DigitalBridge Group, Inc. (DBRG) Earnings Call Transcript

Greetings, and welcome to the DigitalBridge Group First Quarter 2023 Earnings Call. [Operator Instructions] 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.

Good morning, everyone, and 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 and 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, and 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 3, 2023, and 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 31, 2022, and our Form 10-Q to be filed with the SEC for the quarter ending March 31, 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?

Thanks, Severin. So today, let's start with an update on our key 2023 priorities, the 3 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. And 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. So let's detail fundraising and our simplification progress before we get into the financials. Next slide, please. As you know, scaling FEEUM is our #1 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 and co-invest or/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 pay and co-invest alongside of some of our most critical platforms, including GD Towers, Switch, [indiscernible] and Vantage. As you know, many of our anchor investors utilized their fee-free co-invest allocation last year. So 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 2 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. So 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 sight is deconsolidation. It is the #1 thing we talk to with investors today. So here we are, the final stage of the DataBank recap. It's in flight and it's on track to wrap up this summer. And 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 noncontrolling investment level debt off our books and results in tangible cost savings in managing our business. This, plus paying off the convert, 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 call over 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. So Jacky, over to you.

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 Shareholders 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 noncash 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 the 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 interest for total proceeds of $202 million, which eliminated $7 million of dividend income in the quarter, but 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 2 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 1Q 2022. The year-over-year decrease was the 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. However, 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. And 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 to $237 million, and fee-related earnings increased from $73 million to $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 power 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. And 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 allocation 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 offering 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 the start of the year. DigitalBridge's 3 statement financials are now healthier and significantly simplified, certainly relative to the very complicated structure, Marc and I inherited 3 years earlier, and 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 offerings asset. And with that, I will turn it back to Marc.

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 2 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. And 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 and building some of the most high-profile, high-quality platforms in the digital infrastructure space, but it also creates new opportunities for us as we deploy capital going forward. Next slide, please. So in the face of a dynamic macro environment and the dispersion we are 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 a 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 is creating for us and 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 catalyzed solid returns and steady growth in discounted cash flows. Next slide, please. So to start, you have to form capital effectively. And 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. But 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. And 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 5, 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. So in addition to having the right people, 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 of 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 LP's diversified exposure for the sector. And 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. So I talked about the tale of 2 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've 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 3 to 4 years. Knowing what you were buying and then 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 and then most importantly, in great sectors, towers and private cloud data centers. At Vantage EMEA, we signed a very successful recap, valuing a collection of stabilized assets of $2.7 billion, an attractive valuation that will generate carried interest to [ Ginger bid ] 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 cost. 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. So second, what's interesting today is market conditions have created opportunities once again to find value in selected sub-verticals that we opted not to invest in during the peak cycle over the last 3 to 4 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 3 to 4 years. This has allowed us to just 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 and the difference between a stabilized hyperscale data center assets 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 markets 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 maybe 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 subvertical where the company is executing well. And third, buying and lending below replacement costs. That's always been a great value proposition for us. And then lastly, executing consolidation plays. So just as importantly, we're also not interested in bad businesses where they're trading had 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. So 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 5 continents across all the verticals in 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. And finally, in Asia, our newest geography, we're spending nearly $700 million on greenfield data centers, building out Edgepoint Southeast Asia Tower platform and [indiscernible] fiber network. We love to build. It generally powers the best returns, and 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. And 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 4 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've 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 and safety. 43% loan-to-value, 78% of our debt is fixed and we have over 7 years of remaining average tenor across these facilities. This is really an impressive scorecard and shows our commitment to managing our balance sheet in a fiscally responsible manner. Next page, please. So 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 because, look, the work we do at DigitalBridge matters. And our team has been on the front end of every major technology migration path for the last 3 decades, 2G to 3G, 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 and now the race for the commercialization of artificial intelligence. We sit in a unique position, and we built some of the most mission-critical infrastructure in the world and 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. So 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 Instructions] Your first question comes from Michael Elias with TD Cowen & Company.

Two, if I may. 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? And then second, in the session, you talked about high-quality platforms. 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?

