DigitalBridge (NYSE: DBRG) today hosted its 2021 Investor Day, where its management team presented the digital infrastructure investment opportunity set.
Below we segment our takeaways into the four main sub-sectors of digital infrastructure, including towers, data centers, fiber, and small cells. Within each section, we highlight DigitalBridge’s “Buy vs. Build” approach and point-out select investments that the firm provided more details on.
Finally, after the breakdown of the sub-sectors of digital infrastructure, we summarize DigitalBridge’s growth strategy in the Asia-Pacific region.
Towers – DigitalBridge Investor Day
DigitalBridge frames their Investor Day “buy vs. build” decision for the digital infrastructure sub-sector of towers, in 2021, by geography as follows:
- North America: seeking to buy U.S. towers for its balance sheet (as opposed to its private equity funds) given that tower M&A pricing implies lower returns. Additionally, Vertical Bridge is building towers
- Europe: select opportunities to buy tuck-in acquisitions. However, the bulk of the growth will be from new tower builds at Vantage Towers and Digita Oy
- Latin America: buying some towers, but building more towers. Specifically, through build-to-suit (BTS) commitments for customers. Additionally, buying to achieve scale in certain markets (e.g., Brazil)
- Asia: ‘buy-then-build’ – meaning establish platforms by buying, then grow those businesses by i) building new towers and ii) buying complementary bolt-on portfolios
Global Towers Opportunity
DigitalBridge notes that there is a fragmented ecosystem of ~300 pureplay independent tower companies which own ~3.5 million of the world’s investible towers and rooftops. Additionally, ~1.45 million towers are still captively owned by global wireless carriers. Therefore, there still remains significant value within the global tower portfolio to unlock.
Notably, there is a relative valuation arbitrage for wireless carriers. Indeed, enterprise valuations typically range from 4x to 9x EBITDA, and tower companies, are typically valued at 10x to 30x EBITDA. In turn, this drives the continuing transfer of assets from wireless carriers to tower companies.
Unison Site Management – Portfolio Company
Through its newly launched website, DigitalBridge has disclosed that Unison Site Management is now part of its portfolio. Specifically, the company is a ground lease aggregator owning property interests that are leased to wireless carriers and tower companies.
The current team of Unison Site Management, includes Dewey Shay, Harrison Theros, and Sue Shin. Founded in 2003, Unison Site Management has purchased over 6.0k leases in the sectors of: cellular towers, rooftop cellular antennae, billboards, solar farms, and wind farms.
Data Centers – DigitalBridge Investor Day
DigitalBridge frames their Investor Day “buy vs. build” decision for the digital infrastructure sub-sector of data centers, in 2021, by geography as follows:
- North America: building hyperscale data centers at Vantage given that assets are trading at a premium to replacement cost. Additionally, buying and building edge / colocation data centers, given the availability of colocation assets and the ability to reconfigure assets for edge purposes
- Europe: buying and building hyperscale data centers at Vantage Europe for cloud service providers. Driven by trends including the requirements of data sovereignty to host data locally, within a particular European country
- Latin America: building hyperscale facilities at Scala Data Centers for new hyperscale requirements. Additionally, for edge / colocation data centers, the firm is buying (to repurpose existing facilities) and is also building
- Asia: building hyperscale data centers at AgileDC to support the extension of hyperscale customer’s global footprints
AtlasEdge Data Centres – Portfolio Company
AtlasEdge Data Centres is a European edge data center joint venture between Liberty Global and DigitalBridge. The company has been formed to serve the growing pan-European demand for scalable edge infrastructure.
Overall, the joint venture unlocks the value of Liberty Global’s digital real estate assets. At the same time, Liberty Global becomes the anchor tenant at 100+ AtlasEdge facilities, providing the business with stable revenue Day-1.
For DigitalBridge, the investment thesis for AtlasEdge Data Centres includes a significant opportunity to grow through partnerships and M&A across Europe. DigitalBridge will provide growth capital to support this $1bn+ platform so that it can achieve pan-European scale, enabling new applications.
