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CORE Global Communications Infrastructure TowerCo Q2 State of the Industry In this quarterly report, we examine trends across the global tower industry, inclusive of both U.S. TowerCos under our coverage and the European and Emerging Markets names covered by European Telecom Services Analyst Simon Coles. Following 2Q21 results, we look at trends in key metrics within each of these regions. We also compare KPIs and valuation across all tower companies under Barclays coverage. As a firm, we have a positive view on the tower sector, and have Overweight ratings on AMT, CCI, SBAC, CLNX.MC, HTWS.L, VTWRn.DE and Equal Weight ratings on INWT.MI and SITESB1.MX. Increased services expectations again boosting AFFO guidance. All three U.S. tower companies under our coverage walked up their FY21 AFFO outlooks again due to higher expectations in their respective services lines. We believe this application activity will begin to flow through the property revenue line in roughly 6-9 months as leases come online. We believe the slight sequential bump in domestic organic growth seen by all three TowerCos in Q2 is the continued result of the 2H20 ramp in tower activity the companies previously discussed. FY21 domestic organic growth rates maintained. Despite the walk up in FY21 guidance, all three U.S. tower companies maintained their respective domestic organic tower growth outlooks. Due to the lead time between application activity and lease commencement, we believe the ramping application activity currently seen will not flow through to the property revenue line until 2H21, weighted more towards Q4. Small cells taking a backseat…for now. CCI notably lowered its small cell deployment and growth expectations for FY21, as carriers aggressively prioritize macro sites in the initial phase of their 5G rollouts. CCI management expects this trend to continue through FY22 with small cell focus remerging in FY23. Emerging market pressures abating. In 2Q21 AMT and SBAC experienced a more favorable FX environment than the companies assumed in previous guidance. However, macro/pandemic-related issues continued to negatively affect the emerging markets arena. SBAC maintained muted guidance for its EM-centric international footprint. As vaccination rates rise, we believe the EM market may begin to positively inflect. Both Helios and Telesites expect activity to ramp up in 2021 vs 2020 despite slow starts this year. Europe: many players, diverse assets. AMT closed the bulk of its Telxius transaction in Q2 and is integrating the sites into its broader portfolio. We believe AMT’s Europe assets will mute the FX headwinds of its legacy EM-centric international business. We anticipate a slowing of M&A activity in Europe and focus to return to organic growth. We see a healthy pipeline for growth in the coming years from new site builds and an increase in tenancy ratio as carriers densify their networks. Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 22. Equity Research 19 August 2021 INDUSTRY UPDATE U.S. Communications Infrastructure POSITIVE Unchanged U.S. Communications Infrastructure Tim Long +1 212 526 4043 tim.long@barclays.com BCI, US Brendan Lynch, CFA +1 212 526 9428 brendan.lynch@barclays.com BCI, US Alyssa Shreves +1 212 526 7570 alyssa.shreves@barclays.com BCI, US European Telecom Services Simon Coles, CFA +44 (0)20 3555 4519 simon.aa.coles@barclays.com Barclays, UK Restricted - Internal Barclays | Global Communications Infrastructure AMT, CCI, SBAC in Q2 reported ~233%, ~31% and ~107% y/y growth in their respective Network/Site Development Services revenue line. U.S. Landscape Tower Activity – Rising Activity Levels Lift FY21 Services Expectations The common 2Q21 theme across the U.S. tower companies under our coverage was the sizeable increases in domestic activity within the services segment (both AMT and SBAC booked record Qs within their respective services segments), and expectations of higher levels of gross new business within the property segment later this year and into 2022+. In fact, all three TowerCos raised their FY21 guidance again to account for expected increases within the services segment (although all maintained organic growth expectations). DISH was highlighted as an active contributor to each company’s services segment. Interestingly, SBAC highlighted DISH came out quicker than internal expectations with activity spread across SBAC’s geography (not just select markets). Both AMT and CCI shied away from carrier-specific activity commentary, but broadly mentioned DISH’s network buildout contributed to their elevated services activity. We view the rising activity levels, healthy backlogs, and increasing government focus on expanding coverage to translate into a long runway of growth for TowerCos over the next few years. FIGURE 1 Network/Site Development Services Revenue % Change Y/Y % Change Y/Y 320% 240% 160% 80% 0% -80% 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 AMT CCI SBAC Source: Company Documents, Barclays Research. 4Q20 1Q21 2Q21 Guidance for Domestic Tower Organic Growth Unchanged All three TowerCos maintained their respective FY21 organic domestic growth expectations (AMT ~3%, CCI ~6%, SBAC ~4%) despite the walk up in services outlooks. All three TowerCos experienced sequential bumps in organic revenue growth in Q2 (AMT +1.4% q/q, CCI +0.2% q/q, SBAC +1.4%), as the 2H20 ramp in activity continues to flow through the site/property revenue line. FY22 expectations are top of mind, as we move through 2H21. We expect CCI to release FY22 guidance in conjunction with its 3Q21 earnings release, setting the tone for the group. 19 August 2021 2 Barclays | Global Communications Infrastructure FIGURE 2 Organic Growth Recovering % Change Y/Y 8% 7.5% 6% 4.7% 4% 6.2% 4.5% 4.8% 6.1% 5.7% 6.4% 5.2% FIGURE 3 Though Our Organic Growth Expectations Still Below Historicals % Change 8% Y/Y 7.3% 6% 5.9% 6.6% 6.4% 4.0% 4% 2% 0% AMT CCI SBAC 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company Documents, Barclays Research Estimates. Note: As of 4Q20 AMT U.S. financials inclusive of Canada. 