The equipment to run fiber and wireless networks requires less space in central offices like this one in Kalamazoo, Mich. (AT&T Photo)
Key Takeaways:
- Unlocks value in company-owned properties originally constructed for legacy network equipment
- AT&T realizes more than $850 million in upfront cash proceeds from the asset transfer of 74 properties located across the country
- Unique deal structure preserves the necessary infrastructure requirements to keep the network running smoothly, plus participation in future revenue generated from redevelopment
As part of its legacy network transformation, AT&T Inc. (NYSE: T) completed a structured sale-leaseback of underutilized central office facilities with private real estate development firm Reign Capital.
The transaction, which closed on Jan. 8, includes the asset transfer of 74 properties, located across the country, encompassing over 13 million square feet of space. The transaction generates more than $850 million in upfront cash proceeds for AT&T through a unique deal structure that enables future profit sharing from redevelopment opportunities.
“The uniquely structured deal unlocks value in otherwise stranded commercial real estate space,” said Michael Ford, head of global real estate, AT&T. “It’s a creative solution providing both upfront and long-term value through a revenue sharing model that fits with our broader company and transformation initiatives.”
Central offices were originally built to house and connect large, bulky, and energy-intensive equipment for outdated copper networks. As customers move from copper to fiber and wireless, a smaller, more efficient equipment footprint is managing the network. This technology evolution not only reduces power consumption, benefitting the environment, but also lowers operating costs and frees up valuable real estate for other uses.
Terms and Protections
This model not only monetizes real estate assets as AT&T plans to exit the large majority of its legacy copper network operations by end of year 2029, but it also aligns with the company’s strategic capital allocation priorities.
By leasing back only space that is needed for the network, AT&T is streamlining its real estate footprint. AT&T will make lease payments to Reign Capital for the duration of the lease term and maintain exclusive operational control of space required for access to communications infrastructure in each location.
This transaction impacts only a small portion of AT&T’s portfolio of central offices. It has no impact on jobs or changes in the services we offer customers.
Redevelopment Value
The agreement includes provisions for financial participation in redevelopment revenues, ensuring long-term benefits from future property value increases. AT&T retains final redevelopment plan approvals to ensure network infrastructure and operations remain undisturbed.
The structure also serves as a template for potential future transactions for some locations in AT&T’s footprint and is just one way the company intends to realize cost savings from legacy transformation.
In 2021, AT&T successfully executed a similar but smaller real estate transaction with Reign Capital, involving 13 properties covering over 3 million square feet. That deal generated more than $300 million in upfront cash with initial redevelopment revenue generation projected to begin in 2025.
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