DigitalBridge Group - Q1 2023

Transcript

Operator (participant)

Greetings, welcome to the DigitalBridge Group First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Severin White, Managing Director, Head of Public Investor Relations. Please go ahead.

Severin White (Managing Director and Head of Public Investor Relations)

Good morning, everyone, welcome to DigitalBridge's First Quarter 2023 Earnings Conference Call. Speaking on the call today from the company is Marc Ganzi, our CEO, and Jacky Wu, our CFO. I'll quickly cover the safe harbor, then we can get started. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking, such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, May 3rd, 2023, DigitalBridge does not intend and undertakes no duty to update it for future events or circumstances.

For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC for the year ending December 31st, 2022, and our Form 10-Q to be filed with the SEC for the quarter ending March 31st, 2023. Great. Let's get started with Marc providing a 1Q update. Jacky will outline our financial results and turn it back over to Marc to discuss how we're executing the DigitalBridge playbook in today's market. With that, I'll turn the call over to Marc Ganzi, our CEO. Marc.

Marc Ganzi (CEO)

Thanks, Severin. Today, let's start with an update on our key 2023 priorities, the three things that matter, which I outlined last quarter, and I'll continue to do that throughout the course of this year. First, I'm pleased to report that DigitalBridge has made tangible progress on fundraising, on simplification, and on portfolio-level performance. Put simply, we are on track to deliver our 2023 targets. In the first quarter, we are back to generating strong year-over-year growth in our investment management platform, with fee income up over 36% and FRE up 40%, driven by higher FEEUM on co-invest, the acquisition of InfraBridge, and FEEUM activating across our new core and credit strategies, which we telegraphed last quarter. New capital formation was up substantially year-over-year. On top of that, we're seeing our first commitments now in our flagship DigitalBridge Partners Series strategy.

These developments give us higher confidence we will be able to deliver on our capital formation targets in 2023. To be clear, we're sticking with our guidance. With respect to simplification, we've made continued progress selling BrightSpire for $200 million, paying off our 2023 converts, and advancing our alternative asset manager profile with enhanced reporting as we move closer to deconsolidation. I'll cover portfolio performance a bit later, but the headline is our portfolios continue to perform with growth across all of the verticals that we serve today in digital infrastructure. Let's detail fundraising and our simplification progress before we get into the financials. Next slide, please. As you know, scaling FEEUM is our number one KPI this year. It's the metric that will drive revenue, earnings, cash flows, and unlock substantial shareholder value.

In the first quarter of 2023, our fee-earning equity under management increased $8.9 billion or 47% year-over-year, driven by a combination of organic capital formation from co-invest, core and credit, and the full contribution from the InfraBridge acquisition we closed in February. On the right, you see a commensurate increase in AUM, which tracks the NAV of the assets that we control. That was up 49% year-over-year to $69.3 billion. We're looking forward to continuing to deliver strong growth all year on these metrics, but most importantly, on FEEUM. Next slide, please. New capital formation. This is what drives future fee income. In the first quarter, we raised about $700 million, driven principally by new fee-paying co-invest alongside of some of our most critical platforms, including GD Towers, Switch, Highline do Brasil, and Vantage.

As you know, many of our anchor investors utilized their fee-free co-invest allocations last year. The proportion of fee-paying co-invest is set to rise in 2023. Another interesting feature around co-invest is that as the platforms grow, there's an embedded structural growth in co-investment. This is a simple algorithm. The more companies we have under management in our funds, this leads to more co-invest to support these ongoing investments, like the greenfield development that we're engaged in today, which we'll talk about a little bit later. As we execute our buy and build playbook across our platforms, the businesses scale and increase in value as well. This is a powerful combination. Next quarter, I look forward to updating you on progress we're making in the DigitalBridge Partner Series. In addition to that, also our core and credit funds.

As I mentioned, we're seeing good momentum in fundraising, and we remain confident we are set to achieve our 2023 targets. Next slide, please. On simplification, we made important progress on two of our key objectives this year. One, selling 100% of BrightSpire for a little over $200 million. That's a non-core asset and the last key disposition in our disposal of legacy assets. I think we're down to less than $50 million in legacy assets today. Just to be clear, it's something that really we're not going to be focusing on go forward. We're focused on our single business unit, which is our high growth digital infrastructure investment manager on a global basis. Another key priority for me is deleveraging. I've been very clear about this.

In April, we paid off $200 million of our 2023 convertible notes in cash, bringing our corporate debt down 35%. When we call our 2025 converts in July, we'll achieve our goals on corporate debt for the year. The next step I've got in my sights is deconsolidation. It's the number one thing we talk to with investors today. Here we are, the final stage of the DataBank recap. It's in flight, and it's on track to wrap up this summer. I continue to be optimistic that we'll be able to execute a similar sell down in our ownership of Vantage SDC by the end of this year. I'm really looking forward to checking this box, which will make it a lot easier to decipher our financial profile.

Clear, non-controlling investment level debt off our books and results in tangible cost savings in managing our business. This, plus paying off the converts, leaves us with $300 million of securitized debt and takes our corporate leverage inside of 2.5x. This is absolutely seminal to our success as we navigate the current financial environment. With that, I want to turn the caller to Jacky to walk you through our financial section and highlight the progress we're making aligning our financial reporting with our alternative asset management peers. Jacky, over to you.

Jacky Wu (CFO)

Thank you, Marc, and good morning, everyone. As a reminder, in addition to the release of our first quarter earnings, we filed a supplemental financial report this morning, which is available within the shareholder section of our website. Turning to page 12, our first quarter highlights have trended positively with fee revenues and fee-related earnings up year-over-year. Total company distributable earnings was negative $3 million. Excluding a non-cash write down of a wellness infrastructure business note, our distributable earnings would have been positive $4 million or $0.02 per share. Assets Under Management was $69 billion in the first quarter, which grew by 49% from $47 billion in the same period last year, driven by the acquisition of AMP Capital's infrastructure equity business, recently rebranded as InfraBridge, and significant new co-investment and new digital core and credit product AUM.

Fee-earning equity under management is up 47% year-over-year to $28 billion, with approximately $700 million of fee-paying capital raised year-to-date amidst a very difficult fundraising environment. Moving to page 13, the company saw strong year-over-year growth driven by the expansion of our Investment Management business and continued simplification of our corporate structure. For the first quarter, reported total consolidated revenues were $250 million, which represents a 7% increase from the same period last year. As previously noted, our reported revenues now include contributions from carried interest and principal investment income, which aligns our presentation more closely with our peers in the public alternative investment management space. GAAP net loss attributable to common stockholders was $212 million.

Total company adjusted EBITDA was $26 million, which grew by 25% from $20 million in the same period last year. In March, we harvested our entire BrightSpire in-interest for total proceeds of $202 million, which eliminated $7 million of dividend income in the quarter, provided us with additional firepower to invest in high-quality digital infrastructure assets and further simplify our business away from what remains of the non-core legacy business. Moving to page 14, the company continues to expand its Investment Management earnings from additional fee-earning equity under management generated by new strategies and the acquisition of InfraBridge.

Fee income, excluding incentive fees, increased by 36%, and our share of fee-related earnings increased 103% from the same period last year, primarily driven by $11 million of fee income from InfraBridge, which represents less than two months of fees from that recently acquired platform, and the benefit from DigitalBridge's acquisition of Wafra's ownership in the company's investment management business. Digital IM distributable earnings increased significantly to $32 million for the quarter, compared to $9 million in the same period last year. Moving to page 15, the company's share of digital operating revenues was $27 million, down 25% year-over-year, while adjusted EBITDA was $12 million, down 23% from 1/2/2022.

The year-over-year decrease was a result of the recapitalization of our DataBank investment, further moving the company towards the ultimate deconsolidation of the operating business segment from our consolidated financial statements. As a reminder, in the fourth quarter of 2022, DigitalBridge received $107 million of proceeds from the recapitalization of DataBank, which reduced our ownership from 13.5% to less than 11%. There were no incremental reductions in our ownership this quarter. We anticipate the deconsolidation of the operating segment as the year progresses. Operating distributable earnings decreased to $5 million from $7 million in the same period last year. Turning to page 16, you can see that now with the addition of InfraBridge, we will see greater scale and growth in our high-margin investment management business.

Since the first quarter of 2022, our annualized fee revenues increased from $120 million- $237 million, and fee-related earnings increased from $73 million-$138 million. Looking at the right side of the page, our run rate fee revenues were $252 million. Run rate provides an indication of expected revenues and is calculated by multiplying committed FEEUM at the end of the quarter by the weighted average effective annual fee rate. Turning to page 17. The company has completed key strategic corporate initiatives in the first quarter, such as the InfraBridge acquisition. The BrightSpire share sale generated $202 million in liquidity, and the $200 million repayment of convertible notes at maturity in April, which further reduced our company's leverage profile.

Our balance sheet remains strong and has firepower for accretive uses with approximately $500 million of liquidity, including the full $300 million available from our securitization revolver. Following the anticipated deconsolidation of our operating segment, we are largely left with our target remaining corporate debt of only $300 million, which isn't expected to be repaid or refinanced until 2025. As we had discussed in the prior quarters, our effective leverage ratios will be in the low single digits, positioning DigitalBridge for long-term shareholder success. Moving to page 18. We have highlighted the continued improvements to our financial reporting and disclosures as we simplify the business and finalize our transformation to a single-segment alternative asset manager.

