5G relies on a growing number of small antennae (covering small cells) which may be located on light poles or walls of buildings. As more small cells are built, fewer large (“macro”) sites on masts, rooftops and structures may be needed. Every generation of technology has required a different network layout, and that will not change.
A large, up-front cash payout (lease premium) will transfer any and all lease termination risk to TIP. Even if your lease is terminated 24 hours after we have made a payout to you, we cannot have our money back. This is because our investment in your lease is “non-recourse” in nature. Once the deal is done, it’s done. All you have to worry about is to reinvest the proceeds at a greater rate of return.
Considering a mobile site lease buyout (lease premium)?
If mobile site leases can be terminated on short notice, why does TIP want to invest in them?
Individual property owners who lease space to a single mobile operator or infrastructure company face so-called “binary risk”: either their site is terminated (“0”) or it is not (“1”). TIP, in contrast, faces what’s referred to as “portfolio risk”: we do experience site lease terminations. But for every site lease that is terminated we have hundreds of others that are not terminated. That is, unlike individual property owners, we have a large “safety net.”
This, then, creates the “win-win” that makes our offering so popular among landlords. Site owners benefit from selling their lease while, simultaneously, TIP benefits from buying them. Logically, 100% of site owners should sell, because all of them would be better off.