2.0% 2% 0% AMT FY19 CCI FY20 FY21e SBAC FY22e Source: Company Documents, Barclays Research Estimates. Note: As of 4Q20 AMT U.S. financials inclusive of Canada Sprint-Related Churn Begins To Impact Domestic Organic Growth This Year As seen above, we expect both AMT and SBAC to continue to lag the historical 6-8% growth rate, largely due to Sprint-related churn. Churn expectations for all three TowerCos below: AMT churn remained moderate at ~1.8% in 2Q21, however investor focus remains on the upcoming Sprint churn event beginning 2H21. Management has given both duration and cadence clarity around the expected ~$375m of total annualized legacy Sprint churn. We expect to see heightened churn beginning in 3Q21 (~2.8% churn), with an initial spike in 4Q21 (~6.5% churn) as the bulk of the leases come to term. We expect elevated churn through 2024, with churn the highest in 2022. We model ~5.2% of churn in FY22 with a step down in cadence in 4Q22. We expect FY23 and FY24 to exhibit the same churn cadence as FY22 (with a step down in each Q4). SBAC still expects ~$8m-$9m Sprint/T-Mobile consolidated-related churn this year. The majority of the Sprint/T-Mobile contracts still have several years on them, but we do expect the elevated churn to weigh on domestic organic growth rates. Specifically, Sprint decommissioning churn is expected to ramp up to ~$30m-$35m next year, come back down in 2023 and 2024 to ~$10m-15m per year, followed by heightened churn in the ~$40m range in 2025 and 2026. CCI expects to stay within normalized churn levels (~1%-1.5% annually) this year, and these expectations are inclusive of some of the Sprint leases that will come up for non-renewal this year. However, CCI has multiple years on average left on its contract terms with T-Mobile/Sprint, with a large chunk of legacy Sprint leases not up for renewal until 2023, and then again in 2028. 19 August 2021 3 Barclays | Global Communications Infrastructure FIGURE 4 Domestic Churn for CCI Normalizes, But AMT, SBAC Expect Churn Headwinds this Year % of Total Domestic Tenant 3% Billings Revenue 2.5% 2.5% 2.5% 2% 2.2% 2.2% 2.3% 2.0% ~2% 1% ~2% 1.9% ~2% 1.3% ~2% 1.5% 1.6% ~1.3% 1.8% ~1.3% 0% 1Q20 2Q20 3Q20 AMT CCI Source: Company Documents, Barclays Research Estimates. Note: We estimate CCI churn normalized to be ~1-1.5% 4Q20 SBAC 1Q21 2Q21 Carrier Capex Expectations Mirror Tower Industry Activity, Growth Outlooks Overall FY21 carrier capex expectations are up ~12% as all three carriers (carriers covered by Barclays North America Cable, Satellite & Telecom Services Analyst Kannan Venkateshwar) ramp network densification efforts and ramp 5G deployments. In Q2 Verizon signed deals with both CCI and SBAC to speed deployment of the carrier’s C-band equipment. We believe carriers’ urgency to deploy C-band equipment and boost network capacity will begin to flow through the TowerCos’ site/property revenue line in 2H21 (more weighted to Q4), as the lag between applications and lease amendments/commencements usually ranges from 6-9 months. FIGURE 5 Expected Q3 Sequential Rise in AT&T and Verizon Capex FIGURE 6 Carrier Capex Ramps as 5G Deployments Accelerate Capex ($M) 7,000 6,000 5,000 4,000 3,000 $5,979 $5,640 $4,887 $4,723 $4,494 $4,033 $3,959 $4,222 $3,183$3,270 $2,982 $2,856 2,000 1,000 Capex ($M) 25,000 20,000 15,000 10,000 $11,034 5,000 $15,675 $11,859 $20,140 $18,192 $21,686 0 T-Mobile AT&T 1Q21 2Q21 3Q21e 4Q21e Source: S&P Capital IQ. Verizon 0 T-Mobile Source: S&P Capital IQ. FY20 AT&T FY21e FY22e Verizon Customer Concentration as a % of Domestic Site Leasing Revenue Although both AMT and SBAC have international exposure, the majority of their total property revenues is derived from the US (~55% and ~80%, respectively). The largest customers by revenue for all three tower companies are the U.S. nationwide carriers: TMobile, AT&T Wireless and Verizon Wireless. 19 August 2021 4 Barclays | Global Communications Infrastructure FIGURE 7 T-Mobile Customer Concentration as a % of Domestic Site Leasing Revenue % of Total Domestic 50% Site Leasing Revenue 40% 31.2% 30% 34.4% 33.0% 40.2% 33.0% 20% 10% 0% AMT CCI SBAC 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company Documents, Barclays Research. Note: TMUS customer concentration metrics include Sprint on a historical basis. 40.0% FIGURE 8 AT&T Wireless Customer Concentration as a % of Domestic Site Leasing Revenue 40% % of Domestic Site Leasing Revenue 35% 29.4% 30% 30.8% 32.0% 30.4% 25% 20% 23.0% 20.0% 15% 10% 5% 0% AMT CCI SBAC 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company Documents, Barclays Research. FIGURE 9 Verizon Wireless Customer Concentration as a % of Domestic Site Leasing Revenue 30% 27.5% % of Domestic Site Leasing Revenue 25% 20% 21.7% 18.0% 21.0% 18.6% 15% 20.2% 10% 5% 0% AMT CCI SBAC 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company Documents, Barclays Research. Labor Supply Tight but No Adverse Effects…Yet We believe all three nationwide carriers, along with new entrant Dish, will be concurrently and aggressively building out and densifying their networks over the next few years. Although we view this as a positive to drive higher gross activity across the tower industry, we believe TowerCos will only be able to fully appreciate these activity levels if the market maintains a labor supply to support the carrier demand. Despite the record levels of services activity witnessed in Q2, all three TowerCos have yet to see constraints on their respective labor supplies that would adversely affect their businesses. It’s worth noting, all three maintain in-house crews, giving them flexibility. However, CCI acknowledged the tight labor market as a challenge. We believe this issue will become more top of mind as 5G deployments accelerate in FY22+. 