Looking at the left side of the page to align more closely with our alternative asset manager peers, we recategorized carried interest allocations and principal investment income into revenues. We have also consolidated interest income with other income on our P&L. Turning to the right side of the page, we now present a supplemental balance sheet with assets and liabilities on a segment basis, providing a financial profile with added transparency that's easier to understand as we move towards deconsolidating our operating segment. One of the clearest takeaways from this enhanced presentation is that once we complete our deconsolidation of the operating segment, DigitalBridge is a high-growth, asset-light, low leverage investment management platform focused on digital infrastructure investing and superior asset management. In summary, we are very pleased with the progress we've made to start the year.

DigitalBridge's three-statement financials are now healthier and significantly simplified, certainly relative to the very complicated structure Marc and I inherited three years earlier. The company remains poised for growth as we scale our asset-light, low leverage IM business with promising growth prospects led by our fundraising machine. We look forward to the quarters to come and achieving critical milestones in fundraising for our future flagship fund and progression towards deconsolidating our operating assets. With that, I will turn it back to Marc.

Marc Ganzi (CEO)

Thanks, Jacky. Before I get into how we're executing in today's markets, I wanted to highlight what we see as the Tale of Two Cities in digital infrastructure today. In both equity and credit markets, there's a significant dispersion in performance between high quality in-favor companies that are trading largely in line with broader markets and out-of-favor companies that are exhibiting material underperformance. While that gives both the bulls and bears something to talk about, for DigitalBridge, it both underscores the relevance of the investment decisions we've taken over the past few years in building some of the most high-profile, high-quality platforms in the digital infrastructure space. It also creates new opportunities for us as we deploy capital going forward. Next slide, please. In the face of a dynamic macro environment and the dispersion we're seeing in digital infrastructure markets today, what's the playbook we're executing?

Number one, we're forming fresh capital to fuel the next phase of our growth and support our portfolio companies. That's a sharp focus on raising $8 billion this year in new equity and also capitalizing our strong track record in credit markets, where we've secured over $2.3 billion in new commitments just in the last few months. Here's the simple truth in this market today: Great companies continue to attract capital. Number two, we're investing in our customers and our best ideas. Deploying capital with discipline into new opportunities the cycle's creating for us. Continuing to invest through our existing platforms in greenfield CapEx to support our existing customers. Finally, driving great outcomes for our stakeholders with portfolio company performance that's underpinned by strong leasing results that catalyze solid returns and steady growth in discounted cash flows.

Next slide, please. To start, you have to form capital effectively. To do that, you have to have the right people, the right process, and the right relationships. We're in the early innings of our growth phase, so to help us tap into significant pools of capital on a global basis, we're substantially expanding our capital formation team from 13 people a few years ago to 23 people today talking to LPs on a global basis. We've also expanded our LP base substantially. Historically, most of our efforts have been focused on the top 100 global infrastructure investors. These are our most significant partnerships, and they will continue to remain vital to our success. As we expand our product offerings and launch new vintages of our mature strategies, we're increasingly tapping into the top 1,000 institutional LPs.

There's a lot of room for us to continue to grow even before we eventually target regional LPs and high net worth capital, where we've spent very little time. This is the benefit of being in year five, not 25, of our growing trajectory. There's a lot of room for us to grow here, and there's a lot of room for us to continue to fundraise and make new relationships at DigitalBridge, and this is what we're seeing in this environment today. Next page, please. In addition to having the right people, the processes and relationships, it helps a lot to have the right condition. Our business continues to be driven by very strong secular tailwinds, driven by persistent global demand for connectivity and compute. Institutional investors want to fund that growth.

Their enthusiasm has been demonstrated in the strong growth we've seen in our assets under management over the past few years. As you can see, we're on track to hit our 2025 AUM target we laid out a couple years ago, which is $100 billion in assets under management. Even more importantly, investor appetite for digital infrastructure continues to show up in surveys that capture their intent to increase their allocation to infrastructure and most importantly, digital infrastructure in particular. We are growing faster and taking share in a sector that's already experiencing an uplift in investor and LP allocation. At the DigitalBridge level, we're benefiting from the fact that we've got lots of room to continue to expand geographically.

Building on our success growing European and Asian portfolios, we're growing product offerings as a part of our full stack strategy to give LPs diversified exposure to the sector. As I mentioned, we're growing our investment in capital formation teams to support and catalyze this growth. These are all important tailwinds that exist because we're in a great sector and we're early in our life cycle, setting us up for continued attractive growth over the coming years. Next slide, please. I talked about the Tale of Two Cities earlier in this section and what's happening in digital infrastructure markets today, and how in-favor platforms continue to attract capital. By design, we have focused our investing on the highest quality platforms over the past few years in anticipation of the more discerning market.

It was not an accident in terms of the assets that we acquired and the platforms and management teams we've been backing over the last three to four years. Knowing what you are buying in an everything trades together market is key, and deep domain expertise and experience has served us well. Not surprisingly, we've been successful in this market, attracting significant capital in 2023 to support the continued growth and expansion of our portfolio. On the equity side, we raised $700 million of fresh co-invest alongside companies like GD Towers and Switch. Great businesses, high quality, good logos, most importantly, in great sectors, towers and private cloud data centers.

Vantage EMEA, we signed a very successful recap, valuing a collection of stabilized assets at $2.7 billion, an attractive valuation that will generate carried interest to DigitalBridge shareholders and post solid returns that will facilitate our capital formation efforts. On the credit side, we raised $2.3 billion, including $1 billion at DataBank in securitized financing that reduces our interest costs. Scala, we issued the first green bond in the sector in Brazil, and AtlasEdge closed a scalable GBP 525 million credit facility to support its continued growth. Building portfolios that can withstand different market conditions and continue to attract capital has served me well over many market cycles, and our current portfolio is demonstrating this today. Next page.

Second, what's interesting today is market conditions have created opportunities once again to find value in selected subverticals that we opted not to invest in during the peak cycle over the last three to four years. When everything traded together, these investments didn't present the appropriate risk return profile at DigitalBridge. Now, this isn't to suggest that these are bad assets or didn't work for others. We made the decision to opt out of this risk profile in the environment that we just went through over the last three to four years. This has allowed us to dust off our value playbook and expand the universe of opportunities we're looking at. Augmenting the highest quality platforms we're always evaluating. Markets are finally pricing in the difference between a stabilized hyperscale data center asset and a colo data center with short-term contracts and limited fiber connectivity.

Wholesale dark fiber isn't the same as fiber to the home. Investing in the U.S. is different than investing in India. This is the discerning market that we're now in today. As we evaluate value opportunities, we're looking at, first, good businesses that may have been financed poorly or may be having trouble in today's market financing their growth. Good businesses that don't have access to capital. Two, we're also looking at good businesses that serve an out-of-favor sub-vertical where the company is executing well. Third, buying and lending below replacement cost. That's always been a great value proposition for us. Lastly, executing consolidation plays. Just as importantly, we're also not interested in bad businesses where they're trading at a good price or a great price. This is something we actively avoid.

Ultimately, as a net buyer of digital infrastructure, we couldn't be more pleased with the development. We get to hunt quality and value as risk-return dynamics align with our internal models. Next slide, please. On the topic of disciplined capital allocation, I want to update everybody on what we're doing in Greenfield. The ability in today's market to build and show up for customers on a global basis is a key differentiator for DigitalBridge. Greenfield matters. Showing up for customers matters. In 2023, our portfolio companies have budgeted over $7 billion in growth CapEx to support the growth of our customers. We have shovels in the ground around the world on five continents across all the verticals of digital infrastructure. We're busiest in North America, where we're deploying $3.2 billion of success-based CapEx.

In Latin America, it's $1 billion to support data centers, towers as they aim towards 5G, and fiber build-outs. In Europe, we have plans to spend $2.7 billion on data centers, fiber, and edge infrastructure. Finally, in Asia, our newest geography, we're spending nearly $700 million on greenfield data centers, building out EdgePoint Southeast Asia tower platform, and Xenith IG's fiber network. We love to build. It generally powers the best returns, most importantly, it deepens our relationships with key tech and telco providers on a global basis as we help them deploy next-generation networks. Next slide, please. Lastly, today, I want to talk about portfolio performance. This is really where we're making a difference today.

The investments that we made in our new platforms and the greenfield CapEx that I just described ultimately drives portfolio performance in the form of new leasing and organic cash flow growth. Here we've continued to deliver. MRR across our portfolio is up in all of our four key verticals, driven by organic and investment-led growth. The persistence and resilience of our growth drives returns for our investors over time. On the right-hand side of the page, we have highlighted conservative portfolio debt metrics. You've heard me talk about this for the last few quarters. We want to be able to weather changing market conditions as we build our portfolios to be able to accomplish that with a significant margin of safety. 43% loan-to-value, 78% of our debt is fixed, and we have over seven years of remaining average tenor across these facilities.