Well, good morning. Thank you. so 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 monthly -- in our Monday morning meeting is sales pipeline depth. And 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. So this notion of demand slowing down on hyperedge, which is what DataBank does and on hyperscale, which is what Vantage does. And then, of course, private Tier 5 cloud environments, which is what Switch does. So all of those companies, Michael, are massively up year-over-year, okay? So this is Q1 we're talking about, Q1 2023. Just to 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 megawatts. Today, that leasing pipeline sits north of 500 megawatts, okay? Just to give you a sense of what's happening at Switch which is very secure and workload environments, 100% renewable energy, in great locations that are candidly perimeter markets that are alternatives to Santa Clara and Northern Virginia. So 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 operator C-RAN, O-RAN deployments and now the initial deployments of AI. And then lastly, Vantage, that leasing pipeline also up year-over-year. So domestic leasing and hyper edge; public cloud and private cloud, which are the 3 spaces that we occupy with 3 of the best platforms are year-over-year up. Revenues are up, EBITDA is up and leasing is up. Those are the 3 metrics that you need to be focused on. Any intelligent investor should be looking at those things. And that's what's happening. Those companies are outperforming their market conditions. They're winning the jump balls between them and other competitors. And 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. But secondly, we're recycling capital. We have over 400 megawatts 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. So this is a major, 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 going to play a year ago, if you recall. I said we're going to have a recession. I told this to all of our LPs a year ago. And I said, this is when you find out where the good teams actually step up and get it done and other folks sort of attract and they try to weather the storm or you lean on your front foot and you go play offense. What we're doing right now is we're playing offense. And our customers meet our capabilities; they need 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 going to continue to migrate to the things that we were doing. And that decision in that call was correct. And so now we're funding that CapEx, and it's all success-based CapEx. And the reward is you get 10-, 15-year contracts with investment-grade logos with great CPI escalators, with inflation protection, cost pass-throughs. And so we're seeing incredible single-tenant yields like we've never seen before. Much how it played out in '09 and '10 in the tower space. If you had capital and you have the ability to build, it was your advantage. And so we grew through that cycle in '09 -- 2009 and 2010. We grew a lot. And so what you're seeing right now is the conviction call we made a year ago now playing out at the operating companies. And that took a little bit of foresight and it took a little bit of courage. And I'm sorry, I lost the second part of your question because I got a little excited.

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

Look, I think Vantage has 3 businesses, Asia, North America and Europe. Asia is producing really well. It's our youngest business. It's less than 2 years old. Vantage North America, I said earlier, a lot of leasing demand right now over 400 megawatts of new opportunities that have come into the funnel in the last 90 days. Vantage Europe sits at over 400 megawatts a new opportunity. Both of those businesses, Vantage Europe and Vantage USA 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 2 permanent capital vehicles, Vantage SDC, which a portion that sits on our balance sheet, a great set of stabilized assets. Now we've created our Vantage Europe stabilized platform. And so 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 really -- 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- to 15-year contracts with investment-grade logos. And they're looking for a 12 to 13 IRR, but they're looking for a 6% to 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, but 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 mid-80s occupied. So we are -- we have incremental leasing, as you've seen at Vantage SDC. And so we believe Vantage is the premier hyperscale data center owner and developer in the world today. What Sarel and his team have built in 5 years is incredible. If you go back 5 years ago, we bought that business for $1 billion -- a little over $1 billion from Silver Lake. And now today, on a global basis, it's hard to put a value on it. But on a consolidated basis, if you roll up all the EBITDA from Vantage Asia, Vantage U.S.A. and Vantage Europe, it would be well, well north of somewhere in the order of magnitude of close to $500 million, $600 million of run rate EBITDA. So it's a business that's probably worth about $15 billion on today's valuations, which have come down. So creating that $14 billion of value in a period of 5 years was not easy. But 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. So we're very happy with what Sarel has done. It's a great business, it's a great company, and it's one of 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 Sarel is not that different from what we're doing at Brazil. It's not that different from what we're going to be doing with AMS and Kuala Lumpur. We've got great businesses, great CEOs, but most importantly, we have great customer relationships. When we take over a platform, we could go deep and execute with customers on a global scale.

Next question, Dan Day with B. Riley Securities.

So first one, just I think we all understand the recap process, the time line for DataBank fairly well at this point. But 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 the stub like it seems like you plan to do with DataBank. And then 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 2, just whether you think you could recoup that or not into sale.

So great question. Look, DataBank has been a fantastic investment for us. We've got $218 million into that deal today. We've created a tremendous amount of value in that business. And obviously, the $6.2 billion headline valuation created an incredible uplift for our public shareholders. Today, we're holding that at about $480 million today. So it's a tremendous amount of value that's been created at DataBank, Vantage SDC $218 million is where we're holding that today. And I think the 2 assets have different flight pass. So 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. A lot of investor appetite for stabilized U.S. data centers that are producing effectively a high 6, low 7 yield. And even with treasuries where they are today, that's still pretty attractive on a risk-adjusted basis. So 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. So that process is going well. Jacky 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 1. We shut that fundraising down for a period of 6 months. We had a great first closing with Swiss Life EDF and a few others. And now we are moving into the last phase of capital formation there, and we're forming capital right now as we speak. And so to be clear, that is a continuation fund that had an open fundraising period until the end of the summer. And the way we structured that was it allows us to take in investor capital over time. Where Vantage SDC, we took the capital in many years ago and that's now been closed, and so what we're doing is we had to reinitiate a new capital formation plan. So very -- 2 very, 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. When we were out 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 to $300 million of EBITDA by the end of this year. So the growth has just been absolutely meteoric at DataBank. The team have done an amazing job. Being in these Tier 2 and Tier 3 markets where we have hyperedge workloads. We talked about their leasing backlog being up over $380 million in annual rent is the leasing backlog today, that's double what it was last year. So 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 success story. But 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. So we have the ability to raise another $600 million of capital into the continuation fund. We're going to do our best to raise that. And ultimately, we will have a position that will be left. If we raise the full $600 million that will probably get us down to a position, I would say, probably about $200 million will be the position if we raise the full $200 million -- so no, $300 million gets us to the -- so if we raise 600, we'll have about 300 left, we've got to raise $200 million to deconsolidate, that's the key metric for public shareholders. And again, I'll say it again, we continue to take subscriptions in. We continue to be very, 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 and we feel very good about where we are in DataBank. I'll leave it there for today.

