US cellular / T-Mobile Transaction - Landlord Cell Tower Lease Impact?

What does the proposed transaction mean for landlords with a US cellular lease on their property?

JWTTC: US cellular will be replaced by T-Mobile as an anchor tenant for US cellular on a number of their owned cell tower locations.

• As part of the agreement, T-Mobile will lease at minimum, an additional 2,015 tower sites from US cellular, in addition to the approximate 600 they are already located on, with a 15-year term

• T-Mobile will occupy, at minimum approximately 60% of the US cellular tower portfolio sites

What sites will T-Mobile be locating on? Will my cell tower lease be terminated and cell tower decommissioned if someone is no longer using it?

JWTTC: Where T-Mobile ends up is to be determined at this time. Per the 8/2/2024 US cellular earnings call there was an analyst question and response from US cellular leadership about the potential of "naked towers" or "cold steel" as they are often referred to within the industry. It appears that US cellular is leaving open some optionality with what to do with these assets once the breakdown of where T-Mobile ends up settles.

As a tower operator US cellular will continue to market the assets.  However, it's important to note that there are often programs, especially within large, publicly traded organizations to terminate cell tower leases and dismantle cold steel towers. We saw this back when we were at American Tower and have heard of other recent instances around the industry. There are driven by efforts to reduce costs by eliminating non-revenue generating assets. This allows the organization to avoid expenses such as rent, taxes, insurance, and operational/capital expenditures to safely maintain a cell tower location.

We have seen some jurisdictions with ordinances and permitting that indicates if a tower is unused for certain time period that it must be decommissioned (City of Denver, as an example). Depending on the geographic location of where your land is, it could end up being a factor.

US cellular Leadership: Yes, Sergey, the -- so the -- you mentioned the uncertainty around the towers that T-Mobile will be on. It's an interesting financial equation that, that creates for us, right? Because once we know which towers they will be on, if -- the result of that is that the majority of towers that they're on do not have an existing co-locator, that creates more attractive long-term growth potential, but it somewhat impacts margins because you now have more towers with simply one co-locator on it.

If instead, they end up on towers where we have current co-locators, meaning the larger majority of the towers they select are where we currently already have a tenant, that will create better margins but it will mean that we have more naked towers at the conclusion -- at the completion of the transaction. And so we'll have to determine what we do with those naked towers. I do not think it is a foregone conclusion that those naked towers will necessarily be decommissioned. We have a lot of different things that we can do with those towers. And we're going to work that out in the coming months and coming orders as we get more transparency into T-Mobile's plans.

Nothing that I just talked about, impacts the way that we are marketing that tower portfolio to other potential co-locators. So what we're not trying to do is to guess which towers they're going to be on and consequently prioritize or deprioritize those towers in our marketing efforts. It is full speed ahead in terms of marketing our entire tower portfolio to other potential co-locators. And we have steadily improved that co-location rate over time, completely independent of the T-Mobile deal. And you can expect that to continue.

Will US cellular still offer cell tower lease buyouts and cell tower lease extensions?

JWTTC: Yes, it appears there will still be an appetite for these transactions. As an organization it would make sense for them to protect their land interest long term- especially if the tower location is one of the ~600 locations already leased by T-Mobile, one where there are other pre-existing non-US cellular tenants, or it becomes one of the 2,015 minimum locations that T-Mobile selects as part of the agreement. There may be some apprehension if the tower is not selected by T-Mobile and will end up being cold steel. Per the 8/2/2024 US cellular earnings call the following question was asked by an analyst:

Analyst: "........."Maybe just kind of level set us on where things stand and appetite for using capital at least at some point to extend or by ground leases that you don't already want to control them."

US cellular Leadership: "So from a ground lease perspective, we have had a steady rhythm and a steady drumbeat of finding opportunities to take on ground leases that will continue. We don't have a dramatic shift in our strategy there. It's going to be continued. And because of that, you also don't see a dramatic shift in the financials that we put forward. It doesn't mean that we don't look for the opportunities. It means we've been doing it, and we'll continue to do it as those opportunities arise."

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