This is really an impressive scorecard and shows our commitment to managing our balance sheets on a fiscally responsible manner. Next page, please. Let's wrap up with a review of my checklist for 2023. As you can see, we're on track across the board. I continue to have high conviction we'll hit our fundraising goals based on our fundraising to date and early indications around our flagship strategies. We've made tangible progress on simplification with improved reporting aligned with our peers. I'm looking forward to deconsolidating later this year, as well as advancing our capital structure optimization to continue to delever and drive higher earnings and cash flows.

Finally, down at the portfolio company level, we have already had success funding the growth with success-based CapEx behind the most powerful investment-grade logos in the world, backing some of the most exciting and innovative technologies that are shaping our planet today. This is where it gets exciting for me on a personal basis. Look, the work we do at DigitalBridge matters. Our team has been on the front end of every major technology migration path for the last three decades. 2G to 3G to 4G, and ultimately now today to 5G. Enterprise data switching to public cloud and now migrating to private cloud and hybrid cloud workloads. Now the race for the commercialization of artificial intelligence. We sit in a unique position, and we build some of the most mission-critical infrastructure in the world. It's a privilege. It's a privilege we don't take lightly.

This is why, first and foremost, I remain committed and focused to supporting our customer logos on a global basis. The ability to show up for them around the world today across all parts of the ecosystem is what makes DigitalBridge unique. In fact, I would offer to you this is our competitive advantage. I'll close today with thanking you for your attention and, as always, your support as we continue to execute on the final stages of our transition to a fast-growing alternative asset management levered on the powerful tailwinds in digital infrastructure. Really looking forward to updating you next quarter on our continued progress, and I want to thank you for your time today. Now, operator, please turn it over to the Q&A session. Thank you.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Your first question comes from Michael Elias with TD Cowen and Company. Please go ahead.

Michael Elias (VP of Equity Research)

Great. Thanks for taking the question, guys. Two, if I may. You know, first, as it relates to the data center space, there's been a lot of noise around tech layoffs and decelerating cloud growth on the hyperscale side, and then also belt-tightening on the enterprise side. I would love to get a sense for what you're seeing from a demand perspective with both verticals of customers. Second, in the session, you talked about high-quality platforms. You know, just given the recent deal that you did with Vantage in Europe, I'm curious on how you're thinking about the long-term ambitions for that business to the extent you're willing to share. Thanks.

Marc Ganzi (CEO)

Well, good morning. Thank you. First and foremost, let's just get right into demand. Coming out of the quarter, the metric that I look at and that we track every week in our Monday morning meeting is sales pipeline depth. If you look, for example, here domestically in the U.S. at DataBank and Vantage, both of those domestic pipelines are up year-over-year significantly. Not minorly. I want to emphasize the word significantly. You know, this notion of demand slowing down on hyper edge, which is what DataBank does, and on hyperscale, which is what Vantage does, and then of course, you know, private Tier 5 cloud environments, which is what Switch does. All of those companies, Michael, are massively up year-over-year, okay? This is Q1 we're talking about, Q1 2023.

Just give you an example. When we were in diligence looking at Switch a year ago, back in Q1 of 2022, the entire leasing pipeline was 57 MW. Today, that leasing pipeline sits north of 500 MW, okay? Just to give you a sense of what's happening at Switch, which is, you know, very secure workload environments, 100% renewable energy in great locations that are candidly, you know, perimeter markets that are alternatives to Santa Clara and Northern Virginia. We're seeing that our customers want those highly secure workloads, and they want to be in environments that have 100% renewable energy. That is no longer a nice to have. That is a must-have for customers. DataBank, same thing. Leasing pipeline up 2x year-over-year.

If you go back a year ago, the leasing pipeline total contract value was at about $180 million of annualized revenue. Today, that leasing pipeline sits at $380 million in terms of backlog and interest coming from cloud players, mobile operators, CRAN, ORAN deployments, and now the initial deployments of AI. Lastly, you know, Vantage, that leasing pipeline also up year-over-year. Domestic leasing and hyper edge, public cloud and private cloud, which are the three spaces that we occupy with three of the best platforms, are year-over-year up. Revenues are up, EBITDA is up, and leasing is up. Those are the three metrics that you need to be focused on. Any intelligent investor should be looking at those things. That's what's happening. Those companies are outperforming their market conditions.

They're winning the jump balls between them and other competitors. Candidly, why did we do the deal with Vantage Europe in this quarter to create that continuation fund? One, to create a path ultimately where great assets can be harvested. Secondly, we're recycling capital. We have over 400 MW of new opportunity in Europe at Vantage Europe. We need capital to keep supporting that business, and that's what we're doing. We're raising incremental capital to support our customers. As I said before, we have over $7 billion of new construction going on right now, and the leasing volumes are building. They're not declining. This is a major opportunity for us.

Look, I go back to 2002 and 2009 when we were building businesses in the digital infrastructure space, and the playbook is playing out just as I said it was gonna play a year ago, if you recall. I said, "We're gonna have a recession." I told this to all of our LPs a year ago. I said, "This is when you find out when the good teams actually step up and get it done, and other, you know, other folks sort of retract, and they try to weather the storm, or you lean on your front foot, and you go play offense." You know, what we're doing right now is we're playing offense. Our customers need our, need our capabilities. They need our, you know, our land, our entitlements, our power.

We did a very good job of assembling a lot of really good land with a lot of really good building permits and a lot of really good will serve letters from utility companies over a year ago because we thought the world was gonna continue to migrate to the things that we were doing. That decision and that call was correct. So now we're funding that CapEx, and it's all success-based CapEx. The reward is you get, you know, 10, 15-year contracts with investment grade logos, with great CPI escalators, with inflation protection, cost passthroughs. So we're seeing incredible single-tenant yields like we've never seen before. Much how it played out in 2009 and 2010 in the tower space. If you had capital and you had the ability to build, it was your advantage.

We grew through that cycle in 2009 and 2010. We grew a lot. What you're seeing right now is a conviction call we made a year ago now playing out at the operating companies. That took a little bit of foresight, and it took a little bit of courage. I'm sorry if I lost the second part of your question 'cause I got a little excited.

Michael Elias (VP of Equity Research)

No, no worries. The question was about longer term ambitions for Vantage.

Marc Ganzi (CEO)

I think, you know, Vantage has, you know, three businesses: Asia, North America, and Europe. Asia is producing really well. It's our youngest business. It's less than two years old. Vantage North America, I said earlier, a lot of leasing demand right now, over, you know, 400 MW of new opportunities have come into the funnel in the last 90 days. Vantage Europe sits at over 400 MW of new opportunity. Both of those businesses, Vantage Europe and Vantage U.S.A, are growing really fast, and we're raising capital for both of those entities, as you saw in the first quarter. I think long term, we've created two permanent capital vehicles, Vantage SDC, which a portion that sits on our balance sheet, great set of stabilized assets. We've created our Vantage Europe stabilized platform.

Now we have the vehicles to continue to harvest these assets and put them in the right place, but most importantly, pair it with the right capital. That's where I think we are a little bit different. We have this ability in sifting through over 1,000 LPs on a global basis, and we know the insurance companies and the pensions that want yield, they want safety, they want 10-15-year contracts with investment grade logos, and they're looking for a 12 to a 13 IRR, but they're looking for a 6%-7% cash yield. Our stabilized permanent capital vehicles with Vantage North America and Vantage Europe are very misunderstood by the public investor community. What are they? It's a path to create liquidity for Vantage. It's a path to recycle capital.

Most importantly, it's the opportunity for us to bring to some of our LPs what they're looking for, which is the ability to buy on a direct basis a core product that has incredibly predictable cash flows, embedded escalators, a little bit of growth. Most of these data centers are 80, mid-80s occupied, so we have incremental leasing, as you've seen in Vantage SDC. We believe Vantage is the premier hyperscale data center owner and developer in the world today. What Sureel and his team have built in five years is incredible. You go back five years ago, we bought that business for $1 billion, a little over $1 billion from Silver Lake.

Matt Niknam (Director of Equity Research)

Now today, you know, on a global basis, you know, hard to put a value on it, but on a consolidated basis, if you rolled up all the EBITDA from Vantage Asia, Vantage U.S.A, and Vantage Europe, it would be well north of, you know, somewhere in the order of magnitude of close to $500 million-$600 million of, you know, run rate EBITDA. It's a business that's probably worth about $15 billion on today's, you know, valuations, which have come down. Creating that $14 billion of value in a period of five years was not easy. We did it through our playbook, which is buy and build. We did some small acquisitions, but mostly we've been building, and building with the right customers, with the right return profile and creating the right returns.

Marc Ganzi (CEO)

We're very happy with what Sureel has done. It's a great business, it's a great company, and it's one of, you know, 41 assets, 41 companies we own here at DigitalBridge, and we're doing that at every portfolio company. The playbook that we're executing with Sureel is not that different from what we're doing at Scala in Brazil. It's not that different from what we're gonna be doing with AIMS in Kuala Lumpur. We've got great businesses, great CEOs, but most importantly, we have great customer relationships. When we take over a platform, we can go deep and execute with customers on a global scale.

Michael Elias (VP of Equity Research)

Really great color, Marc. Thank you so much.

