INDUSTRY OVERVIEW

MARCH 2019 Colby Synesael Senior Equity Research Analyst Cowen and Company 646 562 1355 [email protected] DATA CENTERS ARE PART OF COMMUNICATIONS INFRASTRUCTURE What Is Communications Infrastructure?

• What Is Communications Infrastructure? – The idea that macro towers, data centers, optical fiber, and small cells/DAS represent one asset class whose singular purpose is the enablement of communications, and in so doing have developed business models very similar to one another, and in many cases more similar to the real estate industry than the telecom services industry.

• Key attributes – Unit pricing increases over time (typically with an escalator) – Long-term contracts – High contribution margin

• Think like a real estate company – Dark fiber, colocation, towers, land rights all qualify as REIT assets by the IRS – Return-oriented decision making – Value of AFFO as a metric

• Scale matters – Supply chain mgmt. (i.e. cost to build) – Geographic diversity – Relatively low cost of capital

Source: Cowen and Company “The Edge” Is The Next Frontier

• Creating new opportunities • Fiber routes • Small cells • Data centers (more locations/smaller footprint per location)

• Where the end-users of digital services reside • Compute/storage needs to occur closer to them • Tier II/III markets • Where wireless infrastructure meets wireline infrastructure

Source: Cowen and Company SECTOR PERFORMANCE Strong Sector Performance Communications Infrastructure Index: 5-Year Performance (Indexed to 100 on 01/31/2014) 280

260

240 139%

220

200

180

160

140

120

100

80

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Strong Sector Performance Communications Infrastructure Index vs. Data Center Index: 5-Year Performance (Indexed to 100 on 01/31/2014)

Comm. Infra. Index Data Center Index 400

279% 360

320

280

240 139%

200

160

120

80

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Mixed Sector Performance Communications Infrastructure Index: 1-Year Performance (Indexed to 100 on 02/01/2018) 110

108

106 6%

104

102

100

98

96

94

92

90

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Mixed Sector Performance Communications Infrastructure Index vs. Data Center Index: 1-Year Performance (Indexed to 100 on 02/01/2018) 115 Comm. Infra. Index Data Center Index

110

6% 105

100 0%

95

90

85

80

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Strong Multiple Expansion Communications Infrastructure Index 19.0x FTM EV/EBITDA Multiple

18.0x

17.0x

16.5x

16.0x Avg. 16.0x

15.0x

14.4x

14.0x

13.0x

12.0x

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Strong Multiple Expansion Communications Infrastructure Index vs. Data Center Index 21.0x FTM EV/EBITDA Multiple Comm. Infra. Index Comm. Infra. Index Avg. Data Center Index Data Center Index Avg.

20.0x

19.0x

18.0x

17.0x 16.9x

16.5x Avg. 16.1x 16.0x Avg. 16.0x

15.0x

14.4x 14.0x

13.0x

12.7x 12.0x

Comm. Infra. Index Stocks: AMT, COR, CCI, CONE, DLR, EQIX, INXN, UNIT, QTS, SBAC, SWCH, ZAYO Data Center Index Stocks: COR, CONE, DLR, EQIX, INXN, QTS, SWCH Source: Thomson Reuters Strong Secular Tailwinds

Hyper-Scale Providers (HSPs) • Building their own networks • Increasing use of third-party colocation

Enterprises • Increasing adoption of cloud services • Increasing dependency on bandwidth

Wireless • Increasing focus on small cells/5G • Company-specific network projects

Source: Cowen and Company THE INDUSTRY BY THE NUMBERS Outsourced Infrastructure Global Forecast $350 Hyperscale Retail Wholesale CAGR '17-'22E 20.0%

$300 14.9% $24.4 48.8%

$250 $58.0

$20.3 $200

$50.5 in $B in $16.9 $150

$43.9 $14.0 $224.4 $100 $11.6 $38.0 $153.0 $9.8 $33.1 $50 $103.9 $28.9 $70.2 $46.8 $30.8 $0 2017 2018E 2019E 2020E 2021E 2022E

Source: Structure Research Total Infrastructure Forecast

2017 2022 Colocation Hyperscale/Cloud $38.7 $30.8 8% 6% Colocation $82.4 Managed 12% Infrastructure $41.2 9% On-Premise $285.6 43% On-Premise Hyperscale/Cloud $369.1 $224.4 77% 34%