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

Yes. So as soon as we have both of these assets deconsolidated, we will host the Investor Day. So if I was just looking -- I can't give you a specific time. Severin is looking at me with a big smile right now. But it will be on the back half of this year, second half of this year, we'll have an Investor Day. And we're looking forward to sharing with everyone the final results of the deconsolidation and of course, an update on fundraising, which we're happy to talk about today. And then, of course, just our leverage profile, which we're very delighted about where we are and our Jacky and I 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. And inside this quarter, we're making great, great progress on all those initiatives.

Next question, Ric Prentiss with Raymond James.

A couple of things. Obviously, I think we're all looking forward to moving pieces starting to slow down a little bit. But Jacky, I think in the quarter, you called out a couple of things to make sure distributable earnings took a hit because of the wellness, but 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 year or are there more of these moving pieces onetime or is that happen?

Yes, sure. This is the last quarter in which we have some cleanups. And 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. So absent that, on a go-forward basis, you'll see that even just normalizing for that, we're already at positive distributable earnings.

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

Yes, sure. So on the carried interest side, that is simply associated with the fact that we marked up our funds about 1%, but then relative to the prep of 8% that we book a noncash 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. So there was a little bit of an impairment above $10 million worth for BrightSpire itself, but that didn't impact our carried interest going through operating. But what we did do was it does impact distributable earnings relative to the prior quarter since we would have recognized the BrightSpire's dividends about $7 million a quarter in prior quarters.

I think the key here is, -- Ric, the key is here, if you come up to 50,000 feet 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, 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, on the wellness note, we can't be more clear. We have strong rights. We have an inter credit 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. So we made the decision that this was the right time to do it. It's been already a fairly turbulent year in broader markets. So 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. Now 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. But I think the reality is our investors are going to appreciate the next 3 quarters being clean, us having strong EPS and distributable earnings and 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. And so this really for us was the last of the -- what I'd like to call, colony cleanup on L3. That's now done and it's behind us. And so we feel convicted around that.

Good to have the cleanups done. Two more for me. One, I think we saw Form D get filed last week about DPP3 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 the Form M seems to suggest to your point on fundraising that the DPP3 is closer and closer.

So look, it's always fun when these filings come out, and we're not allowed to be incredibly transparent with you guys. So 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 kind of tied until next quarter. But what we can tell you is the first commitments are in. You are correct, there were some commitments, that filing was related to some investors in Korea. And so I think the good news is, 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 going to see in our second quarter is the fundraising team that Kevin Smith and Leslie Golden run have 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. And 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 II. And now you go to this new strategy, and we've got a sales team in place there in Asia now 5 people, fundraising, and they're having tremendous success with new logos and as we think about some of the first commitments that are rolling in, getting new logos in the first phase of a fundraising process, usually, you just get re-ups. So the fact that we're getting re-ups and we're getting new commitments, to me, is very exciting because for us to achieve our objectives of what we want to do this year, the re-ups are important. And as we said, we think we're going to get 90% to 92%, 93% re-ups in this new strategy, but it's really the $30 billion of new capital, Ric, that we're talking to, the over 200 LPs that were not in Fund I and Fund II that are working with us on the new strategy, that's where we think we have the momentum. Over $30 billion 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 going to 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, and that's because 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.

Last one for me because I wanted to make sure we got the clean quarter fundraising the DPP3. Slide 20 is an interesting slide. That's where it 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? And add there, if you were to do a similar chart with all asset managers, how do all asset managers compare that slide is there in-favor and out of favor all asset managers, but just trying to think of what closes that gap? Why is the gap there? What closes the gap and how is all the assets kind of look in that chart?