Marc Ganzi (CEO)

You're welcome.

Operator (participant)

Next question, Dan Day with B. Riley Securities. Please go ahead.

Dan Day (Senior Equity Research Analyst)

Yes. Morning, guys. Appreciate you taking the questions. First one, I think we all understand the recap process, the timeline for DataBank fairly well at this point. Looking at Vantage SDC, maybe just talk through what you think your best options are to monetize that asset. Would you consider a full sale of the stake rather than kind of leaving yourself with a stub like it seems like you plan to do with DataBank? If you could just remind us what the total cost basis is on Vantage SDC, and obviously given the moves in cap rates over the last year or two, just whether you think you could recoup that or not in a sale. Thanks.

Marc Ganzi (CEO)

Great question. Look, DataBank's been a fantastic investment for us. You know, we've got $218 million into that deal today. We've created a tremendous amount of value in that business. Obviously the $6.2 billion headline valuation created an incredible uplift for our public shareholders. You know, today, we're holding that at about $480 million today, so it's a, you know, a tremendous amount of value that's been created at DataBank. Vantage SDC, you know, $218 million, is where we're holding that today. I think, you know, the two assets have different flight paths. Let's just talk about them for a second. One, on Vantage SDC, we are in the process of taking in new capital.

We've been out looking to raise new capital for Vantage SDC, I would say, Jacky, in the last 45 days, we started that process.

Dan Day (Senior Equity Research Analyst)

That's right.

Marc Ganzi (CEO)

A lot of investor appetite for stabilized U.S. data centers that are producing effectively a, you know, high six, low seven yield. Even with treasuries where they are today, that's still pretty attractive on a risk-adjusted basis. Some insurance companies and some pension funds and some fund managers want exposure to that because they don't have it, and we have it. You know, that process is going well. Jacky has, is actually running the Vantage SDC process, and we expect to have a good result very soon in terms of what we're doing from a deconsolidation perspective. DataBank, as I mentioned, on the last call. We reopened our fundraising on April 1st. We shut that fundraising down for a period of six months. We had a great first closing with Swiss Life, EDF, and a few others.

Now we are moving into the last phase of capital formation there, and we're forming capital, you know, right now as we speak. To be clear, that is a continuation fund that had an open fundraising period until the end of the summer. The way we structured that was it allows us to take in investor capital over time. Where Vantage SDC, we took the capital in, you know, many years ago, and that's now been closed. What we're doing is we had to reinitiate a new capital formation plan. Two very different processes. On the DataBank process, we continue to take subscriptions in. That's what I can tell you today. We're having great success. Investors are signing up into that vehicle, and the business has absolutely performed.

You know, when we were out, you know, over a year ago, as most of you know from your public disclosures, we're at about $220 million of run rate EBITDA a year ago in the second quarter of 2022. As we aim our guidance for the end of this year, DataBank is on a path to get to about $290 million-$300 million of EBITDA by the end of this year. The growth has just been absolutely meteoric at DataBank. Raul and the team have done an amazing job being in these tier two and tier three markets where we have hyper edge workloads. We talked about their leasing backlog, you know, being up over $380 million in annual rent is the leasing backlog today. That's double what it was last year.

We think we're doing the right thing on DataBank. I mean, look, if I could own 100% of DataBank and we were still a REIT, I would keep DataBank, and DataBank would be a fantastic, you know, success story. You know, we're not a REIT, we're an alternative investment manager. We continue to use other people's capital to grow our best assets, and DataBank absolutely fits that profile. We have the ability to raise another $600 million of capital into the continuation fund. We're gonna do our best to, you know, raise that. Ultimately, you know, we will have a position that will be left.

If we raise the full 600, that'll probably get us down to a position, I would say, you know, probably about $200 million will be the position if we raise the full 200.

Jacky Wu (CFO)

300.

Marc Ganzi (CEO)

No, 300 gets us to if we raise 600, we'll have about 300 left. We've got to raise $200 million to deconsolidate.

Jacky Wu (CFO)

Yeah.

Marc Ganzi (CEO)

That's the key metric for public shareholders. Again, I'll say it again, we continue to take subscriptions in. We continue to be very convicted around our ability to deconsolidate DataBank very shortly. That is all I can tell you inside of today. We're in the middle of the second quarter, you know, we feel very good about where we are in DataBank. I'll leave it there for today.

Dan Day (Senior Equity Research Analyst)

Thanks, Marc. I'll just ask one more that hopefully will have a pretty quick answer. Any update on the timing to an Investor Day in 2023?

Marc Ganzi (CEO)

So as soon as we have both of these assets deconsolidated, we will host the Investor Day. If I was just looking, you know, I can't give you a specific time. Severin's looking at me with a big smile right now. It will be, you know, on the back half of this year, second half of this year, we'll have an Investor Day. We're looking forward to sharing with everyone, you know, the final results of the deconsolidation and, of course, an update on fundraising, which we're happy to talk about today. Of course, just our leverage profile, which we're very delighted about where we are and our, you know, Jacky and I's progress on taking $10 million of cost out of the business this year.

I mean, we've got a very simple few things we got to do this year. Inside this quarter, you know, we're making great progress on all those initiatives.

Dan Day (Senior Equity Research Analyst)

Awesome. We'll look forward to seeing you guys out there. I'll turn it over.

Marc Ganzi (CEO)

Likewise. Thank you.

Dan Day (Senior Equity Research Analyst)

Thank you.

Operator (participant)

Next question, Ric Prentiss with Raymond James. Please go ahead.

Ric Prentiss (Managing Director)

Good morning, everybody.

Marc Ganzi (CEO)

Morning, Ric.

Jacky Wu (CFO)

Good morning, Ric.

Ric Prentiss (Managing Director)

Great. couple of things. Obviously, I think we're all looking forward to moving pieces starting to slow down a little bit. Jacky, I think in the quarter you called out a couple of things just to make sure distributable earnings took a hit because of the wellness. You've had a couple of quarters in a row with some oddities there. Are we thinking that we're able to see positive distributable earnings as we look through the rest of the year? Are there some more of these moving pieces, one-timers that happen?

Jacky Wu (CFO)

Yeah, sure. This is the last quarter in which we have some cleanups. Certainly with respect to the wellness note, what we've done is taken a $7 million impairment on our distributable earnings, and that's just the interest income that we would have recognized from last year. Absent that, on a go-forward basis, you'll see that even just normalizing for that, we're already at positive distributable earnings.

Ric Prentiss (Managing Director)

Okay. carried interest was a little bit odd there. Was there anything with the BrightSpire sale that was affecting that? How should we think about what's the path on carried interest? Obviously an important area for valuation.

Jacky Wu (CFO)

Yeah, sure. On the carried interest side, that is simply associated with the fact that we marked up our funds about 1%, relative to the prep of 8% that we booked a non-cash income impact associated with that differential. In terms of BrightSpire, we basically did a cleanup trade at a value that was close to where we already had it marked. There was a little bit of an impairment, about $10 million worth, for BrightSpire itself. That didn't impact our carried interest while going through operating. What we did do was it does impact distributable earnings relative to prior quarters since we would have recognized the BrightSpire dividends about $7 million a quarter in prior quarters.

Ric Prentiss (Managing Director)

Okay.

Marc Ganzi (CEO)

I think, Ric, the key here is.

Ric Prentiss (Managing Director)

Yeah.

Marc Ganzi (CEO)

Ric, the key here is here, if you come up to 50,000 ft for a second, this is really the last cleanup quarter. I hope that that's really clear to everybody. We had the last sales of some, you know, what I'd call one-off real estate assets are now done. There was a hotel asset we sold in Paris. We did the BrightSpire cleanup trade, and then we took the full mark on the wellness note. Now, look, you know, on the wellness note, we can't be more clear. We have strong rights. We have an intercreditor agreement. We believe we'll be paid back. We don't know the amount of recovery on that note, but we felt like this was the right quarter to put an end to the legacy assets. This was it. We made the decision that this was the right time to do it.

It's been already a fairly, you know, turbulent year in broader markets, why not take this now, get the cleanup trade done with BrightSpire, with the wellness note and the remaining assets, so that the rest of this year is a very easy and clean print for investors to understand. Look, that's not popular. We could have said, "Okay, let's just wait, and we'll not mark the wellness note. Let's kick the can down the road. Maybe we get full recovery, maybe we don't." I think the reality is our investors are going to appreciate the next three quarters being clean, us having strong EPS and distributable earnings. Then obviously, as the fundraising cadence kicks in to the back half of this year, EPS in turn responds, and we've got a very easy, simple algorithm for investors to understand.

This is the setup quarter going into the back half of this year, and we feel again, if you're not hearing the conviction in my voice, we feel very good about what we're doing on fundraising. We feel very good about how our portfolio companies are performing. Jacky and I have done a very good job on cost. We like our leverage profile, and we like exactly where we are in deconsolidation. Everything that I've mapped for this year is coming to fruition. This really, for us, was the last of the, you know, what I like to call Colony cleanup on all three. That's now done, and it's behind us, and so we feel convicted around that.

Ric Prentiss (Managing Director)

Good to have the cleanups done. Two more for me.

