Funding Municipal Broadband Projects: The Changing Profile
Broadband is now deemed a necessity for economic growth, quality of life, education, public safety, and IoT adoption. Explore various funding options and the role of Landmark Capital in filling funding gaps through operating leases.
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Presentation Transcript
The Changing Profile For Funding Municipal Broadband Projects Steve Peloso, SVP, Enterprise Markets Landmark Dividend LLC CONFIDENTIAL 1
The Premise: Broadband as the 4th Utility No longer optional Approaching parity with with water, electricity, sanitation Its absence poses multiple gates to growth Most US municipalities now understand: Access to high speed broadband services is a necessity: Enables and drives economic growth Enhances quality of life Supports and improves educational services at all levels Facilitates Public Safety Delivers new/enhanced public services Necessary for the adoption of IOT (both publicly and in-home) US Households are expected to average ~50 connected devices by 2021 Unprecedented growth in the corresponding desire to build Muni-owned networks To support expense reduction/cut costs Create new revenue streams Enable long term Smart initiatives To take control and ownership CONFIDENTIAL 2
Where Build vs. Buy is the Desired PathFunding remains the challenge Options for Ownership: Self-fund Public-Private Partnerships (P3) Hybrids- with 3rd party provider/operators Typical Options for Muni Capital (Actual capital stack will vary) General Obligation Bonds Availability and timing Revenue Bonds Availability, timing and risk General Funds Availability Grants Availability (no guarantees) 3rd Party Debt Cost, capacity to incur, Impact on credit Impacted by appetite and capacity for debt, affects on credit rating, political environment Landmark seeks to Fill the Gap to complement Muni-available funding sources and conditions: To fill a gap in the capital stack Whole or in part Where access or time is an issue Where debt is unavailable or undesired Where leasing vs owning may offer benefits
Landmark-Capital via Operating Leases As a Funding Tool Capital is provided in exchange for a long term operating lease and a real property interest Requires easement, fee, licence, etc. Provided without the typical lender covenants Not typically considered as debt for credit and other borrowing capacity purposes Triple Net Payback Term-25, 40 Years+ No operational oversight or upside participation required Fundable project elements can include: All labor costs including design, engineering and installation All passive material costs (IE: No electronics, optical equipment, etc. Capital via existing sources Two options: 1. Monetizing existing revenue streams to bring near term capital to bear Cell tower leases Digital advertising leases (new development, upgrades) Existing infrastructure lease streams 2. Capitalizing existing infrastructure assets Sale/leaseback of current infrastructure assets Existing broadband Water transport Power transmission CONFIDENTIAL 4
Other potential benefits to developing broadband infrastructure: Dark fiber leasing and vertical asset nodes (Smart Poles) Wi/Fi, LTE, 5G, DAS, Small Cell Site Nodes Cost (capital) avoidance for carriers Improved city service capabilities Smart parking, traffic control, digital kiosks, etc. Public safety, security, response CCTV Success Criteria: Significant Internal Elements for Considerations Identifying existing expense reductions (costs eliminated/reduced by virtue of the build) Operational and Maintenance Elements Cost and internal capabilities Need for 3rd party support Existing capability to Market/Sell Where upside revenue is available Where revenue generation is critical to the financial success Lit vs Dark Services delivery Conduit provisioning only CONFIDENTIAL 5
Example: CA municipality has plans to continue its expansion of a city-owned Dark Fiber strategy. Phase I completed in 2015 @ a cost of $4.5M Phase II Q1 2017 deployment. Development costs planned @$15.5M Revenue Bonds Issued for Phase II delivering $8M Carrier equipment located on City-owned assets (tanks and towers) generate lease revenues of $144K/Year. Elements Values Phase II Deployment $15.5M Less: Revenue Bond Issuance $8M Funds Required $7.5M
Landmark Solution: Step One-Landmark capitalizes the Phase I build at $3.75M in exchange for a 25 year NNN ease @$29K/month lease payment Step Two-Monetization of existing 20 year carrier leases on 2 of 4 city assets provides a payout@$800K Step Three- Landmark provides development funding of $2.95M via 25 year NNN lease Conclusion: @$23K/month lease payment A combination of new development funding, combined with capitalizing existing infrastructure and lease buyout reduced capital requirements by Opportunity Elements Values Phase II Requirement (Less: Rev. Bonds) $7.5M Less: Phase I Capitalization $3.75M Subtotal $3.75M Less: Carrier Lease Payouts $800K Remaining Funds required $2.95M
For Additional Information Please Contact: Steven Peloso Senior Vice President | Enterprise Markets 310.294.8165 | Direct & Smart Fax Line 714.342.2168 | Mobile 2141 Rosecrans Avenue, Ste. 2100 El Segundo, CA 90245 speloso@landmarkdividend.com
