American Tower Corp. last week made its first large carrier transaction through a master sublease agreement with Vodafone AirTouch plc.
The deal gives American Tower the sublease rights to 2,100 AirTouch towers in the United States for $800 million in cash, which works out to about $380,000 per tower.
The deal does not include towers in AirTouch’s Los Angeles and San Diego markets. Jonathan Marshall, a spokesman for AirTouch, said the company has not announced plans for those towers yet.
“They are among our most demanding markets, given their huge population, and the focus in Los Angeles right now is on smoothly transitioning the infrastructure from Motorola to Nortel equipment,” he said.
American Tower and AirTouch also agreed to an exclusive three-year build-to-suit arrangement, which the companies said would result in between 400 and 500 new towers.
In addition to the cash consideration, American Tower is giving AirTouch a five-year warrant to purchase 3 million shares of American Tower at $22 per share.
Steve Dodge, chairman and chief executive officer of American Tower, said the scarcity of tower assets is a factor in the price the company is willing to pay for tower portfolios like AirTouch’s.
“There are a limited number of quality structures in quality markets,” said Dodge. “The truth is, given the higher potential that these assets may provide, and their uniquely irreplaceable nature and what is an increasingly tough zoning environment, we have to pay up for these kind of structures.
“We have to be willing to bite down on one or two transactions of this sort of price range in order to achieve the overall portfolio that we feel we need.”
The structure of the transaction calls for American Tower to lease the land and the towers from AirTouch for 99 years. American Tower then will lease back space to AirTouch for $1,500 per month per tower, with an annual escalator of 3 percent.
American Tower will begin immediately marketing space on the towers to third parties under a site marketing agreement the companies signed. The deal is expected to close by the first quarter through a series of closings, the first of which will include a minimum of 800 towers.
American Tower said as of last week, the towers were expected to generate a total of $48.8 million in revenues annually, or about $1,800 per tower, from current tenants.
Dodge gave 10 reasons for the deal with AirTouch, including the carrier’s historical reluctance to collocate.
“We believe the pent-up demand for these towers is very strong,” said Dodge.
Dodge also said the deal will help American Tower toward its goal of owning or managing 15,000 towers by 2003. He said other transactions are likely.
“You could anticipate that we would do at least one or two more sizable additional carrier transactions over time and probably not more than that,” he said.
American Tower said its official tower count stood at more than 7,000 last week, although it expects to increase that tally this week when it announces its second-quarter results.