Marc Ganzi (CEO)

Oh, yeah.

Ric Prentiss (Managing Director)

Yeah. I think we saw a Form D get filed last week about DBP III and some placement fees and agency fees. Any update you can do knowing that we're mid-quarter, there's not maybe a lot you can say, but, you know, the Form D seems to suggest, to your point on fundraising, that the DBP III is closer and closer.

Marc Ganzi (CEO)

Look, it's always fun when these filings come out, and we're not allowed to be incredibly transparent with you guys. Let me try to walk a very fine line with you, Ric. What I would tell you is, we obviously have received our first commitments in the new strategy. It's going very well. I wish I could give you a lot more detail, but given compliance rules, I've got to have my hands kinda tied until next quarter. What we can tell you is, you know, the first commitments are in. You are correct, there were some commitments. That filing was related to some investors in Korea. I think the good news is we're attracting not only re-ups, but most importantly, we're attracting new capital, Ric.

This is really the highlight of what you're gonna see in our second quarter is the fundraising team that Kevin Smithen and Leslie Golden run has done an amazing job. We've got 27 people around the world raising money. I think you saw that slide in our deck today around just the top 1,000 accounts. You know, it's really incredible how much more depth our fundraising team has, particularly in a market, in a theater like Asia, Ric, where we literally had no fundraising capabilities in Fund 2. Now you go to this new strategy, and we've got a sales team in place there in Asia now, five people fundraising, and they're having tremendous success with new logos.

You know, as we think about some of the first commitments that are rolling in, getting new logos, you know, in the first phase of a fundraising process, usually you just get re-ups. The fact that we're getting re-ups and we're getting new commitments, to me is very exciting because, you know, for us to achieve our objectives of what we want to do this year, the re-ups are important. As we said, we think we're gonna get 90%-92%, 93% re-ups in this new strategy. It's really the $30 billion of new capital, Ric, that we're talking to, the over 200 LPs that were not in Fund 1 and Fund 2, that are working with us on the new strategy. That's where we think we have the momentum.

Over $30 billion, you know, of new logos in the data room doing the work. That's what's moving the needle for us in this quarter here in Q2, and it's what's gonna move the needle, obviously, in Q3 and Q4 this year. Again, I want to say it with total conviction. We believe we will hit our $8 billion fundraising goal for this year. My goal is to beat that, and I haven't changed my tune on that. That's because, you know, we're sitting in this quarter, and we're looking at the back half of this year, and it looks very good from our perspective.

Ric Prentiss (Managing Director)

Last one for me because I wanted to make sure we got the clean quarter fundraising, the DBP III. Slide 20 is an interesting slide. That's where there was a lot of pain, right? Investors on this call are feeling that pain, the out of favor versus the in favor. What is causing that systemic difference in in-favor digital infrastructure versus out-of-favor? What will close the gap? Add there, if you were to do the similar chart with alt asset managers, how do alt asset managers compare to that slide? Is there in favor and out of favor alt asset managers? Just trying to think of what closes that gap. Why is the gap there? What closes the gap, and how does alt assets kind of look in that chart?

Marc Ganzi (CEO)

As always, Ric, you're asking the right question. Let's start out with digital infrastructure. You know, the out-of-favor stuff is stuff that's just aging, and it's legacy assets. I don't, you know, I don't like to pick on certain companies, and it's not my job to do that. What I would tell you is in enterprise data centers and in legacy older fiber and resi fiber, it's all about the duration of the contracted cash flows and the quality of the assets. For folks that own legacy colocation enterprise data centers that are now 20 years old, those assets, as you know, Ric, they lack functionality, they lack power density, they lack connectivity, they lack the ability to scale.

When you have a 40 MW opportunity, you know, with someone like, you know, a public cloud player that starts with an A, and you've got a data center that only has 6 MW of power, you're not gonna be able to force 40 MW into a 6 MW data center. Now, if it's a beautiful brand-new data center sitting in Bluffdale, Utah, and there's 60 MW of power, and it happens to be DataBank, and we're doing a jump ball against a legacy, you know, colo data center that has 6 MW, we're winning that jump ball, Ric, 100% of the time because we have the land, we have the power, and we have the ability to deliver for the customer.

Owning new data centers that were built literally in the last three to five years, like what Raul's done at DataBank, like what Sureel's done at Vantage, and what Rob Roy's doing at Switch, having new state-of-the-art inventory with power density that can ultimately fulfill what the customer's looking for and our ability to deliver that space in the next nine months, that's competitive advantage. That's in favor, right? Tier 5 private cloud, public cloud advantage, and hyper edge with DataBank, those are the assets you wanna own in this environment. We own them, they're performing, and the leasing results are now showing and manifesting themselves. That's really the Tale of Two Cities in the data center space.

You can't take a 20-year-old data center and make it, you know, a 2023 perfect cloud data center unless you're gonna level the entire data center, go buy a bunch more land, rezone it, get a new will serve letter. These businesses that own these aging assets, you know, are having this sort of, you know, come to Jesus moment in terms of their ability to reconcile themselves with what their profile is. We don't own those types of assets, to be clear. We've steered clear of those types of assets. The same thing in the fiber space. I think Ric, you and I have talked about it for three years at your conference in Park City. I stood up in front of the room three years ago at your conference, I said, "Look, we're not investing in resi fiber.

We're not going to spend, you know, 20 times EBITDA to buy a business that has month-to-month 30-day cash flows. We just didn't think that was the right use of capital. Now, as we move into this cycle, and these assets have priced from the high teens down into the low teens, some of these pricing in the single-digit multiple range, we now see a value opportunity. That's what we're highlighting today in our presentation, is that as we look to this new strategy and the new fundraising that we're deploying, we're seeing this repricing risk that is really attractive. Much like, Ric, when you and I were around in 2002 and 2003 when the CLEC space repriced, when the Sprint affiliates and the AT&T affiliates repriced, and the tower sector in 2009 and 2010 when towers repriced. This is that window. That window's opening up.

Some of these out-of-favor assets, we think actually now we're going to come back and tell you, "Hey, look, resi fiber is kind of interesting now." Been a bunch of bankruptcies in Europe. There's going to be some restructurings in the U.S., and we want to plan that. I don't have a fundamental problem with cable or residential fiber. I just didn't like the valuations they were trading at in 2021 and 2022. Now that those valuations have come into the right range, you can put the right capital structure on those businesses, and you can be really successful. We're excited. We're open for business. We have new capital. Got a big pipeline of new deals we're looking at. I think we have $17 billion of new opportunities sitting in our flagship funds. We're busy right now, Ric.

There's a lot to do, in this environment if you know where to go and you know what you're doing.

Ric Prentiss (Managing Director)

Great. Thanks. Take care, guys.

Marc Ganzi (CEO)

Ric, I didn't answer your second question. Sorry. The Tale of Two Cities in the alternative asset manager space. Look, I'll hit it straight on. There's no doubt we're trading at a discount to our peers. I'll just own that narrative straight up and right now. Why? We've been a confusing story. We've been a transition from a REIT into an alternative asset manager. We've had these legacy cleanup issues. We had high leverage, now we've fixed all that. Once we get through deconsolidation, we're going to be levered at about 2.3-2.2x. We'll have $300 million of securitized debt. That's the only debt we'll have. It makes it really easy for investors to look at our leverage profile and say, "Wow, DigitalBridge has $300 million of securitized debt. It's a fixed cost.

It's not floating. Oh, by the way, they have this incredible alternative asset management business that's growing, you know, north of 30%. We think the rhythm for us and the cadence gets a lot easier as we deconsolidate, as we continue to fundraise, we continue to take costs out of the business. All of these things are working for us. Ultimately, what that means is cash flows. Free cash flows, EPS, and we become an EPS-driven story. That's what investors wanna see from us, and that's what we're doing. We'll close that gap. You know, we trade at a discount to some of our peers, whether it's, I won't pick names, but there are a couple of alternative asset managers that trade at 18, 19 times and, you know, we think we can move up into that level on an FRE multiple.

If you look at where our guidance is for the end of this year, and soon we'll have guidance going into next year, we do believe we trade at a discount. That's the opportunity for investors to jump in now and join DigitalBridge.

Operator (participant)

Next question, Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow (Director and Senior Equity Analyst)

Great. Thanks for taking the question. I wanted to ask about just your current liquidity situation. Obviously, you'll bring in some additional cash once you complete the deconsolidation events with Vantage SDC, and DataBank. Maybe you could talk about how you're thinking today about deploying that capital, whether it's, you know, M&A of other IM platforms, paying down preferreds, repurchasing stock, anything else that's high up on your list.

Marc Ganzi (CEO)

Yeah. Thank you. nice to hear from you. Look, this may sound a little boring, but, you know, we'll continue to opportunistically buy the preferreds when it makes sense. Jacky's been leading that program with Severin, and they're doing a good job. We bought some in the last quarter, and hopefully we'll get a chance to buy more in this quarter. We're being incredibly selective. You know, we do have an internal rate of return that we're looking for on those preferreds, you know, and there's a, there's an IRR where we're a buyer, and there's an IRR where we're candidly, you know, we're gonna hold them. I can't be more prescriptive than that, but that's what we're doing.