19 August 2021 5 Barclays | Global Communications Infrastructure Margins Expanding for the Group SBAC has consistently the highest gross margin growth profile of the group, while AMT has recently shown marked improvement. CCI remains the lowest in the group given its fiber and small cell exposure. FIGURE 10 Domestic Tower Site Gross Margins Gross Margin 90% 84% 80.5% 78% 72% 81.4% 82.8% 74.1% 74.9% 82.2% 76.8% 83.5% 84.7% 66% AMT 2Q19 3Q19 4Q19 1Q20 Source: Company Documents, Barclays Research. CCI 2Q20 3Q20 4Q20 SBAC 1Q21 2Q21 International revenue accounted for ~45% of AMT’s Q2 Property Revenue Targeted Domestic M&A Opportunities Despite the U.S. market’s maturity and higher valuations attached to available assets, the TowerCos continue to purchase domestic assets they deem strategically valuable to their portfolios. During the quarter and subsequent to quarter end, SBAC acquired additional communication sites. In Q2 SBAC acquired 57 sites for total cash consideration of $67m, and also built 98 new sites in the Q. Subsequent to Q2 end, the company purchased or agreed to purchase ~400 additional sites in existing markets for an aggregate price of $95m. The deals this Q were located mostly in the US. Management anticipates closing on the majority of the sites under contract by the end of the year. International Landscape Both AMT and SBAC operate internationally (CCI operates solely within the U.S.). Both companies experienced FX headwinds through FY20, though AMT now expects FX tailwinds this year. SBAC’s FX rates for the Q were ahead of internal expectations, contributing Y/Y tailwind comparisons, though mgmt still expects slight FX headwinds for the year. AMT derives almost half of its property revenue (including international passthrough revenues) from its international segment, and operates in over 20 countries across Asia, Africa, Europe and Latin America. AMT results have stayed range-bound the past few quarters; international organic tenant billings were 5.3% in Q2. Management boosted FY21 organic tenant billings growth expectation for the region to ~5-6%, which now contemplates the Telxius acquisition. 19 August 2021 6 Barclays | Global Communications Infrastructure SBAC derives roughly 20% of its total site leasing revenue from its international business, and operates in 14 countries throughout South and Central America, Canada and South Africa. SBAC 2Q21 core organic international revenue grew ~1% sequentially and ~10% y/y. We view SBAC as more selective than some peers in choosing foreign exposure, but realize emerging markets continue to experience outsized macro and pandemic-related effects, ultimately weighing on SBAC’s international business. The company expects a similar level of organic leasing activity in 2021 to 2020, materially below the high single-digit/low double-digit growth seen historically. SBAC has seen considerably lower international churn rates than AMT as the company lacks exposure to Asia markets that have been affected by aggressive carrier consolidation events and AGR-related issues. FIGURE 11 AMT 2Q21 Tower Portfolio Composition FIGURE 12 SBAC 2Q21 Tower Portfolio Composition LatAm 23% Europe 12% Africa 10% U.S. 20% Asia 35% Other International 19% Brazil 30% U.S. 51% Source: Company Documents, Barclays Research. Note: U.S. is inclusive of Canada, does not account for complete Telxius transaction Source: Company Documents, Barclays Research. Cellnex generates all its revenue in Europe. Initially, a predominantly Spanish and Italian company, after a spate of successful transactions, Cellnex has expanded across Europe adding France, Switzerland, the Netherlands, the UK, Ireland and Portugal to its portfolio to become the largest independent TowerCo in Europe. It recently announced acquisitions that have seen it enter Denmark, Sweden, Austria, as well as Poland. Inwit derives 100% of its revenue in Italy with Vodafone and Telecom Italia contributing ca90% of its revenues from macro sites, small cells and fibre to the tower. Vantage Towers is the second MNO-captive TowerCo to list in Europe after Inwit. It generates the majority of its revenues and EBITDA in Germany but has towers across 8 European markets. It also has co-controlling stakes in Inwit and the UK TowerCo Cornerstone. Helios Towers is the only listed purely African TowerCo with assets across the continent. It has announced a number of acquisitions in the last year that will give it presence in 11 countries once all completed. 19 August 2021 7 Barclays | Global Communications Infrastructure FIGURE 13 International Tower Site Rental Organic Contribution Growth % Change Y/Y 15% 10.0% 9.5% 8% 5.4% 5.3% 0% AMT SBAC 2.7% 5.8% 1.0% 4.6% Cellnex Inwit 11.0% 5.4% 6.7% 0.0% Vantage 1.9% Helios Telesites -8% 2Q20 3Q20 Source: Company Documents, Barclays Research Estimates. Note: AMT estimates are not completely inclusive of Telxius transaction 4Q20 1Q21 2Q21 Latin America LatAm represents some of the largest international exposure for both AMT and SBAC – in both cases weighted heavily towards Brazil. The Brazilian market has been uneven for AMT and SBAC over the last few years, owing to factors including the broader economy, FX headwinds, the Oi telecom bankruptcy, and now the Covid-19 pandemic. AMT – LatAm AMT’s LatAm portfolio consists of roughly ~48,700 sites; operating primarily in Brazil (~23,000 sites), as well as Argentina, Chile, Colombia, Costa Rica, Mexico, Paraguay, and Peru. Within select countries, AMT also owns and operates fiber assets, urban telecommunication assets and other infrastructure. The LatAm region drove the company’s Q2 international organic tenant billings growth, largely due to new business commencements and higher escalators, primarily in Brazil. AMT raised its FY21 organic tenant billings growth expectations in the region from ~7% to over 7%. Slightly lower churn across the region is now expected as well, although management does still expect churn to trend higher in 2H as some carrier consolidation occurs in markets such as Mexico. During the Q AMT closed on its LatAm sites (Brazil, Chile, Peru, Argentina) as part of its Telxius transaction (~7,000 existing sites). Management highlighted a recent colocation deal with a major customer in Colombia, which they expect to inflect growth higher in that market in the coming Qs. AMT expects to construct