Amendments are the quiet half of tower growth: small tickets, almost no cost, and a large share of the organic growth figure if the master lease allows them to be charged.
On illustrative figures, an amendment that adds $400 a month to an existing tenancy brings $4,368 a year of EBITDA for $6,000 of capex, a payback of 1.37 years and a value of $87,360 at 20 times EBITDA. One at a time they are small. Across a portfolio where a quarter of tenancies amend each year, they add 5.56 points of revenue growth, more than the escalator or the new tenants and more than half of the 10.51 per cent net organic growth.
Worked in full in The Digital Infrastructure Investor by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A tower owner earns in three ways once a portfolio is built: contractual escalators on existing leases, new tenants on existing steel (the tenancy ratio), and amendments. An amendment is an existing tenant changing its installation, usually to add antennas, radios or a new frequency band, and paying more rent for the extra wind load, weight and space. Every network upgrade cycle produces a wave of them. Buyers who underwrite a tower portfolio from the escalator and the tenancy ratio alone leave out what is often the largest line in organic growth.
| Input | Value |
|---|---|
| Towers / tenancy ratio / tenancies | 600 / 1.6 / 960 |
| Average rent per tenancy, per month | $1,800 |
| Annual escalator | 3% |
| Share of tenancies amending each year | 25% |
| Rent uplift per amendment, per month | $400 |
| Capex per amendment borne by the owner | $6,000 |
| Sites on leased ground / revenue share on new rent | 60% / 15% |
| New colocation tenants per year, rent per month, capex | 30, $1,700, $25,000 |
| Annual churn / EBITDA multiple | 1% / 20.0x |
The $400 uplift is $4,800 a year, 22.2 per cent of the tenancy's existing rent. The cost side is almost empty: power is usually passed through to the tenant, and the site's ground rent, insurance and maintenance were already being paid. The one leak is the ground lease. Many landowner leases include a revenue share on rent from additional equipment. With 60 per cent of sites on leased ground and a 15 per cent share, the portfolio gives away 9 per cent of new rent on average.
Incremental EBITDA = uplift × 12 × (1 − ground share × revenue share) = 400 × 12 × (1 − 0.60 × 0.15) = $4,368
Payback = 6,000 / 4,368 = 1.37 years; yield on capex 73%
Value at 20.0x = $87,360; value created after capex = $81,360
Excel: =B1*12*(1-B2*B3), then =B4*B5-B6
A new colocation tenant at $1,700 a month brings $20,400 of rent and, after the same 9 per cent leakage, $18,564 of EBITDA. It needs more steel work, $25,000, and pays back in 1.35 years. Per dollar of capex the two are nearly identical. Per ticket the new tenant is worth 4.2 amendments, $371,280 of value against $87,360. The difference is frequency: a mature portfolio might sign 30 new tenants a year, but a network upgrade can touch a quarter of all tenancies.
| Source | New revenue ($) | % of base |
|---|---|---|
| Escalator, 3% on all tenancies | 622,080 | 3.00 |
| Amendments, 240 at $4,800 | 1,152,000 | 5.56 |
| New colocations, 30 at $20,400 | 612,000 | 2.95 |
| Churn, 1% | −207,360 | −1.00 |
| Organic growth | 2,178,720 | 10.51 |
Amendments are more than half of the year's organic growth. A year of them adds $1,048,320 of EBITDA, worth $20.97 million at 20 times, for $1.44 million of capex: $19.53 million of value created, from work that does not need a single new customer.
| Share of tenancies amending | $250 uplift | $400 uplift | $600 uplift |
|---|---|---|---|
| 10% | 1.39 | 2.22 | 3.33 |
| 25% | 3.47 | 5.56 | 8.33 |
| 40% | 5.56 | 8.89 | 13.33 |
The range runs from 1.39 points between upgrade cycles to 13.33 at the peak of one. That is why tower growth is lumpy even when the tenancy ratio barely moves, and why a buyer should ask which year of the cycle the seller's growth figure comes from. A portfolio sold on 25 per cent amendment activity during a rollout will not repeat it once the rollout ends.
The figures above assume every amendment is charged. Many anchor operators instead sign a holistic, or comprehensive, master lease: a higher fixed escalator in exchange for the right to add equipment without paying more. On those tenancies there is no amendment revenue to forecast; it is already paid for through the higher escalator or a fixed fee.
Suppose the anchor holds 600 of the 960 tenancies under such a lease. Only the 360 colocation tenancies can be charged, so 25 per cent gives 90 amendments, $432,000 of new rent and 2.08 points of growth instead of 5.56. Organic growth falls from 10.51 to 7.03 per cent before crediting the higher escalator the anchor pays in exchange, and a buyer who missed the clause would have paid for $13.10 million of value from a single year of amendments that will never be billed. The second, smaller mistake is forgetting the ground lease revenue share, which on these figures takes 9 per cent of every amendment's rent.
The way new tenants drive the same portfolio is set out in how the tenancy ratio drives cell tower returns, and the multiple applied here is examined in what EBITDA multiple to pay for a cell tower portfolio. The book's tower portfolio, with its tenancy ratio, ground leases and buyouts, is rebuilt in the free workbook for this case.
Value an amendment as near-pure margin: uplift times twelve, less the ground lease revenue share, times the multiple, less the capex. Then read the master leases before forecasting any of it, because a holistic anchor lease can remove most of the amendment line, and make sure the growth rate in the data room does not come from the peak of an upgrade cycle.
A change to an existing tenancy when the operator adds or replaces equipment, for example new 5G antennas or radios, and pays extra rent for the additional load and space. In the illustrative case a $400 a month uplift on a $1,800 tenancy, 22.2 per cent more rent, costs the tower owner $6,000 of structural work and pays back in 1.37 years.
Per ticket, no: a new colocation tenant at $1,700 a month earns $18,564 of EBITDA, 4.2 times an amendment's $4,368. Per dollar of capex they are similar, with paybacks of 1.35 and 1.37 years. Amendments matter because they are far more frequent: 240 a year on the illustrative portfolio against 30 new tenants.
Because a holistic or comprehensive master lease lets the anchor operator add equipment in exchange for a higher fixed escalator, so amendments on its sites earn no extra rent. On the illustrative portfolio, where the anchor holds 600 of 960 tenancies, that cuts amendment growth from 5.56 to 2.08 points and removes $13.10 million of value from a year of amendments.
This article is one calculation from The Digital Infrastructure Investor. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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