I think in terms of other uses of the cash, we have continued to do diligence on a number of other alternative asset managers/GPs. We think there is a really good opportunity to buy adjacent GPs, whether it's in credit, whether it's in private equity, whether it's other forms of infrastructure like renewable energy. We're out there talking to numerous folks as we're all leaving. There's some folks that we like that fit our culture. For us, look, at the end of the day, it is a culture fit, right? We are in the people business. Finding people that sort of have our drive and, you know, our motivation for building great companies and our passion, that's not easy.

There are some folks that we think are a lot like us that don't have that scale, and scale matters today. I think you hear that whether it's in digital infrastructure or whether it's in the alternative asset management world, whether you're talking to a Jonathan Gray or you're talking to Mike from Ares, or you're talking to Marc Rowan at Apollo, they'll all say the same thing. In this environment, the scaled alternative asset managers are having success because they have the right products that match up with the investor base. Here's what's happening at DigitalBridge. We actually have the right products that match up with what investors are looking for. This is why we're having success in fundraising, why we're having success in raising debt capital, and why we're having success in selling assets as well, and buying assets.

you know, in our little corner, our little street corner of digital infrastructure, we have that scale and we have that size. I think the benefits of scale will manifest itself this year. You're gonna see it in our financial results, and you're gonna see it in the performance of the company. It's again, back to creating cash flow. This is a free cash flow story. This is an EPS story. This is the hard work that Jacky and I have been on for the last two years, is to turn this into a very simple business that creates earnings for investors. That's it. In terms of capital allocation, certainly we'll buy back prefs. Certainly, if there's an opportunity to buy back common at a right price, we'll do that. We've demonstrated that time and time again.

Of course, we wanna put that cash to work in intelligent ways where we can buy stuff at accretive multiples. I mean, we did the AMP deal at effectively a 6.5x multiple. We've managed to get the cost synergies out of that business. We've got it stabilized. We've got it in the right place. It's fully integrated on schedule. Now you're seeing that show up in the numbers in this quarter. Good question. Thank you.

Eric Luebchow (Director and Senior Equity Analyst)

Yeah. Just one more, Marc Ganzi, for me. Just wanted to check in on your towers business. It looks like leasing was up, you know, 26%, which obviously seems pretty impressive, especially given a lot of tower businesses, at least in the U.S., are slightly more mature. Maybe you could kinda disaggregate how those are performing across the globe, where you're seeing that strength. It certainly seems like in the U.S. at least, people are a little worried about, you know, we might start to see a downturn in leasing in the next six to 12 months, and particularly with one carrier who's showing some signs of distress. Any kind of commentary on that would be great.

Marc Ganzi (CEO)

Yeah. Look, I mean, this is again, another benefit of being a global operator of towers. Having what we think is the premier tower platform in Europe in GD Towers, having a really, you know, good recovery up in the Nordics with Digita and having our Freshwave business in the U.K., all those European businesses have performed actually quite well as 5G gets rolled out. The real surprise winners here were EdgePoint and Highline and ATP. These are really for most, you know, Main Street investors, they would say that's a little emerging market. Southeast Asia, Colombia, Chile, Peru, and Brazil. We've had really meteoric growth in those tower assets. Those tower assets are performing exceptionally well right now. A lot of that growth is driven by 5G. It's driven by coverage.

You know, in those markets, we have, you know, the best platform. Those platforms, being ATP and EdgePoint, are really market leaders, and they're taking outsized market share. Back here in the U.S., our biggest asset is Vertical Bridge. We actually just had a board meeting yesterday. Business continues to perform. Leasing is on plan. Is there weakness in the, you know, off in the future? Look, I think CapEx is certainly gonna be lower than it was last year. I don't think that's, like, a big state secret at this point. What I would say is, the opportunities for Vertical Bridge have gotten stronger, interestingly enough. Once again, it's back to that narrative of, like, turning the clock back to 2009 and 2010 when you have capital, which Vertical Bridge does have.

It's free cash flow positive. It takes all of its free cash flow as a private REIT, it reinvests into new builds, it reinvests into other projects that the carriers want in terms of RAN hubs and other associated, you know, 5G deployments. Alex is taking outsized market share. It's a combination of amendments, new builds, and de novo co-location and adjacent types of leasing that support the 5G ecosystem. I give that team a lot of credit. They're very creative. They've managed to find new customer opportunities, you know, leasing space to cable companies, doing some interesting things with certainly with some of the LEO satellite providers. There's some ground-based infrastructure that has some tower-related components. The opportunity to work with some of the LEO providers has been really interesting.

That's what you gotta do. You gotta go out and you gotta find the edges of the leasing. And sometimes that's not just T-Mobile, Verizon, and AT&T, but you've gotta go a step further, and you've gotta lease space from the likes of a Comcast or a OneWeb or a Gogo. Certainly, you know, what our relationship with Elon's group, you know, that's been good as well. He's now leasing some ground-based infrastructure. There's other ways to play the space, and there's other ways to lease tower infrastructure here in the United States. Alex and I have been doing it since 1994, so we know how to go find, you know, those smaller incremental tuck-in lease-up opportunities, and that's why he's gonna deliver, you know, very strong growth this year.

We think Alex will deliver, oh, and Jacky, 17, 8, 9% growth this year.

Eric Luebchow (Director and Senior Equity Analyst)

Mm-hmm

Marc Ganzi (CEO)

In the domestic U.S. tower business.

Eric Luebchow (Director and Senior Equity Analyst)

That's right.

Marc Ganzi (CEO)

Towers is still our number one asset class, although data centers has become a big part of what we do. Our heritage and our lineage, you know, tracks back to the tower business, and we were really happy with the organic cash flow growth in this quarter. Really strong print.

Eric Luebchow (Director and Senior Equity Analyst)

Great. Thank you, Marc.

Marc Ganzi (CEO)

Thanks.

Operator (participant)

Next question, Jonathan Atkin with RBC Capital Markets. Please go ahead.

Jonathan Atkin (Managing Director)

Thanks. Slide 27 talks a little bit about growth rates by asset category and small cells and Edge. Maybe drilling down on small cells and tagging on to the last question, what are you seeing there that might lead to, you know, maybe a change in the rate of growth going forward, or are we gonna kind of see these single-digit sorts of percentage growth rates for the foreseeable future for small cells? Thanks.

Marc Ganzi (CEO)

Look, I think on the small cell side, Jonathan, good to hear from you, by the way. On the small cell side, we've continued to see, you know, what I would say sort of, you know, green shoots here in the quarter, in the second quarter. You know, good bookings, you know, from all three customers. We've seen a return of bookings from AT&T and Verizon, which has been good. I mean, it's not these aren't thousands and thousands of nodes, but we are seeing an increase in the backlog. Certainly in our indoor business, when you've got projects like MGM and some of the big football stadiums and airports we have, we're seeing, you know, incremental leasing that's being driven out of that. We're pretty excited about that.

On the indoor side, you know, at ExteNet in particular, all the carriers are gonna have to invest in, you know, Wi-Fi 6 and 5G upgrades. We're seeing that upgrade cycle now happen. I think, you know, one of the biggest projects, of course, is the MGM opportunity, which is the largest casino operator in the world. We've got that, you know, long-term exclusive with them, so we're building out that infrastructure. We took in new commitments from all three of the carriers inside those properties. Obviously, you know, in the big venues, we're seeing, you know, an increase in lease up there. Having a really strong captive indoor business is very helpful.

I think the other area that we're seeing some silver linings here is just private 5G networks. This is an area where both Boingo and ExteNet and Freshwave have had a lot of success. Remember, we own three small cell companies, Freshwave in the U.K., Boingo here in the U.S., and ExteNet here in the U.S.. All three companies posted positive growth in the private 5G network space. I think if we were sort of playing a nine-inning baseball game, Jonathan, you'd say we're probably in the first inning of that, maybe second inning. Some of those private 5G networks at enterprises, it's hitting airports. We've got a private 5G network we're lighting up, you know, for the L.A. Dodgers at Boingo. That's really exciting. That's an interesting project.

There's a lot happening in that space, and I think the lease-up is gonna continue to be you know, moderate to strong as the year progresses. Once again, in an environment, Jonathan, where CapEx is somewhat muted with our customer apartments, customer partners, you know, we're seeing that we're taking outsized market share. It's our ability to have a strong balance sheet at those companies and have, you know, discretionary CapEx to put to work. If we can do that, and we can pull some of, you know, AT&T and Verizon and T-Mobile's CapEx up earlier, they make those commitments, provided that we're, you know, we're using our balance sheet to help finance, you know, their growth. That's our job, right?

Our job at the end of the day is to show up for customers, as I said on our quarterly call today, and to help them defray some of that CapEx and push some of those commitments up earlier in the year as opposed to waiting until the fourth quarter. You know, Jacky ran treasury, was part of the treasury team in Verizon, and the strongest CapEx quarter is always the fourth quarter because customers sort of sit on their CapEx, and they wait till the end of the year. To the extent that we can front-end some of that CapEx, particularly in small cells, Jonathan, which are, you know, really expensive, that helps them push some of those commitments up earlier in the year. That's kind of what we're seeing in the small cell space.