around 600 sites across Latin America this year. 19 August 2021 8 Barclays | Global Communications Infrastructure FIGURE 14 AMT Brazil, Colombia, Mexico Site Portfolio (000s) # of Sites 24,000 23,162 19,007 18,000 12,000 6,000 4,984 9,551 4,989 9,947 0 2Q19 Brazil 3Q19 4Q19 1Q20 Colombia 2Q20 3Q20 Source: Company Documents, Barclays Research. Mexico 4Q20 1Q21 2Q21 FIGURE 15 AMT Remaining LatAm Site Portfolio (000s) # of Sites 4,500 3,600 3,682 4,345 2,700 1,800 900 1,327 487 1,314 1,436 1,079 592 674 61 0 Argentina 2Q19 3Q19 Chile Costa Rica Paraguay Peru 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company Documents, Barclays Research SBAC – LatAm SBAC operates in Brazil (~10,000 sites, ~60% of the company’s International Tower portfolio), Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, Panama and Peru, but unlike AMT, SBAC has not expanded its business beyond towers in the region. Gross same tower organic growth in Brazil was 8.9% on a constant currency basis. Brazil comprised ~11.1% of all cash site leasing revenues during 2Q21. FIGURE 16 SBAC International Tower Portfolio Tower Count 18,000 14,000 13,474 8,566 14,519 8,560 16,002 9,883 16,052 9,917 16,132 9,913 16,229 9,817 16,377 9,877 16,452 10,113 16,548 10,156 10,000 6,000 2,000 2Q19 3Q19 4Q19 1Q20 2Q20 International Towers 3Q20 4Q20 Brazil Towers Source: Company Documents, Barclays Research. Note: Brazil Tower estimates represent approximations based on % of total. 1Q21 2Q21 Despite the above-mentioned risks and headwinds pressuring the LatAm business, both AMT and SBAC see long-term growth opportunities in the region. Telesites – Mexico and Costa Rica Telesites is a Mexican TowerCo spun out of AMX. It also has a small portion of towers in Costa Rica. It operates 18k sites in Mexico and ca300 in Costa Rica. AMX is its main client and constitutes the vast majority of its revenues. 19 August 2021 9 Barclays | Global Communications Infrastructure Africa AMT experienced FX tailwinds in Q2 due to the South African Rand, West African Franc and Ugandan Shillings, offset by negative impacts related to fluctuations in the currencies of the company’s other African markets. Despite FX volatility and pandemic/macro-related headwinds, both AMT and SBAC expect a long runway of growth in the region as the majority of the markets they operate in are in early stages of technology evolution with 4G penetration only around 10%, and average mobile data usage a fraction of LatAm numbers as a result. AMT – Africa AMT’s Africa portfolio is comprised of ~21,000 sites in Burkina Faso, Ghana, Kenya, Niger, Nigeria, South Africa and Uganda. AMT also owns fiber and fiber-related assets in South Africa. Organic tenant billings growth across Africa was 8.2%, including 11% growth in Nigeria where AMT continues to benefit from an MLA signed last year with a major customer. Organic tenant billings growth in FY21 is still expected to be >8% with Nigeria leading the way in terms of higher activity levels. As we move into 2H21 management expects Africa organic tenant billings growth to accelerate above 9%. AMT expects to have invested upwards of $250M by the end of 2021 on lithium ion batteries, solar power solutions, and other energy-efficient tech in the region. The region’s per site fuel usage is down ~35%. ~1,300 new builds are planned in the region for FY21. SBAC – South Africa, Tanzania SBAC expanded its regional presence this Q through a new joint venture with Paradigm Infrastructure (SBAC will be the majority partner), in which they entered into a contract with Airtel Tanzania to purchase ~1,400 towers in Tanzania. This is the company’s initial entrance into the country and first time expanding in the region beyond South Africa. Under the agreement Airtel will leaseback space on the towers and will also provide a fixed minimum number of build-to-suit towers during the first five years following the closing of the acquisition. The acquisition is anticipated to close in stages beginning in Q4. We view the Tanzania assets as attractive due to the country’s positive demand dynamics (mobile penetration rate remains only 41%), rationalized carrier market (three major carriers who are relatively well balanced in terms of market share), and active wireless investment environment. Additionally, ¾ of the sites are located on the power grid, and the majority of the existing revenues are denominated in US dollars. Although bullish on the region long term, SBAC did continue to see pandemicrelated effects in its South African (and LatAm) markets, which have impacted the company’s return to historical organic growth levels in these markets. Subsequent to quarter-end, SBAC agreed to purchase ~400 additional sites in the company’s existing markets. Helios - Africa Helios saw a modest pick-up in activity in 2Q but is still some way down on the required rate to reach guidance for the year. Despite this, the company reiterated tenancy guidance in 2021 of 1-1.5k additional tenants suggesting a material pick-up in activity in 2H. Helios 19 August 2021 10 Barclays | Global Communications Infrastructure has completed its Senegal acquisition expects to complete Oman, Malawi and Madagascar to close in 2H with Chad and Gabon to follow in early 2022. Helios is currently present in the Democratic Republic of Congo, Tanzania, Congo Brazzaville, Ghana, Senegal and South Africa. With its recent acquisition announcements, Helios will exceed its targets of reaching 12k+ towers in 8+ markets well ahead of its 2025 target. Like its U.S. competitors, Helios sees strong organic growth ahead, as well as a number of inorganic opportunities given the relative under-penetration of independent TowerCos in Africa, compared to say the U.S. Helios indicates it is monitoring as many as 100k sites for potential M&A opportunities. Asia India remains pressured by carrier consolidation, litigation surrounding AMT’s tenants (muting carrier capex), FX volatility and the Covid-19 pandemic. Although management remains bullish on long-term growth expectations, continued elevated churn levels are protracting