Transcript: The 5G Play

Featuring: Kevin Kelly

Published Date: October 9th, 2018

Length: 00:10:36

Synopsis: Kevin Kelly, managing partner at Benchmark Investments,

says it’s time to buy shares of Crown Castle. He thinks this wireless-
infrastructure provider is poised to benefit from the coming 5G
revolution. Kevin discusses his full thesis in this interview with Justine
Underhill. Filmed on October 5, 2018.

Topics: Equities, Technology, Trading

Tags: Benchmark Investments

Video Link:
https://www.realvision.com/rv/channel/realvision/videos/664b59c86ce24afa948afeb8829b02e1

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 Trade Ideas: The 5G Play

Justine Underhill: Welcome to Real Vision's Trade Ideas. Today I'm sitting down with Kevin
Kelly, managing partner of Benchmark Investments. Thanks so much for joining us.

Kevin Kelly: Thanks for having me.

JU: OK. So what are you looking at today?

KK: What I'm looking at is the proliferation of connected devices, and how you can capitalize off
that trend. And so what I'm looking at is purchasing Crown Castle. Right now around $108,
$110.

JU: OK. So let's talk about what that trend is. So this is the trend to 5G. What exactly is that?

KK: Yeah. In order for our connected devices, our data-driven life, to continue to go forward and
we have the conveniences of it, we need to build out the infrastructure, right? We need to make
sure that there's enough antennas in enough places so the packets of data-rich information can go
back and forth between our cell phones and or cars, our refrigerators.

So it's so important for this buildout to take hold. And it's going to be fascinating, because it will
help worker productivity as well as consumers' day-to-day lives.

JU: OK. And 5G specifically is interesting because it's a higher frequency. So that means there's
more infrastructure involved there?

KK: Yeah. The best way to think about 5G is the difference between 3G and 4G. So 3G was kind
of slow. You could go on the web and download some articles. And then when we got the 4G
spectrum being unleashed nationwide, people were able to stream videos a lot faster. And that's
why we've seen a lot of content is now delivered via video, right? Because the packets of
information are denser.

That's exactly what's happening with 5G. So you're going to see speeds up to 10 times as fast. So
we'll go from milliseconds to even faster of getting the data information back and forth.

JU: And how quickly do you see this being rolled out? This is over the next few years?

KK: Yeah. So what's pretty telling is that Verizon actually started to test this out in five cities to see
how it's going to work, especially through different terrains. If you have mountains, if you have
different type of areas that the spectrum, the data of information, can't flow, there could be
stoppages, they're going to test it out to see how it works, to see how they tweak the system.

But it's going to take a long time for the full vision of 5G. What we see. Probably another 10 to
15 years to get a full 5G buildout. And one of the reasons why it's going to take so long is we're
also going to need to have a 4G continuous buildout. So when we lose a 5G spectrum, we can
go back down to 4G seamlessly.

October 9th, 2018 - www.realvision.com

 Trade Ideas: The 5G Play


JU: Now for 5G, you have to have a lot of these small cells pretty close to each other because it's
high frequency, so it doesn't travel quite as far. How does Crown Holdings fit into that
specifically?

KK: Yeah. What's pretty interesting is that everybody-- like I said, the proliferation of devices,
right? So not only are we having our cell phones talking to the cell phone towers, we also have
our watches talking to the cell phone towers. We have our cars talking to the cell phone towers.
So there's this information superhighway, and it's becoming congested.

So Crown Castle falls into that where they are actually doing a wider buildout. So they're not only
macro-- bigger-- towers. Sometimes you see them along the highway. Sometimes they even
disguise them as trees. You're going to see smaller antennas and smaller posts to help relieve that
congestion.

So as part of that, they've had to build out their fiber optic network, as well as put these little
smaller cells further around, so we can reduce the congestion.

JU: And this is something that a major telecom company like Verizon might rent out? How does
the business exactly work?

KK: Yeah. The business works is-- what they do is they work with either the local municipalities, or
they go out and purchase the land or the private developers, and they actually build these telco
towers. And then they lease out the space to a Verizon Wireless, to an AT&T, to a Sprint.

Also to other telecommunications providers, whether it can be even the government, or even just
the operators themselves. So if I'm a private business, I can even put up an antenna so I can get
better spectrum if I wanted to do that.

So this buildout is, they're building out more of them. So that 5G can be proliferated. But right
now, they need to be built out just because of the congestion effects.

JU: Gotcha. Now the FCC recently put into place some rules that cap the amount that cities can
charge to implement some of these small cells amongst the cities, especially in public spaces. How
do you see that potentially impacting this trade?