Managed Infrastructure $75.9 11%

Source: Structure Research Historical Bookings Data Center Annualized Revenue Leased per Quarter in $MM DLR CONE QTS COR $220

$200 $10.4

$180 $31.3

$160 $22.5

$140 $9.7 $7.1 $20.5 $15.0 $10.1 $65.4 $7.7 $6.1 $120 $11.2 $36.0 $8.9 $24.3

in $MM in $25.8 $38.6 $100 $43.3 $31.6 $7.2 $8.8 $17.5 $29.0 $11.9 $19.6 $12.7 $24.4 $4.2 $80 $8.9 $7.4 $40.4 $26.6 $21.2 $18.1 $13.3 $27.0 $26.7 $16.7 $43.6 $22.7 $17.6 $60 $27.8 $58.4 $13.4 $20.1 $29.6 $94.0 $19.1 $87.1 $40 $18.3 $80.6 $65.5 $69.2 $56.4 $58.1 $55.8 $60.8 $45.5 $43.5 $43.8 $20 $35.8 $29.5 $32.8 $34.4

$0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

DLR = DLR + DFT Source: Company announcements and Cowen and Company M&A Notable Data Center M&A The Last Two Years

34.6x

31.7x

27.2x

22.0x 21.0x 20.0x* 20.0x 20.3x Avg. 20.4x 17.9x

14.4x 13.0x 12.9x

10.0x

AT&T Infomart Infomart Target Teraco Colo-D Target4Degrees Ascenty IO FORTRUST ViaWest DuPont Fabros Sentinel Cologix Portfolio (ex Dallas) Dallas Berkshire Buyer Cologix BuyerVantage Digital Realty Brookfield IPI Partners Equinix IronMountain IronMountain Peak10 Digital Realty CyrusOne Stonepeak Partners Type Financial Strategic TypeStrategic Strategic Financial Financial Strategic Strategic Strategic Strategic Strategic Strategic Financial EV ($mm) $1,000 CAD 360 EVCAD ($mm) 259 $2,250 $1,100 $545 $800 $1,375 $128 $1,675 $7,594 $490 $1,350 Date 1/25/19 12/20/18 Date12/18/18 9/24/18 6/21/18 3/21/18 2/15/18 12/11/17 7/28/17 6/13/17 6/9/17 2/6/17 2/2/17

* Includes booked but not billed leases Source: Company announcements and Cowen and Company M&A Trends

1. Deal activity appears to remain high

2. Assets considered strategic are selling at relatively high multiples

3. Increasing focus on global assets by U.S.-based companies

4. Increasing focus on managed services (by a select group of providers)

5. The number and type of investors interested in the space is increasing

Source: Company announcements and Cowen and Company TRENDS TO BE THINKING ABOUT Hyper-Scale Demand: What’s Next?

Providers • Today: Aligned Energy, Cloud HQ, CyrusOne, Digital Realty, EdgeConneX, Raging Wire, Vantage • Tomorrow: Compass, EdgeCore, QTS, Sabey, SDC, Stack Infrastructure, Stream, Switch, T5 (Cologix, Equinix, Flexential)

U.S. Markets • Today: Northern California, Northern Virginia, Phoenix/Mesa, San Antonio, Pac NW • Tomorrow: Atlanta, Chicago, Dallas, Las Vegas/Reno

Customers • Today: Alibaba, AAPL, CRM, FB, GOOG, MSFT, NFLX, ORCL, Tencent, Uber • Tomorrow: 2nd tier SaaS companies, XYZ virtual reality companies, select enterprise companies

Deal Size • Today: FB – 24 MW w/ DLR; MSFT – 30 MW w/ CONE; AAPL – 45 MW w/ SDC • Tomorrow: 350 MW ??? (in 2022)

Source: Company announcements and Cowen and Company Cloud On-Ramps By The Numbers

Market Share of Global Cloud On-Ramps by 3rd Party DC Provider Market Share of Global Cloud On-Ramps by CSP VMware, 3.3%

