Item No: 4.C.2.A.
Meeting Date: April 22, 2013
From: Jim Lemberg – Manager, Communications Utility
Subject: Resolution authorizing execution of a Second Addendum to Lease Agreement with Verizon Wireless.
Staff recommends approval of a resolution authorizing a Second Addendum to Lease Agreement with Verizon Wireless which will have the effect of (i) extending the term of the original lease agreement, (ii) amending the mailing address to which notices about the lease agreement shall be sent for lessee’s attention, and (iii) granting a right of first refusal to Verizon Wireless with regard to any offer to purchase or transfer of ownership of the City’s monopole located on City property off CR 470.
The City (as lessor) entered a lease agreement in July of 1999 with Primeco Personal Communications, Limited Partnership (as lessee), Verizon Wireless’ predecessor in interest under which lessee was granted the right to place antennas on a then newly-constructed, 150-foot City-owned monopole located at what would become the City’s CR 470 sprayfield site.
The initial term of that lease agreement was for fifty-nine months, with the lessee having the option of extending the agreement’s term for two additional successive five-year periods. The second of those extension periods will end in mid-2014. At the end of the second extension period, the lease agreement begins automatically renewing indefinitely for one-year extension terms unless either lessor or lessee gives the other ninety days written notice of intent to terminate the lease agreement. The Addendum under consideration would provide for four additional 5-year extensions on the lease agreement’s term, beginning July 13, 2014.
The right of first refusal that would be granted under this Second Addendum is not likely to become exercisable because the City is unlikely to contemplate selling or transferring the pertaining property, assets, or lease. From time to time, the City receives expressions of interest from third parties who wish to purchase some or all of the City’s antenna lease agreements. Such parties are effectively purchasing the future cash flows from those leases along with the opportunity to (i) renegotiate the existing lease rates and/or (ii) negotiate additional antenna leases, gaining some incremental cash flow from such.
If the City were to wish to effectively sell this particular antenna lease to such a third party, this Second Addendum would give Verizon Wireless a first right to match any such third party offer. For example, the City recently received such an offer from a third party to purchase the City’s CR 470 monopole and the two antenna leases pertaining to the monopole. The City currently receives a total of $54,385.25 annually from those leases (one escalates 3% annually and the other escalates 4% annually) and over the next twenty years will receive a cumulative total of $1,556,154.76. The third party’s offer was a one-time payment of $875,000.00. If the City accepted that specific proposal, its Communications Utility would need to invest such proceeds in network expansions so as to earn an annual net return after operating expenses of 3.077% in order to match the cumulative total cash flow it would receive from the pertaining antenna leases. Although the Utility could possibly earn such returns through the revenues gained by expanding its fiber optic network, it would likely experience short-term cash flow challenges as it waited for new revenues to replace the foregone cash flows from the sold antenna leases.
In other words, although the business case for selling the City’s antenna leases would be solidly viable, the short term cash flow outcomes could put the Utility in a challenging position. Thus, the City would be unlikely to sell its existing antenna leases to third parties, and the right of first refusal granted by this Second Addendum is likely a moot point.
1. Approve the resolution authorizing the Second Addendum, or
2. Such alternative action as the Commission may deem appropriate
The contemplated Second Addendum will not change Communications’ existing revenues or cash flows.
Prepared by: __Jim Lemberg_________
Attachments: Yes_X___ No ______
Advertised: ____Not Required __X____
Attorney Review : Yes_X__ No ____
Reviewed by: Dept. Head ________
Finance Dept. __________________
Deputy C.M. ___________________
City Manager ___________________
Account No. 045-0000-343-9710
Project No. n/a
WF No. n/a
RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA AUTHORIZING THE MAYOR AND CITY CLERK TO EXECUTE A SECOND ADDENDUM TO LEASE AGREEMENT WITH VERIZON WIRELESS; AND PROVIDING AN EFFECTIVE DATE.
BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:
THAT the Mayor and City Clerk are hereby authorized to execute a Second Addendum to Lease Agreement with VERIZON WIRELESS PERSONAL COMMUNICATIONS LP, whose address is One Allied Drive, Mailstop B4F06SJ, Little Rock, AR 72202, modifying a Lease Agreement and a first Addendum to Lease Agreement both of which were originally entered into during July 1999.
THAT this resolution shall become effective immediately.
PASSED AND ADOPTED by the City Commission of the City of Leesburg, Florida, at a regular meeting held the twenty-second day of April 2013.