High margins and recurring revenue represent the goals Uniti Group sets for its lease-up and greenfield builds, according to the company’s vice president of finance and investor relations, Bill DiTullio. Lease-up is the act of finding or acquiring tenants. Greenfield construction is the process of developing a new building or structure on a piece of land never previously developed, according to online training company Plan Academy.
During the past few years, Uniti Group had in progress as many as 15 or 16 greenfield builds, DiTullio said. The executive spoke about Uniti Group’s business with Anthony Klarman, managing director and global head of fixed income research at Deutsche Bank during the bank’s 29th annual Leveraged Finance Conference on Oct. 5. A real estate investment trust, Uniti Group provides wireless infrastructure in the form of optical fiber routes and telecommunications towers. According to the company, it owns hundreds of wireless towers, rooftops or land for wireless tower builds. Among other wireless service providers that use Uniti Group’s infrastructure, mobile network operators use Uniti’s fiber to backhaul network traffic from towers and small cells.
“The margins on those on those initial anchor builds — they were for small cells and dark fiber to towers, mostly — the margins were 80 percent, on average,” DiTullio said. “We targeted initial cash yields of 5 to 7 percent.”
Unity Group is in the early stages of using the greenfield builds to support incremental lease-up, DiTullio said. He said the lease-up could come from adding additional wireless tenants, but most of the lease-up comes from adding on non-wireless customers, which he identified as enterprise, healthcare, government, financial institutions and schools to the federally funded ERA program.
“The lease-up comes on with margins from 70 to 90 percent, so again, 80 percent, on average, with initial yields from 5 to 7 percent,” DiTullio said. “When you layer on the lease-up, you go into cumulative yields that are in the double digits, the low- to mid-teens. If you look at the leases that we have derived over the last several years, we’ve doubled our initial yield from 7 percent to 14 to 15 percent today. That’s just Uniti Fiber,” he said, referring to the company’s fiber network that reaches more than 250,000 on-net and near-net buildings, according to company statistics.
“Then you start to add on the lease-up that we’re doing at Uniti Leasing, where we’re just primarily leasing the fiber that we have the rights to, to other parties,” DiTullio said.
Uniti Leasing makes up about two-thirds of Uniti Group’s revenue and consists mostly of Uniti Group’s master lease agreement with Windstream, according to a statement the company filed with the Securities Exchange Commission. Uniti Group was spun out of voice and data network services provider Windstream in 2015 with a substantial portion of Windstream’s network assets, and it immediately leased the entire portfolio back for Windstream’s exclusive use, the statement reads. Other leasing revenue stems from sale-leaseback transactions with other fiber holders, according to Unity Group.
“Absent that initial capital expense required to acquire that fiber, there is no incremental capex required to lease that fiber to other parties,” DiTullio said. “You’re also talking about margins that are generally 90 to 95 percent costs. When you layer on that lease-up — again, early stages there, as well — you start getting into the high teens. We’ve almost tripled our initial yield over the last five years through these lease-up initiatives. We continue to drive lease-up in our Southeast footprint, primarily Uniti Fiber, by adding tenants — non-wireless customers — as well as driving incremental lease-up.”
Turning to the business that Uniti Group does with mobile network operators, Klarman asked Paul Bullington, the company’s senior vice president and chief financial officer about the effect of the merger of T-Mobile and Sprint, and the effect of network construction by newcomer Dish Wireless.
“The consolidation of Sprint and T-Mobile is an evolving thing,” Bullington said. “They’re one of our large wireless customers. There will be some consolidation and some erosion of some of that business as they consolidate.”
Uniti Group is seeing active demand from all of the wireless industry, Bullington said. He said it has been prevalent for the past few quarters, with much of it supporting network densification, deploying backhaul towers, adding new towers and deploying C-band spectrum, and some small cell activity. He said the growth in the wireless communications market helps Uniti Group fill some of that gap that otherwise might be left by business erosion caused by the consolidation of T-Mobile and Sprint.
“Dish provides a really bright spot for us,” Bullington said. “As we lose one provider in the marketplace to consolidation, we have a new one coming. There’s a large opportunity with Dish as a new fourth provider. Dish announced that Uniti is one of its preferred fiber providers. We’ve had initial orders from Dish.”
Most of Uniti Group’s revenue from Dish will come in 2022 as the company executes the orders and delivers services, which Bullington said mostly consist of backhaul-type tower services and some market-to market-type backhaul services.
“If you’re a wireless player, and you want to turn up services quickly, then Uniti is a natural place to turn, because we have a large installed base,” Bullington said. “With towers, we have broad market coverage, especially in the Southeast, where we have a lot of our thick Uniti Fiber metro markets. The installed base of towers can enable a wireless provider to quickly cover a market without waiting months or years for greenfield fiber to be put in the ground. That makes us attractive not only to Dish, but to any wireless player looking to quickly cover an area, if it’s one of the areas that we serve.”
Bullington said that Uniti Group remains interested in greenfield builds. He said that wireless customers make great anchor tenants.
“Although we’re more focused on lease-up today than maybe we have been in the past, with some of a larger number of anchor greenfield builds that we completed mostly last year, we still have some of those that are active,” Bullington said. “We’re interested in doing more, if the numbers and the returns are there. However, I expect most of that activity to be in the Southeast.”
Don Bishop is executive editor and associate publisher of AGL Magazine.
