Why work with TIP?
Doesn’t TIP seek to increase mobile site rent?
TIP’s business model is predicated on investing in mobile site leases “as we find them.” That is, the deal that has already been struck between, on the one hand, the tenant (the operator or tower company) and, on the other hand, the site owner – that deal is good enough for us. We’re not confused about who we are: we are not a tower company. Tower companies seek to maximise co-location (site sharing), and they seek to maximise rents. In a sense, investments in physical infrastructure (like towers) are comparable making an equity investment. Equity (stock) prices depend on future “upside.” In contrast, TIP’s investments in mobile site leases are comparable to bond investments: just like our tenants, we seek long-term, predictable, indeed “bond-like” cash flows.
If TIP does not seek to increase mobile site rent, how does it make money?
Portfolio theory. Given that most mobile site leases are terminable by the tenant with little notice, site owners face what might be called “binary risk”: either their site exists (“1”), or it doesn’t (“0”). This is why site owners cannot go to their local bank and borrow money against their mobile site rent. In contrast, TIP faces portfolio risk: if one of our sites is terminated (which happens) we have hundreds and soon thousands of sites to hedge our exposure.
TIP says its aim is to not increase site rent. How do we ensure that?
TIP is prepared to enter into long-term agreements with our tenants – up to and including our entire investment term (usually 30 years in the case of a usufruct). In these agreements we are prepared to renew site rent under current terms and conditions (the terms and conditions we found in the existing site lease). So how do you ensure that we do what we say? You contract with us. We are prepared to contract on a site-by-site basis or under master lease arrangements (MLAs).
Why is entering into a deal with TIP beneficial to the site owner?
As indicated, site owners face binary risk: either their site exists or it doesn’t. TIP, on the other hand, faces portfolio risk: we have a global portfolio of high quality sites that are strategic in nature, because our tenants depend on these sites. As a result, our cost of capital is law, and we can pay healthy lump sums to existing site owners. These owners could never borrow these same amounts of money, because banks will not lend against terminable site leases. In addition, our payouts are “non-recourse” in nature, that is, if the tenant terminates after we make our investment, we don’t get our money back. As a result, the site has safely monetized his site, and can reinvest the proceeds, often at a high rate of return. The site owner might reinvest in a successful business, for example, or in real estate (combining our payout with low rate mortgage debt). In short, our investments take advantage of the differing risk profiles between site owners and TIP, allowing for a “win-win.” In principle, the optimal result would be for most site owners to sell!
OK, so mobile site lease buyouts benefit both site owners and TIP. What about tenants?
It has been shown repeatedly that many mobile site owners prefer to be paid up-front rather than over time. Approximately 25,000 site owners world-wide have accepted lease pre-payments (lease premiums). Lease premiums can be a very valuable tool for tenants (operators and tower companies alike). There are many reasons to use them sooner rather than later. Tenants can:
(1) Maximise control: a premium will entice landlords to accept certain lease modifications, like “expansion of use” or “expansion of premises” language. This will help tenants execute technology roll-outs (including 5G) without having to renegotiate. Also, working with TIP will allow tenants to protect themselves against third party lease aggregators, whose business model might be more dependent on renegotiation “upside.”
(2) Maximise speed and efficiency: by working with TIP, tenants can execute technology roll-outs without “hiccups” (no more renegotiation). TIP is a single, deeply experienced point of contact across hundreds of mobile sites. TIP’s contracts with tenants support the tenant’s provision of value-added services, such as wholesale access for enterprises, edge computing services, fibre front-haul and backhaul and data intelligence services. Finally, TIP provides optimal flexibility for passive infrastructure optimization – if necessary outside your existing “footprint.”
(3) Reduce CapEx: lease premiums are expensive. The average lease premium world-wide is €80,000. Closing 1,000 deals therefore requires €80 million. Tenants likely prefer to spend their CapEx elsewhere – in their core business rather than in land. That is, our tenants prefer “equity-like” rather than “bond-like” investments. That’s how they maintain their share prices! And TIP’s money is just as good because TIP can be controlled 100%. After all, we are prepared to enter into long-term contracts with our tenants, up to and including our entire investment term.
(4) Reduce OPEX. The new electronic communications code (ECC) in the UK is aimed at (a) achieving ubiquitous coverage in rural areas and (b) facilitating technology upgrades (including 5G). Tenants have received “Code powers” and are using them to seek rent reductions. A widespread impasse has resulted between, on the one hand, tenants (operators and tower companies) and, on the other hand, site owners. TIP can help break the impasse, because site owners are much more likely to accept a reasonable lease premium than reduced ongoing site rent. That is, TIP can facilitate “win-win” solutions between site owners and tenants, thus allowing both parties to avoid the costs and delays associated with court proceedings. The same logic applies in other jurisdictions as well: TIP as a third party investor can help site owners and tenants reach agreement in many circumstances.
How do I know that TIP can execute?
Our founder, Eric Overman, has overseen more than 75% of the lease premiums that have been paid outside the United States (approximately 6,000 leases in 20 countries). AMP Capital, TIP’s investor, has committed up to US$350M in equity (which vastly exceeds the equity available to Mr. Overman in his prior venture). This funding (along with low-cost debt in due course) will allow TIP to execute dozens of tenant-sponsored lease premium and sale-leaseback programs of whatever size is necessary, anywhere in the world.