In a wide-ranging, exclusive interview with Inside Towers Managing Editor Jim Fryer and Business Editor John Celentano, Alex Gellman, CEO of Vertical Bridge REIT LLC, based in Boca Raton, FL, shared his perspectives on the current state of the tower business and his outlook for 2022. This is the first installment of a two-part series.
Vertical Bridge REIT, LLC, a DigitalBridge Group (NYSE: DBRG) portfolio company, advertises itself as “the largest private owner and operator of communications infrastructure and locations in the United States.” Inside Towers research supports that claim of a company that owns and has marketing and management rights to nearly 313,000 sites, including over 9,000 owned and master-leased towers, across the U.S. and Puerto Rico. While the portfolio comprises rooftops, billboards, utility attachments, convenience stores and other locations in support of wireless network deployments and offers edge data centers and in-building wireless network solutions, CEO Alex Gellman says the core business of the company, and the industry at large, is still macro towers. And Vertical Bridge, he adds, focuses more on the macro tower sector than any of its publicly traded rivals.
Gellman said they are actively putting up build-to-suit sites (saying “as many as we can!”… in lieu of a number) and, given market conditions, foresees the industry erecting as many towers in the next five years as have been built in the last ten. With that level of activity, Vertical Bridge is taking a pass on acquisitions, according to their CEO, as valuations have crept steadily higher. He pointed out that the metrics for tower valuations today are not the same as in 2009, in the aftermath of the 2008 financial crisis.
“It’s not the same blueprint for valuations,” Gellman said. Valuations bottomed out in ’09 at around 18X, traded in low 20X for years, and now have moved up to 30X. Even so, the waters get muddied when comparing public vs. private towercos. Gellman says the upcoming tax changes normally would have driven a flurry of activity among owners to sell towers before the tax laws change in the new year, even though those changes are not yet clear, but that activity didn’t materialize.
Public towercos, Gellman said, are evolving into broader infrastructure companies while DBRG, recently gone publicly traded, is trying to optimize its mix of infrastructure with towers, fiber, and data centers. But despite this diversification and small cells, seen by other players in the space, macro towers remain the biggest drivers of income, and central to Vertical Bridge’s 2022 efforts.
The industry as a whole is still riding a tsunami of activity that he said led one prominent analyst to dub it a “BBE,” Best Business Ever. Gellman is anticipating a strong build cycle driven by 5G and network densification with new spectrum availability. The wild card is determining when that new spectrum becomes 5G everywhere with true 5G capabilities.
Three national MNOs and DISH coming on seems to be a small number of carriers for the size of the U.S. market. Gellman said he is not convinced that these carriers “will have a smooth ride to nirvana.”
DBRG and VB
As an active part of the DBRG family, Vertical Bridge maintains a separate posture while collaborating with the DBRG portfolio companies such as Zayo for fiber, DataBank data centers and ExteNet small cells on what the customers want. The companies together, he said, deliver a combined, coordinated infrastructure solution although DBRG does not report numbers for its privately-held portfolio companies.
And although his company’s sites are all found in the U.S., internationally, VB is engaged in the tower business. Gellman is a Board member of the DBRG’s South American tower team while Bernard Borghei, VB EVP-Operations is on DBRG’s European tower board. Gellman says that they help the international teams in evaluating new deals and conducting diligence. “We’re plugged in with them and have day-to-day discussions.”
So, with DBRG portfolio companies collaborating, who takes the point? Gellman says it depends on the opportunities. The lead company could be VB or Zayo or DataBank. It’s all about convergence and how the DBRG companies combine to deliver what the customer wants. Convergence is emerging slowly and is becoming more advanced but “it’s not full on here yet,” Gellman said, but admitted DBRG portfolio CEOs get together a lot, three or four times a year to discuss how they can grow their respective businesses. “There is no rivalry, no friction among the business unit heads,” he said. “We communicate on a regular basis.”
Gellman contends DBRG’s diversified portfolio is superior to any siloed infrastructure company. Not everything at DBRG is under towers. For example, DBRG has attracted highly experienced data center talent to run DBRG data center companies.
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