One of the largest telecom infrastructure deals of 2022 was the sale of a 51% stake in Deutsche Telekom’s GD Towers to Brookfield and DigitalBridge. With 33,500 towers in Germany and 7,000 further towers in Austria, GD Towers had been hotly contented with a number of high-profile towercos and investors linked to the deal. TowerXchange spoke to Sikander Rashid, Managing Partner and Chief Investment Officer of the Brookfield Infrastructure Group about their current and past investments, and future plans.
TowerXchange: Please can you very briefly introduce Brookfield and your history of investing in the digital infrastructure space. What are your current investments in the asset class?
Sikander Rashid, Chief Investment Officer, Brookfield:
Brookfield is a leading asset manager focused on owning the infrastructure and businesses that form the backbone of the global economy.
We’ve been investing in digital infrastructure for nearly a decade now after making our first major investment in TDF back in 2014. Today our digital infrastructure AUM is over US$40bn, compared to less than US$5bn five years ago. Since that first investment we’ve grown our global towers portfolio to over 230,000 through our ownership interests in Telia, Wireless Infrastructure Group and Deutsche Funkturm, making this is the 3rd largest tower portfolio globally. In addition, we own over 22,000km of fibre and 300MW of data centre capacity globally.
TowerXchange: What is so attractive about the asset class and how does it compare to other infrastructure assets?
Sikander Rashid, Chief Investment Officer, Brookfield:
We like the digital infrastructure sector because it is characterised by long-term contracts, signed with investment grade counterparties, operating in a mission-critical segment of the rapidly digitalising global economy. For example, capital requirements in the U.S. and Europe alone for fibre-to-the-home (FTTH) are in excess of US$250bn over the next 10 years. Similarly, data centre capacity requirements for the top three hyper scalers in the next three years alone are over US$50bn.
Our background owning and operating other infrastructure assets around the world gave us confidence we could add substantial value to these tower portfolios. We approach tower investments as we do all others in the Brookfield portfolio, buying for value at the entry point and providing capital and operating capability to help the business grow.
Our background owning and operating other infrastructure assets around the world gave us confidence we could add substantial value to these tower portfolios. We approach tower investments as we do all others in the Brookfield portfolio, buying for value at the entry point and providing capital and operating capability to help the business grow.
The other major trend we saw was the massive opportunity for tower carve-outs from European mobile operators. Even today, after several major deals have been struck, approximately 60% of European towers sit on operators’ balance sheets, whereas the comparable number in the U.S. is under 10%. Striking carve-out deals creates value for the existing owners and provides us with an opportunity to build a pan-European tower platform.
TowerXchange: Brookfield’s most recent acquisition in the tower space was a stake in GD Towers, a portfolio which had no shortage of suitors, but which did not match the investment thesis of all. Why was the portfolio a good fit for Brookfield? How does Brookfield and DigitalBridge’s involvement change GD Towers? What are the ambitions/ vision for the company under the new ownership?
Sikander Rashid, Chief Investment Officer, Brookfield:
We saw this business as the most exciting asset available in Europe to date. It offers scale, with over 40,000 towers in Austria and Germany, which is both Europe’s largest economy and yet still relatively underserved with its digital infrastructure. The market is therefore both very attractive on a risk-adjusted basis and high growth which is not a typical combination.
Our experience as a major tower owner with significant operating experience and scale of our capital was something that Deutsche Telekom was very attracted to. We are excited to partner with DT in a joint venture where all shareholders participate on the value creation resulting from accelerating the construction of new towers, multiplying tenants per tower and developing this as a platform for pan-European growth. With capital and operating capabilities, this consortium is very well-suited to maximise the potential of this very high-quality asset.
TowerXchange: How does the deal compare to your investment in Telia Towers? Does the company have a similar vision for Telia Towers as it does for GD Towers? What are the similarities and differences in the portfolio, the opportunity and the deal structure?
Sikander Rashid, Chief Investment Officer, Brookfield:
Telia is a great investment, but also very different from what we are doing with Deutsche Funkturm. Growth expectations in Telia’s markets are not as high as Germany since towers already have high levels of co-located tenants although we have helped the business add value through bolt-on acquisitions, expansion into Sweden and modernising IT systems. The tower market in Sweden is expected to grow at low-single digit whereas the growth rate in Germany is expected to be high-single digit.
For these reasons, we invested in Telia out of Brookfield’s Super-core infrastructure fund, a perpetual investment vehicle that seeks lower risk returns in dependable and highly regulated opportunities. With all this said, similar to DT, at Telia Towers, we have an incredible customer and partner in Telia whom we look forward to doing a lot more with.
TowerXchange: Brookfield also invested in UK towerco, Wireless Infrastructure Group in late 2019 – a much smaller portfolio than the recent deals. What were your motivations to acquire the business and what different balance does it give to your portfolio?
Sikander Rashid, Chief Investment Officer, Brookfield:
WIG is a great asset that became available several years ago, just ahead of the recent boom in tower divestments in Europe. While we knew that investment would make a good return on a standalone basis, we also used it as a route to learning more about the European market and the insights we gained have been instrumental in our wider acquisition strategy in the continent.
We have also been able to deploy further capital to grow the business, most recently agreeing to acquire 1,100 UK towers from Cellnex as part of its required divestment under UK competition rules.
TowerXchange: Brookfield are reportedly looking to exit their investment in TDF, can you explain the motivations behind the decision?
Sikander Rashid, Chief Investment Officer, Brookfield:
We’ve owned our stake in the business for eight years now and achieved much of our business plan, including expanding the business into fibre, improving the capital structure and extending key contracts. Financially, TDF has been a great story for our franchise and has allowed us to partner with world-class institutions.
TowerXchange: With multiple towerco businesses on one continent, and plenty more M&A activity forecast across the region, do you foresee the opportunity to have a single/primary towerco under which your European towerco investments are consolidated or do you envision a more fragmented future?
Sikander Rashid, Chief Investment Officer, Brookfield:
It’s a possibility though, we are happy with our current footprint. All of our businesses have great organic growth prospects which we’re focussed on. Our tower portfolios are in four core regions – Nordics, Central Europe, France and the UK – but we are gaining insights and synergies all the time as we develop our thinking on the market. As we look ahead, given the requisite scale, the likely platform for consolidation is through the Deutsche Funkturm platform which we are very excited about.
