SpectraSite Communications Inc. snagged a major contract with one of the nation’s top wireless carriers, entering an agreement to lease 3,900 communication towers from SBC Communications Inc. and build 800 new towers for SBC under a five-year build-to-suit agreement, for a total of 4,700 towers.
The $1.31 billion transaction-along with its April 1999 purchase of 2,000 Nextel Communications Inc. towers and a commitment to build 1,700 more-place nearly two-thirds of SpectraSite’s towers in the top 50 U.S. markers, SpectraSite said.
“This transaction changes everything in the tower industry. It was the most sought-after portfolio in the wireless industry. What this portfolio represented was some of the best markets in the country,” said Tim Biltz, chief operating officer for SpectraSite.
The SBC towers are located in metropolitan markets throughout the United States, with significant tower concentrations in Los Angeles, San Diego, San Francisco, Boston, Washington, D.C., Baltimore, Philadelphia, Dallas, St. Louis, Las Vegas, Chicago and Cleveland.
Under terms of the deal, SpectraSite will have the exclusive lease rights to 3,900 SBC towers, and will sublease space on these towers to third-party tenants. Biltz said on average, there is space for approximately 3.75 tenants per tower, and the company believes it can increase the capacity to accommodate another broadband tenant.
“We fully expect to put on at least four or five tenants,” Biltz said.
SBC Wireless agreed to sublease space from SpectraSite on the towers for $65.5 million per year with annual lease rate escalators. SpectraSite also has the option to purchase the 3,900 towers at the end of the 27-year lease term at a present value of $251 million. The company paid about $335,000 for each tower, which, Biltz said, is slightly less than previous similar transactions.
Some concern arose over whether the combining of SBC and BellSouth Corp.’s wireless assets will cause a conflict of interest. BellSouth Mobility’s towers are managed by Crown Castle International Corp., one of SpectraSite’s principal competitors.
Biltz said the contract relates only to the markets that are defined as SBC markets, and the two tower companies will cohabitate, but not in the same markets. The majority of BellSouth Mobility’s towers are in the south and southeastern parts of the country.
In light of all the optimism surrounding the deal, Wall Street’s reaction was less favorable. Standard & Poor’s placed its single B corporate credit and single B- senior unsecured debt ratings on SpectraSite with negative implications.
“SpectraSite has $330 million in cash as of June 30, and an additional $253 million from an equity offering in July. However, given the magnitude of cash required for the SBC transaction, should SpectraSite substantially finance this purchase and the additional buildout with debt on a permanent basis, ratings could be lowered to reflect this higher degree of financial risk,” Standard & Poor’s said.
Moody’s Investors Service also placed SpectraSite on review for a possible downgrade. Shares of SpectraSite were trading at $22.44 at RCR press time, down $1 from the previous day’s close.
The transaction is expected to close in increments beginning in the fourth quarter.
