Prepayment Guide

Quick Guide to Understanding the Financial Principles Underlying the APWIP Proposition

  1. The exchange of an up-front, lump sum cash payment for the assignment of future site rent involves “time value of money” (TVM) concepts.
  2. TVM is simple: money today is worth more than the same amount tomorrow. This is the financial expression of the notion that “a bird in the hand is worth two in the bush.”
  3. Money today is worth more for two reasons. First, you can do something with it, like reduce your budget gap and save government jobs (if you are a public entity) or pay down debt or otherwise spend it (if you are a business or individual). Second, as opposed to money “in hand”, there is always a risk that money tomorrow may never materialize. Unfortunately, one only needs to have read the newspapers in recent years to fully appreciate this point!
  4. Therefore, money tomorrow must be “discounted.” This is a fancy way of saying: “how much money would you give up today for the promise of some money tomorrow?”
  5. In figuring this out, two factors must be considered. First, by giving up money today in exchange for money tomorrow, how much could I have earned if I held onto my money? Let’s call this the “financial discount factor.” Second, how sure am I that the money tomorrow will actually materialize? Let’s call this the “risk discount factor.”
  6. The financial discount factor is relatively easy to estimate. If you hold onto your money you usually know what you plan to do with it and therefore how much you might earn (or save, if you pay down debt).
  7. Moving on to the risk discount factor, let’s assume that the future rent to be received from a cell site is completely “risk free.” If this were true, the recipient of this rent (you) could go to a bank and borrow against this future “cash flow stream” on a non-recourse basis at the present rate of interest (let’s say around 6%). This rate of interest would be the financial discount factor applied by the bank in discounting expected future cash flow. This would be a good deal for you and if you could do this there would be no reason to consider the APWIP offer.
  8. In reality, a bank is unlikely to offer you this deal because it cannot be sure that site rent will actually materialize in the future projected amounts. The bank will likely be concerned that the wireless carrier or tower company may “walk away” (“decommission” the site) or perhaps reduce the level of future rent. Therefore, while your cell site lease is valuable because it might produce significant future cash flow, the uncertainties associated with the future realization of this cash flow make this valuable asset somewhat “illiquid” (i.e., it is difficult to immediately extract cash from it from traditional sources).
  9. This is where APWIP comes into the picture. APWIP agrees that the receipt of future site rent is subject to risk but believes the risk can be effectively mitigated through the use of an appropriate discount factor and the creation of a diversified portfolio of site leases. On this basis, APWIP is able to offer landlords large, up-front cash payments.
  10. We appreciate that you may not be fully comfortable with some of these concepts and therefore actively encourage you to give us a call if you have additional questions. Do not be afraid to ask us any question; we really do want to help you to fully understand our offer. You can reach us via e-mail, on-line, or toll-free at (866) 843-0433.