Mar 9, 2021
[2 min Read]
CEO Marc Ganzi's compensation package includes a $100 million pay out if the stock reaches $10/share by 2024. The man is motivated to say at the very least.
The Company is a digital infrastructure asset manager that has previously concentrated on conventional real estate but is now undergoing a significant transition towards cell towers, data centers, cable, small cells, and DAS. The Company is aggressively transitioning out of existing assets and redeploying balance sheet resources into digitalization investments under its new leadership.
To summarize, we assume that digital infrastructure is one of, if not THE strongest, real estate sectors to invest in. There's a reason why equity in digital infrastructure is so important. For many years, REITs have outperformed the general market and REIT index, and currently sell at slightly higher multiples. An ever-increasing appetite for internet bandwidth and connectivity through different forms of wired and wireless environments drives the digital infrastructure industry's underlying tailwinds. Despite the fact that network capacity is critically important and demand is increasing dramatically, the underlying infrastructure throughout the world remains inadequate.
Two emerging trends underpin Colony's growth and go-to-market strategy: There are two main types of fully integrated solutions: 1) the "Edge" and 2) converged solutions. The term "Edge" refers to the movement of information and processing closer to end-users, usually to reduce latency and enable a variety of applications ranging from autonomous vehicles to artificial intelligence to robotic surgery. The "Edge" is primarily found in secondary markets' digital infrastructure.
Targeted latency of 10 milliseconds (ms), compared to LTE's average latency of 50 to 100 ms, seems to be the driving force behind Edge deployments. Databank, Colony's portfolio company and the US's largest private "Edge" datacenter player, estimates its latency to be 3 to 5 milliseconds within a 10-mile radius of its data centers, with no need for additional "tiny" deployments to deliver targeted latency within its current markets. Over the last year, you'll have heard Ganzi talk a lot about the "Edge" at public conferences, and you'll now start to hear other public peers begin their foray into this field. Today less than 1% of workloads are processed at the “Edge,” and we believe this figure rises to 10% of total global workloads in the next 5 to 7 years.
Asset monetization, new fund-raises, and additional analysts - Goldman, Morgan Stanley, JPM, BAML, and others - are all catalysts.
As it rotates out conventional real estate assets on its balance sheet, it is possible that the Company will de-REIT for a time. While digital infrastructure investments clearly qualify as REIT income, the Company must continue to generate enough “good REIT income” to keep its REIT status. With all of the shuffle, it's plausible that they'll lose this status for a quarter or two. While this should have little effect on fundamental valuation, it can push some REIT index funds to sell. If this happens, we think it would be a fantastic opportunity to advance one's position.