On Monday, Wells Fargo Senior Analyst Jennifer Fritzsche hosted an investor call with Marc Ganzi, CEO of Digital Colony and incoming CEO of Colony Capital. The conversation touched on all areas of Ganzi’s rapidly expanding holdings: data centers, fiber, small cells and macro towers. Colony Capital has 40 percent of its assets under management in the Digital Infrastructure bucket, according to Fritzsche, with a goal of 50 percent by YE2020 and 90 percent by YE2021. Ganzi said the tough part of being in telecom is that the networks have to keep functioning and people in the industry don’t have an option of taking time off. “We take this responsibility very seriously,” he said. While he has been working mostly from home, he said he’s been working seven days a week through the crisis.
Fritzsche’s takeaways from the teleconference covered the following:
- “Wireless Towers – Colony has ownership stakes in 4 tower cos in North and South America and 2 in Europe, where he remains bullish. The businesses had strong Jan/Feb, although it did fall off somewhat in March. He noted it’s more of a struggle with the logistics around getting a lease processed and the paper chase that comes with this. He remains convinced TMUS will hit the ground running with its network plans once the Sprint deal officially closes. Ganzi echoed others’ comments that the urgency to get more spectrum to the market is as high as it has ever been. The recent Special Temporary Authority (STA) agreements offer a further boon for the tower sector (as more infrastructure will be needed to light this spectrum up).
- Data Centers – Colony Capital’s data center portfolio (across Canada, DataBank and Vantage) had strong Q1 performance. On the hyperscale side, Vantage had record bookings in Q1 on a MW basis, which remains an attractive business in today’s uncertain environment (>80 percent of tenants are investment-grade, >13 year weighted avg. contract duration). Ganzi did note that the supply chain could delay projects where the “shovels are just hitting the ground” or future development projects. DataBank had very solid trends in January and February, although he did note some bookings softness in the past week. He believes the COVID-19 crisis will only increase urgency around edge networks, highlighting Databank’s presence in secondary and tertiary markets.
- Small Cells – This segment continues to see the fastest organic growth of the four broadband infrastructure silos at Colony. Ganzi noted while there is “no lack of demand” for small cells but with the COVID situation, it could cause a delay in zoning given municipality closures due to Shelter in Place rules for new building permits and pole attachments. The point was made 5G equipment overlay could be easier in areas which already have C-RAN deployments because radios and software can be switched out quickly. On the spectrum side, Ganzi seemed particularly excited about the CBRS opportunity and opportunities that could drive for the sector (likely more indoor DAS and enterprise). Colony managed Extenet Systems (based here in Chicago) currently running multiple enterprise trails that prove out new business models for shared infrastructure.
- M&A Thoughts – Ganzi noted that some deals won’t get done in the current environment. Towers will likely be the easiest to finance given their long track record and predictable cash flows – fiber and small cells will likely be more difficult.”