Fiber – DigitalBridge Investor Day
DigitalBridge frames their Investor Day “buy vs. build” decision for the digital infrastructure sub-sector of fiber, in 2021, by geography as follows:
- North America: building fiber by extending Zayo’s network to customers. Additionally, buying some fiber in adjacent markets to complement its footprint (e.g., Intelligent Fiber Network)
- Europe: competitive sector, with a number of existing investor partnerships alongside carriers, to build dark fiber. Moreover, DigitalBridge does not foresee any near-term dislocations that would make the sector in Europe more attractive
- Latin America: building fiber through greenfield opportunities by leveraging existing platforms (completely de novo is difficult). For example, this includes fiber-to-the-home (FTTH) and both dark & enterprise fiber routes which are less developed
- Asia: more challenging given market structures with significant, well-established national incumbents. Indeed, creating or acquiring challenger fiber companies is difficult. However, in select markets, new fiber routes can be built for underserved areas
Zayo Group – Portfolio Company
Zayo’s focus to-date has been on providing “big pipes for big customers” by connecting fiber to data centers, cell towers and small cell networks. Specifically, this is accomplished through the company’s metro (intra-city) networks, long-haul (inter-city) networks, and tower backhaul.
Currently, Zayo is focusing on leveraging its network sections that connect to 37.0k on-net (lit) buildings. Particularly, the company intends to win small-, medium-, and large-sized customers from these buildings. With this approach, Zayo intends to increase its fiber network utilization.
Overall, Zayo’s new emphasis aligns with serving customers as they build their networks at the edge. Indeed, it is likely that Zayo will partner with DigitalBridge’s two existing edge investments in North America (DataBank) and Europe (AtlasEdge).
Small Cells & DAS – DigitalBridge Investor Day
DigitalBridge frames their Investor Day “buy vs. build” decision for the digital infrastructure sub-sector of small cells, in 2021, by geography as follows:
- North America: already building small cells at ExteNet and Boingo, alongside customer deployments. Notably, there are not a significant amount of independent small cell companies to buy
- Europe: emerging asset class in Europe, which can be invested in, through Freshwave Group
- Latin America: using tower platforms to build small cell infrastructure given that there are a lack of companies to buy. Specifically, building small cells in Brazil, Chile, Colombia, and Mexico
- Asia: building small cells and C-RAN hubs at Edgepoint Infrastructure
Boingo Wireless – Portfolio Company
Boingo Wireless is a U.S. indoor wireless neutral-host network provider operating 100+ venues and 40k indoor wireless nodes. In June 2021, Digital Colony Partners II completed the take-private of the company for $854m.
Over the past years, Boingo Wireless has shifted from having a retail focus to being an indoor network provider in-partnership with leading venues and enterprises. Indeed, the company’s revenues are built on long-term wireless venue rights and monetized via long-term contracts with wireless carriers.
For DigitalBridge, the investment thesis for Boingo Wireless resides in the convergence and growth opportunities of 5G, Wi-Fi 6, and CBRS. To propel Boingo, DigitalBridge will invest growth capital in what was previously a capital-constrained business, as a public company. Additionally, Boingo now has the ability to incorporate bolt-on M&A to build its platform.
Boingo’s growth will come from emerging opportunities including 5G private networks. For example, Boingo can deploy these networks for enterprises at locations where Boingo has infrastructure, including airports, convention centers, and military bases.
Asia-Pacific – Growth Strategy
DigitalBridge is investing in the Asia-Pacific region to take advantage of:
- Attractive economic fundamentals
- Expansion of its customer base i.e., following its key logos
- Opportunities to consolidate Pan-Asia platforms to a scaled, converged business
Through its private equity fund, Digital Colony Partners II, DigitalBridge has made two platform investments in Asia which are Edgepoint Infrastructure (Towers) and AgileDC (Hyperscale Data Centers). Additionally, the firm has portfolio operations and personnel in the countries of Japan, South Korea, Australia, Taiwan, and Singapore.
DigitalBridge targets deploying 2/3rds of its capital into Developed Asia and the remaining 1/3rd of its capital into Developing Asia.