any signs of a significant inflection point in near-term growth prospects. As of Q2, India represents AMT’s second-largest international exposure, with the Asia region comprising ~13.4% of 2Q21 property revenue (roughly flat sequentially). AMT’s Asia business consists of roughly 76,200 sites in India (18 within the Philippines), inclusive of the fiber and fiber-related assets it owns in India. Organic tenant billings decline of 1.7% in Q2 was in line with management expectations, and due to the ongoing AGR issue and carrier consolidation related churn. However, fairly healthy gross new business activity was witnessed in the Q. Overall organic tenant billings growth expectations for FY21 remain roughly flat to FY20 levels. Churn of ~11% is expected in FY21 – although higher than historical levels, it’s down ~3% from FY20. The churn is primarily driven by holdover consolidation impacts and the effects of the AGR cadence. We expect churn rates in India to continue gliding down over the next several years. 19 August 2021 11 Barclays | Global Communications Infrastructure FIGURE 17 International Churn as a % of Total Tenant Billings Revenue % of Total Tenant Billings Revenue 16% 14.7% 13.8% 12% 8.3% 8% 5.8% 4.7% 5.0% 4.3% 4.6% 4.3% 4% 2.2% 0.8% 0.6% 0.6% 0.5% 0.5% 0.4% 0.6% 1.3% 0% 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 AMT SBAC Source: Company Documents, Barclays Research. Europe Europe remains a developing TowerCo market compared to other more mature markets globally. This is rapidly changing as we have seen a significant increase in the amount of operators selling towers in recent years. Even still, we estimate that in Western Europe the number of towers owned by independent TowerCos is ca40%. This rises to 75% when including MNO-captive TowerCos (TowerCos where the main customer is also the biggest shareholder) but still means there is a significant opportunity left for future M&A, in our view. We expect this to continue to dominate the narrative in European Towers although activity could slow in the next couple of years given the moves by the larger operators. For market-by-market forecasts please see Tower Topics II – start of a new wave (26 January 2021). FIGURE 18 European tower ownership overview (%) Independent TowerCO 43% MNO owned 25% FIGURE 19 European tower ownership by country (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% UK Germany France Spain Italy Belgium Netherlands Switzerland Portugal Sweden Norway Finland Denmark Austria Greece MNO-captive TowerCo 32% Source: Barclays Research estimates. N.B. MNO Captive TowerCo defined as TowerCos where MNOs have majority ownership MNO owned MNO-captive TowerCo Source: Barclays Research estimates Independent TowerCO AMT – Europe Europe (~25,300 sites, ~4% of Q2 property revenue) is currently the smallest market in which AMT participates on a revenue basis, and AMT operates in France, Germany, Poland, 19 August 2021 12 Barclays | Global Communications Infrastructure and Spain. However, during Q2 AMT closed the bulk of its Telxius transaction, with only ~4,000 German rooftop sites remaining to close post Q2 closure. This transaction fundamentally changes the company’s European and international businesses. On a total company run rate basis, ~60% of AMT’s property revenue is now derived from developed technology advanced markets. The Telxius transaction will materially expand the TowerCo’s European presence with it becoming the 2nd largest independent European TowerCo. This transaction is AMT’s first entry into the Spain market as well. The Telxius portfolio consists of ~31,000 existing sites, concentrated in Germany (~12,500 existing sites) and Spain (~11,300 existing sites), as well as ~7,000 existing sites in Latin America. In addition to the acquisition, AMT will also acquire ~3,300 future committed build-to-suits – the company expects to spend ~$500m to construct the committed pipeline in Germany and Brazil through 2025. Management expects minimal churn on the Europe Telxius sites (~0.5% churn vs. AMT Europe legacy business churn ~2.5%-3%) given most of the existing tenancy is represented by Telefonica, with an average non-cancellable lease term between 7-8 years. Q2 growth was favourably impacted by one month of contributions from the Telxius sites that closed and FY21 Europe organic tenant billings growth expectations were raised to over 5% (up ~150bps vs prior outlook) due to the Telxius assets, but also better performance within the legacy business. FY21 Organic tenant billings growth for AMT’s legacy European assets is now expected to be above 4% (up >50bps vs. prior expectations), as 5G-driven activity (particularly in Germany) is driving higher levels of gross new business. The colocation and amendment growth expected from the Telxius assets in 2H21 is driving another ~100bps of upside to the organic tenant billings growth rate. We believe Telxius’s primarily urban-oriented portfolio of Germany sites compliments AMT’s existing Germany sites (primarily rural and suburban) and exposes the company to greater 5G and network densification opportunities in the region. Post Telxius, AMT’s European presence is expected to compromise ~20% pro forma international property revenue, with developed markets representing >60% of pro forma total company revenue. 19 August 2021 13 Barclays | Global Communications Infrastructure FIGURE 20 AMT International Tower Portfolio Tower Count (000s) 80,000 74,046 75,124 60,000 40,000 37,693 20,000 43,368 12,182 20,939 0 LatAm Africa 2Q19 3Q19 4Q19 1Q20 Source: Company Documents, Barclays Research. Note: Does not include complete Telxius transaction 2Q20 25,265 4,713 Asia 3Q20 4Q20 Europe 1Q21 2Q21 Cellnex - Europe For the listed European TowerCos, M&A continues to dominate the narrative. Cellnex has announced a number of deals in 2021 although indicated it would take its time on its next acquisition. Cellnex still has €9bn of M&A pipeline to execute. Focus has heightened on the possibility Cellnex could complete a deal for Deutsche Telekom in Germany which we believe would be taken well but will likely take time to be arranged/completed – see DTE towers in focus (21 May 2021). On an organic basis tenancy ratios continue to steadily increase as operators densify 4G networks, plug coverage gaps and begin 5G rollouts (which we expect to accelerate in 2021). In some markets new entrants (e.g. Iliad in Italy) are driving organic growth ahead of the historical run rate. Other markets such as France are incentivising operators to improve coverage in “grey spots” which is also helping to drive organic tenancy ratio growth. In markets where TowerCos have mature assets, tenancy growth remains positive but levels are much more muted. 