As always, Ric, you're asking the right question. So let's start out with digital infrastructure. The out-of-favor stuff is stuff that's just aging in its legacy assets. And I don't like to pick on certain companies, and it's not my job to do that. But 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. So 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. And so when you have a 40-megawatt opportunity with someone like a public cloud player that starts with an A, and you've got a data center that only has 6 megawatts of power, you're not going to be able to force 40 megawatts into a 6-megawatt data center. Now if it's a beautiful brand-new data center sitting in Blufdale, Utah, and there's 60 megawatts of power, and it happens to be DataBank, and we're doing a jump all against the legacy Colo data center that had 6 megawatts, we're winning that jump all, Ric, 100% of the time because we have the land, we have the power and we have the ability to deliver for the customer. So owning new data centers that were built literally in the last 3 to 5 years, like what was done at DataBank, like what Sarel has done at Vantage and what Rob is doing at Switch having new state-of-the-art inventory with power density that can ultimately fulfill what the customer is looking for and our ability to deliver that space in the next 9 months, that's competitive advantage. And so that's in-favor, right? Tier 5 private cloud, public cloud Advantage and hyperedge with DataBank, those are the assets you want to own in this environment. We own them, they're performing and the leasing results are now showing and manifesting themselves. So that's really the tale of 2 cities in the data center space. You can't take a 20-year old data center and make it a 2023 perfect cloud data center, unless you're going to level the entire data center, go buy a bunch more land, rezone it, get a new will-serve letter. And so these businesses that own these aging assets are having this sort of 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. And the same thing in the fiber space. I think you -- Ric, you and I have talked about it for 3 years at your conference in Park City. I stood up in front of the room 3 years ago at your conference. I said, "Look, we're not investing in resi fiber, we're not going to spend 20x 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 are 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. And 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 a risk that is really attractive. Much like Ric, when you and I were around in '02 and '03 when the CLEC space repriced, when the Sprint affiliate and the AT&T affiliates repriced and the Tower sector in '09 and '10 when towers repriced. This is that window. That window is opening up. And so 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." But 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 '21 and '22. 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. So we're excited. We're open for business. We have new capital. We've 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. And so 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, I didn't answer your second question, sorry. Now tale of 2 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 and now we fixed all that. So -- once we get through deconsolidation, we're going to be levered at about 2.3x to 2.2x. We'll have $300 million of securitized debt. That's the only debt we'll have. And so it makes it really easy for investors to look at our leverage profile and say, "Well, DigitalBridge has $300 million of securitized debt, it's a fixed cost, it's not floating." And by the way, we have this incredible alternative asset management business that's growing north of 30%. So we think the rhythm for us and the cadence gets a lot easier as we deconsolidate, as we continue to fund raise, we continue to take cost out of the business. All of these things are working for us. And ultimately, what that means is cash flows. Free cash flows, EPS and we become an EPS-driven story. That's what investors want to see from us, and that's what we're doing. So we'll close that gap. 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 we think we can move up into that level on an FRE multiple. And 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, but that's the opportunity for investors to jump in now and join DigitalBridge.

Next question, Eric Luebchow with Wells Fargo.

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 M&A or other IM platforms, paying down preferreds, repurchasing stock, anything else that's high up on your list?

Yes. Thank you. Nice to hear from you. So look, this may sound a little boring, but we'll continue to opportunistically buy the preferreds when it makes sense. Jacky has been leading that program with Severin and they're doing a good job. And we bought some in the last quarter and hopefully, we'll get a chance to buy more in this quarter. And so we're being incredibly selective. We do have an internal rate of return that we're looking for on those preferreds. And there's an IRR where we're a buyer and there's an IRR where, candidly, we're going to hold them. And so 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. And there are some folks that we like that fit our culture. And for us, look, at the end of the day, it is a culture fit, right? We are in the people business. So finding people that sort of have our drive and our motivation for building great companies and our passion, that's not easy, but 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 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. So this is why we're having success in fundraising where we're having success in raising debt capital and why we're having success in selling assets as well and buying assets. So in our little corner -- our little street corner of digital infrastructure, we have that scale, and we have that size. And so I think the benefits of scale will manifest itself this year. You're going to see it in our financial results and you're going to see it in the performance of the company. And 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 2 years, is to turn this into a very simple business that creates earnings for investors. That's it. So in terms of capital allocation, certainly, we'll buy back reps. Certainly, if there's an opportunity to buy back common at the right price, we'll do that. We've demonstrated that time and time again. And of course, we want to 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 at 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. So now you're seeing that show up in the numbers in this quarter. So good question. Thank you.

Yes. And just one more, Marc, for me. Just wanted to check in on your Towers business, it looks like leasing was up 26%, which obviously seems pretty impressive, especially given a lot of tower businesses, at least in the U.S. are slightly more mature. So maybe you could kind of disaggregate how those are performing across the globe, are you seeing that strength? And it certainly seems like in the U.S., at least people are a little worried about we might start to see a downturn in leasing in the next 6 to 12 months, in particular, with one carrier who's showing some signs of distress. So any kind of commentary on that would be great.