Other, 20% Rackspace, 9.0%

Oracle Cloud, 3.8% AWS, 28.5%

NEXTDC, 2% Equinix, 41%

Cologix, 2%

Microsoft Azure, 15.4% Global Switch, 3%

Interxion, 4%

Alibaba Cloud, 5.9% Digital Realty, 5%

CoreSite, 5% IBM Cloud, 14.3%

CyrusOne, 5% Rackspace, 13% Google Cloud, 19.7%

Source: Cloudscene The Reawakening of Managed Services

Today: 77% on premise, 6% public cloud, 17% managed/colo Long-term: 10% on premise, 60% public cloud, 30% managed/colo • MSP + Colo: Cyxtera, DataBank, Flexential, TierPoint, Rackspace • MSP: Ensono, Faction, Hosting, LogicWorks, Reliam

What do you want to do • Cloud migration/onboarding • Managed Cloud (ex: Application/platform mgmt., DevOps Automation) • Managed security/compliance • Private Cloud • Professional services/strategy/consulting

What don’t you want to do • Simple retail colocation • Simple managed

Source: Structure Research, Company announcements, and Cowen and Company 5G Is What Will Ultimately Drive the True “Edge”

Three key attributes of 5G • Enhanced Mobile Broadband • Massive Machine Type Communications • Ultra-Reliable/Low-Latency Communications

Identifying the business model is the issue • 2G gave us email • 3G gave us the Internet • 4G gave us apps (video, ride sharing, delivery services, dating apps)

Role of Cloud • 5G first G built with cloud in mind • Low latency solutions will require data be computed/stored closer to end-user devices • Create interesting partnerships/M&A

Timing • Late 2017 certain EMB aspects released • Release 15 in March 2019 (EMB/New Radio/fixed wireless focused) • Release 16 in June 2020 (MMTC/UR/LL mobile focused)

Source: Company announcements and Cowen and Company 5G Will Require a New Type of Network Topology

Macro Sites vs. Non -Macro Outdoor Sites (in Thousands)

Macro Sites Non-Macro Outdoor Sites

300 275.5

253.4 250 239.4 239.8 240.9 235.3 238.0 238.8 229.0 231.9 215.6

200 181.2

150 145.4

109.0

100 78.4

52.5 50

0 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Source: Atlantic-ACM Notable Research . Takeaways from Metro Connect; Three Thought Provoking Topics (February 12, 2019) . Takeaways from PTC; The Secret’s Out (January 29, 2019) . Top 10 Potential Surprises for 2019 (January 2, 2019) . GDS - Takeaways from NDR; Fundamental Outlook Remains Positive (December 7, 2018) . Conviction List – Post 3Q18 Update (November 23, 2018) . Takeaways from The NAREIT Investor Forum (November 13, 2018) . Data Center Sell-Off Appears Exaggerated (October 26, 2018) . Data Centers: An Industry Overview + CowenVision Video (October 12, 2018) . DLR - Digital to Buy Ascenty; Growing Rapidly, Paying Handsomely (September, 24, 2018) . COR – Downgrade: We Expect Lack of Capacity To Again Limit Growth in 2019 (September 24, 2018) . DLR – Takeaways from Investor Meeting: Demand Momentum Continues (September 17, 2018) . GDS – Initiation: A Way to Invest in Rapid Hyper-Scale/Cloud Adoption in China (September 10, 2018) . Takeaways from Communications Infra. Summit; Company Presentations (August 13, 2018) . Takeaways from Communications Infra. Summit; Megaport Keynote (August 10, 2018) . EQIX – Takeaways from Analyst Day; Pressing Its Scale Advantage (June 21, 2018) . INXN – Takeaways from NDR; Ready and Loaded (June 15, 2018) . Cowen TMT Conference: Comm. Infra. and Telecom Services Takeaways (June 1, 2018) . DLR – Takeaways from HQ Visit; Strong Demand Expected to Continue (April 6, 2018) . EQIX – Takeaways from HQ Visit; Shifting the Narrative (April 6, 2018) . COR – Takeaways from HQ Visit; Positioning for Reacceleration in Growth (March 19, 2018) . Bookings Data Point – Salesforce.com (March 6, 2018) . CONE: Takeaways from Investor Meeting; One Quarter Doesn’t Make a Trend (March 5, 2018) . SWCH – Initiation: Previous Success Will Likely Be Difficult To Replicate (January 19, 2018) . DLR – Takeaways from Analyst Day; Bigger, Better, Faster (December 6, 2017) . INXN – Upgrading to Outperform; Momentum Continues to Build (August 2, 2017)