19 August 2021 14 Barclays | Global Communications Infrastructure FIGURE 21 Cellnex: Spain towers and tenancies (LHS = k, RHS = x) 10 2.20 9 8 2.00 7 1.80 6 5 1.60 4 3 1.40 2 1.20 1 0 1.00 FIGURE 22 Cellnex: Italy towers and tenancies (LHS = k, RHS = x) 25 1.60 20 1.50 1.40 15 1.30 10 1.20 5 1.10 0 1.00 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Towers (LHS) Tenancy ratio (RHS) Source: Barclays research estimates, company data Towers (LHS) Tenancy ratio (RHS) Source: Barclays research estimates, company data All markets are concentrating on filling so called “white spots”, areas with no network coverage, which we believe should support new site build in the short to medium term. A number of TowerCos, both listed and private, have announced BTS agreements with operators. Vantage – Europe Vantage is the TowerCo spun out of Vodafone with towers across eight European markets as well as owning two co-controlling stakes in Inwit and Cornerstone (UK). Germany is its largest market and largest contributor to revenues (and potentially to growth too, in our view). Spain and Greece are its other main markets. Vantage typically has a number one or number two position in each of its markets due to Vodafone’s historically dominant positions. FIGURE 23 The majority of VT’s towers are in Germany and Spain (%) HungaryIreland Romani4a% 3% 5% Portugal 7% Czech 8% Germany 43% FIGURE 24 We expect tenancy ratios to grow across markets (x) 2.0 1.5 1.0 Greece 11% Source: Company data 0.5 Spain 19% 0.0 Germany Other Europe Spain 2020 2021E 2022E 2023E 2024E Source: Company data, Barclays Research estimates Greece 2025E Inwit – Italy Inwit is the TowerCo created when Telecom Italia spun out its passive infrastructure in 2015. In 2020, Inwit acquired Vodafone’s Italian towers to create the largest TowerCo in the Italian market. Going forward, Inwit has secured significant growth from TI/Vodafone and 19 August 2021 15 Barclays | Global Communications Infrastructure hopes to grow its tenancy ratio by hosting other operators (MNOs, FWA, IoT, etc.) on its infrastructure. FIGURE 25 Inwit: Number of sites (000) 25 20 15 10 5 0 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Source: Company reports FIGURE 26 Inwit: Number of tenants (000) 50 2.0 45 40 35 1.9 30 25 20 15 1.8 10 5 0 1.7 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 Number of Tenants Tenancy Ratio Source: Company reports Fiber 19 August 2021 Domestic Opportunities Vary/Muted Depending on the TowerCo CCI – Domestic Fiber Player via Small Cells Among the U.S. TowerCos under our coverage, CCI is the only company to aggressively pursue an outdoor small cell, and by extension, fiber strategy in the U.S. CCI currently has ~80,000 small cells on air/committed in backlog and ~80,000 route miles of fiber concentrated in the top U.S. markets. Management lowered its FY21 organic growth expectations for small cells along with deployment expectations, largely a result of customer focus shift (customers prioritizing macro sites), the Sprint small cell cancellation previously announced, along with general deployment challenges. CCI now expects to deploy ~5,000 small cells this year (down from ~10,000) and small cell growth to be ~10% (down from ~13% growth). However, fiber solutions expectations were reaffirmed at ~3% for the year. Management expects the reprioritization of capital spend towards macro sites (vs small cells) to continue through FY22, most likely becoming more balanced in FY23. AMT, SBAC – Domestic Fiber/Small Cell Players via Indoor DAS AMT and SBAC both have domestic indoor DAS businesses, which unlike outdoor small cells, can capture a level of exclusivity akin to a macro site – when the company builds a DAS solution, no one can build over them, and they are effectively an exclusive, neutral host. However, the higher costs required to deploy an indoor DAS solution have restricted the TAM. International Opportunities Viewed More Attractive by AMT, SBAC AMT – International Fiber Player AMT views international fiber assets as more attractive than domestic opportunities due to the international market’s more tower-like model of fiber – multiservice, multitenant, a longterm anchor contract, escalators, exclusive real estate rights. AMT currently has a sixcountry fiber footprint within Mexico, Brazil, Argentina, Colombia, South Africa and India. 16 Barclays | Global Communications Infrastructure The company covers over 30,000 route kilometres and passed 1.25m homes in these markets. The networks are mix of active long haul metro, some B2B in Mexico and Brazil, and a concentration of fiber to passive optical networks in South Africa, Colombia, Brazil and Argentina. AMT has spent several billion dollars of capex over the past four years in these six markets - $700m for acquisitions and $300m for development and redevelopment capex. Management believes they generated about $100m in revenue in 2020, and their ROIC collectively is in the ~5%-5.5% range. AMT’s current fiber strategy in Mexico and Brazil is to pivot their fiber businesses there to wholesale long-term contracts, which management is looking to do via long-term contracts with Tier 1 carriers. This transformation could involve some strategic and organic transactions. Management is also looking to reach certain economics in these fiber deployments, particularly in South Africa and Brazil. SBAC – Interested in International, No Assets Yet Management maintains