KK: There is going to be an impact. Because this is, actually, if you think about it, a utility in
certain forms and fashion, especially on the public side. On the private side, it's going to be a little
bit different. Because we're going to actually see small cells be really instrumental in the coming
revolution of the augmented reality and virtual reality.

So our shopping experiences at a shopping center are going to be different. But on the public
side, like you said, there is going to be a cap, because of the emergency services. Because of the
public utility. Because of our ambulances, and our police needing to use that. So there is going to
be a cap on the public side. But on the private side, there won't be.

October 9th, 2018 - www.realvision.com

 Trade Ideas: The 5G Play


JU: OK. So let's talk about some of your levels. What's your entry? What's your target here?

KK: Yeah. So I would purchase Crown Castle at about $110. And so one of the nice aspects of
Crown Castle is that it's a real estate investment trust. Their leases or long term leases with built in
rent escalators.

So you're not going to see a FANG type of performance from it. So it's a more slow and steady
holding that you want to hold for three to five years. But it has been consistently performing. So
as we start to see the attribution of 5G come out, you're going to see better return.

So buy in at $110. And then I would actually sell it if it got below $100. Because that's where you
start to see the story's not taking hold, or the pricing power isn't there.

JU: And over what time frame would you hold it for?

KK: I would actually hold this for the next five years. So I think this is a long term play. I know
most of the times, I don't like to look out that far or hold that long, because who has a crystal ball
that far? But at the same time, the thesis and the narrative is going to continuously play out. With
the AI revolution, with the AR-VR revolution, it's going to take time. Same with the thesis and
playout of this holding.

JU: And how high do you see the stock potentially going?

KK: I anticipate it to hit $150 in the next three years. And one of the reasons why is because of
the network effect where more providers are going to be deploying 5G buildout and utilizing that.
So you're going to get a 3.5% dividend yield just to wait. But then you're also going to get the
capital expenditures to get on to their towers.

So I'm really excited about the long term getting to $150. But in the meantime, I can wait,
because I'm getting paid in the above average dividend yields.

JU: Are you training this on behalf of yourself or your clients?

KK: Yeah. Both.

JU: OK. Now how do they fit into the competitive landscape here? Do they have any other major
competitors here?

KK: They do. One of the major competitors that they have is American Tower. American Tower
has been mostly focused on their overseas operations. So they've really been focused on a higher
margin, faster growing business, and that that is overseas in India and China.

What Crown Castle differentiates is that they're actually seeking to exploit the best market, and
that's here in the United States, especially with those providers. So there's a lot less uncertainty
around their business model. But not as fast a growth anticipated from their competitors.

October 9th, 2018 - www.realvision.com

 Trade Ideas: The 5G Play


JU: What do you see as the biggest risk? What do you see as potentially sending the stock below
$100?

KK: Yeah, I think one of the business risks that would happen is the pricing in adaptation of 5G.
We're hoping that this comes online faster. We saw Verizon just start to deploy it in a couple of
cities. AT&T may take longer. Verizon may want to scale their ambitions back. It all has to do with
a capital expenditure story.

And right now we know they're seeking to do it as fast as possible. If they start to peel back and
not want to deploy that capital as quickly as possible, that's where the thesis may get hurt, and
you may see the stock fall.

JU: But you don't see something like Verizon or AT&T getting into the business of building their
own small cells.

KK: No. It's very hard to do that, because it's a capital-intensive business in running and
maintaining, and also negotiating with some of the municipalities on the ground lease. So what
they want to do is just focus on their specific antenna on the cell phone tower. They don't have to
worry about that.

They also have different equipment. So for them, it's more advantageous to use somebody else's
infrastructure and lease that, especially because they have to deploy so much capital. So it is a
financing concern for them to have their own. Because then they've got to own it, build it,
maintain it. Lease it, and then you can expand.

JU: Great. Can you break down this trade in 30 seconds?

KK: Yeah. The trade for Crown Castle is to go out and capitalize on the proliferation of the
connected devices that we have.

JU: Great. Thank you so much.

KK: Thanks.

JU: So Kevin likes buying shares of Crown Castle-- ticker symbol SCI-- at $110. His stop-loss is a
$100, with a target price of $150 over the next three to five years. Just remember that this is a
trade idea and not investment advice. You should your own research, consider your risk
tolerance, and invest accordingly. For Real Vision, I'm Justine Underhill.

October 9th, 2018 - www.realvision.com