It's been a relatively good year so far.

Jonathan Atkin (Managing Director)

lLastly, just any update on CFO transition and replacement?

Marc Ganzi (CEO)

Well, he's still here. He hasn't left yet. I'm kidding. Jacky is working with Ben Jenkins and one of our board members. They've formed a committee, had a bunch of really strong candidates. You know, we're into that process. The timeline remains unchanged. You know, Jacky is slated to leave at the end of the year. What I would tell you is, I think, the final candidates that we're looking at are all very strong. Strong emphasis on alternative asset manager. You know, Jacky's background was Digital REITs, and now that we've made the transition to alternative asset manager, what you're gonna see is a CFO that aligns with that future go forward. We'll miss Jacky. We've asked him to stick around on some boards.

We've asked him to stick around and do karaoke with us. Whatever he wants to do, he's always welcome to hang out with us. We're gonna miss him. Right now he's squarely in the chair, very focused, and, you know, we know we got a job to do between now and the end of the year. Part of that job is obviously, you know, finding an adequate replacement for Jacky, which will be hard, but we do have some really good candidates. That process, I would say, is 50% complete. I'd say we're sort of playing the back nine now in terms of who we're vetting and who we've got our focus on, and just stay tuned. We're on target. Like everything else we're doing, this is another situation where we're on target.

Jonathan Atkin (Managing Director)

Great. Thanks a lot.

Marc Ganzi (CEO)

Thank you.

Operator (participant)

Next question, Richard Choe with J.P. Morgan. Please go ahead.

Richard Choe (VP of Equity Research)

Hi. I wanted to follow up on the $8 billion in capital raise. How much of that is not going to be, I guess, the DigitalBridge Partners Series? How much of that should we expect to be in kind of from Core and Co-Invest and others?

Marc Ganzi (CEO)

Hey, Richard, how are you? I think I said this in the last quarterly call, how the $8 billion sort of plays out. I'm on record publicly saying this, so I don't feel uncomfortable saying it. We believe that there's $2 billion related to Core and Credit. We believe there's $2 billion related to Co-Invest. We believe there's $4 billion related to Flagship. Richard, there's no perfect science to that, right? What I would tell you is, in all three of those swim lanes, we're taking commitments in today. For example, we were very clear with you, we're taking in commitments to DataBank, that'll be Co-Invest. We're continuing to take commitments in Credit and Core in this quarter. That's Credit and Core.

As we said, now that it's sort of seeped out through this filing, to be clear with everybody, we have taken in our first commitments on our new flagship product. What we can tell you about that product is, you know, we were always very clear that the first close would be, you know, in the second quarter. We've also been very clear about the cadence at which big LPs are allocating right now. We've mentioned a couple of big U.S. pension systems that usually clear their allocations in March, have now set their release of their allocations to June just to make sure their liquidity was there. All of those big U.S. pensions have been very clear with us that June, July is kind of their timeframe for releasing allocations.

This isn't something dissimilar that you probably heard on the Ares call or that you heard on the Blackstone call or that you heard with other alternative asset managers. You know, fundraising, generally speaking, has kind of been a little bit slow-rolled. Some would tell you 60 days, some will tell you 90 days. The good news is we raised money in the first quarter. We're raising a lot of money here in the second quarter. We're gonna continue to raise capital in the third and fourth quarter. Again, I want to be clear with everyone, we are very convicted in that $8 billion number. Our goal remains the same, Richard, which is we have conviction that we're gonna beat it. That's what I'm focused on.

From the information we have sitting in this quarter, we feel really good about fundraising.

Richard Choe (VP of Equity Research)

Got it. Then on the resi fiber side, would it be something that you would need a lot of scale? Would this just be more kind of one-offs that are trading at potentially attractive prices? Just a little. Any kind of color there, because it's something you didn't seem very interested in, just, you know, especially at high valuation?

Marc Ganzi (CEO)

Yeah. Look, I think, again, this has been a fairly, you know, long-standing debate between me and the resi fiber space. You know, my issue with the sector has been largely this notion of overbuilding, Richard. I think what has plagued the sector in previous cycles, you got to go back to 2001 and take a look at the unraveling of the CLEC space and what went wrong there. What went wrong there is there was a lot of capital chasing the idea of putting fiber into the MPO of office buildings all across the U.S.

You know, folks like Kleiner Perkins, folks like Sam Zell, many other folks that were extremely well-funded, raced to run fiber down the same street, penetrate the same buildings, next thing you knew, you had four, five, six different carriers all lighting up the same building saying they were gonna get 35% penetration. If you take five carriers and everybody has 30% penetration, that's 150% penetration. That math doesn't work in an environment where we were 80%-90% penetrated. The same thing is happening in residential fiber today, which is on some streets, not all, you have two, three, and four providers.

If everyone's underwriting to a 30% penetration and you're fighting into an environment, we have a strong RBOC that now is getting CAF funding and is getting funding from NTIA through the Build Back Better America bill. The RBOCs have never been positioned better to play defense against overbuilders and against cable companies. For example, Richard, your firm, JPM, does great research on this. I really enjoy reading it, looking at the percentages of who's occupying and winning. Overbuilders are not succeeding, Richard, you know this. They have less than 3% of the market. Who's winning? The basically the incumbents and the cablecos. They have such a large strategic mode that when you bring these overbuilders that are coming in and you see these infrastructure funds paying 20-25 times, we know how this movie ends.

It ends a lot like how the CLEC space ended in 2002 and 2003. There's pain coming. Some of that pain has already manifested itself in Europe. We've been very patient. We stayed on the sidelines. We waited. We focused on enterprise fiber and most importantly, wholesale and transport business, businesses that are infrastructure in nature, like Zayo, that's performing quite well right now. That's the bet that we made. Look, I'm not sitting here saying that I'm right or that I'm wrong. All I can do, Richard, is investors give me money.

It's my responsibility to invest for pensions, sovereign wealth funds, insurance companies, and invest their capital wisely. That prism at which I look through it is largely predicated on my experiences of going through 2001 and going through 2008 and studying cycles and looking at what I call pattern recognition. A lot of what we do at DigitalBridge and our private investing team is I remind the team to go back and study the past so we don't make those mistakes go forward. That was our conviction call in 2001 when we stayed out of the residential fiber wars that were happening. It was the right call. It was the right call based on having a perspective on what went wrong in 2001 in the enterprise fiber space, in the CLEC space. That's where we are today.

Now that being said, there's gonna be restructurings. Our credit team, by example, our credit fund, which is led by Dean and Mike and Chris Moon and Josh Parrish, they've done a great job investing in residential fiber. Why? We're part of the rescue capital. We're part of the second lien structure. We're taking secondary stakes, and we're getting rewarded. We're getting returns in the low to mid-teens on a risk-adjusted basis. Maybe that's the right way to play residential fiber is playing it through the capital structure. There's different ways to play digital infrastructure. Here's the key. If you're a common shareholder in DigitalBridge, you don't have to make that decision. You're with the deepest, most experienced management team in the world in digital infrastructure.

278 professionals that wake up every day, we see every opportunity, whether it's core, whether it's credit, whether it's our flagship fund, whether it's our venture growth fund, we see every opportunity. What we do really well is we triage those opportunities quickly, and we put it with the right capital. That's the key. The ability to own that street corner and the ability to pair capital with opportunity is what DigitalBridge is about now. That story, as I said, will manifest itself more clearly through the back half of this year. Like I said, we feel really good about the calls that we've made over the last two to three years. The portfolio, Richard, is performing, and it's performing really well.

Richard Choe (VP of Equity Research)

Great. Thank you.

Marc Ganzi (CEO)

Thank you, Richard. Look forward to seeing you soon.

Operator (participant)

Next question, Matt Niknam with Deutsche Bank. Please go ahead.

Matt Niknam (Director of Equity Research)

Hey, guys. Thanks for taking the question. I'm just wondering, Marc, maybe if you can talk about the latest you're seeing across the key swim lanes in digital infrastructure, just around valuations and whether you're seeing that gap between public and private market multiples tighten at all. That's question one. Second question, you talked about expanding the team and footprint to target a broader set of institutional LPs. I'm just wondering if you can talk about some of the early progress here and whether this is embedded in the plan to trim corporate overhead from I guess it was about a $50 million this year to $40 mil by 2025. Thanks.

Marc Ganzi (CEO)

Wanna take that?

Jacky Wu (CFO)

Yeah, sure. Hey, so in terms of private versus public multiples, look, we're still seeing that private multiples and private valuations have held up, especially as what Marc talked about, good assets and great assets continue to trade very well and continue to be marked very well across the board. Certainly bad assets is a different story. You know, I would say that what we're seeing in the public space, we are seeing the recovery in valuations across our sector, and I think it's because people are realizing that it is a very resilient sector. It has ton of tailwinds, and there continues to be strong demand across bookings and pipeline with the end customers and end users.