they do not have an interest in fiber within the U.S., due to lack of exclusivity, but have considered the possibility of it in select international markets. However, management does not yet have any international fiber assets within its portfolio. Europe – Cellnex, Inwit and Vantage all exploring fibre opportunities All the listed European TowerCos have talked up the fibre to the tower opportunity seeing it as an extension to macro sites that they already offer. Deals so far have been limited (Cellnex has signed one with Bouygues in France, Inwit is building fibre to the tower for TI/VOD), but we expect this to be an area of growth for TowerCos in the future. Importantly, the contract structure appears analogous to macro site rental contracts, ensuring good visibility on cash flows as tower investors are used to. Comparative Metrics Across the Tower Industry Adjusted EBITDA Varies Across Tower Companies U.S. TowerCos The three tower companies under our coverage exhibit markedly different Adjusted EBITDA margins due to the diversity of their business lines. SBAC – the closest macro site pure-play of its peer group – consistently posts the highest Adjusted EBITDA margins. SBAC avoids lower margins seen in more ancillary businesses (e.g. small cells and fiber), and roughly ~80% of its total site leasing revenue is derived from its U.S. business. AMT is the most geographically diverse of the group. We believe the company’s Telxius transaction will help balance its historically more emerging market-focused international footprint, reducing FX and economic volatility more frequent in the EM arena. CCI historically has the lowest Adjusted EBITDA margins of the three, largely due to its small cell and fiber business. Building small cells (and by extension fiber) is highly capex intensive and is in its early stages (thus, immature assets). 19 August 2021 17 Barclays | Global Communications Infrastructure European TowerCos International TowerCos, Cellnex, Inwit, Vantage and Helios (all covered by Barclays European Telecom Services Analyst Simon Coles) have markedly lower adjusted EBITDA margins than that of their U.S. counterparts – ranging from mid-40% to mid-60%. There are a number of reasons for this. Inwit has the highest margins in European Towers at 65% (adjusting for leases). Inwit has been aggressively renegotiating lease costs and has successfully reduced the average lease cost from €15k to €12k in the past 5 years. Inwit does not book powers costs in its P&L. Cellnex reports four regions which have very different margin profiles. Spain has EBITDA margins in the 40s, supressed by its broadcast and network services and other businesses, which are lower margin than traditional towers. Italy is also in the 40s due to its relatively low tenancy ratio (1.5x). The rest of Europe has higher margins due to higher tenancy ratios and lower lease costs on average. France margins are also higher at ca60%. Cellnex books power costs in the P&L, even though they are a pass through, which we estimate depresses margins by ca6%. Vantage has EBITDA (Vantage calls it EBITDAaL) margins in the mid 50s, which puts it behind Inwit but ahead of Cellnex. Given Vantage is still a new company, we expect margins to improve materially in the coming years as a combination of tenancy ratios and ground lease cost renegotiation drives margins higher. Helios generates EBITDA margins in the high 40s across its African footprint. The new entry into South Africa is a modest drag as the business ramps up, and its pending acquisitions will also dilute margins (primarily due to lower tenancy ratios) but across its other market margins are broadly similar with the higher tenancy ratio markets generally delivering better margins. Grid infrastructure availability also plays a significant role; a reliable grid can reduce the reliance on diesel materially, which helps margins. 19 August 2021 18 Barclays | Global Communications Infrastructure FIGURE 27 U.S. TowerCo Adjusted EBITDA Margins 80% Adjusted EBITDA Margin 60% 62.7% 64.5% 57.6% 70.0% 59.0% 70.5% 40% FIGURE 28 International TowerCo Adjusted EBITDA Margins 80% Adjusted EBITDA Margin 69% 60% 46% 40% 55% 56% 56% 43% 65% 61% 48% 20% 20% 0% AMT CCI FY18 FY19 FY20 FY21e Source: Company Documents, Barclays Research. SBAC FY22e 0% Cellnex Inwit FY18 FY19 Vantage Helios Telesites FY20 FY21e FY22e Source: Company Documents, Barclays Research. Note: Helios metrics adjusted to include lease expense; Cellnex and Inwit metrics adjusted for IFRS16 eg EBITDAaL to make comparable to US peers. AFFO and AFFO per Share Growth U.S. TowerCos AMT lifted its FY21 Consolidated AFFO guidance due to expected contributions from the Telxius assets, assumptions its agreements with CDPQ and Allianz close in Q3, and positive FX impacts compared to the prior outlook. Management reiterated their longer-term target of double-digit average annual AFFO/sh growth. AMT FY21 Consolidated AFFO and AFFO/sh outlook raised to $4,305m and $9.50 at the midpoint, respectively. We model $4,297 and $9.53, respectively. Due to the more meaningful minority interest component (CDPQ and Allianz are expected to own 30% and 18% post close of ATC Europe, respectively), management introduced AFFO attributable to common stockholders outlook metrics for FY21 of $4,195m and $9.26. We model $4,187m and $9.29, respectively. CCI raised its FY21 AFFO/sh guidance to 12%, markedly above management’s long-term annual target of 7-8%, and lifted its AFFO guidance by $20m. The lift in AFFO guidance reflects the elevated tower activity levels, including an additional $15m in straight-line revenue and a $45m increase to the expected contribution from services. CCI FY21 AFFO and AFFO/sh outlook raised to $2,966m and $6.83 at the midpoint, respectively. We model $2,960m and $6.82, respectively. SBAC also lifted its AFFO guidance due to increased customer activity, improved FX rates, reduced nondiscretionary cash capital expenditures, and reduced cash interest expense as a result of refinancings. SBAC FY21 AFFO and AFFO/sh outlook raised to $1,173m and $10.52 at the midpoint, respectively. We model $1,169m and $10.50, respectively. 