Tower REITs own a network of vertical tower structures upon which their tenants place their communications equipment. Their tenants are large telecommunications firms (i.e. AT&T, Verizon, T-Mobile/Sprint, Dish Wireless) that provide cellular phone service to consumers and businesses. These telecommunications firms enter into long term leases with the Tower REITs to host their equipment on the REIT’s towers.

Owned by Towerco

• Towerco owns vertical steel structure
• Towerco typically enters into a long-term lease for land parcel, but may buy it

Owned by Tenants

• Wireless tenants lease space on the tower
• Wireless tenants pay for, own, install, insure and maintain all equipment:
  • Antennas and cables
  • Shelters
  • Base station (electronics)

Demand for the towers is driven by several macro trends, including population growth, technology innovation and data proliferation. Population and smartphone growth increases the utilization of cell towers and necessitates the development of more towers to improve call quality and down/upload speeds. Technology innovation refers to the network that the telecommunications firm tenants create (i.e. 4G, 5G and one day 6G). The move from 4G networks to 5G will result in a higher quality signal that travels over a shorter distance. This will necessitate building a denser network (more towers) to handle the new, higher quality signal. Finally, data proliferation is driven by the creation of more applications that utilize cell tower capacity (streaming, social media, e-commerce, AI, crypto, video conferencing). The increased utilization of the cell tower network with data-intensive applications drives the demand for more towers to increase network capacity. The tower networks are mission critical infrastructure for the telecommunications firms without which, they cannot operate their businesses.

Competing telecommunications firms often host their equipment on the same towers to leverage the capital investment of the Tower REITs. As the table below demonstrates, owning a tower that you are the sole tenant on is not a lucrative investment. This is why the telecoms sold their towers to the Tower REITs in the first place. A Tower REIT with two or three tenants on each tower generates significantly higher returns on investment. This is because adding a second or third tenant does not materially increase the operating costs and does not require an additional capital investment. Adding additional tenants to an existing tower drives significant margin expansion and return on investment.

In the U.S., cell towers can generally be built for $275,000 and the initial tenant usually pays a discounted level of rent. Cell towers with one tenant generate Gross Margins of ~40% and an ROI of ~3%. However, the addition of the second and third tenants drives margin expansion and return on investment growth. This tower can now be sold for a ~30x to ~40x multiple of its cash flows, creating significant value for the tower developer and eventually the tower owner (Tower REITs).

This arrangement benefits both parties as the telecommunication firms can offer similar national coverage networks without having to fund large capital expenditures. The Tower REIT benefits from increased utilization of their tower network, which drives margins and return on capital.

Tower cash flow multiples are elevated because of the transparent long-term cash flow growth each tower possesses. First, tower leases contain annual three percent rent escalators that provide built-in cash flow growth. Second, when telecommunications firms upgrade their equipment on the towers (i.e. 4G to 5G) they pay additional rent. Finally, adding new tenants to the tower drives strong revenue and cash flow growth. The ability to grow cash flows by 100%+ is what keeps acquisition multiples elevated.

Inception—2018

Investment Objective:
To provide regular current income by investing globally in companies with either direct or indirect exposure to Real Estate.

Fund Profile:
Starlight Global Real Estate Fund - Series ETF (SCGR)
Starlight Global Real Estate Fund - Series A (SLC101)
Starlight Global Real Estate Fund - Series T6 (SLC151)
Starlight Global Real Estate Fund - Series F (SLC201)
Starlight Global Real Estate Fund - Series FT6 (SLC251)
Starlight Global Real Estate Fund - Series O (SLC401)
Starlight Global Real Estate Fund - Series O6 (SLC451)

Distribution Frequency
Fixed Monthly

Inception—2018

Investment Objective:
To provide regular current income by investing globally in companies with either direct or indirect exposure to infrastructure.

Fund Profile:
Starlight Global Infrastructure Fund - Series ETF (SCGI)
Starlight Global Infrastructure Fund - Series A (SLC102)
Starlight Global Infrastructure Fund - Series T6 (SLC152)
Starlight Global Infrastructure Fund - Series F (SLC202)
Starlight Global Infrastructure Fund - Series FT6 (SLC252)
Starlight Global Infrastructure Fund - Series O (SLC402)
Starlight Global Infrastructure Fund - Series O6 (SLC452)

Distribution Frequency
Fixed Monthly

The views in this update are subject to change at any time based upon market or other conditions and are current as of January 5, 2024. While all material is deemed to be reliable, accuracy and completeness cannot be guaranteed.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Starlight Capital and the portfolio manager believe to be reasonable assumptions, neither Starlight Capital nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated.

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