Marc Ganzi (CEO)

Yeah, I think that's right. I think that the, you know, again, as back to that question we got a little bit earlier about the Tale of Two Cities too. I think, you know, what we're seeing is high-quality digital assets, you know, are gonna trade it at a premium. I mean, we saw, for example, euNetworks deal get done. We saw Mubadala put some capital in a fiber deal. Both those valuations, Jacky, were really high. We don't have perfect color on the valuations, but we've been told that those values were for high-quality assets held in. I think, look, Vantage Europe is a great example of that, right? We effectively got that done at a, you know, at a low five cap rate.

When we say that number, investors look at us and go, "Wow, that's an impressive outcome," in light of the fact that, you know, the world is in a turbulent place. There's an appreciation, I think, for high-quality assets.

Jacky Wu (CFO)

Yes.

Marc Ganzi (CEO)

I think that's what you're seeing today, Matt, is that if you have an asset, it's 98% investment grade, 15-year contract, CPI escalators, utility pass-throughs, and you've got great inflation protection, some investors will say, "Hey, a 5%-6% cash-on-cash yield is exactly what I want right now." That actually has more certainty than treasuries in some respects.

Matt Niknam (Director of Equity Research)

Mm-hmm.

Marc Ganzi (CEO)

I think the other part of that deal was those data centers are roughly mid-80s% occupied. There's incremental leasing that's coming in, so that drives returns as well. You've got the opportunity to generate a 12%-14% IRR on an asset that literally has no risk.

Matt Niknam (Director of Equity Research)

Mm-hmm.

Marc Ganzi (CEO)

I would offer that, you know, investing in cloud infrastructure is about as safe a bet as you're gonna make today in this environment. Value will continue. I think this is a question, Matt, that you and I will go through the rest of this year. You'll continue to ask us how are public multiples holding up, how are private. You're tracking public, and I'm tracking private. So far through the first quarter this year, the assets that the businesses we're selling are getting good value. We've also been very clear that there are some assets we have strategic reviews going on right now, where we're gonna sell some things, and there's some assets we're buying. I think the buy market is getting better.

Jacky Wu (CFO)

Yep.

Marc Ganzi (CEO)

The sell market is holding up if you have high-quality assets to sell. The good news is in a portfolio like ours that's high quality, values are holding in. You saw that in our quarterly marks. We didn't have a write-down in any of our valuations. It was a slight mark-up. Not a lot, but it really shows in one of the toughest quarters in a long time. Our portfolio actually got marked up. You know, again, it wasn't a lot, but it was key to say we defended our valuations mostly because of leasing. Matt, you know, when we're valuing our portfolio, it's public comps, private comps, and discounted cash flows, DCF. Our DCFs are way up.

Matt Niknam (Director of Equity Research)

Yeah

Marc Ganzi (CEO)

Year-over-year, because the organic leasing and the escalators. What kept our portfolio cranking in Q1 of this year was core organic growth. Not having a lot of leverage, but delivering strong results in leasing, taking advantage of our escalators that are CPI-based, we had a very strong quarter in terms of performance at the operating company level.

Matt Niknam (Director of Equity Research)

Got it. Just on the we talked about the broader set of institutional LPs you were targeting. Just curious if that's embedded within the corporate and other overhead targets you had referenced on the last call.

Marc Ganzi (CEO)

No. Mm-mm.

Matt Niknam (Director of Equity Research)

Okay. We can maybe take that offline. I appreciate that.

Operator (participant)

Next question, Jason Sabshon with KBW. Please go ahead.

Jason Sabshon (Equity Research Associate)

Hi. a couple questions first-

Marc Ganzi (CEO)

Sorry, Matt. Matt, one thing. I misunderstood the question. The fundraising team, just so you know, that G&A is in IM. To be clear. Where we allocate those costs is related to our investment management business 'cause they're the ones raising all the capital. Sorry if we weren't clear about that. Apologies. Go ahead. Next question.

Jason Sabshon (Equity Research Associate)

Hi. Are you guys seeing a broader audience for digital infrastructure given the correction that's playing out in the traditional commercial real estate sectors? You know, CRE service companies like CBRE and JLL, they've made infrastructure and technology a focus area, just wanted to hear your perspective on that.

Marc Ganzi (CEO)

Sure. Look, we do a lot of work with JLL and CBRE. Bob Sulentic is a partner of ours. We use them on our fund management services side. Their CBRE Caledon division puts capital into our funds and is a co-investor in Vantage SDC and some other things. I give CBRE a lot of credit. I give JLL the same credit. Both of them have been very focused on digital transformation and how it impacts commercial real estate. I think CBRE's push into investing with us side by side is a great example of that. They recognize that digital is a big part of, you know, what they are going forward. Both CBRE and JLL have data center advisory services. They do a lot of really good work around the data center space.

It's a recognition, to be honest, that commercial real estate's changing. A big part of commercial real estate is the data center space. Why? Because those are commercial tenants. They're signing long-term leases. Ultimately, you know, data centers, you know, particularly in the hyperscale and the tier five private cloud environment, those are real estate businesses. You know, we own the land, we own the building, we manage it, tenants sign leases. At the end of the day, yes, it is mission-critical infrastructure to the cloud and to the private cloud. Fundamentally, the tenants of that business model are real estate. Land, permitting, entitlements, buildings, PP&E, leases, all the accounting related to data centers is real estate based, as Jacky knows. I think, you know, with commercial real estate changing, you're gonna see these advisory firms change and adapt.

They have to continue to stay alive. It's a thoughtful question. Appreciate it.

Jason Sabshon (Equity Research Associate)

Yeah. Thank you. Then secondly, what are your current thoughts about complementary opportunities in traditional infrastructure and clean energy?

Marc Ganzi (CEO)

Well, look, thank you. That's actually a big part of what we're doing at InfraBridge. I think one of the great things that we saw in the AMP acquisition was the ability to go attack, you know, the renewable energy space. I think I've outlined for investors over the last year how important it is. Switch, you know, a lot of why we did Switch is we really liked Rob's forward-thinking approach to having 100% renewable data centers. That is really important to our customers, we're spending time around, you know, the renewable space because we know that the future of the business is going to be embedded on the notion that we can create power that doesn't take out of the carbon footprint, you know, out of this planet. This is really serious.

I mean, this is something that ultimately is gonna drive performance for us long term. We talked a little bit about AI at the beginning of this call today, you know, we think about the last 10 years in the data center space was built building, you know, public cloud. You know, probably $4 trillion-$5 trillion of infrastructure embedded in building the public cloud. What we know about AI going forward is that it takes up three times more compute. Imagine we've spent the last 10 years building public cloud, and we're still building it today. We're not finished building the public cloud. We've just started really building private cloud in the last three to four years, the work that Switch is doing. Now we have this opportunity to go build out AI infrastructure.

You've got four incredibly well-capitalized companies all running at this hard, whether it's Microsoft through ChatGPT, whether it's Amazon, whether it's OpenAI with Google, and of course, you know, the work that Meta's doing. They're all racing to go build this infrastructure in an environment where interest rates are high and capital's more constrained. Then you put on top of that that we need three times more the compute, the lift is big. We'll continue to update investors on this over the next couple of quarters. What we also know is that the power that is needed to drive AI and these new initiatives, there's not enough power sufficient in the United States' grid to accommodate it. We have to come up with alternative sources of energy. Same problem in Europe.

Whether it's wind, whether it's solar, whether it's other alternative forms of energy creation, we're looking at everything right now. We have to. This is an absolute necessity for DigitalBridge going forward, is having access to renewable energy to power, you know, the next generation of technology.

Jason Sabshon (Equity Research Associate)

Great. Thank you.

Marc Ganzi (CEO)

Thank you.

Operator (participant)

There are no further questions. I would like to turn the floor over to Marc Ganzi for closing remarks.

Marc Ganzi (CEO)

Well, look, thank you everyone. We really appreciate everyone's time and diligence on DigitalBridge. We recognize this quarter was an important quarter for us. As I said at the onset of this conversation, there are really three things that matter at this point in time. First and foremost, we've gotta continue to raise capital. We're doing that both in debt and equity, and we've made tremendous progress there. Two, I've made it a key priority to maintain our liquidity and de-lever our balance sheet. We did that in this quarter, paying off the converts. We have a strong liquid position, and we're gonna continue to preserve liquidity to be opportunistic go forward. Three, we've gotta perform. Performing is performing for customers, performing for LPs, and performing for you, our public shareholders.

To do that, we've gotta obviously continue to grow our portfolio companies, we've gotta continue to show up for customers, and we've gotta continue to be responsible and prudent with the money that you give us, and we're making that happen. We took cost out of the business in terms of our run rate G&A over $9 million in cost out of the business in the first quarter, and we're gonna continue to be thoughtful about how we spend your money and ultimately drive this business towards an earnings-based model. That's the key. Cash flows are what drives great businesses in these environments, and that's what we're doing at DigitalBridge. This was an important quarter. It was a foundational quarter.

We're really excited to play the next three quarters out with a very clean narrative and a clean story, and we're looking forward to having conversations with all of our shareholders, over the coming weeks to talk about the things that we're doing. It's an open invitation. Please, reach out to Severn and our team if you wish to have further conversations with us. I welcome every conversation with our public shareholders, and, I wanna thank you for your patience. I wanna thank you for your support. With that, we'll end the call today. Everyone, have a great day. Thank you.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.