Edge computing has two aspects and three sizes, according to Marc Ganzi, president and CEO of DigitalBridge Group, which has 23 portfolio companies, including several that are involved with edge computing. According to American web infrastructure and security company Cloudfare, edge computing optimizes internet devices and web applications by bringing computing closer to the source of the data. Edge computing minimizes the need for long-distance communications between client and server, which reduces latency and bandwidth use, as stated by Cloudfare.
Within the DigitalBridge portfolio, companies that provide data centers, optical fiber connectivity, macro cell towers and edge infrastructure have roles to play in edge computing.
Of the two aspects of edge computing, Ganzi said, one is the physical aspect of where infrastructure sits. The second part, he said, is the experience, how the customer ultimately participates in a low-latency environment and how its applications work. He said the two functions are consumer and geography.
“Let’s start with geography,” Ganzi said, in speaking about edge computing with Matt Niknam, director of equity research and communications infrastructure analyst at Deutsche Bank, during the bank’s 29th annual Leveraged Finance Conference on Oct. 4. “Geography is pretty easy to understand, because there are three layers to edge infrastructure: main edge workloads, mid-range and micro edge,” he said.
“Main edge workloads are secondary and tertiary markets, where you’re not in a primary hyperscale market, as in Ashburn, Virginia; or Goodyear, Arizona; or some of the other big areas such as Atlanta, where you have massive, hundreds of megawatts of power and compute,” Ganzi said. “And then you go to you go outside of that for what’s happening in markets like Salt Lake City; Austin, Texas; Cleveland; and Minneapolis. These are good edge markets.”
The main edge workloads, Ganzi said, range from half-megawatt to 4-megawatt workloads in secondary and tertiary markets. He said that one of DigitalBridge’s portfolio companies, Databank, is providing such service every day. He said that Databank is delivering and fulfilling the main edge workload need for hyperscalers as they continue to deploy and densify their infrastructure in secondary and tertiary markets. According to manufacturer NAI Group, a hyperscaler is a data center that can add or reduce computing power quickly and cost-effectively. Market research firm International Data Corporation defines hyperscale computing as exceeding 5,000 servers and 10,000 square feet.
According to Ganzi, mid-range edge computing are special, purpose-built data centers between 5,000 and 20,000 square feet that most often are built in suburban locations. He gave as an example Somerset, New Jersey, that he said is neither a secondary nor a tertiary market. “That’s a suburb of New York,” he said.
In such suburban locations, Ganzi said, “you’ll have either a repurposed central office or a small data center. In there, you’ll have aggregation points of radios; you’ll have a small presence from the cloud players — maybe two to three racks — and then you’ll have adjacent content players there. That’s what I would call a true edge out workload, where you’re out in the suburbs and you’re trying to execute the main thesis of their business plan, which is to increase the throughput out to the suburbs, but reduce latency.”
The third layer to edge computing in the aspect of geography, Ganzi said, is the micro edge. He said DigitalBridge supplies micro edge computing through its portfolio company EdgePresence. DigitalBridge made its investment in EdgePresence through Databank. He described EdgePresence managers as great entrepreneurs.
“They really understand the business,” Ganzi said. “We have 12 micro edge locations, most of them at Vertical Bridge towers. We built at a couple at other towercos’ sites.”
EdgePresence housed the micro data centers in repurposed intermodal shipping containers, Ganzi said.
“We have anywhere from 10 to 20 racks in those containers,” he said. “We’re getting lease rates that are effectively a half of a broadband equivalent (BBE) for a rack. We’re leasing compute space at the base of cell towers.”
Ganzi said he wanted to be clear with investors, so he emphasized that placing edge micro centers would not happen at every cell tower.
“You don’t need an edge data center at the bottom of every cell tower,” he said. “You probably need one at one out of 100. We started trial testing this in Atlanta.” Ganzi said that Atlanta was a test market for the EdgePresence micro data centers.
“What’s great is that we’re doing all three,” Ganzi said, referring to the three layers of edge computing. He said that another DigitalBridge portfolio company, AtlasEdge Data Centres, in Europe, is using many previous Liberty Global central offices in a project to run more than 100 edge data centers on the continent. “We’re renovating them, putting in edge infrastructure,” he said.
Databank is doing massive edge workloads in places such as places like Bluffdale, Utah; Overland Park, Kansas; and Eden Prairie, Minnesota; Ganzi said. “Then, in Atlanta with EdgePresence, we’re building micro data centers,” he said.
“So, the three layers, right?” Ganzi said. “You go way out to a half-megawatt to 4 megawatts, then you get into a zone with 10 to 20 racks, and then you get to the micro edge, which is literally a couple of racks that are based at the tower. The network begins to move out, but you can take the network down to a very surgical level and deliver edge computing.”
In explaining that the objective is all about what the customer wants, Ganzi said that the customers in this instance are Amazon, Microsoft and Google. In addition, he said customers in the United States include the four major mobile carriers. More customers include the internet-of-things players, he said.
“It’s trying to make sure that we’re delivering a high-powered high compute experience on the periphery of the network, ultimately, to serve consumers,” Ganzi said. “This is totally consumer-facing, because most of the edge compute in an enterprise environment is going to happen in the bottoms of office buildings where we build out small edge data centers in the basements of office buildings as we light up enterprise CBRS.”
Don Bishop is executive editor and associate publisher of AGL Magazine.