Property Owners

Why do property owners decide to sell all or part of their site lease to TIP?

Property owners sell all (or part of) their mobile site lease to TIP for two reasons, (1) to minimize risk and (2) to maximize return. Please review the following video, or read the brief text thereafter (with links to additional detail):

Minimise risk:  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 mobile 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.

Maximise return: although the mobile site rent you receive is an attractive source of ongoing cash flow, property owners really do not have control over it.  Over time the cash flow may stop if the mobile operator or infrastructure company decides to terminate.  And even if it continues, mobile operators and infrastructure companies often seek rent reductions.  At best, site rent keeps up with inflation.

This is why tens of thousands of property owners world-wide have chosen to take control over the value of their mobile site.  They have chosen to “cash out” of their lease to:

• Reinvest in their business:  many cell site landlords don’t like that mobile operators and infrastructure companies can terminate, and they think that, unlike their site lease, the rate of return on their business will exceed inflation.  Why keep your capital tied up in uncertain future site rent if, instead, you can expand your business?
• Retire:  some property owners want to retire somewhere else and take the value of their mobile site with them.  The only way to do that is to sell their site lease.  Also, because their site lease has a low and uncertain rate of return, they prefer to reinvest the lump sum received from TIP in stocks or bonds that offer greater returns and more certainty.
• Buy real estate:  some landlords use the lump sum received from TIP to invest in real estate.  By doing so they achieve three benefits.  First, they have taken control over a future cash flow that may or may not materialize (because site leases can be easily terminated).  Second, they have purchased an asset that may increase in value at a greater rate than mere inflation (which is the best they would have done with the site lease).  And third, they accelerate their returns because they often combine the TIP payout (equity) with a low-rate mortgage (debt).  World-wide, property owner has always been a way to build wealth.  This cannot be said for leasing space to a mobile operator or infrastructure company.
• Pay down debt:  other landlords use the lump sum received from TIP to pay off debt.  Revolving debt (like credit cards) usually carries an interest rate that far exceeds inflation.  Given that sell site rent escalates by, at most, inflation (and may even be reduced), paying down high rate debt is an obvious way to save money.  But landlords have also used their lump sum payout from TIP to pay off the remaining mortgage on their property.  They simply wanted to be debt-free altogether.  We think that’s a smart move.
• Other reasons:  some property owners aren’t purely financially motivated.  They may want to help send their children or grandchildren to college.  They may want to take that foreign trip while they still can.  They may want to buy a car, or a recreational vehicle, or a boat.  Whatever your goals are, the friendly and knowledgeable professionals at TIP are eager to help you achieve them.