@PCIA: Tower firms, analysts talk growth, consolidation and REIT possibilities

HOLLYWOOD, Fla.—The nation’s top tower companies proved they could access the capital markets in a number of ways last year, after facing tight cap markets at the end of 2008. They also showed they could de-leverage quickly when called upon. Now they want the banking community to understand that that same model trickles down to smaller tower companies, which often have access to the same types of debt offerings that their larger counterparts do.
During a panel discussion on wireless investment at PCIA’s Wireless Infrastructure 2010 show, executives from the tower industry and the financial community touched on a wide variety of topics, including whether and when tower companies should change their tax status to that of a Real Estate Investment Trust, expected growth for the tower sector as a whole and the dearth of a middle market of tower developers.
The lack of mid-market companies
Global Tower Partners CEO Marc Ganzi noted that the middle market for tower companies has dried up, but smaller tower firms (companies that own between five and 50 towers) are still alive and well. Indeed, according to this year’s RCR Wireless News Top 20 tower companies, done in collaboration with Jim Fryer, president of Fryer Marketing & Media, the eighth-largest tower firm is TowerCo, with 3,000 towers. The ninth-largest tower company is Pegasus Tower, with 489 towers.
Even as consolidation occurs within the tower sector, membership in PCIA is up, said Ganzi, who is PCIA chairman. Smaller tower owners are the lifeblood of the industry, Ganzi noted.
While there are a number of small development tower firms that want to get bigger, it is difficult to jump to that next ownership level, said Adam Stulberger of Tailwind Management.
The build-to-suit challenge for smaller tower companies is that they need to have some marquee sites so they can afford to fund the back office, said W. Ben Moreland, CEO of Crown Castle International Corp.
Growth ahead for sector
While the tower industry is seeing steady single-digit growth, between 8% and 10%, “we’ve just scratched the service of this,” said Ric Prentiss, a financial analyst with Raymond James and Associates, pointing to the number of iPods and iPads that have been sold.
Further, new wireless operators coming to market is good for the tower industry because it forces the existing operators to step up to the plate, commented Stulberger.
While tower companies are seeing more amendments to existing leases they are getting more revenue from new leases, pointed out Crown Castle’s Moreland.
And even as speculation continues that Sprint Nextel Corp. eventually will reduce the number of towers it operates, turning off some iDEN assets, which could impact some tower companies in the short term, “a stronger Sprint is better for all of us,” Ganzi noted.
While some of the tower companies are growing internationally, they are being very selective about where to invest those dollars. Brendan Cavanaugh, CFO of SBA Communications Corp., said the company has international operations in Canada and Central America, and is doing legwork in Costa Rica ahead of planned auctions there. SBA said in order for it to invest internationally, certain criteria must be met: the country must have multiple operators, solid land-use protection and the potential for growth. “We look for a greater return on investment outside of the U.S. to offset the increased risk.”
REIT status
As publicly owned tower companies mature and reduce their network operating losses, they have the option to change their tax statuses to that of real-estate investment trusts. Basically, a REIT must pay most of its profits out as dividends in order to avoid corporate income tax. Panelists agreed that any move to REIT status would not prevent the companies from continuing to be growth stocks.