19 August 2021 19 Barclays | Global Communications Infrastructure FIGURE 29 AFFO per Share Growth % Change 30% Y/Y FIGURE 30 AFFO Growth 30% % Change Y/Y 25.1% 20% 12.9% 10% 15.2% 12.1% 7.6% 5.3% 10.5% 20% 15.8% 10% 12.4% 5.8% 3.6% 9.4% 0% AMT FY18 FY19 CCI FY20 FY21e SBAC FY22e Source: Company Documents, Barclays Research Estimates. 0% AMT FY18 FY19 CCI FY20 FY21e SBAC FY22e Source: Company Documents, Barclays Research Estimates. European TowerCos As European TowerCos are not REITs, they do not report AFFO directly. However, they do report recurring levered FCF (some give it a different name), which is a good proxy. All operators listed in Europe, on the whole, have been delivering RLFCF growth in recent years. There is less focus on quarterly RLFCF in Europe as there is on AFFO in the U.S., and as such Cellnex/Inwit/Helios see volatile growth on a quarterly basis. However, on an annual basis they are all growing. Cellnex has delivered consistent growth, mainly driven by M&A, and is guiding for RLFCF to increase ca50% increase in 2021, after ca75% growth in 2020. Inwit has a long term underlying RLFCF target of delivering €600m of RLFCF by 2026. Vantage expects to deliver RLFCF growth of mid-single digit over the medium term. Guidance for this year implies 2% growth at the midpoint as the business will ramp up this year. Helios Towers calls its AFFO proxy levered portfolio FCF. In 2019, Helios grew FY RLFCF by 3% in 2020 predominantly driven by growing EBITDA (which offset higher maintenance capex and higher taxes). 19 August 2021 20 Barclays | Global Communications Infrastructure FIGURE 31 RLFCF per Share Growth % Change Y/Y 65% 56.6% 40% 15% -10% Cellnex 29.2% Inwit 7.6% 9.0% Vantage Helios 0.0% Telesites FIGURE 32 RLFCF Growth % Change Y/Y 75% 56.6% 50% 25% 29.2% 7.6% 9% 0% Cellnex Inwit Vantage 0% Helios Telesites -25% -35% FY18 FY19 FY20 FY21e FY22e Source: Company Documents, Barclays Research. Note: Inwit and Cellnex uses RLFCF as a proxy, Helios uses levered cash flow as a proxy. -50% FY18 FY19 FY20 FY21e FY22e Source: Company Documents, Barclays Research. Note: Inwit and Cellnex uses RLFCF as a proxy, Helios uses levered cash flow as a proxy. 19 August 2021 21 Barclays | Global Communications Infrastructure ANALYST(S) CERTIFICATION(S): I, Tim Long, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. IMPORTANT DISCLOSURES Barclays Research is produced by the Investment Bank of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). All authors contributing to this research report are Research Analysts unless otherwise indicated. The publication date at the top of the report reflects the local time where the report was produced and may differ from the release date provided in GMT. 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(SBAC, 18-Aug-2021, USD 353.65), Overweight/Positive, A/CD/CE/D/E/J/K/L/M Telesites (SITESB1.MX, 18-Aug-2021, MXN 15.95), Equal Weight/Neutral, J Vantage Towers (VTWRn.DE, 18-Aug-2021, EUR 29.77), Overweight/Neutral, A/CD/E/J/L Unless otherwise indicated, prices are sourced from Bloomberg and reflect the closing price in the relevant trading market, which may not be the last available price at the time of publication. Disclosure Legend: A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in the previous 12 months. B: An employee or non-executive director of Barclays PLC is a director of this issuer. CD: Barclays Bank PLC and/or an affiliate is a market-maker in debt securities issued by this issuer. CE: Barclays Bank PLC and/or an affiliate is a market-maker in equity securities issued by this issuer. 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In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12month investment horizon. Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Investment Bank of Barclays Bank PLC is 19 August 2021 23 Barclays | Global Communications Infrastructure IMPORTANT DISCLOSURES acting in an advisory capacity in a merger or strategic transaction involving the company. Industry View Positive - industry coverage universe fundamentals/valuations are improving. Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. Negative - industry coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "industry coverage universe": CEEMEA Telecoms Airtel Africa (AAF.L) MTN Group Limited (MTNJ.J) Cyfrowy Polsat (CPS.WA) Orange Polska (OPL.WA) Helios Towers (HTWS.L) Safaricom Ltd (SCOM.NR) Vodacom Group Ltd (VODJ.J) European Telecom Services AST SpaceMobile Inc (ASTS) Bezeq (BEZQ.TA) Bouygues SA (BOUY.PA) BT Group PLC (BT.L) Cellcom Israel Ltd. (CEL.TA) Cellnex Telecom (CLNX.MC) Deutsche Telekom AG (DTEGn.DE) Euskaltel SA (EKTL.MC) Drillisch (DRIG.DE) Freenet (FNTGn.DE) Elisa Oyj (ELISA.HE) Gamma Communications PLC (GAMA.L) Ice Group (ICEG.OL) Iliad SA (ILD.PA) INWIT (INWT.MI) Iridium Communications Inc (IRDM) NFON AG (NFN.DE) Orange Belgium (OBEL.BR) KPN (KPN.AS) NOS (NOS.LS) OTE (OTEr.AT) Liberty Global (LBTYA) Orange (ORAN.PA) Partner Communications Company Ltd. (PTNR.TA) Proximus (PROX.BR) Tele2 AB (TEL2b.ST) Swisscom (SCMN.S) Telecom Italia SpA (TLIT.MI) Tele Columbus AG (TC1n.DE) Telecom Italia-RSP (TLITn.MI) Telefonica Deutschland (O2Dn.DE) Telefonica SA (TEF.MC) Telekom Austria (TELA.VI) Telenet Group Holding NV (TNET.BR) United Internet (UTDI.DE) Vodafone Group Plc (VOD.L) Telenor ASA (TEL.OL) Vantage Towers (VTWRn.DE) Zegona Communications plc (ZEG.L) Telia Company AB (TELIA.ST) ViaSat (VSAT) Latin America Telecom & Media America Movil (AMX) Grupo Televisa, S.A.B. (TV) Liberty Latin America (LILA) Millicom International Cellular SA (TIGOsdb.ST) Oi (OIBRC) Telefonica Brasil (VIV) Telesites (SITESB1.MX) TIM S.A. (TIMB) U.S. Communications Infrastructure American Tower Corp. (AMT) CoreSite Realty Corp. (COR) Crown Castle International Corp. (CCI) CyrusOne, Inc. (CONE) QTS Realty Trust Inc. (QTS) Uniti Group Inc. (UNIT) Digital Realty Trust, Inc. (DLR) SBA Communications Corp. (SBAC) Equinix, Inc. (EQIX) Switch, Inc. 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